Bradners'

Alaska Legislative Digest

October 26, 2007     

Oil and Gas Bulletin

Comments? E-mail: timbradner@pobox.alaska.net

Roundtable discussion brings industry, state, consultants together

Legislators continued work Thursday on Gov. Sarah Palin’s bill to increase state taxes on oil and gas production. The House Oil and Gas Committee held a “roundtable” discussion that allowed industry, administration and consultants to be together at the table to answer sometimes pointed questions from lawmakers. Chairman Kurt Olson began by asking what elements of the governor’s tax bill are “deal breakers” or “must haves.” Claire Fitzpatrick of BP said “the whole bill: is the problem and that her company supports the existing Petroleum Profits Tax (PPT) as it is. Kevin Mitchell of ConocoPhillips said there is no such thing as a deal breaker, but whatever the Legislature passes will have an impact. Mark Hanley of Anadarko Petroleum said the net profits tax increase is his biggest worry followed by the changes to the “progressivity” formula which raises the tax rate as oil prices rise, and the elimination of the “transitional investment” exemptions which allow tax credits for prior year investment.

Rep. Mike Doogan (D-Anch.) asked what the state “is getting” (i.e. guarantees of investment) in exchange for a net tax system and investment tax credits, which is intended to provide incentives for investment. Rich Ruggiero, of Gaffney Cline & Assoc., consultants to the administration, said the net tax system done right provides stability and is self-adjusting with oil price changes in ways a gross tax cannot be.

Gaffney Cline consultant “aghast” revenue department has no access to cost information

In a lengthy discussion over the accuracy of the administration's cost and revenue estimates (the governor’s claim of an $800 million shortfall) Ruggiero said he was “aghast” when he first learned how little information the state requires from producers and said Alaska was the only place he has worked in the world where the government does not demand the producer data it needs. He added that the industry “did not help” the administration clarify possible discrepancies in the administration’s projection of an $800 million gap between 2006 and 2007 revenue estimates from PPT.

Rep. Nancy Dahlstrom (R-Anch.) asked why the Palin administration’s projections on the PPT in 2006 were so far off compared with the spring 2007 estimate. Galvin said he does not yet know. Industry representatives noted that with PPT regulations still being written reporting requirements have not been clear. ConocoPhillips’ Mitchell said the administration’s 2006 projections were based on 2004 data and costs have risen since then. Galvin said the producers have now agreed that current forecasts of costs by the revenue department are accurate reflections of information industry has provided. BP’s Fitzpatrick said it is more constructive to look forward rather than dwell on the past.

Governor’s bill should make first move this weekend

The governor’s tax bill is scheduled to move to the second committee of referral in both the House and Senate by Monday. The measure will move from the Oil and Gas Committee to the House Resources Committee and then to House Finance. In the Senate, the Judiciary Committee is the next stop after Senate Resources, where the bill is now. Senate Finance takes it up following action by the Judiciary Committee. Substitute bills are now being drafted in both the House Oil and Gas and Senate Resources committees and the chairmen of both say they do not expect the new versions to be available before Friday night. House Oil and Gas Committee has a Saturday session set at 9 a.m. and at 1 p.m. Sunday, which Chairman Kurt Olson (R-Soldotna) said could run as late as 6 p.m. “If I don't get struck by lightning we'll have it to Resources by Monday,” Olson said. He said he does not expect many amendments to be offered.

Senate Resources Chairman Charlie Huggins (R-Wasilla) said his 10 a.m. Saturday session could start later, depending on when the substitute bill is ready, but that he plans to move the measure that day. The committee has no session scheduled for Sunday. The House Resources and Senate Judiciary Committees both have hearings on the bill scheduled for Monday at 9 a.m.

Oil tax debate: Where things stand now

A week into the special session it seems clear now that there is little appetite for junking the existing net profits tax structure and returning entirely to a gross revenues tax, the system in place before the net profits PPT was adopted in 2006. There is still talk but most lawmakers seem to have accepted industry’s argument that a gross revenues tax would be very destructive to high-cost projects like heavy oil. The questions still in play are whether the administration’s proposal for a 10 percent gross revenues tax on only the large Prudhoe and Kuparuk fields should be adopted, whether the overall PPT tax rate of 22.5 percent should be increased to 25 percent or higher, whether the “progressivity” escalator should be changed (to increase its tax effect) and whether “transitional” capital tax credits should be allowed for past investments. The first inkling of where legislators may come down on these issues will be in the substitute bills that emerge this weekend in the House Oil and Gas and Senate Resources committees.

Friday’s schedule

• 10 a.m. House Oil & Gas Committee: sectional review, Robert Mintz.
• 1 p.m. Senate Resources: questions for the administration.

Legislative Digest is a paid-for private subscription service. Our special session Bulletin is distributed free as a public service, and is supported by special grants from a group of subscribers. Editors: Mike and Tim Bradner. Contributing writer: Bob Tkacz.  Interested in getting the regular Legislative Digest and Alaska Economic Report? Contact: mbradner@GCI.net or fax at: (907) 522-1761.