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Butcher: Alaska's existing oil fields take priority

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Posted: Saturday, December 8, 2012 11:53 pm

FAIRBANKS — The upcoming oil tax cut package proposed by Gov. Sean Parnell will prioritize cuts for legacy oil fields and leave more work on bringing new fields online for later, Alaska Department of Revenue Commissioner Bryan Butcher said in Fairbanks earlier this week.

Butcher made the statement during a visit to the Fairbanks chapter of the Alaska Support Industry Alliance on Tuesday, where he said the administration is expected to pass oil tax legislation by the time lawmakers gavel out in April.

Butcher explained the goal with oil tax cuts is to spur production, refill the pipeline and create more jobs.

While new oil fields as well as shale and heavy oil could potentially add to those, he said the governor believes the fastest way to that goal is to cut taxes on the existing fields.

“The majority of the known oil is in the legacy fields,” he said. “We still know there’s a lot of oil there. The governor and I believe many legislators looks at it as a combination of getting more oil out of the legacy fields in the short term and getting more oil out of the new fields in the long term.”

However, opponents also say it will be very difficult to boost oil on the traditional fields.

Outgoing Democratic Fairbanks Sen. Joe Paskvan, is one strong voice against Gov. Sean Parnell’s plan to slash taxes without a clear path to putting more oil in the pipeline.

Paskvan argued that declining throughput in legacy fields is a result of long-term decisions made by the producers to not build additional processing facilities and the science of mature oil fields.

He had pointed to testimony by former Division of Oil and Gas Director Kevin Banks to the U.S. Senate in a bid to open up federal land for oil production.

Banks told the Senate “the natural field declines cannot be replaced without access to production from Federal lands and the Outer Continental Shelf. There are no known conventional resources on State or Native lands that are likely sufficient to replace the decline in the existing production rates.”

But Butcher said while the administration is interested in boosting production and exploration in new fields and from shale and unconventional oil, the time from state investment to production is too long.

“The problem is that new oil in new fields is the average time from exploration to production in Alaska is ten years, however the tax credits for that development would be in the hundreds of millions of dollars and that would be paid up front by us,” he said.

“We would be on the hook treasury-wise now for the possibility to increase production ten years."

However, he noted the proposed cuts in the governor’s plan would have a one to two year lag before oil production would be boosted at the legacy fields.

The administration is considering tax cuts to the tune of as much as $1 billion during the next fiscal year.

“It’s hard for the long-term piece to work without the short-term boost,” he said.

Contact staff writer Matt Buxton at 459-7544 or follow him on Twitter: @FDNMpolitics.

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