Oil production forecasts reignite SB 21 debate
JUNEAU – Senate Bill 21 has been like the elephant in the room.
It’s there. Democrats want to talk about it. Republicans would rather not.
No hearings in the legislature have been scheduled on SB 21, the oil tax reform measure which lawmakers passed last year — now subject to a voter referendum in August.
Since the beginning of the 2014 session, Republican majority leaders have said there’s no need to revisit SB 21 because the focus should now be on launching a liquefied natural gas project. But on Tuesday, Senate majority leaders took time out in a news conference to answer some of the attacks on SB 21, a measure aimed at boosting oil production.
Recent revenue forecasts have given supporters of the old tax structure known as ACES, or Alaska’s Clear and Equitable Share, some ammunition.
“They actually predicted more oil under ACES last year than they do under the new oil tax bill,” said Rep. Les Gara, (D) Anchorage. “Well, actually oil production is going to go down about 50 percent, 280,000 barrels a day in 10 years,” Gara said.
Gara also said it falls far short of Gov. Sean Parnell’s promise that SB 21 would reverse the decline and lead to one million barrels of production a day.
But is that what Parnell promised?
Senate majority leaders disputed Gara’s claims on Tuesday.
“We talked about stemming the decline. We talked about hopefully enjoying somewhat of an incline,” said Sen. Peter Micciche, who said the one million barrels production goal was not part of the SB 21 debate but actually came up several years earlier.
The Parnell administration said the goal of one million barrels a day was set in 2011 and was contingent on tapping oil on the Outer Continental Shelf, as well as in the Arctic National Wildlife Refuge and the National Petroleum Reserve-Alaska.
That was then. This is now.
ANWR and NPRA are still off limits. The future of Shell Oil’s OCS exploration is uncertain, and politics continues to be a barrier.
Sen. Bert Stedman, who voted against SB 21 last year, was invited by majority leaders to weigh in. For the most part, he’s been on the sidelines on oil and gas issues.
Stedman, a Sitka Republican, was influential and on the forefront of oil and gas issues when he was part of the bi-partisan majority coalition which controlled the Senate during the 2011-2012 session. Since Stedman joined the Republican majority, he’s kept a low profile and has been reluctant to comment to reporters on oil and gas issues.
“From a budgetary standpoint, it’d be prudent for us to look at a two to three percent decline curve going forward for the foreseeable future,” said Stedman, who tried to stay neutral in the ACES vs. SB 21 debate during the news conference.
“We have a problem under both tax scenarios under lower prices,” Stedman said. “I think probably the less I say, I’m better off sometimes.”
Stedman did say the state treasury could do well at current oil prices if throughput through the pipeline could hit 600,000 barrels a day.
Still, he hedged.
“I don’t know if we can get there. I think it’s going to take substantially more capital than the industry’s talked about putting forward to do that,” said Stedman, who also hinted that the state treasury will take a hit from both ACES and SB 21 when oil companies collect on tax breaks given for their investments in new development.
Senate President Charlie Huggins called SB 21 criticism premature.
“The new tax regime, as I recall, has been in effect for about 40 days,” Huggins said. “And for those that are anticipating great change within 40 days in a new tax regime, they need to get in a different business.”
Huggins and other Senate Republicans conceded that there’s really no way to tell if SB 21’s tax breaks are working other than to track the action on the oil fields.
“Anyone that will deny the increase in activity simply has installed a pair of blinders and is not paying attention to what’s going on in the North Slope,” said Micciche, who believes the decline in production would be far worse under ACES.
The two oil tax systems are based on different concepts.
ACES had a high progressivity rate, which means the higher the price of oil, the sharper in the increase in taxes.
SB 21 has a base tax rate, and its proponents have said it’s more beneficial when oil prices are low. At current prices, they claim, the state is collecting more money than it would have under ACES.
It may be awhile before it all gets sorted out. The current fiscal year runs from July 2013 to June 2014. In the first half of the year, from July to December of 2013, the oil industry was under the ACES tax structure. The second half of the year, from January to June, falls under SB 21. Six months may not be enough time to gauge the new tax structure’s performance.
“We had a problem with ACES in the complexity,” Stedman said. “We still have a problem with SB 21 in the complexity.”
In other words, there are no straightforward answers in this debate.
And Huggins suggested the reason why.
“We have to be honest with ourselves,” Huggins said. “I think this is an election year.”