A House committee has introduced a bill that proposes significant changes to the state's oil production tax system, including taxing Cook Inlet oil for the first time in years and ending, in five years, a generous deal for so-called "new oil" available for fields that began producing oil after 2008.
The substitute bill introduced Wednesday in the House Finance Committee would also scale back cash tax credits paid to oil and gas companies. The changes to the tax credits would not be as substantial as Gov. Bill Walker's proposed bill, but they are stronger than an earlier committee substitute bill.
Under the new proposal, changes to the state's tax $630 million tax credit program would begin in 2017, seven months later than Walker's bill had proposed. In addition, Inlet oil would start being taxed in 2017.
Rep. Les Gara, D-Anchorage, a frequent critic of the state's production tax policies, called the proposal to tax oil produced in the Inlet at the same rate as oil produced on the North Slope a "good move."
Gara, a member of the House Finance Committee, has frequently slammed the state's "new oil" policy, noting production taxes for that oil are zero until the price of oil hits $73 a barrel. North Slope crude oil sold for $36.55 a barrel on Tuesday.
Ending the deal in five years for existing fields, or for future fields after the first five years of production, is a "somewhat fair compromise," he said.
About 17,000 barrels of oil daily was produced in the Inlet in 2015, a fraction of the more than 500,000 barrels of oil produced each day on the North Slope.
Production eligible for "new oil" includes oil produced at the Nikaitchuq field, where production was about 28,000 barrels of oil daily in 2015.
Dan Dickinson, a former state Tax Division director and now an accounting contractor for some oil companies, said Inlet oil production has not been taxed since well before 2006.
The tax formula known as the Economic Limit Factor allowed that deal. The formula was essentially frozen in place for the Inlet in 2006, though lawmakers removed the formula for the Slope that year when they created a new production tax, he said.
In 2006, the Inlet province was mostly a gas basin, with a healthy local market for that gas, and lawmakers focused more on taxing the gas produced. The oil tax deal remained partly as an incentive to stimulate oil exploration, he said.
Dickinson, who does contractual work for Miller Energy Resources, which produces gas and oil in the Inlet, said a production tax on Inlet oil will hurt Miller.
"(The company) is trying to figure out how to get construction costs in line with what it can sell oil for, so this makes it one step harder," Dickinson said.
If passed, once the substitute is fully in effect for an entire fiscal year, starting in 2018, the bill would be worth an average of between $132 million and $220 million annually until 2022.
Kara Moriarty, president of the Alaska Oil and Gas Association, a lobbying group representing the industry, said the proposed changes are "huge."
"I don't have a comment yet," she said in a text message shortly after the bill was introduced. "Literally reviewing as we speak."
The substitute bill would create a production tax floor of 2 percent, another change from Walker's bill, which would prevent Slope oil producers from using credits to drop their tax payments below a 4 percent minimum.
Walker's bill had also proposed raising the minimum production tax to 5 percent, something the current bill doesn't propose.
Gara said the bill was crafted with a lot of input from committee members. Some provisions offer fair compromises, but it still doesn't raise enough money for a state facing a massive deficit.
"I'm not criticizing this, but I'm hoping for something better," he said.