Independents offer mixed review of oil tax changes

JUNEAU — Independent oil companies offered a mixed assessment Monday of Gov. Sean Parnell’s proposed oil tax overhaul, saying it is a good start but needs additional work.
Both the House and Senate resources committees took testimony from several of the smaller companies that are either exploring for or producing oil on Alaska’s North Slope.
Pioneer Natural Resources Alaska, Brooks Range Petroleum, and Armstrong Oil and Gas said there were positive aspects to Parnell’s plan, including a tax break for new oil and the elimination of a progressive surcharge. But they raised concerns, including how his proposal deals with tax credits.
The chief operating officer for Brooks Range, Bart Armfield, said in his presentation that tax credits have helped to keep his company “in the game.” To get to first oil on its Mustang development under the governor’s plan, the company would need an extra $123 million in funding than originally planned.
The idea, when the current tax structure was passed, was that the state would help oil companies on the front end with things such as tax credits, and share profits on the back end when oil flowed and prices were high.
The system features a 25 percent base tax rate and a progressive surcharge triggered when a company’s production tax value hits $30 a barrel.
Companies have said the surcharge eats too deeply into their profits and is a disincentive to new investment. Parnell’s revenue commissioner has said he’s seen no evidence that tax credits, which could top $1 billion next fiscal year, have led to increased production.
Parnell’s proposal would keep the 25 percent base tax rate and scrap the progressive surcharge, to the delight of industry.
It includes a tax break for oil from new fields, including new areas of the legacy fields. It would keep in place credits for exploration but eliminate credits for qualified capital expenditures on the North Slope. It gears other credits toward production of new oil.
Bill Armstrong, president of Armstrong Oil and Gas Inc., said he is a “big supporter” of Parnell’s plan but it needs to be tweaked to make it better. For example, he said the credits for qualified capital expenditures should be given more time and that the tax break for new oil could be greater.
“I think you need to make it so freakin’ stinkin’ competitive that it’s better than any other place,” he said of the tax structure, in his testimony before House Resources.
He said his company is the most active exploration company on the North Slope. Armstrong said if the current tax structure were in place when the company first started working in Alaska over a decade ago, it would not be working in Alaska.
But he cautioned lawmakers against thinking that addressing oil taxes would be a “silver bullet.” He said regulatory and permitting issues also need to be improved.
J. Patrick Foley, incoming president of Pioneer Natural Resources Alaska, said the governor’s plan would be a disadvantage to smaller, new projects and would not simplify tax calculations.
Kara Moriarty, executive director of the Alaska Oil and Gas Association, repeated her contention that the bill provides a cornerstone for significant tax reform.
She reiterated concerns she had raised before, including how the bill addresses credits.
She also said there were issues not addressed by the bill, including the six-year window that revenue has to audit companies’ tax returns and the minimum 11 percent interest rate that companies must pay for short payments.
The combination of the two is harmful, Moriarty said, and she recommended either shortening the audit period, eliminating the minimum rate or doing both.
The bill is HB72 on the House side, SB21 on the Senate side.