Senate approves oil tax credit bill

Posted: Friday, May 16, 2003

JUNEAU (AP) Gov. Frank Murkowski's proposal to provide tax credits for companies that explore for oil in Alaska passed the state Senate on Thursday.

The bill would provide a severance tax credit of up to 40 percent of the cost of exploration wells.

Administration officials estimate the credits could cost the state about $50 million a year. They estimate the most the bill could cost is $100 million a year.

Supporters said they expect the bill will pay off in years to come by increasing the flow of oil through the trans-Alaska pipeline and increasing the flow of revenues to the state budget.

The state is taking a risk with the tax credits, said Sen. Robin Taylor, R-Wrangell, but he argued it's a risk worth taking.

''If you're not going to spend the money to go look, you're never going to have anything to pump,'' Taylor said.

Sen. Ben Stevens, R-Anchorage, said the investment companies must make to receive the tax credits will result in an immediate influx of jobs.

Some senators, however, said they could not vote for the bill because they did not have enough time to analyze it. Murkowski announced the proposal Monday and on Tuesday it was added to a bill dealing with Cook Inlet oil platforms.

''I really do think it is the wrong thing to do to push this through in a couple of days,'' said Sen. Kim Elton, D-Juneau. ''We need to take our time when the fiscal import is as large as it could be on this bill.

The bill would provide a severance tax credit of 20 percent of the cost of exploration wells drilled more than three miles from an existing well. Explorers would get a 40 percent credit for wells drilled more than 25 miles from existing oil production facilities.

Murkowski says Alaska isn't doing enough to encourage the hunt for new oil, compared to incentives other countries are offering.

The proposed tax credit would apply to exploration work done between July 1, 2003, and July 1, 2007.

The tax credits could be sold by a company that does not pay severance tax to one that does. Credits could be applied to tax bills starting July 1, 2004.

Administration officials do not expect to see any new money from oil discoveries spurred by the credit during the next four years. But ultimately they predict the program will bring more oil into production and bring more money to the state treasury.

The administration has presented information from consultant Pedro van Meurs showing that 20 other countries or provinces pick up more of the tab for exploration than Alaska does.

The bill also would grant royalty relief to platforms nearing the end of their productive life in Cook Inlet.

That section of the bill would allow the state's share of oil produced called a royalty payment to drop from 12.5 percent to as low as 5 percent on the inlet platforms, depending on how much their production declined.

The measure passed 17-3, with Democrats Johnny Ellis, Georgianna Lincoln and Elton voting against it. It could come up for another vote Friday. The bill would then go to the House.

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