Much has been written around the oil tax reform Senate Bill 21 (SB21) that Governor Parnell signed into law on May 21, 2013. The change to the tax rate has helped Alaska be more competitive with other oil producing states and regions. This has already been seen with the announcements from multiple companies who have promised increased development in Alaska.
In an Alaska Economic Report supplement, author Tim Bradner gives a thumbnail of what SB21 does for the State of Alaska and the oil industry. “The statute basically lowers the tax rate and adds a number of specific incentives for new oil that the current law lacks. ‘Total government take’ (the measure considered by legislators) would fall from an average of 74% per-barrel profit under ACES (Alaska’s Clear and Equitable Share) to between 60% and 66% depending on oil prices, under SB21.” Bradner continues by saying, “Alaska’s current oil production tax, ACES, has a tax rate that is among the highest in the world at current oil prices. Unfortunately for Alaska, the prospects for new discoveries on lands under state tax jurisdiction are modest. The limited outlook for larger discoveries, combined with the high cost of developing new oil and the high tax rate, create an economic environment that is not healthy. The result is that industry investment in new oil in Alaska is flat or declining, in contrast to other oil-producing US states and regions of the world where new investment is rising. Because the industry is not investing enough here in developing new oil (because of the adverse economics) our production is declining.”
SB21 brings a new, competitive tax structure to the industry and progress has already been seen with announcements from multiple companies with stakes in Alaska’s oil industry. In a press release dated May 21, Governor Parnell states that “Our state is on track for an Alaska oil comeback. Alaskans are already seeing the positive effects of a more competitive tax regime with encouraging announcements from several companies.” ConocoPhillips is planning on sending an additional rig to the Kuparuk field and is in the beginning stages of the regulatory and permitting stage for engineering in the National Petroleum Reserve. BP has announced that it plans to reinvest $1 billion in its North Slope fields as well as explore new development projects on the west side of Prudhoe Bay with an additional $3 billion. Both companies credit the new tax change as the reason for their development plans. Other companies are developing new plans for investment, with more announcements to come in the near future.