Latest oil tax credit bill off to a rough start in state House

Rep. Chris Birch, R-Anchorage, argues over the debut of an oil tax credit bill, during a floor session of the state House, on Wednesday, February 8, 2017, in Juneau, Alaska. (Photo by Rashah McChesney/Alaska’s Energy Desk)

Last session, the fight over oil tax credits was one of the biggest questions lawmakers sought to answer.  And while they did manage to pass a bill, it focused on Cook Inlet. Now, many lawmakers are saying it’s time to look at the North Slope.  

The message from the oil industry has been clear. Keep the tax structure stable, and help with new development — because it will pay off in the long run. But on Wednesday,  lawmakers on a House Resources committee introduced a bill that makes deep cuts to the subsidies the state gives to the oil and gas industry. And, for a few minutes, the state House floor started to sound a lot like Britain’s House of Commons. 

The chaos erupted after members of the House resources committee released their much anticipated bill proposing another round of oil tax credit reforms. Or, at least, five members of the committee did. Four of them, members of the House minority Republican party, say they were never consulted.

“You know we sit through a lot of meetings, Mr. Speaker, and at no time was this brought before us. As a matter of fact it was actually presented to the media, and if consensus was achieved it was done in a secret meeting,” said Rep. Chris Birch, R-Anchorage.  “Typically, In my experience as a committee member, I would be given the opportunity to review the bill before it would be shared with the press.”

For at least half an hour, members of the House minority and majority caucuses argued over whose names should be on the bill, how it should be introduced, decorum in debating motions and just about everything that can be fought over besides the content of the bill. And, that debate is likely going to continue because, in its current form, the bill packs a punch.  

The proposed bill cuts net operating loss credits from 35% to 15% and limits the ability of companies to earn those credits if they’re producing more than 15,000 barrels of oil per day.   

Rep. George Rauscher, R-Wasilla, during a floor session of the state House, on Wednesday, February 8, 2017, in Juneau, Alaska. (Photo by Rashah McChesney/Alaska’s Energy Desk)

This is a big deal for some smaller oil companies.

Caelus Energy Senior Vice President Pat Foley told the House Resources committee last week that its Nuna Project on the North Slope has lost value since it was sanctioned under the state’s current oil tax regime. Lawmakers fought bitterly over changes to that regime last year.

And Foley says the changes hurt Caelus’ bottom line.

“For Caelus that project is now worth, to us, $0.62 on the dollar. We’re still okay. It’s still a project that can survive,” Foley said. “But we can’t stand too much more erosion at all.”

The bill also eliminates the state’s credit repurchasing program in 2018. That program has gotten a lot of attention in the last two years because Gov. Bill Walker has delayed millions in payments the state already owes to companies under that program.

The bill also raises the state’s minimum tax from four percent to five percent. And it hardens “the floor,” which refers to the credits that companies can take that allow them dip below the state’s four percent minimum tax rate.

Anchorage Democrat Geran Tarr, who chairs the House resources committee says the bill isn’t in its final form. 

Rep. Geran Tarr, D-Anchorage, co-chair of the House Resources committee, gestures during a debate over the way her committee debuted an oil tax credit bill, during a floor session of the state House, on Wednesday, February 8, 2017, in Juneau, Alaska. (Photo by Rashah McChesney/Alaska’s Energy Desk)

“We consider this just a starting point,” Tarr said during a press conference after the floor debate. “For anyone who’s followed oil and gas issues over the last few years, you know that many, many hearings is generally several dozen hearings. So, I anticipate that will be what happens this year as well — that we will have ample opportunity for industry, for concerned Alaskans, to hear from the administration.”

In its current form, the House bill could be on a collision course with the Senate. And members of the House who say the industry needs stability right now, not more pressure from the state.

Anchorage Republican Cathy Giessel, who chairs the Senate resources committee said recent announcements of major new finds on the North Slope are a sign that the current tax structure is working.

And she says she’s not interested in having another marathon fight over oil subsidies. It’s a fight she says lawmakers have been having constantly since they started adjusting the tax credits in 2014 and tweaked them again in 2016.

“So, my concern with further changes is this is further instability for our state,” she said.

But, while she doesn’t want to rock the boat too hard, Giessel acknowledges that the state is in a recession. And says lawmakers may need to reconsider the way tax credits are paid, so the state isn’t paying cash up front for industry investment.

But if the debate over how the bill was introduced is any indication, the debate over what the bill does, could be deafening.

Reader Interactions