Alaska cuts tax credits for oil and gas producers

OREANDA-NEWS. July 04, 2016. Alaska will cut \\$400mn in oil and natural gas tax credits this year, phase out tax credits for Cook Inlet oil producers after 2017 and reduce credits for North Slope exploration to help trim a \\$4bn budget deficit.

Oil and gas companies were eligible to receive \\$430mn in tax credits during the 2016 fiscal year that ended on 30 June. But governor Bill Walker on 29 June exercised his line item veto powers, reducing the 2016 tax credit payments to the statutory minimum of \\$30mn. Producers may use the \\$400mn accrued tax credits in the future, if the state has the funds to pay them, Walker said. "We have a \\$4bn deficit, which means the status quo is not on the menu," he said.

The cut in 2016 tax credits "sends a chill throughout the investment community, as well as an industry already battered at low oil prices," Alaska Oil and Gas Association president Kara Moriarty said. "For investors looking to make billion-dollar decisions, this

makes an already risky investment that much riskier."

The state Senate Republican majority criticized the governor's decision, saying "putting off payment will not make it go away, it just hurts Alaska's credit." Democrats in the legislature cheered the cut in 2016 tax credits, but they called for making permanent legislative reduction in tax credits for North Slope producers.

Alaska lawmakers already eliminated most credit allowances for Cook Inlet producers after 2017. The HB 247 bill, signed into law by Walker on 29 June, marks the sixth major change in oil tax policy in the last 11 years.

Cook Inlet producers under the legislation will get another year of credits to cover up to 25pc of net operating losses and 20pc of well lease expenditures, but only if a well produces oil or natural gas. In the North Slope, the bill gradually reduces producers' tax credit for net operating losses to 25pc by 2022, from 35pc at present. An average producer in the state is estimated to lose almost \\$50/bl in 2016, before taxes, according to the Alaska Oil and Gas Association.

Cook Inlet crude output was 18,000 b/d last year, a fraction of Alaska's total of 483,000 b/d, US Energy Information Administration data show. But the current tax system allowed producers in that region to stack multiple credits to get the state budget to pay up to 65pc a project's development cost and up to 85pc of exploration costs, according to the state legislature.

The tax credits helped Cook Inlet producers to double production in the past five years, while output declined in the North Slope. But the program "got way out of our ability to fund it," Walker said. The decline in oil prices since 2014 has reduced the state production tax by such a degree that the state pays more in tax credits than it receives in tax revenue, he said.

Oil and natural gas production tax revenues fell to \\$153mn in the 2016 fiscal year, down from \\$390mn a year earlier, Alaska's Department of Revenue said.