Alaska votes to keep oil tax cuts intact
Washington, 20 August (Argus) — Voters in Alaska's primary election yesterday defeated a ballot initiative to overturn legislation passed in June 2013 that cut taxes on crude and natural gas production.
The vote was a victory for big Alaska producers including the state's leading producer, US upstream independent ConocoPhillips, who had said that the new tax structure advanced by governor Sean Parnell was key to reversing declining production there.
Unofficial returns posted by the Alaska Division of Elections show the ballot measure to repeal last year's state tax law was defeated, with 52pc of voters rejecting the measure and 47pc supporting it, with 98.6pc of precincts reporting.
ConocoPhillips has invested $1.7bn in Alaska this year, including on the CD-5 oil satellite project in the North Slope's Alpine field. ExxonMobil, BP and ConocoPhillips are moving forward with the Alaska LNG terminal, a $45bn-65bn project that would export up to 2.4 Bcf/d of gas.
Vote No On 1, an industry-backed campaign to block the ballot measure, said today that the measure's defeat shows that Alaskans "made a choice to keep tax reform and give it a chance to work."
The campaign to support the ballot initiative did not respond to requests for comment.
The ballot measure would have rescinded Senate Bill 21, which was passed last year by the Republican-controlled state legislature. The bill replaced the state's previous progressive tax structure with a flat 35pc tax rate, and was greatly favored by oil and gas producers. The law went into effect in January.
The bill was designed to boost throughputs along the 800-mile Trans-Alaska Pipeline System (Taps), which delivers North Slope crude production to the southern Valdez marine terminal for export to destinations at the US west coast.
Throughputs along Taps have fallen steadily with the state's dwindling oil production, with flow rates down from 2.1mn b/d in 1989 to current average flows of 523,000 b/d this year-to-date.
The oil and gas industry accounts for 90pc of state revenues, according to the Alaska Department of Revenue, and as a result is subject to frequent changes.
Alaska's legislature in 2006 passed a bill setting a 22.5pc tax rate on oil producers' profits, with a modest progressive tax to track the rising price of oil. The following year, newly-elected governor Sarah Palin (R) championed a bill setting a 25pc tax on oil companies' margins above $30/bl, with an additional 0.4pc increase for every dollar of profit above $30/bl. Alaskan production fell by 5-8pc/yr in 2008-13, although state revenues have fluctuated with crude prices. Senate Bill 21 was meant to boost production by incentivizing investment.
The Alaska Department of Revenue estimates that $10bn has been invested in Alaskan oil fields since the law came into effect in January.
But the bill spurred a backlash among some Alaskans, who argued that the new tax rate is too favorable to oil companies and will reduce tax revenue. The state Revenue Department forecasts $5.3bn in revenues for fiscal year 2014, down from $6.9bn in 2013 and 8.4bn in 2012.
Opponents of Senate Bill 21 are faced with limited options. The deadline to include a measure on the 4 November general election ballot passed on January 21. A Republican-controlled legislature is also unlikely to take up another tax bill when the body convenes this coming January, Vote No On 1 campaign director Willis Lyford told Argus.
"This validates what the legislature did last year," Lyford said. "I do not think there is any appetite in the majority in the legislature to revisit this."
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