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Alaska Senate Proposes Bill to Increase Oil Tax Revenue

Alaska Senate's Bill 114 proposes tax adjustments and ring-fencing on oil fields to raise revenue from the oil and gas industries, despite investment concerns.

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On Friday, a new bill was introduced in the Alaska Senate to raise more revenue from the oil and gas industry to help bridge the state’s fiscal gap amid a worsening budgetary outlook. The proposed legislation, Senate Bill 114, seeks to reasonably change how taxes are levied on oil and gas producers. Still, concerns have been raised about its impacts on industry investment.

The bill has three central components that aim to raise more state revenue. Firstly, it proposes a reduction of oil tax credits from $8 to $5 per barrel. Under last year's daily production of 438,000 barrels, the state could expect to collect over $400 million. The credits would also be capped on the capital expenditures made by oil producers, which could have a difficult-to-determine revenue impact.

Secondly, it suggests adjusting corporate income taxes paid by oil companies. Privately held companies would pay the same 9.4% income tax rate as public corporations, which would only apply to companies that make more than $4 million annually. The tax adjustment is estimated to raise an additional $139 million.

Lastly, the bill proposes the implementation of “ring-fencing” on North Slope oil fields, limiting how producers offset exploration and production expenses from their overall tax production bill. This provision would impact ConocoPhillips' Willow Project and prevent the Texas-based oil giant from reducing some of its tax obligations until it started to produce oil. Tax experts said estimating the precise revenue impacts of those changes would be difficult.

In February, the Department of Revenue estimated that Alaska’s current oil tax structure means Willow would cost the state upwards of $1 billion in lost production tax revenue over its first ten years before it started generating billions of dollars for the state. Revised projections presented on Thursday estimated that the revenue loss would be less than $400 million during construction. The state would gain over $1.3 billion over the oil field’s first decade.

While supporters of the bill argue that it could help bridge the state's fiscal gap, concerns have been raised about its impacts on industry investment. As the bill undergoes further debate, it is expected that some provisions may change as more is learned about the Willow Project and other factors affecting the state's fiscal outlook.

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