Session is over – and the results were positive

Despite a session-long effort to once again raise taxes on oil, the 30th Legislature adjourned on a high note: passing a mechanism to pay off the credits legally owed to independent explorers – and letting die two bills that would have significantly increased oil taxes.

Thank you to all legislators who voted for HB 331, to Senator Giessel and members of the Senate Majority, to Rep. Jason Grenn who carried the bill on the House floor and many of his House counterparts, to Alaska Gov. Bill Walker and Commissioner Sheldon Fisher for developing the bonding proposal – and to each of you who reached out to legislators, wrote letters and offered testimony.

HB 331 will help Alaska honor its commitment to the independent oil companies and help them access the capital they need to bring a wave of exciting new discoveries into production. HB 331 is a significant step in helping our economy rebound from recession and offer opportunity to some of the many Alaskans who have lost their jobs as a result of low oil prices.

The bill creates a state corporation authorized to issue up to $1 billion in bonds for the sole purpose of purchasing outstanding oil and gas tax credits. The bill would also provide incentives for companies to receive a smaller discount on their credits if companies share seismic data with the state, agree to a larger royalty share for the state from some fields, or commit to reinvest the funds back into Alaska within two years.

HB 331 passed the House on a vote of 34-4 with Chenault and Thompson excused.

Voting yes on HB 331: Birch, Claman, Drummond, Eastman, Edgmon, Foster, Gara, Grenn, Guttenberg, Johnson, Johnston, Josephson, Kawasaki, Knopp, Kopp, Kreiss-Tomkins, Lincoln, Millett, Neuman, Ortiz, Pruitt, Rauscher, Reinbold, Saddler, Seaton, Spohnholz, Stutes, Sullivan-Leonard, Talerico, Tilton, Tuck, Wilson, Wool, Zulkosky.

Voting no on HB 331: Kito, LeDoux, Parish, Tarr.

It passed the Senate 14-5 with Stedman excused.

Voting yes on HB 331: Bishop, Coghill, Costello, Giessel, Hoffman, Hughes, Kelly, MacKinnon, Meyer, Micciche, Olson, Stevens, von Imhof, Wilson.

Voting no on HB 331: Begich, Egan, Gardner, Shower, Wielechowski.

Former University of Alaska Regent Eric Forrer filed suit against the administration two days after the bill passed. The lawsuit, filed in Juneau Superior Court, alleges the bond sale would commit the state to debt outside of the restrictions the Alaska Constitution puts on the Legislature’s ability to incur financial liabilities.

Administration officials, including Attorney General Jahna Lindemuth, contend the plan is legal because the 10-year bonds would be “subject to appropriation” by the Legislature, which the bond buyers would be aware of, and therefore would not legally bind the state to make the annual debt payments.

It is anticipated that the Alaska Supreme Court will decide this issue on an expedited basis.

HB 288 and HB 411

HB 288 was introduced the first day of the session by Reps Andy Josephson, Geran Tarr and Paul Seaton. The bill would have increased the minimum production tax by 75 percent on North Slope producers. The bill had five hearings in House Resources committee where, thanks to the hundreds of Alaskans who called or sent in written testimony, the bill remained until the session adjourned. It also died in Committee.

Last year, HB 111 established an oil and gas tax working group to examine the state’s fiscal regime for the industry and make recommendations. In the closing days of this session, House Finance introduced HB 411, which would have been a $300-$700 million tax hike (which was not supported by the legislature’s consultant). HB 411 would have destabilized our economy, discouraged resource development and led to the loss of even more jobs across all sectors of Alaska’s economy.

A historic vote

This legislative session was critical to our state’s future. Not only did we have success on oil taxes and tax credits, legislators also passed SB 26, which establishes a POMV-structured draw limit on the Permanent Fund earnings reserve. SB 26 stabilizes our revenue stream and, in conjunction with oil and gas royalties and taxes, fills most of our current deficit.

It sets a 5.25 percent of market value draw for three years, which drops to 5 percent per year thereafter. It also explicitly states the Legislature shall not appropriate money from the Earnings Reserve in excess of the yearly POMV amount.

SB 26 passed the House on a vote of 23-17.

Voting yes on SB 26: Birch, Claman, Edgmon, Foster, Gara, Grenn, Guttenberg, Johnston, Josephson, Knopp, Kreiss-Tomkins, Lincoln, Millett, Ortiz, Pruitt, Seaton, Spohnholz, Stutes, Talerico, Thompson, Wool, Zulkosky.

