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Jockeying Over Oil Tax a High-Stakes Game: STAGGERING: A Percentage Point Can Mean Millions for the Companies or the State.

Posted on: Sunday, 7 May 2006, 15:05 CDT

By Wesley Loy, Anchorage Daily News, Alaska

May 7--JUNEAU -- For weeks, Alaskans have been swamped with TV, radio and newspaper ads warning of a terrible threat from the state's rain-sodden capital.

Increasing oil and natural gas taxes could hobble the state's most vital industry and wreck job opportunities, the ads say.

Meanwhile, the halls of the Capitol are thick with top executives, lobbyists, tax experts and even engineers straight out of the oil fields pushing the anti-tax message.

But the several million dollars the oil companies are spending on lobbyists, on dinners for lawmakers and to court public sympathy are puny considering the high stakes involved.

Small changes in the tax law can move tens or hundreds of millions of dollars -- either into the state treasury or into oil company kitties.

A 20 percent tax rate or a 22.5 percent rate.

Make the new tax retroactive to last month and start it in July.

Decisions on these and other features of the tax bill are worth staggering sums of money.

To illustrate: At $60-a-barrel oil prices, the estimated state revenue between the Senate-passed bill of April 24 and the revision House members are expected to debate today fell by $117 million -- each year -- all due to wording changes, according to the Legislature's economic consulting firm, Econ One of Los Angeles.

In packed hearing rooms and in the cramped offices of lawmakers last week, hundreds of people were desperately trying to bend the bill to their advantage before the Legislature adjourns Tuesday.

Some lawmakers want to slow down, fearing crafty or sloppy changes to the 36-page bill could cost the public big money in a time of record oil prices.

"A comma or a clause in the wrong place could be worth a new school," said Rep. Les Gara, D-Anchorage.

Others say they're confident lawmakers should forge ahead with the tax bill, which would boost taxes when oil prices are high but provide powerful incentives for oil companies to get more oil and gas from the North Slope.

But the devil is in the details, and most every line of the tax bill means something valuable enough to justify the cost of lobbyists and ad campaigns.

Some examples:

-- The most hotly discussed detail is the tax rate -- the percentage of company profits the state would collect on oil production. The Senate set the rate at 22.5 percent. The House is considering 20 percent.

What's the difference?

At relatively high $60 oil prices, the state would take in an extra $1.673 billion a year under the Senate bill, but $1.556 billion under the pending House bill, according to Econ One.

That's a big difference -- $117 million per year.

-- Besides collecting tax money, the state would cede money back to oil companies in the form of tax credits to reward them for spending to find or develop more oil and gas.

As with the tax rate, lawmakers have proposed various credit rates, which would allow companies to trim their tax bills by between 20 percent and 25 percent of their capital expenditures in Alaska.

Each percentage-point change in the tax credit is worth $12.3 million annually, according to Econ One. The Senate set the credit at 25 percent. The bill now on the House floor would cut it to 20 percent.

-- The date any tax bill takes effect is worth a fortune. The governor proposed July 1. The Senate passed, and the House is considering, making it retroactive to April 1.

What's the difference?

April 1 adds about $200 million to the state treasury, according to lawmakers.

-- A more obscure tussle concerns whether to let companies calculate oil value, and taxes owed, based on agreements the state's top producers, Conoco Phillips, BP and Exxon Mobil, signed with the state to settle lawsuits in the 1980s.

Exxon was most keen on this idea, according to legislative staffers.

If allowed, the oil companies could save about $300 million total over the next 10 years, according to Barry Pulliam, Econ One's senior economist.

The Senate version of the tax bill didn't allow it. The language appeared in a draft House bill Thursday night but was deleted before the bill reached the House floor.

-- Another issue is how quickly, and fully, oil companies must pay their taxes to the state. Under the governor's proposal, companies could hang on to up to 10 percent of their tax and "true up" their account at year's end.

That could be lucrative because in business, time is money. Let's say oil companies owed a combined $1 billion. If they retained 10 percent of that, or $100 million, they -- not the state -- could invest the money for potentially handsome returns.

The Senate and the House Finance Committee lowered the figure to 5 percent, displeasing the oil companies.

Rewriting the tax code is a major decision for lawmakers -- oil revenue accounts for upwards of 90 percent of general state revenue. But it's not a complete gamble with the state's oil stream. Oil production taxes currently make up less than a third of the state's petroleum pie. The biggest slice, royalties -- the state's share of oil and gas pumped from beneath state land -- would remain unchanged, along with other taxes oil companies must pay.

Still, the battle to shape the final oil tax reform bill is fierce.

At 8:30 a.m. Saturday, the door to Rep. Mike Hawker's office swung open and out walked Angus Walker, a BP vice president and a fixture in the Capitol these days.

Hawker is an Anchorage Republican and an accountant by training whose wife, Carol, works as a business analyst for Conoco, the state's top oil and gas producer.

He worked on the powerful House Finance Committee until midnight Friday, considering dozens of amendments to the oil tax bill.

Of men such as Walker, Hawker said: "It is a multibillion-dollar increase in taxes on their industry. Of course they're concerned."

People back home shouldn't assume the oilmen always get their way, he said. Walker paid the visit seeking to soften a provision that would gradually increase taxes as oil prices climb to high levels, but Hawker said he couldn't support it.

"If you can't look a lobbyist in the eye and say no, you don't belong here," Hawker said.

But Gara and other lawmakers believe the oil companies are making plenty of progress to hold down taxes.

A look at Saturday's legislative efforts in Juneau

-- OIL TAX: The House is expected to vote today on the biggest rewrite of state oil tax laws in decades. Back Page

-- GAS LINE: Governor holds on to specifics of the contract. B-1

-- THERAPEUTIC COURTS: A bill that would encourage a system to change the habits of repeat drunken driving offenders passes Senate. B-2

-- SPILL BILL: The Senate backs a resolution that asks the U.S. Congress to respect plaintiffs' efforts to collect punitive damages from the Exxon Valdez spill. B-2 Busy days: What's next

-- TODAY AND MONDAY: The Legislature will work at least part of a today. Less controversial bills are moving quickly. The general government operating budget and the construction and projects budget are still under consideration; they are typically passed very late in the session. A bill to create a new profits-based system of oil company taxes was headed to the House floor Saturday night, and may be up for amendments today. Meeting and voting schedules are fluid.

-- TUESDAY: Midnight is the Legislature's adjournment deadline.

-- WEDNESDAY: Gov. Frank Murkowski says he'll release the proposed gas pipeline agreement he has been negotiating with the oil companies. While not formally announced, this is the date he has given for opening a special session of the Legislature in Juneau.

-- WHAT THEN? Unclear. The special-session agenda has not been posted, but might include continued work on the oil tax if does not pass by Tuesday. Murkowski officials have said they plan several days of briefing legislators on the proposed gas pipeline contract, and then will begin a statewide series of meetings to explain the deal to the public and collect public comment. That is expected to take at least 30 days.

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Copyright (c) 2006, Anchorage Daily News, Alaska

Distributed by Knight Ridder/Tribune Business News.

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Source: Anchorage Daily News

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