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Parnell's oil tax proposal rewards Big Three at expense of small explorers

Pat Forgey

JUNEAU -- Alaska Gov. Sean Parnell offered a new attack on the state’s current oil tax regime in his State of the State speech Wednesday, saying that one of its key attributes for encouraging new production has been a failure.

Parnell said he wants to reduce “tax progressivity" – currently, the state tax grows with per-barrel prices and profits – but he also came out against another key part of the ACES oil tax system, one that reduces taxes for companies investing in Alaska.

Tax credits are a key part of ACES, reducing tax payments to the state when companies invest in new oilfields and other developments in Alaska. They’re worth as much as a billion dollars a year and are designed to reduce the cost of doing business in Alaska as well as to encourage new oil development on the North Slope.

Parnell said those credits haven't been working.

"Our laws give tax credits on how much money companies spend in an oil field, not on how much of that spending leads to production," he said.

Legislative testimony last year from state agencies, including the Department of Revenue, said that since ACES was adopted in 2007 there have been numerous new companies exploring for oil in Alaska, though little new oil has yet to reach the trans-Alaska oil pipeline.

As evidence ACES is failing, Parnell pointed to North Dakota, which last year overtook Alaska as the nation’s second-largest oil producing state, thanks to a boom in the Bakken shale formation. Parnell believes Alaska’s oil tax is responsible for declining North Slope production, and he warned lawmakers Wednesday night that without action, Alaska could fall further behind, perhaps dropping below California to become the nation’s No. 4 oil state.

"My friends, that's not even on the medal stand," Parnell said.

Parnell has proposed a new oil tax – his third try in as many years – that he believes will lead to new investment and production on the North Slope from BP, ConocoPhillips and Exxon Mobil Corp., Alaska’s “Big Three” oil companies. And while Republicans said they had yet to read the new proposal, Democratic leaders Wednesday night said their initial review showed the proposal would cost the state nearly $2 billion a year, similar to last session's proposal.

"That means the Big Three oil companies are raking in record profits from high energy prices and Alaskans will no longer receive their fair share," said Alaska Senate Minority Leader Johnny Ellis, D-Anchorage in the Democratic rebuttal to Parnell’s speech.

Ellis singling out the Big Three highlights another aspect of the tax debate: the fight in the Legislature is not just over how high taxes are, but who pays them.

Those companies are mostly harvesting known resource, while the drafters of ACES wanted to encourage new entrants to the state's oilfields and break the lock of the Big Three.

Sen. Cathy Giessel, R-Anchorage, said the Senate Resources Committee she chairs would be looking at serious concerns about the tax credits.

"We give out a billion dollars a year, yet our production continues to go down," she said.

 The tax credits do expose the state to risks if oil prices drop dramatically, said Sen. Bert Stedman, R-Sitka, a powerful voice on oil tax policy during the fights of the last several years. Stedman has been sidelined in the new, more conservative Alaska Senate leadership.

Stedman also warned that the new bill from Parnell might switch Alaska from a progressive to a regressive tax policy, putting it out of step with most of the world and not giving Alaskans a fair share.

Contact Pat Forgey at pat(at)alaskadispatch.com