A Citizen’s Guide

The head of the Alaska Oil and Gas Association on Wednesday presented a long list of concerns regarding Gov. Sarah Palin’s new oil tax proposal.

Marilyn Crockett said the proposal could decrease investment in the state by raising the tax burden on companies and scare companies away by presenting an unstable investment climate. She also said it would replace a tax that isn’t broken and has hardly been given a chance to work.

“The industry does not want to have a special session,” she told members of the Alaska Support Industry Alliance at a luncheon in Fairbanks.

Other members of the oil and gas association, which include ExxonMobil, BP and ConocoPhillips, some of the largest producers on the North Slope, also expressed their reservations about Palin’s proposal.

“We agree with the governor’s approach to stay with a PPT-based tax structure, however, we are concerned that the tax rates proposed will make every single project look less attractive for us to re-invest,” Kevin Mitchell, vice president of finance and administration for ConocoPhillips, wrote in an e-mail to the News-Miner.

On Tuesday, Palin restated her intention to call a special legislative session next month to revisit the oil production tax passed last summer, and she presented an outline for a new tax that would increase the tax rate.

Palin said the current petroleum profits tax, or PPT, “isn’t working as promised.”

According to Revenue Commissioner Pat Galvin, revenues from the PPT will likely come in a little short of expectations in the fiscal year that just ended and very short of expectations next year. Instead of bringing in an additional $1 billion over the old tax system, the PPT will likely bring in about $250 million more in fiscal year 2008, according to department figures.

Crockett pointed to fiscal year 2007, in which the new tax is expected to add about $1 billion in state revenues over the old tax.

“Is PPT working? I would say that it is,” she said.

Overall, she said, the state should be looking at how to encourage companies to invest in the state and keep production levels up, ensuring future tax revenues as well as revenues from royalties and property and corporate taxes.

“What we need to be focusing on is keeping that pipeline full,” she said, “half-full at this point.”

Oil production has dropped from a peak of more than 2 million barrels a day to less than 800,000 barrels a day, she said, and maintaining production levels will require significant new investment.

On Wednesday, Galvin pointed to cost increases faced by the companies in explaining the reduced revenue estimates.

Capital costs are now expected to be about 50 percent higher in fiscal year 2007 than was thought when PPT was passed, and about 100 percent higher in fiscal year 2008, he said.

PPT allows companies to deduct operating and capital costs and receive credits on certain capital costs.

Galvin acknowledged that by switching to a tax based on net company profits, the state had accepted the risk that revenues could drop if costs increased. He said the administration wanted to revisit the tax not to fill the revenue gap but because the projected revenues were so far off.

“It calls into question whether legislators would have made the same choice,” he said.

Contact staff writer Stefan Milkowski at 459-7577.