Seaton advances nine plans to mitigate harm of SB 21

• One amendment sunset the new tax structure if it came at too much loss for Alaskans
By Naomi Klouda
Homer Tribune

With five days to go, the Alaska Legislature runs on fast track for getting the governor’s oil taxes bill pressed and ready for a House vote. Amid the tremendous controversy came a revenue forecast predicting even less money in the coming two years, an event Rep. Paul Seaton sought to head off with nine protective amendments to SB 21.
Rep. Seaton’s amendments ranged from creating a fund producers could tap into to build oil and gas production facilities to sun-setting SB 21 if it fails to show any progress in getting more oil through the pipeline.
The version pushed by the House Resources Committee could cost the state between $5.7 billion and $6 billion between next fiscal year and 2019. Resource’s work had upped the loss to the state treasury beyond the version that passed the Senate by one vote last month. It had an estimated negative fiscal impact, a mix of the effect on revenue and the operating budget, of $4.5 billion and $5.8 billion through 2019.

Photo provided Rep. Paul Seaton, R-Homer, speaks on the House Floor Friday. Seaton’s House Bill 131 passed unanimously. The bill broadens the State’s authority to deal with derelict and abandoned “ghost ships” in Alaska waters.

The analyses are based on the fall forecast for oil prices and production and cast as a worst-case scenario. The forecast called for a continued net decline in North Slope oil. The goal of the tax cut is to increase investment and production.
Of the nine amendments proposed by Seaton, all were discussed and then voted on Thursday night in House Resources, in a meeting that ran past 2 a.m. Only one passed. Amendment 18 aims to get rid of a problem: Seaton told committee members smaller producers can produce 15,000 barrels a day, which increases flow into the pipeline. But the lack of access to production facilities holds these lucrative producers back because they don’t own their own facilities and may be shut out by bigger producers who do own the facilities.
Alaska Industrial Development and Export Authority could finance at commercially reasonable terms oil and gas production facilities in Alaska, Seaton proposed. A special fund would be created to allow AIDEA to grant funding without needing to bond a project.
This could come on line before large fields like Point Thompson do, Seaton said. “This was identified as away to accelerate production. This will help us and we make money doing it.”
The proposal was made last year before the Governor’s tax bill failed in both the Senate and the House. Those voting in favor of Seaton’s amendment 18 were Reps. Peggy Wilson, Mike Hawker, Craig Johnson, Kurt Olson, Dan Saddler, Eric Feige. Voting against were Reps. Chris Tuck and Geran Tarr.
Another amendment Seaton wanted attached to SB 21 was an oil spill prevention account change that raises the contribution from 4 cent to 7 cents per barrel.
“One of the things we want to make sure of is that we have a very safe industry and we are prepared and have the industry on the right footing from the state side,” Seaton said. The plan was proposed from a Department of Environment Conservation finance committee overview.
Perhaps the most important amendment Seaton proposed was one to sunset the tax changes if in five years they prove to be a drain on state revenue. Here is the lineup of amendments:
• Amendment19 would have deleted the tax credit against the corporate income tax for oil and gas service industry companies.  His concern is that this new $10 million credit will impact and decrease the amount of contributions eligible for the Education tax credit, a credit applied to many tax sectors and different industries that allows a donation to an eligible education or workforce development program to qualify for a tax credit.  A similar amendment was offered and failed before Paul offered his version, so he withdrew the amendment.
• Amendment 20 failed on a vote of 5 no, 4 yes. This proposed an increase from the current 4 cent per barrel surcharge that goes to the DEC Spill Prevention fund to 7 cents. Funding for this account which assists with spill clean-up and prevention is headed into a deficit by FY 2016 if additional pennies per barrel are not added.
• Amendment 21: Failed – this amendment established a five-year duration for the Gross Value Reduction on new oil. (The GVR excludes 20 percent of gross value at the point of production before the calculation of production tax value occurs on qualifying oil production.)
Among the categories were dates set for the various oil wells. One such date perimeter to qualify, for example was that the oil would need to have been established prior to Jan. 1, 2003.
Seaton’s amendment would have applied a sunset to this GVR after the incentive had produced its intended result and oil had been flowing for five years.
• Amendment 22: This amendment is similar to Amendment 21 in that it is a sunset on the GVR. But this amendment applies specifically to shale oil development.  Shale oil wells typically have a very high amount of production in the first year or year and a half and then the production declines rapidly over the following years. Amendment 22 stated that the Gross Value Reduction of 20 percent sunsets after three years of production from a shale oil well. This would allow the bulk of production from the well to qualify for the incentive, and then the GVR would sunset, putting the well at the regular 35 percent net base tax rate.  Because Amendment 21 was shot down, Amendment 22 was withdrawn.
• Amendment 23, similar to 22, dealt with the GVR and shale oil development. It would have established a 10 percent GVR on shale oil development.
• Amendment 24 would require a company to pay tax on gas in the event that an economic sale is available for the gas. The intent of the amendment is to ensure that companies are not storing or warehousing natural gas until they negotiate a gas sales agreement that contains the element of Fiscal Certainty – generally meaning contractually locking the low oil and gas tax rates in for upward of 20 years.  This amendment failed on a 3 to 6 vote.
• Amendment 25: This amendment would sunset the provisions of SB 21 and revert the tax structure to ACES in 5 years if companies are not increasing production to levels that reach 2013 levels.  Called the “put your money where your mouth is” amendment as the legislature has been told repeatedly but without specific details that if they lower taxes in a meaningful way companies will increase production.  This amendment failed on a 3/6 vote.
• Amendment 26 would have established a “sliding scale” credit that is $5 per barrel at $100 ANS wellhead then declines at $0.10 per dollar as price per barrel increases and reaches zero at $150 ANS wellhead. 
The amendment would have deleted the high end of the credit proposed in the bill ($8-$6 depending on the price of oil) and smoothed the bracketed stairstep credit by declining the amount of credit by $.10 per dollar.  The credit in the bill offers an incentive for production of oil that is already being produced from the large legacy wells. Amendment 26 sought to decrease the fiscal impact of this credit scheme by deleting the top three brackets.

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Posted by on Apr 10th, 2013 and filed under More News. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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