North Slope

The House passed a far-ranging revision of Alaska’s oil and gas tax laws on Friday by a 25-12 vote.

The action came shortly after the House approved an amendment that rewrote the bill. The amendment passed with the minimum votes required, 21-16.

The last-minute changes include eliminating the ability for North Slope oil producers to deduct spending to reduce future taxes.

And tax credits to support Cook Inlet production would end more quickly than in the version of the bill passed by the House Rules Committee.

The amended bill also limited the number of years that new oil projects benefit from lower taxes. While the House Rules version would limit these “new oil” benefits to 10 years, the amended bill limits the benefits to seven years.

The upshot is that the amended bill would save the state much more money than the House Rules version over the next three years, but not as much as Gov. Bill Walker’s proposal would have.

For example, in the fiscal year ending in 2019, the amended bill would save the state roughly $225 million, the House Rules version would save $85 million, and Walker’s plan would save $465 million, according to a Department of Revenue analysis.

Amendment sponsor Homer Republican Rep. Paul Seaton said the bill would bring the state more money sooner and reduce long-term liabilities, while still supporting current projects.

The amendment drew support from a diverse coalition, including Seaton, North Pole Republican Rep. Tammie Wilson, and all 12 minority caucus members present.

“This is the way we should work together,” Seaton said of his work with Wilson on the amendment. He said they looked for areas of agreement and didn’t include areas where they disagreed, while drawing input from other legislators and industry.

Anchorage Republican Rep. Craig Johnson opposed the amendment and the bill, after having crafted the Rules Committee version. He said the revised bill left uncertainty in Cook Inlet tax policy.

“I believe this bill takes us back to the days of rolling brownouts,” in Southcentral Alaska, Johnson said.

Johnson also expressed concern that the bill would continue to pay tax credits. The Rules Committee version would have shifted toward tax benefits based on companies deducting lease expenditures.

The vote on the amendment was a rare occasion in which most majority-caucus members were on the losing side.

Seaton also said the amended bill addresses a concern Walker raised Friday. Walker said he wants the state government to have a say on which oil and gas projects are eligible for subsidies. Seaton said the bill accomplishes the goal by requiring companies to develop plans that would be approved by the state.

The bill heads to the Senate Finance Committee, which is scheduled to hold a hearing on it Saturday.

Gov. Bill Walker said Friday that the state government must have a say in which oil and gas projects are eligible for tax incentives.

Walker said he’s concerned that the oil and gas tax overhaul being debated by the House doesn’t give the administration approval over incentives. He proposed adding this authority, but it wasn’t included in the current version of the oil and gas tax bill.

“It’s one of those things that just I think got out of hand,” Walker said in an interview. “And it was never intended to be, you know, a $700 million, $1 billion expenditure on something we have no say in. Can you imagine us … giving $700 million to any entity in Alaska and not having any say over what it is?”

Walker also pushed back against a different legislative proposal to draw money from Permanent Fund earnings to cover the state’s $4 billion deficit.

Sen. Anna MacKinnon, R-Eagle River, says she’d prefer the House approve drawing money from the Constitutional Budget Reserve. This requires three-quarters of the House to agree.

But MacKinnon said drawing from Permanent Fund earnings is the legislature’s last option if they can’t come to an agreement. This would take only a bare majority of both houses.

“The last option available to us should the minority not come together and support a three-quarter vote draw that’s necessary to access the Constitutional Budget Reserve … is to go after the earnings reserve to fund the budget,” MacKinnon said.

Walker stopped short of saying that he would veto a budget that draws on Permanent Fund earnings without a long-term fiscal plan. But he said he opposes such an approach.

“I’d be very troubled by that,” Walker said. “To their credit, (legislators) have certainly talked about that in the past as an option. And (it’s) not one that I would support at all. … We’re heading down a new path. We’ve never done that before, and I’m concerned about the precedent that that would potentially set.”

Walker said his budget proposal has the pieces the legislature needs to close the budget shortfall.

The House began debating amendments to the oil and gas bill – House Bill 247 – Friday.

The House could begin debate on the bill scaling back tax credits for oil and gas companies as soon as Friday.

The House Rules Committee released its version of House Bill 247 on Thursday.

The bill doesn’t initially go as far as Gov. Bill Walker’s proposal to reduce tax incentives. But it would save the state a similar amount to Walker’s proposal, beginning in 2020.

Anchorage Democratic Rep. Chris Tuck said he will try to amend the bill. The bill gives priority for incentives to companies that hire Alaskans. But Tuck wants to include contractors and subcontractors as well.

Shell is giving back all but one of its leases in the Chukchi Sea.

The announcement comes seven months after Shell said it was halting exploration in Alaska’s offshore Arctic for the foreseeable future.

Gov. Bill Walker calls the news “disappointing.”

Michael LeVine, Pacific senior counsel for the conservation group Oceana, said the lease surrenders underscore Shell’s exit.

