Oil Tax Gets Questioned in House

Lawmakers in the State House of Representatives appear cautious, but open to Governor Parnell’s new oil tax plan. The bill is now being heard in the Resources Committee where members – through their economic consultants – are taking a “show me” approach to cutting taxes.

In reviewing the state’s current tax regime, ACES,  Janek Mayer of PFC Energy told the committee today that it works well for a taxing entity where its resource is being “harvested”  — where the money earned from production is invested elsewhere.  He compared the tax to “rent” where the state gets the most money it can from declining production.

One of the main competitive jurisdictions for Alaska is the lower-48 as a destination for cash.   And what we see there is significantly lower government take which is one of the things that makes it harder at the moment in the current climate for Alaska to compete within companies’ portfolios for investment dollars.

Mayer told the committee that the decision to Harvest Alaska’s oil was a decision made several years ago at the corporate level of oil companies — and it was based on conditions at that time.

Committee Co-Chair Paul Seaton (R-Homer) asked if changing the tax structure would really make a difference.  Mayer explained the decision was not abstract.  It is based on the best use of investment money at the time.

If I understand correctly, the point you’re getting at is to say this is a place the companies were taking cash out of long before ACES was in place.  And I’d agree that is certainly the case.  One just has to go back and look at the financial statements.  This was not a cash-deficit region, this was  a cash-surplus region for some time.   That’s absolutely true, and in that sense I certainly wouldn’t suggest that the imposition of ACES  somehow created a harvest system where none existed before.

Mayer said the industry has seen other changes since ACES was put in place:   oil prices are higher and technology has opened up new resources.  And the growth in the lower-48 was completely unimagined at the time.

Committee Co-chair Eric Feige (R-Chickaloon) said the Harvest Decision predates ACES and was based on a combination of factors that members need to consider.

The price of oil was obviously low, the state was feeling the pinch in the -02 -03 -04 time frame as a result.  Then as the price started to rise, the tax regime was changed to take an increasingly greater and greater take,  I guess the question to answer for us is:  What’s driving the train here?    Is it the actual field mechanics or is the tax of the fiscal regime driving it into Harvest mode when it could be something else.

The committee has scheduled two hearings per day for the rest of this week — with no time certain when it will hand the bill off to the Finance Committee.   Meanwhile, the Senate Resources Committee is not scheduling hearings until the administration presents information requested by the committee last week.

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