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Alaska Legislature Passes Bill Cutting Oil, Gas Tax Credits

Both chambers of the Republican-controlled Alaska Legislature passed a controversial oil tax reform bill on Monday and sent it to Gov. Bill Walker for his signature, but it was unclear whether he would sign it.

Lawmakers in the state Senate passed HB 247 by a 13-6 vote and then promptly referred it to the state House of Representatives, where it also passed by a razor-thin margin, 21-19. According to reports, state Rep. Mike Hawker (R-Anchorage), who has been battling cancer, returned to Juneau to cast the decisive vote. The bill needed a minimum 21 votes to pass.

Under the latest version of HB 247, tax credits for lease expenditures in Alaska's Cook Inlet will be eliminated after Jan. 1, 2018. The bill also stipulates that for lease expenditures incurred on or after Jan. 1, 2017, and spent looking for oil and gas south of 68 degrees North latitude, a producer may elect to take a tax credit in the form of 15% of a carried-forward annual loss.

The bill also stipulates that for oil and gas produced after Dec. 31, 2016, a state tax reduction on production will expire after three years -- consecutive or nonconsecutive -- where the average annual price per barrel for Alaska North Slope crude oil on the U.S. West Coast exceeds $70/bbl, or after a period of seven years in total, whichever comes first.

HB 247 also stipulates that for oil and gas produced before Jan. 1, 2017, a state tax reduction on production will expire on Jan. 1, 2023, or on a January 1 following three years -- consecutive or nonconsecutive -- where the average annual price per barrel for Alaska North Slope crude oil on the U.S. West Coast exceeds $70/bbl, whichever comes first.

The Alaska Oil and Gas Conservation Commission would be tasked with determining when applicable oil and gas production begins, as it pertains to the tax reductions.

It was unclear if Walker intends to sign the bill. "Gov. Walker typically does not comment on legislation until it reaches his desk," spokeswoman Grace Jang told NGI on Wednesday. "A number of legal reviews have to first take place before a bill reaches his desk."

Alaska Oil and Gas Association (AOGA) CEO Kara Moriarty said in written testimony before a state Senate Finance Committee meeting last month that AOGA's members are unanimously opposed to the bill.

"HB 247 is a dramatic shift in oil tax policy for both Cook Inlet and the North Slope, and it will definitely result in less production, less investment, fewer Alaskans working, and ultimately, and somewhat ironically, less revenue for the state," Moriarty said. "It creates policies that will not drive investment to Alaska from explorers and producers alike when prices go up because it will now take a much higher oil price for industry investment to return or increase in Alaska, if it returns at all...

"This bill sends a strong signal to the world that Alaska is constantly changing tax policies, regardless of oil price, and regardless of the economic condition of the industry."

Last March, Apache Corp. abandoned its operations in the Cook Inlet, citing the downturn in commodity prices (see Daily GPIMarch 4).

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