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Alaska Governor Wants Incentive Credit in Producer Tax

In an effort to create jobs and incentives for investment in Alaska's oil and gas development, Gov. Sean Parnell on Thursday said he will propose amendments to the state's production tax and exploration incentive credit (EIC) programs when the state legislature reconvenes Tuesday (Jan. 19).

Changes to the programs, which Parnell said had been recommended by Revenue Commissioner Pat Galvin, include the addition of a 30% credit for all drilling and well work expenses. If approved by the legislature, the amendments would allow all companies to take capital credits in the year they are earned instead of spreading the credit over two years; prompt the state to pay for capital credits earned by explorers regardless of their future spending levels; and allow for the waiver of interest charges on late payments due to retroactive application of new regulations.

"These refinements to ACES [Alaska's Clear and Equitable Share] will boost production at existing fields and provide greater incentives for new companies looking to explore for oil and gas in Alaska," Parnell said. "More investment means more jobs for Alaskans."

ACES (HB 2001), which included a tax hike on oil and gas producers expected to be worth more than $1 billion, was approved by the legislature in 2007 (see NGI, Nov. 26, 2007). The state's tax on oil and natural gas producers increased under ACES from 22.5% to 25% of net profits. Alaska's energy producers opposed the tax increase.

ACES was then-Gov. Sarah Palin's answer to her predecessor Frank Murkowski's Petroleum Production Tax (PPT), which she said wasn't collecting enough revenue for the state.

A recent study by the state's Department of Revenue found that Alaska's revenues under ACES exceeded amounts that would have been generated under either PPT or the gross tax that was in place prior to PPT. In fiscal 2009 ACES generated approximately $3.1 billion; PPT would have generated about $2 billion, and the gross tax would have generated $858 million, according to the report.

The PPT was passed in 2006 in a special session following much wrangling between lawmakers and Murkowski (see NGI, Aug. 14, 2006). The historic tax rewrite was seen as key to moving forward with the plans for a gas pipeline to allow commercialization of North Slope reserves (see NGI, July 17).

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