The debate over proposed changes to the oil and gas tax credit program is coming down to the wire, with just days left in the regular Legislative session.
A recent substitute bill proposed cutting Cook Inlet’s oil and gas tax credits completely by 2018 for both developers and producers, among a variety of other changes. The decrease would be progressive, falling to 30 percent for developers in 2017 and 15 percent for producers in 2017. The current law is 55 percent for developers and 30 percent for producers.
The substitute bill, generated by the Senate Resources Committee, is the most drastic of the proposed changes on the table, the only one that would cut the Cook Inlet credits entirely. It would also repeal the caps on Cook Inlet production taxes and would zero out the production tax, effective Jan. 1, 2018, and sunsetting in 2022.
Oil and gas industry representatives objected vocally to any changes to the existing tax regime. Kara Moriarty of the Alaska Oil and Gas Association, a trade group, testified to the Senate Resources Committee that the current provisions in the committee substitute will make it hard to attract new investment to Cook Inlet and would likely reduce production.
“This is a nuclear bomb for Cook Inlet,” Moriarty said. “Alaska needs every company to be successful because the state needs increased production from every field and region, because production is the key for future state funding for schools, roads, health care.”
Moriarty predicted that cutting the oil and gas credits would dramatically impact investment and production in Cook Inlet, which would result in job losses and reduced revenue for the state. She said Cook Inlet in particular needs the tax credits to incentivize development.
“The Cook Inlet basin has always been a challenging economic environment — if there’s no credits in this environment, it’s just challenging,” Moriarty said.
Rebecca Logan of the Alaska Support Industry Alliance, an industry group that represents oil and gas support companies, blamed the Legislature for not going far enough on its budget process. The Alliance opposes all changes to the current tax regime because the industry is already having enough trouble with low oil prices, she said in testimony to the Senate Resources Committee.
“I knew we were going to get to a point where (legislators) were going to have to come to the oil industry, and here we are,” Logan said. “There’s nowhere else for you to go because you didn’t do what you should have done with the budget.”
The oil companies engaged in Cook Inlet are still moving forward with their plans. Furie Operating Alaska brought a new jack-up rig, the Randolph Yost, into Kachemak Bay in March with plans to drill additional wells in its Kitchen Lights Unit near Nikiski.
Corri Feige, the director of the Alaska Department of Natural Resources’ Division of Oil and Gas, testified to the Senate Resources Committee that she would expect a “flurry of activity” from the Cook Inlet producers while the tax credits are still available, followed by a slowdown while the companies re-evaluate their finances.
“DNR and the DOG’s assessment of the (committee substitute bill) is that we recognize first of all that it does really take a step forward in trying to find a reasonable balance between the state outlay, especially given the state’s current fiscal situation and reality, against trying to maintain a healthy investment climate that will support continued exploration and development activity in the state,” Feige said.
A representative from Furie said the company had no comment on the proposed change to the tax credits at this time.
Hilcorp spokeswoman Lori Nelson said the company’s official position is to side with the Alaska Oil and Gas Association’s position of opposing any drastic changes to the tax credit structure.
BlueCrest Energy, which recently began operations in its Cosmopolitan lease just north of Anchor Point, could not be reached for comment on the proposed changes to the tax credits, though the company’s president and CEO Benjamin Johnson has voiced opposition to rapid changes in the program in the past.
The Senate Finance Committee will debate the substitute bill before it moves on. However, debates about other changes to the tax credits have stalled in the House of Representatives. A vote on HB 247, the house’s version of the tax credit cuts, was delayed Sunday, again Monday and again Tuesday. The Senate Finance Committee was due to consider the House’s bill and the Senate Resources Committee’s substitute bill Wednesday at 5 p.m.
Sen. Cathy Giessel, R-Anchorage, the chair of the Senate Resources Committee, said in a meeting Tuesday that she understood the pain the bill would bring on the oil companies, but that it is necessary.
“I realize it’s not what it’s been, but then, none of this is what it’s been,” Giessel said. “Our school support isn’t what it’s been. Our capital budget isn’t what it’s been. We’ll all ride this out because I’ve seen this all before. I believe we have significant things we can hope for.”
Reach Elizabeth Earl at firstname.lastname@example.org.