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AK Lawmakers Returning to Production Tax Bill

Alaska Gov. Frank Murkowski has put a revamp of the state's oil and gas production taxes back on the plate of lawmakers, currently in special session to consider a fiscal contract with a trio of major producers for the development of the Alaska Natural Gas Pipeline.

Murkowski's legislation to revamp the petroleum production tax called for replacing the state's severance tax on oil and gas production with a 20% tax on oil profits; it would have allowed producers a 20% credit on new investment in the state.

It stalled in the Senate on the final day of the regular session (see Daily GPI, May 11). Senators objected to House amendments that set the tax on oil at 21.5%, saying it was too low. The Senate had previously passed a version with a 22.5% tax on oil profits and a 7.5% tax on natural gas profits. The version passed by the Senate also would increase the tax on oil profits to 0.02 percentage points for every dollar the price of oil goes above $50, and it would provide a 25% tax credit for capital investments in Alaska. The tax on Cook Inlet oil would be 5%.

The bill is expected to be read in the Senate Saturday and sent to the Finance Committee. Senate President Ben Stevens (R-Anchorage) said the Finance Committee would introduce a substitute bill modeled on the version that passed the House, according to a report in the Fairbanks Daily News-Miner. House Majority Leader John Coghill (R-North Pole) told the paper the House Finance Committee would likely take up the Senate substitute bill.

The special session had been called by Murkowski to give lawmakers a chance to review his draft contract with ConocoPhillips, BP and ExxonMobil, which sets out fiscal terms for the development of a pipeline to bring North Slope natural gas to the Lower 48 (see Daily GPI, May 12). Murkowski's administration has been briefing lawmakers on terms of the contract for the past week and it is expected to go before lawmakers for a vote later this year.

The governor wants to roll the revamped production tax terms into his draft fiscal contract with the trio of producers in order to give them the fiscal certainty he says they need in order to move forward with the mammoth gas pipeline project.

During a speech to kick off the special session, Murkowski warned lawmakers that Alaska is at risk of losing control of the pipeline project and commercialization of its vast North Slope natural gas reserves. He said if the state doesn't work out its production tax situation and move forward in contracting with natural gas producers to develop the North Slope, the federal government could step in and do it for the state.

Incentives approved by Congress to spur North Slope gas development included a provision that allows for federal intervention if not company applied to the Federal Energy Regulatory Commission to build the line by April 11. The FERC has yet to receive an application to build an Alaska gas pipeline. A Department of Energy official said the agency has begun to look at the parameters for an Alaska gas pipeline study.

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