Alaska oil producers say tax cuts must be 'meaningful'

The Anchorage Daily NewsMarch 22, 2012 

JUNEAU — The Alaska state Senate's oil-tax reform bill slogged through another day of hearings Wednesday, this time with testimony from representatives of the three big Alaska producers who all said the tax cuts in the measure were too miserly to spur additional development.

The Senate bill's "minimal decrease" from the current tax program on oil and gas, known as ACES, "has an immaterial impact" for industry, said Bob Heinrich, vice president of finance for Conoco Phillips Alaska.

"That's not to say that the numbers don't seem big on a dollar basis -- our industry works in big numbers," he added. If oil were selling at $130 a barrel, about $25 more than now, "the reduction is almost $300 million to producers, but in the context of the total taxes paid at that price point of nearly $15 billion, it's immaterial," Heinrich said.

Gov. Sean Parnell and the Republican-led majority in the House say that ACES -- Alaska's Clear and Equitable Share, a cornerstone of Sarah Palin's administration -- is encouraging the oil industry to look elsewhere to invest its money. The progressive tax structure of ACES accelerates the state's take as prices rise, leading industry to complain that its investments here are not yielding the same profits at current high prices as they would in another region of the country or world. From their perspective, it would even be worse if prices continue to rise.

The House gave industry much of what it wanted when it passed House Bill 110 last year. The word "meaningful" has come to be used by Parnell, industry and its supporters to describe those cuts.

The bipartisan coalition controlling the Senate is much more skeptical. Its own measure, Senate Bill 192, would tax less at high prices than ACES but not make deep cuts of the House measure. It also provides some tax incentives for oil from new fields and imposes new reporting requirements to hold the industry more accountable.

The Senate has been studying the issue with testimony from hired experts, state officials, industry representatives and residents. Sen. Bert Stedman, a financial services professional and Republican from Sitka who co-chairs the Senate Finance Committee, said Wednesday the studying will continue at least into next week.

BP and Conoco Phillips had weighed in on Senate Bill 192 before, coming to Juneau last month to testify before the Senate Resources Committee, the bill's first stopping place.

Exxon Mobil didn't appear before the Resources committee, sending instead a letter. That led to an increasing chorus of questions: Would the company, a partner in Prudhoe, support or veto the pledges of the other companies to invest at least $5 billion if the "meaningful" tax cuts of the competing House bill were passed by the Senate?

On Wednesday, the bill's venue was the Senate Finance Committee, and this time, Exxon Mobil sent its top Alaska official, production manager Dale Pittman.

"For the record, Exxon Mobil fully supports both of our operators, Conoco Phillips at Kuparuk and BP at Prudhoe Bay, in their continued commitment to invest in Alaska and to pursue all additional opportunities and investments that become viable with meaningful tax reform, because we do think that's important, and we are here for the long term," Pittman said at the opening of his testimony.

Did that represent a commitment to back the $5 billion pledge? Stedman, one of the chief authors of the Senate bill, said later it didn't sound like one to him.

Pittman himself declined to speak when asked as he started down the steps from the Capitol's fifth floor to a meeting somewhere else. Exxon Mobil's lobbyist, Kevin Jardell, a former official in the administration of Gov. Frank Murkowski, tried to use his elbows to prevent a reporter from approaching Pittman to ask the question, saying Pittman was late for the meeting, then directed the question to an Exxon Mobil official in Houston, David Eglinton, who replied in an email:

"Here's our comment. Per today's testimony, Exxon Mobil fully supports both operators, Conoco Phillips at Kuparuk and BP at Prudhoe Bay, in their continued commitment to invest in Alaska and to pursue all additional investments that become viable with meaningful tax reform."

Pittman spoke to the finance committee for about 30 minutes, answering questions but declining to say how the company would respond in the field to specific changes in the tax code.

"I do feel we're woefully behind in attracting that new investment, new development, and without significant changes, we're going to continue on something rough to the same decline (in production), unabated," he said. "At today's oil prices (and) a fiscal policy that encourages development, we should be near record levels of activity in Alaska -- but we're not seeing that."

While some of the other oil company officials got into greater detail, they still stopped short of giving the committee all the information it wanted.

"Can you help us define what 'meaningful' is and 'significant' is?" Stedman asked Damian Bilbao, head of finance for BP Exploration (Alaska). "Can you help us with that, zero us in on the issue?"

"Mr. Chairman, you'll know it's meaningful when you get the results you want -- the results are going to be increased investment, increased production," Bilbao said.

Stedman and other members of the committee agreed that the tax rates in the Senate bill needed fixing, at least when oil prices are high. Stedman suggested that somewhere around $130 to $150 a barrel, the tax rate should stop increasing. That way, oil producers would keep a greater share of the money at those prices -- something like $4 billion a year, said finance co-chair Lyman Hoffman, D-Bethel, if the cutoff was at $130 and the price rose to $150.

"Yes," said Bilbao, "$4 billion is a significant amount of money."

But he and the Conoco Phillips representatives said they wanted to see the change at $100 or less, not $130. Stedman said he wasn't inclined to go down that far. One of the state's consultants said that Prudhoe Bay and other fields were plenty profitable at current tax rates and prices, he said.

Nearly all the testimony and questions dealt with matter of tax, investments, production and the like. But just before the Conoco Phillips representatives concluded their testimony, Sen. Donny Olson, a Democrat and physician from Nome, changed the subject: The committee shouldn't lose sight of what oil from state lands provides for the people of Alaska through oil taxation, especially for its poorest citizens and especially as oil prices rise.

"What I have been told by the constituency that I represent is that as the price of oil goes up, we need more and more help for what the state has the responsibility to give to us," Olson said. "They should look at things like water and sewer, where a significant percentage of people out there still don't have a flush toilet that they can go to. When you have airport maintenance, public safety, education, and the schools, including the clinics for the health care delivery system out there, their mandate to me is, make sure you keep progressivity in place because as the price of oil gets higher and higher out here, we can only afford to buy stove oil in small amounts because we can't afford a full tankful, you make sure we have the ability to have those social services that the state is responsible for out there. That's the reason they're so adamant that progressivity is unchanged, and I think they're correct."

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