There was more testimony on oil taxes during the state Legislature's special session Monday, as an energy consultant said big tax breaks including existing North Slope oil fields could pay for themselves -- but would put the state in the hole for at least eight years.
Janak Mayer of PFC Energy told the House Resources Committee that the cuts would put the state in the hole for at least eight years, and wouldn't break even by the year 2020 -- but only if they could stem the North Slope's production decline from an average annual drop of 6 percent to an annual decline of 2 percent.
"You get to a point at about 2020, where revenue would be higher than under the current tax regime," Mayer told lawmakers.
But there's a chicken-and-egg problem here. While it's true that on average, the aging "elephant" fields of the North Slope have been declining at an average rate of 6 percent a year over the last decade or so, state officials say they are not declining that quickly any longer.
The latest figures from the Alaska Department of Revenue show that the decline in production has leveled off to about 2 percent per year, where it's expected to stay for much of the next decade.
That disputed figure begs the question: If Gov. Sean Parnell's steep 30 percent tax cut is granted and applied to existing fields as well as aging ones, would any flattening of the decline curve actually be attributable to the tax, or would the state simply be giving away something for nothing?
The answer seems unclear. Mayer was very careful to make his testimony conditional. He said that if the tax could be demonstrated to flatten the decline, then it would make the state money by the year 2020. But he made it clear that it was for the Legislature to decide the cause-and-effect aspect of that proposal.
William Barron, the director of the state's Division of Oil and Gas, sounded more optimistic that substantial tax breaks for existing fields could not only reduce the decline at the North Slope, they might even increase production.
Barron pointed out that tax incentives had already caused an increase in production at some of the aging, declining gas fields of Cook Inlet, implying that the North Slope would be susceptible to the same sort of incentives.
"With additional work," Barron said, "with focused and concntrated effort, a field's natural decline can be changed with capitalization and drilling."
Barron left it to lawmakers, however, to decide which kinds of incentives would be best.
The House seems more inclined to accept the notion that large tax cuts even at existing oil fields would encourage new production, while the Senate seems more skeptical.
At a hearing which featured Deparment of Revenue Commissioner Bryan Butcher last week, senators brought up a sore point -- the Kuparuk elephant field, the second largest conventional oil field in all of North America after Prudhoe Bay.
Some senators feel the state of Alaska got bamboozled by the oil companies when it came to Kuparuk. With its prolific output, the taxes the state made on the field amounted to less than 1 percent, an error that wasn't rectified until the current Alaska's Clear and Equitable Share tax structure was enacted in 2006.
On Tuesday, senators hope to question Mayer, the energy consultant who testified before the House.
Email Dan Fiorucci
