Morning Headlamp — “The Good, the bad, and the ugly” Oil and Gas Tax Credits

The good, the bad, and the ugly. Janak Mayer of Enalytica briefed Alaskan lawmakers on the details and implications of Gov. Bill Walker’s oil and gas tax credit plan. Mayer said bad aspects of HB 247 are that incremental revenues could chill investment. Under SB 21, it takes a new project on the North Slope about five years before it starts generating an annual profit, Mayer showed, and another three or four years before investment has been recovered and the project as a whole becomes profitable. Headlamp would argue that “bad” and “ugly” outweighs whatever “good” the Governor sees in HB 247. As Mayer accurately points out, a regressive tax regime will only further hurt an industry that desperately needs private sector investment to survive.

“On warm standby.” Citing record low oil prices Brooks Range Petroleum Corp.’s Mustang Project has been postponed—with first oil expected to be produced from the field in late 2017, after telling the state last year it was shooting for late 2016. The project is located in the Miluveach Unit near ConocoPhillips’ large Kuparuk River oil field. The Alaska Industrial Development and Export Authority, a state public corporation, has invested heavily in the project, including committing to pay for a large portion of the $215 million facility that will process up to 15,000 barrels of oil daily once it’s complete. AIDEA officials have said their investment has helped move the Mustang project forward. They’ve called the state investment a model for future state partnerships with independent oil producers. Small companies such as Brooks Range generally don’t have the financial flexibility of large North Slope operators such as ConocoPhillips. Headlamp notes that the Governor’s veto of $200 million in tax credits from the FY 2016 budget impacted financing for the project and hopes that a partnership between Brooks Range and AIDEA can bring the Mustang Project back on schedule. Continued investment in a low price environment will be crucial to the project’s sustainability and critical to efforts to put more oil in TAPS

Halfway to anything? Nearly halfway through the session, it remains unclear what pieces the Legislature will pull together to tackle a multibillion-dollar state budget deficit exacerbated by low oil prices. In addition to budget cuts, current proposals include taxes, the use of Alaska Permanent Fund earnings, changes to the state’s oil and gas tax credit system, along with reforms to the State’s Medicaid and criminal justice systems. House Minority Leader Chris Tuck, said the committee process is set up to compartmentalize subjects, but that makes it hard to see the bigger picture. It’s important to find out what lawmakers on both sides would like to see as part of a fiscal plan, he said. “We have a strong desire to share the responsibility and the burden,” he said. “We’re trying to think of every idea we can to foster that along.” Headlamp would remind readers it was Tuck’s caucus that held the legislature hostage last year, forcing the body to increase the final budget, which added to Alaska’s deficit. Headlamp hopes his ideas won’t produce a repeat of last year. 


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First Reads

Legislature’s Consultants Outline “Good, Bad, and Ugly” of Oil Tax Credit Plan
Alaska Commons, Craig Tuten, February 28, 2016

North Slope oil project, backed with millions from state, on hold
Alaska Dispatch News, Alex DeMarban, February 27, 2016

With state money tight, Alaska lawmakers report $250,000 in free travel
Alaska Dispatch News, Nathaniel Herz, February 27, 2016

Obama energy policy costing jobs, fuel security
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Alaska legislators nearing half-way point of session
Associated Press, Becky Bohrer, February 27, 2016

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