“They’re significant because they really call to an end this era of exploration, at least in the Chukchi Sea,” he said.

To Oceana and other anti-drilling groups, Shell’s decision shows industry can’t make offshore drilling work in the Alaskan Arctic if companies are held to high safety standards. They say it’s a sign the federal government should not include the Arctic in its next off-shore leasing plan.

Sarah Erkmann, manager of external affairs for the trade group Alaska Oil and Gas Association, sees other contributing factors.

“Uncertainty comes at a cost,” she said. “And frankly, the companies have decided that low oil prices, combined with having no idea what … the federal government will require in the future, are just too expensive and are unsustainable in this low-price environment.”

Shell spokesman Curtis Smith cited high costs and an “unpredictable” regulatory environment, but also the poor results from Burger J, the sole test well it completed in its $7 billion Arctic program.

Shell paid more than $2 billion for its Chukchi leases.  To keep them, the company would have to pay about $40 million in rent over the next four years, by Oceana’s calculations. Shell will retain its lease to the Burger J site, which Smith said will allow it to keep proprietary data.

Shell said it’s still evaluating whether to retain its leases in the Beaufort Sea. But the company will, quite literally, pull up stakes this summer. The spokesman said Shell will return to the Arctic to retrieve 55 anchors it left on the floor of the Chukchi and Beaufort seas.

After weeks of delays, a bill to overhaul Alaska’s oil and gas taxes could advance quickly. The House Rules Committee held the first public hearing in more than three weeks on the legislation Tuesday.

The committee’s version of the bill, House Bill 247, would phase out refundable tax credits over the next three years.

Chairman Craig Johnson, R-Anchorage, said the bill draws on input from industry, as well as lawmakers from both parties.

“We’d like to continue incentivizing companies,” Johnson said. “The question is: ‘What can we afford?’ And I don’t know that we can afford to continue writing checks to oil companies in this environment.”

The bill initially doesn’t go as far as Gov. Bill Walker’s proposal to reduce subsidies. But once the reductions are fully phased in, they would be similar in size to Walker’s.

Rep. Chris Tuck, D-Anchorage, said the new version doesn’t cut subsidies quickly enough.

“It’s just hard to say, ‘OK, Alaskans, it’s time for you to cut your Permanent Fund dividend in half, so the oil industry can benefit from that,’ because basically, that’s what we’re doing. We’re asking Alaskans to pull out of their pocket and subsidize the largest industry in the world,” Tuck said.

Tuck said reducing the tax subsidies more quickly is important to closing the state’s budget deficit.

But Johnson said the new version of the bill is fair to companies that have made their plans around the current tax system.

“We still give everyone an opportunity to succeed,” Johnson said. “We give them time to get partners. We give them time to readjust their business plans. But I think mainly we generate revenue for the state and we basically … stop the hemorrhaging. We quit writing checks to oil companies.”

The Rules Committee will take public testimony on the bill Wednesday. Johnson said he wants to finish work on the bill – including amendments – tomorrow as well.

Hilcorp Alaska is facing a $20,000 penalty from the state for unsafe use of equipment on the North Slope.

It’s the latest in a string of violations for Hilcorp, which a state agency says has developed a pattern of regulatory noncompliance.

The penalty stems from a series of actions in April and May of 2015, when Hilcorp was conducting repairs on a well at its Milne Point Unit on the North Slope. During the work, the company lost control of the well and had to use a blowout preventer to shut it in and stop the flow of fluids.

That wasn’t the problem.

“Having to use the blowout prevention equipment in and of itself isn’t a bad thing – that’s what it’s there for,” said Cathy Foerster, of the Alaska Oil and Gas Conservation Commission,  the state agency charged with ensuring the safety of all wells in Alaska. “It’s like, how many times are you glad you have your seatbelt on.”

The problem was what happened next. The AOGCC said the company failed to properly report the incident, calling Hilcorp’s communications “misleading and incomplete.” Then the company didn’t test the blowout preventer before continuing with its work.

This isn’t the first time Hilcorp has run into trouble. Commissioners attached a document listing some 25 violations since 2012. Altogether, the AOGCC has proposed over a $1 million in fines, though many of those penalties are still under adjudication.

In its decision, the commission called the Milne Point Unit incident “emblematic of ongoing compliance problems” at Hilcorp’s operations, saying the disregard for regulations “is endemic to Hilcorp’s approach” in Alaska.

But, Foerster said, the company has pledged to do better going forward.

“Recent conversations with my staff indicate that they’re seeing a cooperative effort to understand and comply with the regs,” she said.

Hilcorp can still appeal the penalty. The company didn’t reply to requests for an interview by deadline.

Based in Texas, Hilcorp is relatively new to Alaska, but over the last half-decade it has built operations both in Cook Inlet and on the North Slope, becoming a significant oil producer in the state, as well as the largest natural gas producer in the Inlet.