Alaska oil and gas winter forecast: state estimates 2011 increase in jobs, capital expenditures.

• Author: Resz, Heather A.
• Position: OIL & GAS - Report

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Though it's still early too know what fiscal year 2011 might look like for the oil and gas industry--Department of Revenue won't issue its 2010 Fall Revenue Forecast until December--some say they worry Alaska's 2007 tax law change is stifling the industry.

"The State has put exploration incentives in place, but our tax regime is so far out of bounds that it is discouraging new exploration," said Jason Brune, executive director of the Resource Development Council for Alaska, a resource industry advocacy group.

Alaska Department of Revenue Deputy Commissioner Marcia Davis said Alaska's Clear and Equitable Share, or ACES, was designed to encourage investment, and gives companies tax credits for a portion of their qualified capital expenses. Because Alaska's tax is based on the "net value" of oil and gas production, rather than the "gross value," producers pay tax only after all of their costs are taken into account," she said.

"ACES rewards producers who invest in Alaska, and is less rewarding to companies that want to treat Alaska as a cash cow," Davis said.

But advocacy groups like RDC and The Alliance say Alaska's job and investment numbers are slipping in the oil and gas industry. They say the progressive tax structure in the 2007 law has had a chilling affect on the billions of investment dollars necessary to keep oil flowing through the trans-Alaska oil pipeline for the next 50 years.

Davis said she's familiar with the groups' concerns, but State records show year-to-year growth in capital expenditures, jobs and State revenue.

"I hear people saying that. But all I know is what the data shows us," she said of industry claims.

Is ACES WORKING?

According to the Department of Revenue's January evaluation of ACES, capital expenditures were $2.047 billion in fiscal year 2007, $1.954 billion in 2008 and $2.212 billion in 2009. For 2010, Davis said the Department of Revenue expects capital expenditures to be about $2.5 billion, and estimates 2011 will be $2.9 billion.

If these estimates hold true, that's nearly a $1 billion increase in capital expenditures since ACES passed.

"This report was prepared at the request of the commissioner of revenue in order to evaluate whether ACES is meeting its intended goals of providing a fair share of oil and gas revenue to the State, and encouraging investment in the exploration and development of new oil and gas resources in Alaska," according to the Department of Revenue ACES status report.

The tax law also generated more State revenue than its predecessors would have. It generated about $3.1 billion in State revenue in 2009. The Petroleum Profits Tax law passed in 2006 would...