Special Session Comes to a Close:

August 10 marked the last day of the second special session of this year. Over the course of the past 30 days, the legislature has been engaged in debate over oil and gas production taxes, amendments to the Alaska Stranded Gas Development Act, and a material witness crime bill.

Oil and Gas Production Tax:

The legislature began debating revisions to our oil and gas taxation laws in February. Through the regular session, and two special sessions, we have heard valuable testimony from oil and gas consultants, the oil and gas industry, and the public.

The current system that Alaska has does not account for the price of oil, nor does it account for the decline in production that our mature oil fields are facing. Year after year, we are losing more money due to the decline in production, even with high oil prices. Companies are not investing in Alaska at the rate that they should in order to stem the decline in production.

Alaska faces a unique challenge when it comes to attracting explorers and producers to our state. Alaska is one of the most expensive places in the world to explore for and produce oil and gas. The arctic climate of the North Slope, short exploration periods (3-4 months, depending on thawing of tundra and weather), and the cost of transportation and distance to refineries makes us less competitive on a global level.

In light of these circumstances, we need a production tax that will encourage more exploration and investment by the oil industry in Alaska, while Alaska receives the maximum monetary benefit from our non-renewable natural resources.

The new production tax approved by the legislature accomplishes all of the above: it encourages more investment, it takes into account the cost of operating in Alaska, and it provides Alaska with the maximum value for our resource.

With the new production tax, the cost of doing business in Alaska is taken into consideration, just like any other business. The legislation strictly provides for what operating costs can be deducted. We will allow companies to take deductions only for direct, ordinary, and necessary costs of producing in Alaska.

We will offer credits for new capital outlay in our state. Expenditures that will increase production and slow down our legacy fields decline rates are incentivized. Expenditures for new exploration are incentivized. This makes sense. New production and exploration that leads to production will return money to our state treasury through additional taxes and to the Permanent Fund through royalties.

Under the new production tax, the State of Alaska’s total government take from oil and gas production will be over 60%. This is the highest in the United States, and well above any other industry in Alaska.

While the tax rate in the legislation is 22.5%, with a progressivity feature that climbs at .25% for every $1 increase over $55 a barrel, the effective tax rate at today’s price of oil is near 28%. Also, a tax floor based on gross value at the point of production was added to the legislation. In the end, we passed a hybrid tax structure based on gross and net-profits.

The new production tax will generate billions in State revenue while encouraging industry to explore for new oil deposits and invest in our state.

These are the reasons that I have supported this measure. From a business stand-point, it makes sense for Alaska to pursue this type of tax structure. We need further exploration and increased investment. We need to remain competitive, without giving away the farm.

I appreciate the dialogue that I have had with many of you on this issue and I have kept your comments in mind as this issue has been before us. This has been an educational experience for me and I am thankful for the opportunity that I have had to participate in this historic debate.

Amendments to the Stranded Gas Development Act:

Under the Stranded Gas Development Act, the Commissioner of Revenue is required to prepare a summary of the public comments received in response to the proposed contract for a natural gas pipeline within 30 days after the end of the public comment period. The amendment to the Act considered by the legislature would extend this deadline to 120 days.

Over the course of the 75 day public comment period, the Department of Revenue received 2158 comments. Since July 25, the department has been reviewing the comments and have found that 30 days is not a substantial amount of time to review the comments, prepare a summary of the comments, and prepare recommended amendments to the contract.

With the passage of this amendment, the summary of the public comments and recommended amendments to the contract would be due on November 20.

The public comment period is one of the most important elements of the Stranded Gas Development Act. If the administration needs more time to evaluate the comments and concerns of Alaskan’s and prepare amendments to address the comments and concerns, than they should have this time. I believe that it is important for the public to be heard and their thoughts, concerns, and suggestions taken into account.

Material Witness Crime Bill:

The material witness crime bill allows police officers to temporarily detain and photograph an individual who witnessed a serious crime, like homicide or manslaughter, but refuses to cooperate with an investigation.

The introduction of this legislation is due to the large number of gang-related activities and shootings that have plagued Anchorage this summer. Police officers are having a difficult time performing investigations for the most serious crimes because witnesses often leave the scene of a crime and do not cooperate with investigators when contacted at a later time. The passage of this law will give police officers and prosecuters one more tool in the effort to stop gang related violence.

Interim Contact Information:

My Anchorage office will resume regular office hours on August 14. The office is open from 8:00 a.m. until 5:00 p.m. The office is located at 716 W. 4th Avenue, Suite 310. The phone number is 269-0199. I encourage you to call or stop by my office if you have any concerns, comments, or suggestions that you would like to share with me.

I appreciate hearing from you on issues of concern. Please, do not hesitate to contact me.

Kevin

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