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Oil-Tax Bill Has Higher Rates, Fewer Credits

Posted on: Thursday, 16 March 2006, 18:00 CST

By Richard Richtmyer, Anchorage Daily News, Alaska

Mar. 15--JUNEAU -- The House Resources Committee is making big changes to Gov. Frank Murkowski's oil-tax bill, including progressively higher rates as oil prices rise and fewer tax credits and write-offs.

Committee Co-Chairman Rep. Ralph Samuels, R-Anchorage, on Tuesday laid out the details of changes that are being incorporated into the panel's redraft of the bill, which is expected to be unveiled today.

The Legislature has been engrossed with the oil-tax plan for weeks. It became the center of attention for two main reasons.

First, it could add hundreds of millions of dollars to the state treasury when oil prices are high. And second, the governor presented it as part of a tentative deal he said his administration has struck with the big three oil companies over a natural gas pipeline from the North Slope to the Lower 48.

The new oil-tax system would be locked into a long-term gas pipeline contract.

Murkowski's bill calls for a 20 percent tax on company profits while allowing them to deduct from their taxes 20 percent of the amount they invest in Alaska oil field development. It includes other tax credits and write-offs, which he says are aimed at spurring exploration and development.

The House Resources Committee proposes to increase the base tax rate incrementally when prices exceed $50 a barrel. The rate would increase by three-tenths of a percentage point for every $1-a-barrel increase in price.

Oil prices recently have averaged about $60 a barrel. At that price, the proposed sliding-scale system would tax the oil companies 23. 5 percent. If oil prices were to rise above $150 a barrel, the rate would top out at 50 percent, Samuels said.

The committee also proposes to pare back the credit oil companies would be able to get for past investments. Murkowski's bill allows tax deductions on 100 percent of oil field investments since July 2001.

Samuels said the committee recommends companies get to write off three quarters of 2005 spending, half of 2004 spending and a quarter of 2003 spending.

The committee would scrap the governor's proposed automatic $73 million tax deduction for all oil companies, similar to the "standard deduction" on personal income taxes, and replace it with an annual direct tax credit for the first $10 million worth of spending, Samuels said.

Anchorage Democratic Rep. Les Gara, who has proposed similar oil-tax changes for years, said he was disappointed that the committee didn't increase the base rate to 25 percent, as an independent consultant the Legislature hired had recommended last week.

"I was hopeful that we would take the advice of our consultant who said that we wouldn't harm investment at all by going with a 25 percent tax and making it progressive from there," Gara said. "The difference is about $600 million or $700 million a year."

Executives of BP, Conoco Phillips and Exxon Mobil have endorsed Murkowski's proposal, though they warned lawmakers that imposing a higher tax or making other significant changes to the bill could undo their tentative natural gas pipeline deal.

Samuels said he has briefed the oil companies on the proposed changes and expects executives from at least BP and Conoco Phillips to testify at a committee hearing today.

"The offer I made was once the (rewrite) is drafted, if they want to come back, we will allow them to comment on the changes -- basically, 'If you want to come back and yell at Ralph, here's your chance,'?" Samuels said.

Andrew Van Chau, a BP spokesman in Anchorage, said his company was concerned about the proposed changes, especially the higher tax rate. He would not say whether they were enough to scuttle the pipeline deal.

"The 20 percent rate was already a hard pill to swallow," Van Chau said. "We can't see how this legislation would even keep the oil business alive."

In a statement Tuesday afternoon, Murkowski reiterated the oil-tax legislation's connection to a possible natural gas pipeline project and defended his proposal.

Becky Hultberg, the governor's spokeswoman, said the administration hadn't analyzed the House Resources proposal and couldn't say how they might affect the gas pipeline deal.

Samuels said he expects to pass the bill on the Finance Committee by the end of this week.

Rep. Mike Chenault, the Finance Committee co-chairman, said they are likely to begin work on the bill next week, and there are likely to be a series of hearings similar to those that took place over the past three weeks in the Resources Committee.

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Copyright (c) 2006, Anchorage Daily News, Alaska

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BP, COP, XOM,

Source: Anchorage Daily News

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