Industry: Good points, problems on Alaska oil tax

JUNEAU, Alaska (AP) -- Gov. Sean Parnell's plan to overhaul Alaska's oil tax structure is a positive step toward improving the state's business climate but there's room for improvement, one of the North Slope's major players says.

ConocoPhillips Alaska executives Scott Jepsen and Bob Heinrich, in a presentation before a special Senate committee Tuesday, said Parnell's plan makes the state a more competitive place for investment with oil prices of $100 a barrel or higher. But Heinrich said it doesn't contain sufficient incentives for legacy fields to offset the high cost of operating in Alaska and would constitute a tax increase at lower oil prices.

Jepsen, vice president of external affairs, said his company would invest more in Alaska in the right environment but suggested a plan that would lead to that hasn't been proposed yet. In an interview later, he said the company would make decisions on a project-by-project basis.

Parnell has proposed sweeping changes to Alaska's oil tax structure, aimed at making the state more competitive and encouraging new production. His plan — SB21 in the Senate, HB72 in the House — would eliminate the progressive surcharge that companies have said is a disincentive to new investment and would revamp a suite of tax credits, focusing on companies that produce new oil on the North Slope. It would keep in place the current base tax rate.

"My pledge to you is this: I will work to pass a tax system that is fair to Alaskans, one that encourages new production, one that is simple so that it restores balance to the system, and one that makes Alaska competitive for the long term," he said in his latest weekly "oil tax reform" message.

Democrats say the plan could deprive Alaska of its "fair share" of oil revenues. Democrats in both the House and Senate have said they plan to introduce proposals of their own aimed at new production.

Kara Moriarty, executive director of the Alaska Oil and Gas Association, told the committee Parnell's plan represents a cornerstone for "significant and crucial tax reform." But she said her group has concerns about how the bill deals with tax credits, and believes a tax break geared toward new oil should be expanded.

The special Senate committee on oil flow through the trans-Alaska pipeline is expected to advance Parnell's bill to Senate Resources later this week.

A co-chairman of the special committee, Mike Dunleavy, R-Wasilla, told reporters the panel likely will send the bill on with recommendations, which could be on Parnell's measure or on points that committee members want their colleagues to take a closer look at. While Parnell's bill has been a focus of the committee so far this session, Dunleavy's co-chairman, Peter Micciche, has said repeatedly that the panel isn't an oil tax committee and will look at other issues that also might be affecting production.

Micciche, R-Soldotna, ended Tuesday's hearing by saying that he thinks the bill will need some fairly significant changes in order to gain his support.

Earlier Tuesday, during the Senate majority's weekly news conference, Sen. Lesil McGuire, R-Anchorage, said Alaska's tax structure is broken, particularly when it comes to higher oil prices and the state's exposure with tax credits. Credits could top $1 billion next fiscal year, and Parnell's Revenue commissioner has said he's seen no evidence that tax credits to oil companies have led to increased production.

That's something the state might not always be able to afford, and lawmakers need to consider that alongside their duties to pay for education, health, roads "and all the other things that we certainly have obligations to as state senators," McGuire said.

McGuire, a member of the oil flow committee, said she believes a lack of competitiveness is at least part of the problem as it pertains to declining production.

McGuire, who labeled as "half-baked" a tax cut that Parnell introduced during last year's special session and pulled amid criticism, applauded the governor for taking a new approach. She said SB21 is a bill "unlike anything else we've ever seen" and is a great starting point for lawmakers.

Sen. Anna Fairclough, R-Eagle River, said she isn't yet convinced that the progressive surcharge should be scrapped. The surcharge has been credited with helping fatten the state's coffers in recent years.

"I think we need to be very careful as we move forward," she said.

Fairclough said the bill is an opportunity to engage Alaskans in a conversation about the state's future.

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Follow Becky Bohrer on Twitter at http://twitter.com/beckybohrerap .