Few benchmarks for judging oil tax changes

The Trans-Alaska oil pipeline. (Photo by Brian Cantoni/Flickr Creative Commons)

Oil companies operating in Alaska will enjoy lower state taxes on their production beginning next year, but what will the state get in exchange?

That’s the question many are asking now that the Legislature has reworked the tax regime at the request of Gov. Sean Parnell, who believes it will spur the companies to boost their investment on Alaska’s North Slope, putting more oil in the Trans-Alaska Pipeline System.

At a news conference on Monday,  he said he expects to see changes in the level of oil production within the next three years, and his administration is basing its budget outlook on the idea that oil companies will add a handful of rigs to legacy fields.

Parnell says his administration also will be watching the amount of money that producers put toward capital expenditures.

“The major companies have invested approximately $2 billion a year on average to kind of maintain where they are,” he said. “I think that’s a good base-level starting point to say, ‘What are you going to jump up to? What are you going to bump up to?’”

But Parnell didn’t provide any concrete metrics for judging his oil tax policy. He stayed away from defining success in specific terms, and avoided offering a timeline for evaluating the tax change.

Parnell also tried to temper expectations, saying he didn’t expect dramatic growth in oil production immediately.

At their post-session news conference, Democratic legislators criticized the governor for not offering clearer benchmarks.  Anchorage Sen. Hollis French said they also worry the administration might count projects currently scheduled to go online as new investment.

“We’re going to be watching, we’re going to be measuring, and when they start having those ribbon cuttings, and the brass bands, and the big hullabaloos over new things happening on the North Slope, we’re going to remind the public these were already planned,” French said.

The new tax structure is scheduled to go into effect in 2014.