Parnell proposes changes to oil, gas tax to boost production ACES: Analysis says rate change would cost state $5.2 billion-plus.

JUNEAU -- Gov. Sean Parnell is proposing sweeping changes to Alaska's oil and gas production tax, an effort that he says is aimed at boosting oil production and creating more jobs for Alaskans.

Among other things, the bill, proposed on the eve of the legislative session, would alter the tax rate assessed under the barely-3-year-old tax regime known as Alaska's Clear and Equitable Share, or ACES, one of Sarah Palin's legacies from her partial term as governor.

The tax-rate change alone would cost the state treasury more than $5.2 billion between fiscal years 2013 and 2017, according to an analysis released by the governor's office.

The proposal would change the progressive surcharge triggered when a company's net profits top $30 a barrel, subjecting incremental amounts above that threshold to higher taxes. For oil field units now in production, it would cap that surcharge at 50 percent when oil prices top $92.50 a barrel; for new fields, the cap would be at 40 percent at higher-priced oil.

Parnell said it's wrong to look at the plan as though his administration is taking money from the state treasury; at least $11 billion is in state savings accounts and his intent is to expand the economy, not focus on growing government reserves, he said.

His proposal also would provide tax incentives aimed at encouraging infield North Slope development.

Oil is king in Alaska, largely responsible for keeping the state running and lining its coffers. Politicians have been looking for ways to stem declining production and get more oil flowing through the aging trans-Alaska pipeline system.

Parnell told reporters that his intent isn't to overhaul the entire tax system but to make changes to "jump-start" investment and economic growth.

The governor asserted that lower taxes create more jobs, though he said he's asking the industry -- as he did with proposed changes last year to the state's cruise tax -- to publicly testify about the need for changes and what level of investments they'd make in Alaska, should the Legislature enact the change.

Marilyn Crockett, executive director of the Alaska Oil and Gas Association, said Monday that she was encouraged by what she heard from Parnell.

"It sounds to us like a good first step," she said, adding that she had yet to see the language of the bill.

Crockett also hadn't yet analyzed a bill put forth by some House Republicans that would set a 20 percent base rate and impose a bracketed progressivity rate. Rep. Mike Hawker, R-Anchorage, said last week that the change is needed to address the "aggressive, punitive" provisions added onto ACES by "anti-industry legislators."

Petroleum News reported Monday that five independent oil and gas companies that hold a total of 1.1 million acres of North Slope leases strongly support Parnell's proposal.

The companies said the tax changes would "assist all oil companies on the North Slope" and lead to production of reserves that would otherwise remain untouched.

However, some lawmakers say that to be swayed, they'd need to see clear, convincing evidence that the tax is hindering investment or hurting industry.

The current tax regime features a base rate of 25 percent. The progressive surcharge kicks in when a company's net profits top $30 a barrel. The tax generated $6.8 billion in fiscal year 2008, a period marked by high oil prices and profits; it generated more than $3.1 billion the next fiscal year, when West Coast oil prices averaged about $68 a barrel, according to the Department of Revenue.

A new report, with more updated figures, is due today.

Crockett called legislative action this session "imperative."

"The longer this punitive tax stays in place, the longer it will be for recovery to take place," she said.

The level of investment and number of wells drilled in the state has declined in recent years and cutting taxes will positively affect companies, Crockett said.
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