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Rep. Gara Calls for Better Alternative to Gov’s Oil Bill

Alternative requires new Alaska exploration and production

Today Democratic Representative Les Gara called for a hearing on his oil tax legislation.  Unlike the governor’s bill which gives away revenue for nothing in return, Rep. Gara’s “Alaska Oil Production Enhancement Act” (HB 231) requires oil companies to make new investments in Alaska before receiving incentives.

“Alaska is a sovereign state.  We should act like one.  The Governor’s bill gives companies the option to take $1.8 billion a year outside Alaska.  Our bill requires that companies invest in Alaska, on development projects, that will open new fields and heavy oil to production to qualify for the incentives we offer,” said Gara. 

The Alaska Oil Production Enhancement Act does three things, all consistent with what the Governor’s announced goal of “new exploration” in new fields – something the major oil companies have stated they will not commit to if the governor’s bill passes.   

“We all want to reverse the production decline.  But simply lowering taxes, and giving companies the option to keep the money and not spend it in Alaska, won’t work,” said Rep. Gara.  The incentive legislation:         

1)      Promotes building new processing facilities to get oil in new fields into the pipeline.  That will make new exploration in Alaska more attractive and effective;

2)      Promotes incentives for new exploration in new oil field units by expanding targeted incentives;

3)      Reduces costs to companies who increase their expenditures on well-related activities, including heavy oil, granting greater investment incentives for heavy oil and other well investments that exceed their prior three-year average;

4)      Caps the total state reimbursement for oil company investments at 85% to prevent against wasteful spending and spending not intended to increase Alaska production.

“We don’t need to give away the farm. This bill helps get oil from new exploration into the pipeline, and makes sure we don’t give out more in credits than we need to,” said Rep. Pete Petersen, a co-sponsor of the legislation.

“We need more competition on the Slope, and this bill would help new players get a foothold and get their oil into the pipe,” said Rep. Chris Tuck, who is also a co-sponsor of the bill.

This legislation also avoids two additional failures of the governor’s bill:

Lowering taxes failed last time: Until 2006 under the old ELF Production Tax, 15 of 19 North Slope fields paid a 0% or near 0% Tax.  Yet, with reduced taxes, as the Governor now proposes, production was declining between 5% and 8% per year; and we had 40% less oil and gas investment and jobs in Alaska. 

“The Governor’s bill repeats a failed experiment,” said Rep. Gara.  Charts showing this decline, and the ELF tax rates, are linked here.

Largest beneficiaries of the governor’s bill stated on record (March 23, 2011) that they won’t explore in unexplored new field Units even if the governor’s bill passes: In addition, the Governor conceded production increases require exploration and development in new, unexplored fields.  That’s referred to as “new exploration.”  BP and Exxon testified in response to Gara’s questions in the House Finance Committee that they would not engage in new exploration under the Governor’s bill.  Conoco has purchased new leases but has not committed to exploration there.  They have stated they will invest in existing fields, and only the new fields they’ve already committed to in the past under ACES (NPR-A and Pt. Thompson). 

Transcripts of Commissioner of Revenue Butcher stating that New Exploration is needed to reverse the decline in production, and of BP and Exxon saying they won’t invest in new exploration in new fields are linked here.

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