Alaska Lawmakers Pass New Oil Production Tax Bill

JUNEAU Aug 11, 2006 (AP)

The Alaska Legislature has passed the state's biggest oil and gas tax law rewrite in decades as a way to spur development of Alaska's natural gas reserves.

The bill passed in the waning hours of a special session late Thursday after an ailing elderly lawmaker flew in from Anchorage to cast the deciding vote.

If lawmakers had failed to pass the production tax bill for the third time this year, Gov. Frank Murkowski would have convened a third special session of the year beginning Friday.

John Manly, the governor's spokesman, said although the bill that passed included a higher tax than he had proposed, Murkowski didn't plan to veto it.

Murkowski is negotiating a financial deal with the state's largest oil companies - BP PLC (BP), ConocoPhillips (COP) and Exxon Mobil Corp. (XOM) - that is meant to make constructing a $20 billion gas pipeline to Canada attractive.

The three companies negotiating the contract are the state's largest oil producers, and lease the rights to the North Slope's gas reserves. The companies would own the pipeline jointly with the state.

"The votes show it's a tough issue for the Legislature, but it's the best thing for Alaska," said House Majority Leader John Coghill, R-North Pole.

But for most House and Senate Democrats who wanted to change the structure of the tax completely, it was "a mistake that we'll pay for generations," said House Minority Leader Ethan Berkowitz, D-Anchorage.

The tax bill would set a base tax rate of 22.5% of companies' profits from their Alaska operations. That tax rate would rise by 0.25% for every $1 rise in the price of oil above $55 per barrel.

At current prices, the tax rate would be about 28% of companies' profits.

The companies would be able to claim credits and deductions in the tax bill and use them to partially pay for developing natural gas facilities and infrastructure on the North Slope, which holds about 35 trillion cubic feet of natural gas reserves.

The House earlier Thursday had rejected the changes the Senate made to the net-profits tax plan by a slim 20-19 margin.

Then the House broke and the Republican majority called Rep. Carl Moses to fly in from Anchorage.

Summoning Moses, 77, caused the House to recess for nearly six hours.

He was absent due to a pinched nerve that caused him to lose feeling in his legs. But when he arrived at 8:40 p.m., he said he was feeling fine.

"Nothing that'll kill me," he said.

With Moses breaking the deadlock, other legislators changed their votes, and the bill passed 26-14.

Berkowitz called flying Moses to Juneau "a sign of their desperation" and said Republicans had to resort to drastic measures to pass the bill.

The tax is expected to bring Alaska $2.4 billion this year when oil is $60 per barrel, according to state Department of Revenue estimates. That is $1.3 billion more than the state's production tax takes in now at similar prices.

But the bill's detractors called those revenue projections a red herring. The credits and deductions would erase a large portion of that money, and the section of the bill that defines what company costs will and won't be deducted is not clear, they said.

"I think we're saying we're going to get all this revenue, when those of us who have kind of read this whole package know that we're going to take that revenue away," said Sen. Gretchen Guess, D-Anchorage. "Don't tell Alaskans we're going to get more revenue, and then pay out that revenue for a gas line ... without them knowing what costs are coming."

Moreover, nobody knows what effects a shutdown or partial shutdown of Prudhoe Bay will have on the tax plan, Berkowitz said. BP, which operates the Prudhoe Bay field, shut it down this week to replace 16 miles of leaky pipeline.

Point Thomson, the state's largest untapped gas field with an estimated 8 trillion cubic feet, could be a big beneficiary. Through tax credits and deductions, the Alaska government could pay as much as $4 billion to develop the field.

Copyright (c) 2006 Dow Jones & Company, Inc.


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