FAIRBANKS — Gov. Sean Parnell plans to offer a new approach to boosting Alaska oil production this year, expanding his focus during the upcoming Legislative session to include reform of both the state’s tax rates and investment incentives.
Addressing a two-decade decline in oil production has been Parnell’s top priority during each of the past two years, but his efforts haven’t made it past the Legislature.
They’ve been directed primarily at lowering oil taxes, a move Parnell has argued is necessary to make the state competitive with other oil-producing areas.
Bruce Tangeman, deputy commissioner of the Alaska Department of Revenue, said Parnell plans to introduce a revamped proposal to the Legislature next week. He didn’t provide specific details of the bill, but said its reach would be broader than previous plans.
Tangeman, who spoke at the Greater Fairbanks Chamber of Commerce luncheon Tuesday, said there is a growing realization that the system of tax credits the state offers for investment also needs to be overhauled. The state has invested more than $4 billion in tax credits during the past five years.
The system currently offers a 45 percent tax credit on some oil exploration investments, whether those efforts lead to oil production or not. Tangeman hinted that the new bill will change that, providing credits only for developments that provide new sources of oil.
“We’re concentrating on re-balancing the system,” Tangeman said.
Parnell’s old proposals for oil tax reform were criticized by opponents for draining billions of dollars in state tax revenue without guarantees that the lower rates lead to more production. After Revenue Commissioner Bryan Butcher struggled to answer questions about the tax bill during a Senate hearing last spring, Parnell pulled it from consideration.
Tangeman said new consultants were brought in this summer to take a fresh look at the issue. He said Parnell will aim for a system that encourages new production while being fair, simple and durable for long-term investment.
Tangeman said recent trends are becoming “more and more depressing,” displaying a graph during the luncheon that showed production spikes in areas like North Dakota, Texas and Alberta, while oil extracted in Alaska has gradually declined. He said oil companies are simply finding more attractive places to invest their money.
“We, as a state, need to realize this is a competition and we need to get back in the game,” he said.
Tangeman said a new tax system is needed to take advantage of new technology for removing shale oil. It’s expensive to extract, which makes areas with high tax rates unattractive for shale production.
He said, however, that Parnell’s proposal still will use the basic framework of the current oil tax system, to which both the state and oil companies have grown accustomed.
“We didn’t enter this process with the idea of throwing the baby out with the bath water,” he said.
Contact staff writer Jeff Richardson at 459-7518.