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Senate Finance Progressing on Oil Tax Reform

MAKE ALASKA COMPETITIVE COALITION              MAR. 15, 2013

Senate Finance near the end of its work

Fairbanks Sen. Pete Kelly, left, serves as co-chair of Senate Finance, along with Anchorage Sen. Kevin Meyer, right.

Do incentives work? Take a look at Cook Inlet

Yikes. North Slope production fell another 1 percent in February. Production averaged 570,983 barrels/day in February, compared to 576,969 barrels/day in January.

In Cook Inlet, where exploration and production are incentivized, January production rose 2.7 percent over December and totaled 12,398 barrels/day in January versus 12,072 barrels/day in December.

After holding extensive hearings over the past week and a half, the Senate Finance Committee is expected to move an oil tax bill to the Senate floor soon.

UPDATE: SENATE FINANCE MOVED THE BILL OUT OF COMMITTEE LAST NIGHT, Mar. 14, 2013.

Several themes are emerging from the hearings, but the essential question is how to get more investment which will result in more oil production.

Keeping the fiscal policy simple and durable is also a challenge. Mat-Su Sen. Mike Dunleavy is determined to make a new tax “durable so we don’t have to come back and repair it every five years.”

The discussion has been spirited at times. The Alaska Oil and Gas Association (AOGA) and most of the producers say the base tax rate of 35 percent is too high, that incentives are needed for new oil from the legacy fields and that credits for qualified capital expenditures need to be maintained.

Twenty-seven Alaskans took time to testify in support of ACES reform March 6. Among them was Priscilla Simmons, a mechanical and process engineer, who told the committee, “I am not fine with decline. Let’s get Alaska moving again. I just bought a house with a long-term mortgage and I want to be here for the long term. Texas has many advantages over Alaska – warmer weather or that I could have bought a much nicer home for the same price I paid here in Anchorage. Please don’t make job opportunities for young professionals one of them.”

Jim Udelhoven, owner of Udelhoven Oilfield System Services, testified that the state has run out of time. Udelhoven told the committee that his family and employees have tried to stay in Alaska, rather than follow the boom in North Dakota, out of the belief that production levels would improve. “Every year the tax regime stays the same, change becomes more and more unlikely.” The company, which was originally established on the Kenai Peninsula, has run out of time and is now sending workers to the shale fields in Texas. It also has begun contract negotiations in North Dakota.

Chris Osowski said he was “as Alaskan as they come. I love the environment, I love the wilderness and four generations of my family live here. … Please fix ACES. Please show we Alaskans believe ‘fair and equitable’ works both ways in honorable business relationships. Show the world that ‘mutually beneficial business relationships’ can and do work.”

Gov. Sean Parnell's week 8 oil tax message: Click here.

Minich joins MACC Steering Committee

CIRI President and Chief Executive Officer Sophie Minich

MACC extends a warm welcome to Sophie Minich, our newest Steering Committee member.

Sophie became CIRI's president and chief executive officer in January, taking over for Margie Brown, who retired. She’s an Athabascan and a CIRI and Doyon shareholder who grew up in Seward. She joined CIRI in 1993 and has served as chief operating officer, senior vice president of business development, chief financial officer, vice president of administration and director of accounting.

She is a current director and former chair of the Anchorage Economic Development Corporation's board of directors, as well as a trustee of Alaska Regional Hospital and CIRI Elders' Settlement Trust. Sophie also serves on the Wells Fargo Bank Statewide Advisory Board and Great West Division Board of the American Cancer Society.

  Memorable quotes

“Even a small increase at Prudhoe would dwarf any new discovery.”

-Dan Seckers,

ExxonMobil

tax counsel

"Private capital follows to places where it is welcomed and rewarded."

-Ethan Schutt, CIRI

senior vice president

for land and energy

“Why is Texas … North Dakota and Alberta … increasing production and job opportunities for its residents while Alaska is going further down in its production? Is ACES trumping our state?”

