incentives were necessary to stem a decades-long slide in North Slope oil
production. Alaska's oil profits tax generates the bulk of state revenue, which
pays for such things as teachers and troopers, road repairs and health care,
state parks and universities.
The new law imposes a flat, 35 percent tax on profits and eliminates the Palin-era tax system of progressively higher tax rates as oil prices rise. It gives oil companies new tax credits of up to $8 a barrel, depending on the market price of oil.
For oil that ends up classified as "new" North Slope production, the tax law also sets aside at least 20 percent of the oil's gross value and exempts it from the profits tax. That's another $7 or more in tax savings per barrel of oil, according to an analysis by state House Democrats. At certain oil fields, for which the state already claims a royalty, or ownership interest, topping the standard 12.5 percent, 30 percent of the oil's value can be set aside for a tax break. That amounts to $11 in savings per barrel.
In all, the changes are predicted to cost the state $700 million to nearly $1 billion a year. The extra break for new oil production is expected to be a small portion of that, maybe $25 million to $75 million, though state officials admit they don't really know how much.
One sticking point in the Department of Revenue's proposed rules concerns how to define new production in the giant old fields. The extra tax break also applies to new pockets of oil in existing fields and to new oil fields. That would include Linc Energy's untapped Umiat prospect, Tangeman, the revenue official, said.
Democrats say two fields already producing oil, Pioneer Natural Resources' Oooguruk field and Italian oil producer Eni's Nikaitchuq field, count as new because they were created after the law's cutoff date of Jan. 1, 2003.
BP, the Prudhoe Bay operator, said it doesn't see the tax break applying there, spokeswoman Dawn Patience said. BP plans to add drilling rigs in 2015 and 2016, mainly for work in Prudhoe Bay, but new oil produced as a result won't qualify for the extra tax break, she said.
At a public hearing last week on the proposed new regulations, the only testimony came from two oil industry representatives. The state will accept written public comments through Monday.
The state should expect oil companies to demonstrate compliance "rather than setting forth an enormously daunting burden of proof that we have to overcome," Marie Evans, ConocoPhillips' tax counsel, told the Department of Revenue, according to a transcript of the Aug. 13 proceeding. ConocoPhillips operates the Kuparuk River field.
The proposed rules are hard even for experts to decipher, Evans said.
"The one thing I can say is right now when I read these regulations, and I have had significant help from different departments within ConocoPhillips, oftentimes I'm answering, 'I don't know what that means,' " she said.
She suggested the department use "normal oil field practices. Some of the standards in here are aspirational, but they're impractical."
For instance, the proposed rule says that no more than one-tenth of 1 percent of the new oil being measured could flow from an existing oil field into a new area. "I don't think there's anything other than a U.S. track and field course
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