Senators representing Kenai Peninsula districts say they still have reservations about provisions of the petroleum profits tax bill they voted for May 23, and have warned there is no guarantee a pipeline will ever be built.
The Senate approved the (PPT) bill on reconsideration Tuesday. It proposes setting the profits tax rate at 22.5 percent with provisions for incremental increases when the price of a barrel of oil exceeds $50, and offers a 20 percent credit on capital investment.
The controversial measure now heads for the House, which will take it up starting May 31.
“I’m not overly thrilled,” Sen. Tom Wagoner, R-Kenai, said Tuesday afternoon. “I think it would have been better at 25 percent with more progressivity (incremental increases when the price of oil is high),” he said.
Nevertheless, Wagoner called the 22.5-percent tax rate an acceptable compromise and gave it his vote.
“Right now we have a tax system that is dysfunctional,” he said, referring to the economic limitation factor, or ELF, that reduces taxes in an effort to encourage production from marginal fields. “This is so much better than the ELF that it is worth putting in place.”
Senate Majority Leader Gary Stevens, R-Kodiak, whose district includes parts of the peninsula, said hearing from “the experts” over the last week left him somewhat skeptical about a future pipeline’s chances.
“What I came away with from those meetings is that it may not happen even if we change tax bills, change the Stranded Gas Act and sign a contract (with the major oil companies, BP, ConocoPhillips and ExxonMobil),” he said. “The fact is this gas line does not compare well with other projects around the world. The conclusion is that there is a good chance this won’t happen.”
Stevens said he doesn’t consider himself a big supporter of the major oil companies, but believes heaping too many demands and costs on them would restrict their ability to make a profit and lead them to look elsewhere in the world besides Alaska.
Neither Wagoner nor Stevens would predict what the Alaska House might do with the Senate’s version, but they warned against making radical alterations.
“There are lots of ideas on the House side,” Stevens said. “If they are anywhere near where the Senate is, we could find a compromise.”
A House version too different from that of the Senate, however, would risk the support of some senators, putting the PPT bill in jeopardy, Stevens added.
Beyond the question of finding a version of a PPT measure acceptable to both sides is how that tax would be incorporated into the proposed pipeline contract now getting a public airing around the state. The governor has proposed locking in a tax rate for decades. Not only are constitutional questions still to be resolved regarding that, Wagoner said he and likely several of his colleagues would oppose such a provision.
“I don’t see the Legislature letting the governor lock up the Legislature’s ability to tax for 30 years,” he said. “I don’t see myself going there, and there are some others I’ve talked to who won’t either. If that’s in the contract, I’m not a happy camper.”
Stevens, on the other hand, acknowledged that setting the tax rate for 30 or more years could give the oil companies the stability they want and be an incentive to building a gas pipeline.
“It seems like a long time but it’s a very expensive project, perhaps $25 billion to $30 billion,” Stevens said, adding that even corporations as large as the majors put a lot on the line with a project of this magnitude.
Regarding a proposal headed for the fall ballot that would tax producers $1 billion a year on North Slope gas left in the ground, refundable as tax credits once a pipeline is built, Stevens said it could add $10 billion to producers costs over the decade it might take to create a gas line.
“If you listen to the governor, he’s saying it makes the whole thing uneconomical,” he said.
Wagoner said there would be risks, but believes a reserves tax could get the oil companies to perform.
“You can call it a carrot or a club. It doesn’t matter,” he said.
Another huge unknown is how long oil prices will remain at today’s stratospheric levels.
“To assume oil to be as high as it is 30 years from now is just a crapshoot,” Stevens said.
In a press release Tuesday following the Senate’s action, Gov. Frank Murkowski said a gas pipeline would bring the state than $100 billion over the initial 35 years of operation and add 20 years to the life of the trans-Alaska oil pipeline because it would encourage more exploration and production on the North Slope.
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