-Priscilla Simmons,

mechanical and

process engineer

Repsol calls ACES ‘counterintuitive’

Repsol Exploration Managing Director Marcos Mozetic describes the key strategies for exploration in Alaska in this short video.

New North Slope entrant Repsol E&P USA submitted some revealing testimony to the Senate Finance Committee.

“It is counterintuitive that Alaskans would want investment to leave their state and go to North Dakota, Texas, California or Oklahoma as oil prices increased, yet that is exactly what ACES encourages,” the company wrote.

“Repsol believes that Alaska should reap the benefits of higher oil prices, but that the increase should be shared fairly and that investors should be encouraged to invest more, rather than less, as prices increase. Repsol and other companies have long argued that the current progressive tax structure is detrimental to new investment in Alaska and we endorse the repeal of progressivity that is proposed in CS SB 21.”

Repsol said the exploration credits “have encouraged newcomers like Repsol to come to Alaska in what would otherwise be an unattractive investment climate” but the credits do not “encourage long-term developments of any discovery when those developments must compete against developments in states with more favorable tax regimes.”

The company said everyone is working towards the same goal. “Legacy producers, new explorers such as Repsol and all Alaskans need and want the same thing – increased production in TAPS.”

Repsol E&P is the U.S. upstream operating subsidiary of Repsol S.A., an international exploration and production company with 25,000 employees who work in 31 companies worldwide. It is headquartered in Madrid, Spain. Click here to read the testimony.

Just count the rigs, Armstrong tells Senate

Bill Armstrong, far right, addresses the House Resources Committee

Bill Armstrong swept into Juneau with a message supporting oil tax reform.

He told the Senate that “the Lower 48 boom is unprecedented. All other producing states are facing the same production decline curve as Alaska, and they have all reversed them by actively pursuing the new technologies that make heretofore non-commercial lousy fields commercial again.

This boom has completely, utterly, totally skipped Alaska.”

Armstrong said just count the rigs to see how poorly Alaska ranks with the rest of the nation. “Rig counts have always been used as a ‘report card’ of an area’s health. Right now, Texas has 819 rigs running, North Dakota has 178 and Oklahoma has 190. Alaska has six. It’s pathetic.”

Armstrong is president and CEO of Armstrong Oil and Gas based in Denver, Colo. Armstrong has holdings on the North Slope and in Cook Inlet.

MACC provides speakers to meet your needs

MACC can dispatch speakers to all parts of Alaska to talk to groups and employees about the need to meaningfully reform Alaska’s oil taxes. To schedule a presentation, contact Julianne at MSI Communications.                          

Action is needed now

With the legislative session in full swing, action is needed now to move oil tax reform forward. Call your legislator, call in to talk shows and write letters to the editor and encourage moving oil tax reform forward now.

Here are sample letters to the editor and information on how to submit.

Here is information on how to call into talk radio shows.

Like MACC on Facebook

Make sure to “like” us on Facebook for daily updates. We encourage you to join the conversation.

This week’s calendar - Week of 3/15/13 – 3/22/13

Friday, Mar. 15

9 a.m. – Senate Finance Committee, SB21, Gavel-to-Gavel or alaskalegislature.tv

10 a.m. – Senate Floor Session, SB21, Gavel-to-Gavel or alaskalegislature.tv

Monday, Mar. 18

1 p.m. – House Resources Committee, HB72, Gavel-to-Gavel or alaskalegislature.tv

Wednesday, Mar. 20

1 p.m. – House Resources Committee, HB72, Gavel-to-Gavel or alaskalegislature.tv

12 p.m. – Juneau Valley Rotary presentation by Bill Corbus and Jim Clark

Friday, Mar. 22

1 p.m. – House Resources Committee, HB72, Gavel-to-Gavel or alaskalegislature.tv

Make Alaska Competitive Coalition

3501 Denali Street #202, Anchorage, AK 99503 : 907.569.7070 : © 2013 Make Alaska Competitive Coalition

MACC accepts no money from oil producers.

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