Alternatives to Parnell Oil Tax Cut

Lawmakers today opened a two-day seminar designed to give them options and alternatives to Governor Parnell’s plan that would cut taxes for the oil industry.

Governor Parnell has set a goal of putting a million barrels of oil per day through the TransAlaska Pipeline.  The House last year passed House Bill 110 that detailed the governor’s plan for getting to that point.  But petroleum economist Pedro van Meurs said that – while the goal was good – the governor’s plan won’t work.

Of course, it is also my opinion that House Bill 1-10 does not even come close to taking a major step towards that goal.  And consequently, a more elaborate legislation would be required if Alaska indeed wants to see significant increases in production.

Van Meurs told the joint meeting of the Senate Finance and Resources Committees that to meet the governor’s goal, the state must look at all its petroleum resources as a group of options – and it must compete in each of them.   He said the state’s tax policy must change to recognize new approaches by competing countries and states – and to adapt to new companies doing business in the industry.   He called for a clear definition of the state’s tax policy – with tax regimes for each of the various types of resource in Alaska.  He has just completed a study of world wide, competitive markets and found that Alaska is the only government with a single tax policy that covers every product.

For all these countries, nations have defined what the fiscal system for gas is.  Alaska is the only jurisdiction that has not defined at least viable terms for gas.  Also, although there are terms for light oil,  There are no terms for heavy oil and there are no terms for shale oil.   If you go to any of the competing jurisdictions for Alaska today, there are terms for these resources.

He says the absence of separate tax regimes is a major obstacle for companies that might be willing to invest in Alaska.   He also explained the importance of considering the total amount of money governments take from producers.  Alaska, in light oil production, is somewhere in the middle of most of the field.  However Van Meurs said governments take different amounts for different products.  Since Alaska uses a single tax system that changes all those products into an equivalent amount of oil before taxing it, the state is not in the international competition.  He has specific goals – ranging from the government getting seventy to seventy five percent of light oil,  fifty five to sixty percent of light heavy oil,  ultra heavy and shale oil come in with forty five to fifty five percent going to government  – and natural gas from forty five to sixty percent.

That is the levels of government take.  If you achieve that in your legislation,  I think that with those levels you will be competitive for each of those resources in the international arena.

The Senate has scheduled one more day for the seminar.  By its conclusion, VanMeurs says he will have presented an overall framework for a complete tax regime for the state.