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In public comment on Alaska oil tax cut, Conoco wants secrecy on new-oil incentive

Alex DeMarban

When Alaska Gov. Sean Parnell signed the massive oil-production tax cut into law in May, he said it met his four guiding principles: It was simple, competitive, durable and fair to Alaskans.

But the trade association representing the Alaska oil industry now says draft regulations created to implement key portions of the new law meet none of those guidelines.

The sweeping statement from the Alaska Oil and Gas Association came in the latest round of public comments as the state Department of Revenue slogs through the thorny process of turning sections of the new law into state code.

But that was just one statement from the industry and producers -- primarily BP, ConocoPhillips and ExxonMobil -- that stand to gain $720 million in the tax cut's first year alone, starting Jan. 1.

ConocoPhillips, in its written comments, said it "recommends" that documents submitted to obtain the Gross Value Reduction fall under the state's confidentiality rules. The Gross Value Reduction is one of the sweetest of a host of incentives proposed by the new law, and would apply to newly produced oil that can be difficult to measure.   

The Houston, Tex.-based oil giant said requests for the tax break and supporting documents should also be covered under a second state confidentiality law, the one that requires that violators, such as state officials who leak information, face possible prison time.

ConocoPhillips spokeswoman Natalie Lowman, asked on Friday why the company wanted that information to be confidential, said she had nothing to add beyond the company's public comments.

Revenue officials said they can't comment on the draft regulations and the effort surrounding them.

The Alaska Democratic Caucus, in its written comment, said the information should be public. "Confidential technical information could, if necessary, be redacted, but the public deserves to be able to see the department’s reasoning as to what does and does not qualify for these valuable benefits," said the Democrats, whose members have largely opposed the new tax cut.

"At minimum, the department must be required to publish aggregated information, by unit and producer, of how much production in a given year does and does not qualify for GVR," said the letter from the caucus, signed by 12 Democrats, including vocal oil tax cut critics Sen. Bill Wielechowski and Rep. Les Gara.

Such strict confidentiality requirements have long thwarted public discussion of the generous and soon-to-be-replaced tax credits that proponents of the new law said were not working and could potentially gut the treasury.

It remains to be seen if the Revenue Department will approve Conoco's recommendation. It's now up to the department to weigh the comments -- the deadline passed Monday evening -- and strike a balance between a state that badly needs more oil production and global oil firms trying to maximize profits.  

For the most part, industry's written comments expanded on criticism issued earlier in a public hearing on the draft regulations

The peskiest problem has been how to determine what is considered new oil -- oil produced outside of already-producing areas. New oil will get the biggest tax breaks, including the Gross Value Reduction that removes 20 percent to 30 percent of oil's gross production value from being taxed.

The state is proposing meticulous new requirements -- such as round-the-clock meters on every well -- to make sure the new oil is measured as accurately as possible, and that oil from already-producing areas is not mistakenly counted as new oil.

AOGA, which represents 15 of the Alaska oil industry's top companies, expanded on its earlier arguments to say the proposed metering requirements couldn't physically be met or were so costly they could kill projects.

The group added that the Revenue Department "lacks the necessary professional expertise and experience" to either or establish or enforce such complex measuring requirements for new oil, said the letter, signed by AOGA executive director Kara Moriarty.

It wants the Revenue Department to follow oil-measuring practices already in place by the state Natural Resources Department and the Alaska Oil and Gas Conservation Commission. 

Among numerous other requests, AOGA also wants to make sure the maximum break offered by the Gross Value Reduction -- the 30 percent -- is available to new oil produced not just from state land, but from Alaska Native and federal land as well.

The Democratic Caucus said regulations related to the Gross Value Reduction and new oil could be too loosely interpreted and could drastically harm future revenue, in part because old oil could be mistakenly counted as new oil.

Those regulations should be publicly vetted before the Administration Regulation Review Committee during next year's legislative session that begins in January.

"The stakes for Alaskans are huge in this part of the regulations, and Alaska cannot afford to risk even more oil revenue due to vague or unworkable definitions," said the Democrats' letter.

The state has posted some background on the debate over the proposed regulations here, but the recently submitted comment letters were not posted as of Sunday.

Contact Alex DeMarban at alex(at)alaskadispatch.com