Voting no on SB 26: Chenault, Drummond, Eastman, Johnson, Kawasaki, Kito, LeDoux, Neuman, Parish, Rauscher, Reinbold, Saddler, Sullivan-Leonard, Tarr, Tilton, Tuck.

The Senate vote was 15-5.

Voting yes on SB 26: Bishop, Coghill, Costello, Dunleavy, Giessel, Hoffman, Hughes, Kelly, MacKinnon, Meyer, Micciche, Stedman, Stevens, von Imhof.

Voting no on SB 26: Begich, Egan, Gardner, Olson, Wielechowski.

New direction for working group

A letter of intent from Rep. Paul Seaton, R-Homer, and Rep. Neal Foster, D-Nome, the co-chairs of House Finance, said the intent of the committee is to forward HB 411 to the Legislative Oil and Gas Working Group established last year. The letter requests the working group to use the three consultants available to the Legislature, and to submit a report and “proposed legislation for an effective long-term tax regime” for the state to the Legislature by Jan. 1, 2019. “We request that the working group consider HB 411 as a basis for a proposed taxation system and consider separation of oil and gas for expense and tax calculation,” the letter says. A letter of intent is not binding, so we will have to wait to see if there is any interim review. For a copy of the letter: click here.

Look to North Slope to see how policy matters

Activity in the North Slope’s developed fields is up. Companies are looking for new oil. The price of oil is recovering. The legislature kept oil taxes the same and fixed the oil credit problem. Predictability pays off.

North Slope production has risen the past two years, and another increase is predicted this year. That’s the first uptick in production since 2002, when the pipeline carried over one million barrels per day.

Alaska’s top resource managers believe a successful exploration season could signal the dawn of a renaissance on the North Slope.

Department of Natural Resources Commissioner Andy Mack said that ConocoPhillips going “six-for-six” and finding commercial quantities of oil in all of the exploration wells it drilled last winter is not only encouraging for the company, but for the long-term future of the state as well.

“I think what we see is the success rate of drilling wells in the Arctic is really high based on modern technology, really good seismic data, the fact that they’re starting to hone in on the Nanushuk formation. It’s incredibly good news for Alaska,” Mack emphasized in an interview.

Oil Search is moving forward on the Nanushuk field, which contains 500 million to 3 barrels of recoverable oil and Caelus is hoping to return to Smith Bay, its 8-10 billion barrel discovery. Hilcorp’s Liberty project is working its way through the EIS process.

ENI has the go-ahead for four new wells. Glacier has plans for Badami. 88 Energy, a small independent, is getting ready to test the production capacity of its latest North Slope exploration well as it evaluates seismic data that could lead to more drilling.

At Prudhoe Bay, BP has stemmed production declines for the third year in a row, a big deal as Prudhoe produces about half of total North Slope oil output.

That’s all good news for Alaska.

Alaskans speak out

Thanks to everyone who called in and wrote letters during the many public comment periods on HB 288 and 411. Your comments were heart-felt – and sometimes blunt. Here’s a sampling:

Charles Underwood, Jr,: “I am a retiree from a company that elected to dispose of its Alaska asset and focus on opportunities in the Lower 48. One of the primary factors driving that decision was the Alaska tax structure and uncertainty over the future.“

Aves Thompson with the Alaska Truckers Association: “We oppose House Bill 288. Investment is up, and oil production stable, even in this low-price environment. HB 288 will take Alaska backward, and do nothing to improve job opportunities.”

Michael Beck: “You people need to stop biting the hand that feeds us here in Alaska ! Many of us are dependent on a thriving economy.”

Meldonna Cody: “I submit that HB 411 is short sighted, political groveling and lacks leadership. “

Bill and Carol Kane: “We are overwhelmed with the fact there is any consideration to increase oil taxes again.”

The day that changed Alaska … forever

KEEP’s Bill Corbus took us on a stroll through history in a recent opinion piece he authored.

“On March 12, 1968, Alaska forever changed. That was the day a team of geologists, engineers and drillers confirmed the Prudhoe Bay oil field. The confirmation of a Middle-East sized oil field here, in the United States, made headlines across the globe. Fifty years later, it’s still one of the largest oil fields in North America and one of the 20 largest oil fields ever discovered in the world.”

“… Prudhoe Bay also gave us something maybe even more valuable than oil. It revised what both Alaska and the nation thought it could become by transforming us from a relatively undeveloped state to a land of significant resource based economic opportunity.”

You can read the rest here.

If you have any questions or comments please contact us at (907) 569-7070 or send an email to info@keepalaskacompetitive.com

P.O. Box 220884, Anchorage, AK 99522 | 907.569.7070 | keepalaskacompetitive.com
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