The Alaska Senate rejected legislation to tax oil companies at 23.5% of net profits, a measure that the House had approved Tuesday. A conference committee has been appointed to attempt a compromise before the lawmakers adjourn their special session at midnight Thursday.
If the House and Senate fail to agree on whatever comes out of conference committee, the bill likely will be doomed for this session. It is expected that Gov. Frank Murkowski then would call a second special session. The new taxing mechanism for oil and gas producers is a cornerstone of the governor’s draft fiscal contract with a trio of producers to develop the Alaska Natural Gas Pipeline. The governor also is seeking changes to the Alaska Stranded Gas Development Act (see Daily GPI, June 2).
Revising the state’s oil taxing mechanism is key to a draft agreement the governor has made with BP, Exxon Mobil and ConocoPhillips for development of the Alaska Natural Gas Pipeline, Murkowski maintains. During the special session, lawmakers have been hearing presentations on the provisions on the gas contract. Public meetings also have been held.
On Sunday the Alaska House approved a bill to tax oil company profits in Alaska at 23.5%. Members also approved an escalator that would tax profits at an even higher rate when North Slope crude is above $50/bbl on the West Coast. This version of the bill, which passed 28-12, would tax the producers at a rate higher than most of the legislation previously considered, including a version that passed recently in the Senate with a rate of 22.5%. Murkowski wants a lower tax rate — 20% — and he wants to give producers a 20% credit for in-state investment (see Daily GPI, May 26). Wednesday Murkowski warned lawmakers there would be consequences for a higher tax.
“The House PPT [petroleum production tax] plan puts the gas pipeline project and producer investment in Alaska oil and gas development in jeopardy,” he wrote in letters to House and Senate leaders. “The 23.5% tax rate and aggressive progressivity would triple Alaska’s oil production tax rate at current oil prices. At 60%, Alaska’s government take would be the highest in North America and make us uncompetitive with other international projects.”
The governor wants to roll the tax provisions into his draft contract with the producers that sets the fiscal terms for the natural gas pipeline to bring North Slope supplies down through Canada and ultimately to the Lower 48 states. Among the terms of the contract, Alaska would become a 20% owner of the gas pipeline, and it would take its royalties from producers in kind rather than in cash. This would put the state in the gas marketing business (see Daily GPI, May 12).
Murkowski and the producers who would develop the pipeline claim that the tax freeze, which would last for decades, is necessary to create the fiscal certainty needed for development of the $20 billion-plus pipeline project.
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