Incentives for oil and gas in Alaska: diverging views on generosity, effectiveness.

• Author: Bradner, Mike
• Position: OIL & GAS

Alaska's incentives for oil and gas exploration and development may be some of the most generous in the world. Maybe too generous?

Some think so, and the views on this are becoming sharply divergent.

Some believe we're giving away too much to the industry through tax credits on capital investments in oil projects, or at least that some of the credits can t be seen as linked to producing new oil.

Gov. Sean Parnell now holds this view, and so does Brian Butcher, the state revenue commissioner. "There's not an apparent connection between some of our credits and new production," Butcher says.

The commissioner is speaking mainly of a 20 percent tax credit for all capital investment, whether for new oil facilities or for major maintenance. Other tax incentives are more directly connected to new oil, such as a credit on the cost of drilling exploration wells.

Lost Revenue

However, also worrying Parnell and Butcher are the financial effects of the tax credits, in terms of cost to the state treasury, which becoming very substantial. In Fiscal 2014, the budget year beginning in July this year, the credits will the cost state an estimated $1 billion in lost revenue.

This is of real concern because state revenues are already turning down because of a decline in oil production.

Parnell proposes to end the 20 percent tax credit as part of his bill to revamp the state's oil and gas production tax, and encourage more investment.

There are other views on Parnell's proposal; however. State Sen. Berta Gardner, a Democrat from Anchorage, believes the governors proposal to end the 20 percent capital investment tax credit, and to change another tax credit, would hurt smaller companies hoping to develop new oil fields.

The ability to charge off one-fifth of capital investment against tax liability, or to sell the tax credits to other companies, basically helps a firm recoup capital investment faster in a project and for the project to become profitable.

That's important to all industry investors but it's particularly important to smaller and medium-sized companies now working in Alaska.

"We should be doing everything we can to encourage a new generation and diversity in our oil industry so we're not so dependent on the major companies. The governor's proposal pulls the rug out from under these small companies," Gardner says.

Production Tax Overhaul

As a part of this overhaul of the state's oil production tax Parnell proposes to end the 20 percent capital...