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Consultant: Oil tax plan gives money back

JUNEAU, Alaska — Gov. Sean Parnell's oil tax plan takes an approach that winds up giving oil companies "quite a lot" of money for projects that are economic today, a consultant told lawmakers Monday.

Janak Mayer of PFC Energy told the House Resources Committee that the alternative to a uniform lowering of government take is a system with greater complexity and potential for what he calls "perverse incentives," such as creating a situation where companies that must agree to projects going forward in some fields become focused on their own projects, and pursuing lower tax rates of their own.

Mayer said Parnell's new plan is very similar, in the amount of cash it moves across the table, to HB110, the plan Parnell proposed last year as a way to boost investment and production. At $110-a-barrel oil, the state would get $4.8 billion in production taxes under the current tax structure, $3.3 billion under Parnell's plan and $3.2 billion under HB110, according to PFC Energy estimates.

HB110 cleared the House in 2011 but stalled in the Senate, where it remains a non-starter. Senators have greeted Parnell's new plan with wariness and skepticism. For example, on Friday, the new plan underwent a public drubbing in the Senate Resources Committee.

Sen. Lesil McGuire, R-Anchorage, who said she agrees philosophically with Parnell on the need to make Alaska a more competitive place for industry investment, called the plan "half-baked" and told Revenue Department officials she didn't think they understood the ins-and-outs of the bill, SB3001 on the Senate side and HB3001 on the House side.

She said this isn't the right way to go about tackling an issue so important to Alaska's economy.

"And we all know it's going to end in a train wreck, and now it's just a matter of who gets to be blamed for it, and I think that's silly," she said.

This is the first full week of the special session called by Parnell to address oil taxes and in-state gas pipeline and human trafficking bills. It comes against the backdrop of an election year for nearly all the Legislature's 60 members.

The trafficking bill passed last week, leaving the thornier issues ahead.

The only hearings held Monday were in front of House Resources and the House Special Committee on Energy, and a number of lawmakers listened in from the audience. Energy committee members are sitting in on the hearings, in an effort to get as many House members up to speed on the issue as possible.

Parnell's tax plan faces long odds; Rep. Paul Seaton, R-Homer, and co-chair of the House Resources Committee, said he thinks it would be unlikely for Parnell's plan in its current form to pass.

Parnell's bill borrows from the Senate proposal that cleared during the last weekend of the regular session, providing a tax break, or "production allowance," for the first 10 years of production from new fields on the North Slope. But it also cuts taxes for existing producers and allows tax incentives for well-lease expenditures — provisions more in line with HB110.

Mayer said hypothetically, if the decline in production from legacy fields could be reduced from 6 percent a year to 2 percent a year, revenue from 2020 on could be higher than under the current scenario with the governor's new plan. But he said revenue until that point would be significantly reduced — and it's not clear how doable eating into the decline curve like that actually is.

Both the Alaska Oil and Gas Association and ConocoPhillips have expressed support for HB3001, as introduced. A spokeswoman for ConocoPhillips Alaska said the bill would make the North Slope more attractive for capital investment.

Rep. Mike Doogan, D-Anchorage, said he can't see the Senate passing "any version" of Parnell's bill.

"And frankly I'm not sure the House is going to pass any version of this bill because there are a lot more questions than answers out of this so far," he said.