Senate looks beyond the deficit in mulling cuts to oil and gas subsidies

The governor approves of House Bill 247. So does a majority of the House of Representatives.

In a pair of hearings Saturday and Sunday, members of the Senate Finance Committee expressed more than a little skepticism.

“It’s going to reduce production,” said Sen. Pete Kelly, R-Fairbanks, on Saturday. “We have no business going down a path that’s going to reduce production.”

HB 247, passed by the House in a 25-12 vote on Friday, intends to cut Alaska’s subsidy of the oil and gas industry by some $470 million per year by 2021 through increased taxes and decreased incentives. It’s considered a key part of any plan to erase Alaska’s $4 billion annual deficit.

As the bill advances to the Senate, however, it’s encountering resistance from lawmakers who are looking beyond the immediate deficit. Members of the Senate Finance Committee repeatedly said they are concerned that the bill could reduce drilling operations. That, in turn, could reduce long-term oil production on Alaska’s North Slope.

If Alaska remains reliant on oil revenue, that hypothetical drop would cost it millions — if not billions — of dollars when oil prices rebound. Fewer drilling rigs in action would also mean fewer people employed, something that would put a second whammy on the state’s economy.

“I don’t think Alaskans want less production and the resultant job losses that will come from that,” Kelly said.

Sen. Mike Dunleavy, R-Wasilla, pointed out in a hearing Sunday that job losses in the oil industry would affect swaths of the Alaska economy that have no direct connection to drilling. People who rent equipment, who sell real estate — those sectors might be affected, too.

That concern was on display Sunday as the committee heard public comment on the proposal. Almost every caller and testifier had some connection to the oil and gas industry, and almost everyone who participated asked for the Senate to kill or modify HB 247.

“All AOGA members believe this is the worst committee substitute we have seen to date,” said Kara Moriarty, president and CEO of the Alaska Oil and Gas Association.

George Pierce of Kasilof was one of the few people to testify in favor of HB 247.

“It’s pretty sneaky having testimony on Sunday morning when people are at church, but I see the oil lobbyists got the memo to testify,” he said.

Bill Armstrong is president and CEO of Armstrong Oil and Gas Inc., one of the most successful independent oil-drilling and oil-producing companies active on the North Slope.

In late 2015, Armstrong told Petroleum News that Armstrong’s new finds in the Pikka Unit could produce as much as 120,000 barrels of oil per day. This month, according to figures from the Alaska Department of Revenue, about 518,000 barrels of oil per day is flowing through TAPS.

“SB 21 was working; it just so happened to coincide with a time when oil prices fell by 75 percent,” Armstrong told the committee. “You’ve just got to give it time and not hit the panic button.”

While representatives from other oil producers also testified, Armstrong seemed to sum up their comments when he declared, “Here’s the thing about Alaska that just drives me nuts. … When prices are high, the state wants more, and when the prices are low, the state wants more. No matter which way prices go, the state is always trying to get more.”

The Senate Finance Committee was expected to hold another hearing on HB 247 at 7 p.m. Monday. Results of that meeting were not available by press time.

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