A Citizen’s Guide

JUNEAU—Gov. Frank Murkowski on Friday threatened to veto any tax passed by the Legislature that is based on the gross value of oil and gas produced in Alaska instead of his plan to tax oil companies’ profits.

Murkowski made his comments at a news conference in Anchorage just a few hours before the proposed production tax rewrite went to the House floor. The debate and vote on the bill are expected to take place Saturday.

Whether the tax structure should be based on companies’ net profits or on production volumes has been a major area of debate this special legislative session.

Proponents of a gross production tax say it’s simpler to calculate, while a net-profits tax would increase the likelihood that oil companies could manipulate their cost claims in order to pay less tax.

Net-profits advocates say the auditing system the state employs now would prevent such manipulation, and that a profits-based tax would encourage more investment in Alaska’s aging oil fields.

Murkowski, who has introduced net-profits tax bills three times this year, left no doubt on which side of the fence he stands.

“I want to put the Legislature on notice at this time that I will veto any effort to change the tax regime from a net to a gross,” the governor said. “There is simply no justification for it because it will not get the North Slope investment that we so desperately need.”

The new bill would set a tax rate of between 20 percent and 25 percent of oil companies’ Alaska profits. Each company’s rate would be based on the level of capital investment it put into the state.

The companies’ tax rates would then rise when the price of North Slope crude reaches about $55 per barrel.

Murkowski said he believed the proposed “produce or pay” plan was good in theory, but the oil industry will think the tax rates are too high.

“I’m pleased that it moved, but I’m not sure if the rate is going to be acceptable,” he said.

House Democrats who support a gross production tax panned the bill headed to the House floor. Besides the accounting concerns, they say the credit system in the proposal is flawed: Much of the additional money the state would take in on oil taxes, would be returned as credits to develop the Alaska’s natural gas fields.

The production tax change is a key component of Murkowski’s proposed gas pipeline contract with BP PLC, Exxon Mobil Corp. and ConocoPhillips. A draft of the contract is before the Legislature, but it seems unlikely that lawmakers this session will give Murkowski the authority he needs to execute the deal.

Rep. Les Gara, D-Anchorage, said if a pipeline is approved, the cost of developing facilities and the Point Thomson gas field would be partially subsidized by the state.

“This is Exxon’s greatest dream,” he said.

Gara, House Minority Leader Ethan Berkowitz, D-Anchorage, and Rep. David Guttenberg, D-Fairbanks, all voiced their support of a tax system based on gross production.

Berkowitz dismissed Murkowski’s threat of a veto, saying “the primary election politics … seem to figure prominently in his posturing right now.”

“When a lame duck squawks, I don’t think you have to pay that much attention to it,” he said.

Murkowski faces a tough Aug. 22 Republican primary against John Binkley of Fairbanks and Sarah Palin of Wasilla, and the governor has made his gas contract proposal and the related production tax rewrite the centerpiece of his campaign.