Thursday, January 12, 2012

State Senate to float new ideas on oil tax changes

Tim Bradner
Alaska Journal of Commerce

Most of the attention on oil tax legislation has been focused on Gov. Sean Parnell’s House Bill 110, a bill that passed the state House last year and is now in the state Senate.

State senators meanwhile are working on their own ideas for oil tax changes, which will be brought forth in separate bill, or perhaps added to, or substituting for, the existing language in HB 110.

Sens. Tom Wagoner, R-Kenai, and Lesil McGuire, R-Anchorage, are crafting a new version of Senate Bill 85, a bill introduced by Wagoner, which takes a different approach in changing oil taxes than the governor’s bill. Last year Wagoner, who is co-chair of the Senate Resources Committee, attempted a variation of a tax incentive used in Alberta, where companies investing in new development get a speedy recovery of their capital.

Wagoner spoke with other legislators at Jan. 5 meeting of the Resource Development Council in Anchorage. Speaking at the same meeting, House Speaker Mike Chenault, R-Nikiski, said he expected some version of an oil tax change to pass in 2012 and that the House is waiting to see what ideas are developed in the Senate in addition to Parnell’s proposal.

Chenault said most of the attention will be on the “progressivity” formula in the production tax, a formula that escalates the tax rate sharply as oil prices climb, as well as the investment tax credits allowed in the current law. Sen. Bert Stedman, R-Sitka, is reported to be working on his own proposal for changes to the tax. Stedman is co-chair of the Senate Finance Committee.

Wagoner said there are problems with the original version of his SB 85, so a new approach is being crafted in consultation with McGuire, Wagoner said. An idea being studied is a “tax holiday” for new oil production, a period during which there would be no state taxes on new oil that is developed.

Wagoner said he has solicited, and is receiving, technical advice from the Alaska Oil and Gas Association on the idea. AOGA is the petroleum industry’s trade association for Alaska. An oil company tax specialist, speaking on background, confirmed that industry tax specialists are offering advice through the trade association. The idea of a tax holiday on new production is not new and has proven to be effective elsewhere.

Wagoner also said he will seek legislation through a new bill or an amendment to an existing bill to extend the special Cook Inlet jack-up rig investment incentives to the Nenana Basin, an underexplored Interior Alaska sedimentary basin west of Fairbanks, where there is potential for natural gas discoveries and possibly oil.

Doyon Ltd., the Interior Alaska Native regional corporation, is now leading a consortium of Alaska companies intent on exploring state lands in the Nenana Basin. One exploration well was drilled two years ago, and although it did not find a commercial gas deposit, the information yielded confirmed the presence of hydrocarbons in the basin.

Doyon is now doing seismic work in another part of the basin and a well may be planned there if the results are favorable, but being able to use a set of investment tax credits similar to those available to new offshore explorers in Cook Inlet would greatly speed the exploration.

If gas is found in the basin, and enough of it, a 60-mile pipeline could be built to bring gas to Fairbanks.

Read more:

I will be supportive of Senate Bill 85 only if the Competitive Review Board remains in the bill. - Deborah Brollini Please listen to the audio from Sen. McGuire's comments from Senate Resources Committee on 4/4/11 (highlighted below)

SCR4: Creating and relating to the Alaska Oil and Gas Competitiveness Review Task Force

Alaska's Future: Sen. McGuire's proposed competitiveness review is important

Energizing Investment in Alberta

SB 85

SB 85: Documents (4/4/11 Competitive Review)

SB 85 Senate Resources Hearing (Audio): Mary Jackson, Staff to Senator Thomas Wagoner, and Michael Pawlowski, staff to Senator Lesil McGuire, testimony to Senate Resources on March 25, 2011.

SB 85 Senate Resources Hearing (Audio): Catherine P. Foerster, Commissioner Alaska Oil and Gas Conservation Commission, and et al and invited testimony (4:41)

SB 85 Senate Resources hearing (Audio): Invited and public testimony (3/30/11)

SB 85 Senate Resources Hearing (Audio): Michael Pawlowski, staff to Senator Lesil McGuire testimony, and Senator McGuire’s comments on the Oil and Gas Competitiveness Review (OGCR) Board. Senator McGuire asks for recommendations rather than a “no” (4/4/11 at 3:38)

Alaska’s Oil Investment Tax Structure, Establishing A Competitive Alaska, Commonwealth North, March 2011