Alaska Gov Could Seek 25% Tax on Oil Company Profits

JUNEAU, Feb 17, 2006 (Dow Jones News via Comtex)

Gov. Frank Murkowski wants to tax oil companies' net profits at a rate of 25% as part of a new Alaska production tax, a Murkowski administration spokesman has confirmed to The Associated Press.

But spokesman Chuck Logsdon said the rate could still change. The governor had planned to publicly roll out his tax bill on Thursday. By late Wednesday his office had not set a time for the announcement.

"That is the number we have been looking at but it has not been finalized," Logsdon said.

The governor's tax plan also would give the companies a 20% tax credit for whatever profits they reinvest in Alaska.

Murkowski's lead oil and gas consultant, Pedro van Meurs, has estimated that the governor's net-profits tax would bring the state about $1.5 billion above the production tax system in place now this year, based on an oil price of $60 a barrel.

Alaska took in $863 million in production taxes last year. The state's oil income last year totaled $2.85 billion.

The price of North Slope crude closed Wednesday at $55.35 per barrel.

BP (BP) spokesman Daren Beaudo said in a telephone interview that a profits-based tax could be supported if it's clear, predictable, durable and reasonable, but he declined to speak about the governor's proposed rates.

"When a statute is presented, I'll have something to talk about," Beaudo said.

Exxon Mobil (XOM) also declined immediate comment, and ConocoPhillips (COP) did not return a call seeking comment.

The Murkowski administration has said tax adjustments are necessary before finalizing a natural gas contract with the three major oil companies. A contract setting long-range tax and royalty terms is a step toward constructing a North Slope natural gas pipeline, estimated to cost between $20 billion and $25 billion.

The net-profits tax would replace the state's production tax and its Economic Limit Factor, or ELF, a formula that lowers tax rates for smaller and less productive oil fields.

The ELF formula is outdated, van Meurs has said. It does not account for satellite oil fields and has allowed the nation's second-largest field, Kuparuk, to escape production taxes.

A profit-sharing production tax would tax oil companies more when the price of oil is high and tax them less when the price is low. The tax would be based on a percentage of the oil's wellhead value minus the company's operating costs, property taxes, royalties and capital costs.

Under the governor's proposed rates, the net-profits tax would yield less in revenue for the state if the price of oil falls below about $23 a barrel, according to van Meurs' figures.

The bill will go to the legislature, where House and Senate Democrats have already introduced their own version. Their proposed tax rate is 30% of the companies' profits.

Rep. Les Gara, D-Anchorage, said based on van Meurs' presentation, the governor's 25% tax rate would still result in lower taxes for the oil companies when oil is at $20 a barrel. Oil companies are still making large profits at that price, he said.

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