Cook inlet without tax credits: set to roll back this year, end next year.

• Author: Strieker, Julie
• Position: OIL & GAS

In 2009, an energy crisis threatened Southcentral Alaska.

For decades, communities in the region between Homer and Talkeetna were fueled by oil and gas from Cook Inlet. According to the Alaska Oil and Gas Association (AOGA), 80 percent of the electricity in the region was generated by natural gas. But by the early 2000s, production declined. Agrium closed its fertilizer plant in Nikiski and industrial users also scaled back. Utilities had trouble securing long-term supply contracts and Anchorage residents were threatened with brownouts during a period of extreme cold in 2008-2009.

In response, the Alaska Legislature passed the "Cook Inlet Recovery Act," HB280, which expanded capital credits for Cook Inlet producers. It also spurred the construction of a large natural gas storage facility. The credits also attracted smaller, independent oil companies to Cook Inlet.

Over the next four years, independents such as Hilcorp Alaska, BlueCrest Energy Inc., Furie Operating Alaska, and Glacier Oil & Gas Corporation moved into Cook Inlet, drilling dozens of new oil and gas wells and upgrading the infrastructure in the region. They discovered new gas fields and, in a period of a few years, revitalized the petroleum industry in Cook Inlet, accounting for 25 percent of jobs in the Kenai Peninsula Borough, according to a 2014 study by the McDowell Group.

Significant Changes

The state's tax incentives were lauded for sparking much of the new production. Faced with a multi-billion-dollar budget shortage due to low oil prices, Alaska Governor Bill Walker proposed major changes to the tax credits.

In February last year, AOGA issued a statement against Walker's proposed changes, saying, "Companies are already cutting back at these low prices and this proposed legislation [SB130 and HB247] will chill future investments."

HB247 made significant changes to the tax structure, rolling back credits in 2017 and ending them in 2018. Then, in June 2016, Walker vetoed $430 million in tax credits to oil companies already in the budget. The veto doesn't stop the payments, but defers them indefinitely. Walker said the credits are at odds with the state's need to generate revenue from oil and gas.

Kara Moriarty, president of the Alaska Oil and Gas Association, said in a statement the veto was short-sighted.

"The state is obligated to make good on its commitments," Moriarty's statement says. "A misguided move like this sends chills through the investment community, as well...