Lawmakers get initial briefing on oil tax credit bill
Lawmakers this week received a briefing on how Gov. Bill Walker wants to pay off $800 million in tax credits owed to the oil industry.
Walker wants to sell up to $1 billion in bonds so the state can buy back the outstanding oil and gas exploration credits.
Last year under HB 111, the legislature revamped the credits program designed to attract investment from smaller oil companies. Oil companies can now earn credits once they start producing oil rather than during the exploratory phase.
But, the legislature and the administration still want to clear the books of remaining credits owed to oil companies.
The tax division says there are slightly more than $800 million in outstanding credit certificates, but it’s expecting upwards of another $200 million. Of that, $100 million is expected to be sold to the major North Slope leaseholders, who will, in turn, use those credits against their taxes.
This credit program originally was designed to attract smaller companies to explore for oil and gas throughout the state. But recent chronically low oil prices made it difficult to purchase these credits, and the state was running up a sizable tab.
This has forced Walker to pay the minimum under state law, but not nearly as much as the Legislature and industry sought.
Rather than repay the minimum under state law over several years, the state will buy back the credits in full but at a discounted rate.
Revenue Commissioner Sheldon Fisher says he hopes paying off the credits ramp up operations.
“With the collapse in oil prices, we moved from a regime where we were paying these credits annually as they were incurred to one where we paid the statutory minimum,” Fisher said. “That caused the oil industry – the small producers – to really slow down in terms of their development.”
Plans under SB 176 and HB 331 would give the companies holding the credits two options.
They can get paid at a 10 percent discounted rate, or they can get the rate reduced to 5.1 percent but they would have to agree to one of three provisions: increase the royalty rate to the state once oil gets produced; promise more investment into the fields within two years of payment; receive seismic research data sooner than current law allows.
Walker formally submitted proposals to the house and senate this week. There are no plans to hold hearings on the bills next week. Still, members of Walker’s administration met with several lawmakers from each chamber.
“It’s an issue that we want to settle,” said Senate Resources Chair Cathy Giessel, (R). “We want to continue to attract that investment to Alaska that companies are always wanting to do. Investors are always wanting to invest in Alaska, but right now we haven’t proven to be dependable partners.”
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