that is measured within one-tenth of 1 percent," Evans said.
The state has proposed that one method of measuring new oil would be to continuously measure the flow on each new well through a "multi-phase flow meter" that would, theoretically, calculate how much oil is in the mixture of oil, natural gas and water drawn up from oil reservoirs.
But the type of meter required to continuously measure oil at individual wells, before processing, can cost up to $750,000 and the accuracy varies depending on the precise mix of components, Evans told the Revenue Department. The mixture of oil, gas and water may all be stirred together as it comes out of the reservoir and can take days or even weeks to separate, according to the state's oil and gas director, Bill Barron.
"There's no -- we're just not set up to do this," Evans said.
Currently, individual wells on the same pad are tested at least monthly in a system overseen by the Alaska Oil and Gas Conservation Commission to estimate how much oil comes from each well, Barron told legislators in March.
The oil, gas and water are separated, a meter measures the flow of just oil, and then the components are mixed back together and piped from a pad's wells to a central processing facility, he explained in an interview. The flow information is used for tax and royalty purposes, and to help manage the reservoir, he said. The system is shared among all the wells on a pad.
The oil is measured again, more precisely, after being separated in the central processing facility, according to Conoco.
Tom Williams, BP's tax counsel, testified as chairman of the Alaska Oil and Gas Association's tax committee, the industry group that represents most producers, refiners and other key players. His comments were brief, but he said the association has concerns about the metering issue and how to determine what oil will qualify for the extra tax break.
Tangeman said his agency expects to have new regulations in place this year. He said the new law contains other incentives for oil companies even if they decide the extra tax break for new oil production is too complex or too expensive. There's the new flat tax, the elimination of tax rates that escalate as oil prices rise, and the sliding-scale, per-barrel credit, he said.
The producers are "going to fight for every inch they can," he said.
The department's nine-page rule explainer issued last week may only add to the muddle. A footnote discusses how oil and gas subjected to "multiphase flow metering" and then commingled with similarly subjected oil and gas could be "mechanically separated according to custody-transfer standards. In this situation, the total amounts metered according to custody-transfer standards are allocated back, proportionally to the respective amounts metered by multiphase flow metering."
The oil tax law, which the Parnell administration calls the More Alaska Production Act, is the subject of an effort to repeal it by public vote on the August 2014 ballot.
This week, state Sen. Bill Wielechowski highlighted his first "reason of the week" to support the repeal. Even when Alaska's oil taxes were so low that 15 of 19 North Slope fields paid no production tax, production declined, the Democrat from Anchorage said.
But oil prices were low then, too, Tangeman said.
By 2000, Wielechowski said, oil prices were rising, taxes were low, and production was still down.
The state's new oil tax measure is what Kerttula said her father, former longtime Sen. Jay Kerttula, a Democrat, used to call "lazy law," meaning the Legislature "dumped it on the regulators."
"The Revenue Department is trying its hardest but I don't know how they are going to ever resolve a geology question on the reservoirs and the hydrocarbons."
Reach Lisa Demer at firstname.lastname@example.org or 257-4390.
(c)2013 the Anchorage Daily News (Anchorage, Alaska)
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