Democrats say oil tax is not curtailing investments

Posted: Thursday, February 11, 2010

The gloves are coming off in a looming legislative fight over changes to Alaska's oil and gas production taxes.

Democrats in the state House sharply criticized a series of advertisements calling for modifications of the tax sponsored by petroleum industry support companies, and said the tax is not curtailing investments by the producing companies or hiring in the industry.

"It's clear that petroleum jobs in Alaska are up, investments are up and that profits are healthy, particularly in Alaska. The Department of Revenue has clearly laid this out in their recent report on the tax," said House Minority Leader Rep. Beth Kerttula, D-Juneau, in a briefing in Juneau Feb. 2.

"We fought hard for the changes to ACES (Alaska's Clear and Equitable Share statute) in 2007. If it hadn't been for that tax change Alaska would be in a financial crisis right now. We benefited to the time of $5 billion in additional revenues over the last two or three years," because of the tax change, Kerttula said.

Two Republicans in the state House, Reps. Craig Johnson and Clarisse Millet, both of Anchorage, have introduced bills lowering the oil tax rate and Gov. Sean Parnell said he supports changes in the tax that would expand investment tax credits for certain types of oil field development work.

Almost all members of the House Republican Majority, including House Speaker Mike Chenault, R-Nikiski, signed a letter to Parnell in December asking the governor to investigate whether the tax is harming investment.

Kertulla and her Democratic colleagues in the House are willing to tinker with the tax, and consider changes proposed, but will oppose a major change because it can't be justified, she said.

Industry employment has increased by 2,000 since passage of the tax increase in 2007, she said. Investments have also increased and are expected to increase again in 2010 and 2011, according to information given to the Department of Revenue by the industry.

Rep. Harry Crawford, D-Anchorage, appeared with Kerttula at the briefing and said that rumors of layoffs among contractors for the industry can be misleading because people working on projects are laid off and rehired frequently as projects are completed and new ones started.

"I've worked a lot on the North Slope and I can tell you that it's common to work for two or three different employers during a year," particularly for union members, Crawford said.

"I worked for three different companies in the Kuparuk field one year on different projects. One year I had W-2 (tax) forms from 11 different employers," he said.

Kertulla said only one Alaska producing company, ConocoPhillips, breaks out its Alaska profits. The company reported a $1.5 billion profit from its Alaska operations in 2009, while experiencing a loss on its worldwide operations.

"Since ACES was passed in 2007, ConocoPhillips has reported $6 billion in Alaska profits," Kerttula said.

Brian Wenzel, ConocoPhillips Alaska's finance vice president, said he was disppointed that legislators don't look more thoroughly at the numbers and the bigger picture they present.

"Our return is based on major investments we've made in Alaska, including $20 billion in the last decade," Wenzel said.

An analysis of quarterly returns between 2008 and 2009 demonstrate that companies aren't enjoying increased profits when prices do up, mainly because of the tax effect, he said. In the fourth quarter of 2009 ConocoPhillips had a $536 million Alaska profit with oil prices averaging $68.03 per barrel during the period. In the third quarter of 2008 prices averaged $115.11 per barrel, but profits were about the same, $556 million.

This shows the companies were unable to capture the upside of investments when prices were good because the state tax captured most of it. This serves to discourage investments.

Wenzel also said work is slowing down on the Slope. There is now empty bed space in construction camps, and that shows fewer people are working, he said.

The oil tax debate will take place first in the state House, but in the Senate, which is controlled by a bipartisan group of Republicans and Democrats, senators don't have any appetite for taking on the issue this year.

Senate President Gary Stevens, R-Kodiak, said there isn't enough time in the short 90-day session for the Senate to deal with the question even if a bill comes from the House.

Senate Finance co-chair Sen. Bert Stedman, R-Sitka, said his committee will begin a review of the ACES tax, but that he believes attention should focus, although not this year, on the part of the tax that deals with natural gas.

The Legislature did not deal with gas when it made the 2007 changes to ACES, which focused on crude oil, Stedman said. The statute is now written in a way that will create problems when commercial gas production begins on the North Slope, he said.

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