Alaska Senate lawmakers late last Thursday passed a bill to raise the state's tax on oil and natural gas producers from 22.5% to 25% of net profits, an increase sought by Gov. Sarah Palin. The Senate vote followed one in the House the preceding Sunday approving a similar bill with the same increase.

The Senate bill moved to the House Friday for reconciliation before the legislature's special session was to end at midnight. House Speaker John Harris told the Anchorage Daily News he was confident the House would accept the somewhat different Senate version. "In a heartbeat," he told the paper.

The legislation, known as Alaska's Clear and Equitable Share (ACES), would also increase the amount the state collects from producers when oil prices and company profits are high. It is estimated by Alaska's Revenue Department that the package could bring in an additional $1.5 billion to state coffers per year during times of high prices.

ACES was proposed as a replacement for the state's current oil and natural gas tax scheme known as the Petroleum Production Tax (PPT). The PPT was passed last year in a special session following much wrangling between lawmakers and former Gov. Frank 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.

At the direction of Palin, the state's Department of Revenue reviewed the implementation of PPT and found that it is "resulting in far less revenue than was estimated in the fiscal notes prepared in support of the bill," Palin's office said. Further, the review found that companies are reporting far greater costs than were predicted, and exploration companies are getting less value from credits included in PPT than was expected due to a limited market for the credits.

The 46-page ACES bill was released last month and quickly drew a sharp rebuke from the state's oil producers (see NGI, Oct. 8). The Alaska Oil and Gas Association (AOGA) aired radio and television advertising touting the producer view on taxes. In one radio spot, Ken Sheffield of Pioneer Natural Resources, Alaska tells listeners his company is poised to be the first independent producer active on Alaska's North Slope, but...

"Changing tax policy year after year will steer critical investment dollars away from Alaska," Sheffield says in the ad. "Pioneer is eager to build our business in the state, but to do so we need a competitive, stable tax system. Today, Alaska is the highest taxed oil and gas region in North America. Another tax increase this year will harm Alaska's ability to compete."

Palin earlier thanked House lawmakers for passing ACES.

"I am particularly happy that the 25% rate was included," Palin said. "We worked closely with legislators from both sides of the aisle to make sure that Alaska remains an attractive place to invest in oil and gas development. At the same time, they have moved to ensure that Alaskans receive an equitable share of these nonrenewable resources. If this bill is enacted, we will all take a positive step forward in Alaska's future."

More information about the legislation is available on the ACES website, www.gov.state.ak.us/aces.

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