Senate panel advances gas pipeline bill with oil tax floor increase

The Alaska Senate Resources Committee heard a sectional presentation Friday on a gas pipeline bill that raises the minimum oil production tax from 4 percent to 6 percent for North Slope production starting January 1, 2027.

The tax increase happens whether or not the pipeline gets built. That differs from other provisions in Senate Bill 280. The change addresses concerns about lease expenditure deductions from projects like Willow that lawmakers say have cost the state hundreds of millions in lost revenue.

Senator Robert Myers questioned why the tax change was not tied to pipeline construction like other parts of the bill. "This is not a conditional effect, though, so the oil companies are going to get stuck with this change in the tax structure regardless of whether or not the pipeline actually moves forward," Myers said. "Why didn't we make this, if the point here is to capture the changes up there because of gas now becoming produced and sold rather than just produced and then shoved back in the ground, why aren't we making this portion conditional on the pipeline starting construction as well?"

Myers later pressed on whether the tax increase was primarily about oil revenue rather than the pipeline project. "What I'm hearing though is that the rationale for this really has mostly to do with oil taxes and oil production in general. It has very little to do with the pipeline. Is that accurate?" Myers said.

Senate Majority Legal Counsel Sonya Kawasaki responded that the governor's original proposal also did not make the tax increase conditional on a pipeline. "Senator Myers, the governor didn't make it conditional on a pipeline, a gas pipeline either," Kawasaki said. "The governor's proposal was to increase the source of revenue for the state. So that is a partial rationale."

One committee member said the Willow project likely cost Alaska $500 million in lost revenue this year because ConocoPhillips can write off lease expenditures against existing production taxes. The member estimated similar losses of $300 million in each of the two previous years and projected $300 million to $500 million in losses next year.

Kawasaki noted the floor remains flexible, meaning companies can still deduct below the minimum under certain circumstances. "We're not hardening the floor, I will also add," Kawasaki said. "And for the public, that means we're not making this a floor that the company cannot deduct under. It's still a very flexible floor."

Another committee member said lawmakers cannot separate gas lease expenditures from oil lease expenditures, making it impossible to tie the tax change to pipeline construction. The member said significant gas lease expenditures could occur in 2027 for drilling wells at Point Thompson that would eventually support a gas pipeline, but the wells would initially produce only oil.

Myers said lease expenditures would not occur without pipeline construction and suggested making the tax increase conditional on construction starting. "If you start construction of a pipeline in, well, let's say December, and it may or may not be that, but that's been one possibility thrown out there, then that could be the trigger," Myers said.

The committee heard a sectional presentation on Version L of the bill during its 31st meeting on the topic since March. Committee Chair Cathy Giessel said the committee had adopted Version L the previous day. The committee adjourned at 9:50 a.m. and planned to reconvene at 3:30 p.m. to conclude the presentation, consider an amendment from Senator Myers, and then open public testimony.

Senate Bill 280 includes multiple provisions related to a proposed natural gas pipeline from the North Slope to Southcentral Alaska and a liquefied natural gas export facility. Version L includes changes to Alaska Gasline Development Corporation notice requirements, cost overrun protections capped at $15 billion, alternative volumetric tax rates, inflation adjustments, and revenue sharing formulas. The bill also addresses regulatory oversight by the Regulatory Commission of Alaska and modifications to prevailing value determinations for oil and gas.

Public testimony opens this afternoon at 3:30 p.m. Alaskans can follow the hearing on Gavel Alaska or submit written testimony through the committee's website.