A Citizen’s Guide

Alaska’s oil and gas companies are lining up against Gov. Sarah Palin by opposing efforts to change the state’s new oil production tax.

Marilyn Crockett, the head of the Alaska Oil and Gas Association, said Monday that AOGA’s members unanimously support the net profits-based system currently in place.

Member companies also believe it’s premature to revisit the new tax, which state lawmakers approved last August, she said.

AOGA’s members include BP and Exxon Mobil — two of the state’s three major oil producers — as well as smaller exploration and production companies with operations in the state.

The third major producer, ConocoPhillips, withdrew from AOGA last year. Company spokeswoman Natalie Knox said Monday that ConocoPhillips hoped Palin’s administration and lawmakers would recognize the “duel benefit” the petroleum profits tax, or PPT, has had. The tax has dramatically increased revenues to the state and has led to company reinvestment in Alaska, she said.

Palin announced late last week that she would call a special session this fall to address issues related to the tax. She said the tax was not performing as lawmakers expected it would when they approved it, and that it was tainted by federal indictments of three lawmakers on charges of bribery.

Former Gov. Frank Murkowski pushed the tax last year as part of a package deal involving a natural gas pipeline built by the three major oil producers.

In an initial report on the PPT released Friday, the Department of Revenue predicted the new tax would bring in more money in the current fiscal year than the old tax would have, but not nearly as much as was expected. Instead of getting more than $1 billion in additional revenues, the state can expect to get about $250 million more than under the old tax.

The main reason for the reduced revenue forecasts is higher-than-expected costs, according to the department. While the old tax was based on gross oil production, the new tax is based on oil company profits, and operating and capital costs are deducted.

The department also projected that if oil prices drop below $48, the state would have made more money with the old tax. (The crossover point was expected to be much lower.)

Crockett acknowledged the higher-than-expected deductions, but said the tax appeared to be working as intended. It increased state revenues by more than $800 million in 2006, she said, and companies are continuing to invest in the North Slope, ensuring future oil production and tax revenues.

But Crockett said she didn’t know whether the PPT, which offers tax credits for oil-field development, has led to increased investments in the state or just continued investments. Daren Beaudo, a BP spokesman, said he didn’t know either.

According to the Department of Revenue report, it’s also unclear to the administration whether the higher costs are the result of capital projects that will lead to increased production or simply reflect a higher cost of doing business.

“What we do know is that the costs used in the modeling for the PPT fiscal note have proven inaccurate,” reads the report. Instead of capital and operating costs of about $7 a barrel, the department is now projecting costs of more than $14 a barrel. The report cites documented cost increases over the last few years for everything from personnel to fabricated structural steel.

Revenue Commissioner Patrick Galvin said Monday that some of the cost data presented during legislative debates on the PPT was outdated even then.

Joe Balash, a special assistant to the governor, said one important question is whether those debates would have turned out differently if lawmakers had known what was happening with costs at the time.

“We think the answer is yes,” he said.

Contact staff writer Stefan Milkowski at 459-7577.