NEWS: Near Zero Value Nuna Oilfield Deal Challenged by Rep. Gara

Rep. Les Gara

November 20, 2014

Anchorage – Thursday, Representative Les Gara (D-Anchorage) asked the Parnell Administration to hold off on a controversial proposal for tens of millions of dollars in additional tax reductions on a North Slope oilfield. Last week Governor Parnell’s Commissioner of Natural Resources announced his proposal to reduce the 12.5% royalty on the Nuna oilfield by over 50%. The proposed reduction was reported by the Alaska Dispatch. Exploration work aimed at development of the Nuna field began under the former oil law, ACES, in 2011. 

“Governor Parnell’s oil tax law already produces a negative or near zero production tax worth for post-2003 fields like Nuna. Reducing the separate royalty Alaskans receive from this field by over 50% might leave Alaskans with very little worth for our oil, and that may not be justified under a fair review of the facts,” said Gara. 

Royalty reductions are allowed on fields, under a law that has been on Alaska’s books for decades, only if a company proves with clear and convincing evidence that the reduction is needed to make a field economic to produce.

Rep. Gara notes that it appears the 30-day public comment period was intended to run out before Governor-Elect Bill Walker took office. The proposal was made in October, with a 30 day comment period that would end on November 27. However, the public notice was deficient and will run, it appears, until roughly December 13. 

“In theory, if new staff are in place by December 14, Governor-Elect Walker can block this proposal,” said Rep. Gara. “The clean thing to do is allow an independent analysis by Governor-Elect Walker’s staff, after they take office, so they are not required to act in short order on a proposal issued by an outgoing Governor. This last minute proposal should be withdrawn and looked at by the new Administration.”

Gara has written a letter asking the Parnell Administration to withdraw its royalty reduction proposal and instead leave it for analysis and full consideration by Governor-Elect Bill Walker. 

“I do not know for sure whether the intention was to finalize this royalty reduction before Governor Walker took office,” said Gara. “Fortunately, a delay has been caused by an accidentally improper public notice by the Parnell Administration, pushing the end of the public notice period and potential final decision from November 27, before the new Governor takes office, to roughly December 13, shortly after the new Governor takes office.”

Nuna already receives tax breaks under S.B. 21 that produce a near zero or negative net worth for the state under a provision called the “Gross Value Reduction”, or “GVR”.  The “GVR” tax rate applies to fields placed in a production unit after 2002. The post-2002 GVR oilfields are addressed in a chart produced by economist Scott Goldsmith, who was contracted to issue a report by proponents of S.B. 21 this summer. That chart shows that GVR fields like Nuna pay the state a “net present value” over the long term, after the state pays for tax credits and deductions, that is somewhere between near zero and negative.

“Receiving almost no royalty revenue on a field that already will pay a near zero or negative net present value, might vastly shortchange Alaskans for the worth of our oil at a time of major budget deficits,” said Gara. “That’s not the kind of proposal that should be set in motion in the waning days of a Governor’s administration. It could mean the loss of revenue Alaska needs for roads, energy projects, education, and basic services. The Walker Administration will have qualified agency experts, and we should leave this multi-million dollar tax break proposal for the Governor Alaskans just elected.”


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