Governor signs oil tax credit bill

Posted: Thursday, June 12, 2003

JUNEAU (AP) Gov. Frank Murkowski has signed into a law an oil exploration tax credit he hopes eventually will bring more oil into production and more dollars to the state.

In the short run, though, the bill is projected to cost the state $50 million a year, and it's possible that cost could run as high as $100 million a year, administration officials say.

''Why is this incentive necessary?'' Murkowski said. ''Simply because Alaska is no longer competitive. We don't see the capital being invested here because other oil regions are offering better incentives.''

He signed the measure Wednesday at a Kenai Chamber of Commerce meeting.

Several oil companies that do business in Alaska said Wednesday they don't know yet whether they'll drill more wells as a result of the credits.

Mark Hanley, Alaska public affairs manager for Anadarko Petroleum, said the company is analyzing its acreage to see if it has prospects that would fit the criteria.

''Clearly it's a nice incentive,'' Hanley said. ''I would think it would encourage some drilling that wouldn't otherwise occur, whether that's with us or somebody else.''

ConocoPhillips Alaska and independent oil company EnCana also said they are still evaluating the incentive.

''It's something we're looking at pretty hard right now,'' said Dawn Patience of ConocoPhillips.

House Bill 185 provides a severance tax credit of 20 percent of the cost of exploration wells drilled more than three miles from an existing well. Explorers can get a 40 percent credit for wells drilled more than 25 miles from existing oil production facilities.

The tax credits apply to work done between July 1, 2003, and July 1, 2007. Credits can be sold by companies that don't pay severance tax to those that do pay, and can be applied to tax bills starting July 1, 2004.

The bill passed the Legislature by wide margins, despite being introduced just a little more than a week before the end of the session.

Murkowski, who campaigned for governor on a platform of filling the state's fiscal gap with resource development, argued the state must do more to spur exploration because it is not competitive with other countries.

Rep. Beth Kerttula, D-Juneau, was one of a handful of legislators who voted against the bill. She said it probably makes sense to offer an incentive for exploration, but she was not comfortable voting for a break of up to 40 percent without more detailed analysis than the administration provided.

''We should have had data, we should have had hard economic analysis,'' Kerttula said.

The Department of Revenue estimated the incentive would cost the state money through 2007, but by 2020 the state could earn a 17 to 34 percent return on that investment. That assumes the tax credit spurs $500 million of investment, which results in 500 million barrels of new oil.

The administration also handed out a sheet of paper listing 22 countries or provinces, ranging from Azerbaijan to Alberta, Canada, and the percentage of exploration costs the government picks up in those places.

Alaska and the Gulf of Mexico tied for last place on the list, with the government picking up just 35 percent of the costs through federal tax deductions.

The administration attributed that information to Pedro Van Meurs, a consultant who works with governments on setting petroleum-related fiscal policies.

Kerttula dismissed the sheet as ''a bunch of baloney,'' because it did not take into consideration the geology of the different regions or their political systems.

''You don't have to worry about getting nationalized in Alaska,'' Kerttula said. ''You don't have to worry about your executive in Columbia getting kidnapped.''

She and others in the House Finance committee attempted to amend the bill to require the administration to present the Legislature a study next year on various incentives that could spur exploration, as well as an analysis of the effect of pipeline tariffs on independent oil producers.

Some independent producers have said a reduction in the trans-Alaska oil pipeline tariff the charge to move oil to market would do more to spur their exploration in Alaska than other incentives.

The study requirement was removed from the bill, but Dan Dickinson, head of the Department of Revenue's tax division, said the administration agreed to do the study anyway.

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