Members of the Senate Resources Committee spent time Tuesday closely but politely questioning the Legislature's own consultant on oil tax reform.
Senators were concerned that PFC Energy had shared some information with the State Department of Revenue, in possible violation of separation-of-power provisions of Alaska's constitution.
In a rare move, senators were assured by Rep. Mike Hawker (R-Anchorage), who chose to testify before the committee, that nothing improper had been done. Hawker chairs the committee that hired PFC, and he told Senate Resources that the company had done nothing improper by trying to help clarify an issue for the Department of Revenue.
"I assure you," Hawker said, "PFC is independent of the Administration, independent of industry and works solely for the Legislature through the Legislative Budget Office."
Hawker also assured senators that they would have full access to PFC consultant Janak Mayer, who testified before Hawker's committee Monday, if they needed him -- but some senators still seemed concerned.
"At least from my perspective, I've never had PFC in my office," Sen. Bill Wielechowski (D-Anchorage) told Hawker.
Hawker told Wielechowski that any senator who asked would get to speak with Mayer, but added that it was easier for Mayer to have a single point of contact rather than having to respond to calls from up to 60 lawmakers.
When it was Mayer's turn to testify, his warm greeting in the House on Monday was replaced by senators' skepticism about his firm's report. It says the state's current tax system -- known as Alaska's Clear and Equitable Share, which taxes oil at rates of up to 75 percent -- is good mainly for "harvesting" existing fields. Mayer said it was less than desirable for cultivating new investment in those fields.
Senators took issue Tuesday with how PFC Energy had arrived at those conclusions. Many weren't sure of his price comparisons for drilling Alaska oil, versus prices for drilling in the Lower 48.
One challenge involved North Dakota's Bakken oil formation, a tight geological feature that requires hydraulic fracturing to free the oil.
Senators believed the Bakken was quite expensive to drill -- far more expensive than Alaska oil. When Mayer showed a slide indicating that a barrel of Bakken oil cost only $22 to get out of the ground, compared to $32 per barrel in Alaska, they immediately challenged his numbers.
"Where does this number come from, how sure of it are you?" asked Sen. Hollis French (D-Anchorage), somewhat incredulously. "I've seen numbers far higher than that, up to $50 (per barrel) for developing the Bakken."
Sen. Bill Wielechowski (D-Anchorage) then chimed in, pulling up an article from last week's issue of Petroleum News with the headline "Bakken... At $55 Lose Rigs" on his iPad.
"Bakken producers," Wielechowski read to Mayer, "depending on location and other factors, must receive from $40 to as much as $60 per barrel of oil to stay in business, according to industry representatives."
But Mayer stood by his figures.
"It's possible," the consultant responded, "that if one takes that $40 to $60 for a barrel, takes out 50, 60 percent government take, then we're down to $20 or $30. That would actually imply a lower cost than you're seeing on the screen...once one has factored in a minimum 15 percent return on capital."
At the day's end, senators like French and Wielechowski still did not seem to understand the apparent discrepancy in the Bakken numbers. No one knew whether the $22 figure reported by PFC Energy or the $55 figure Wielechowski quoted in Petroleum News was correct, or whether both might be true in some sense.
In fact, much of the Resources Committee still remained doubtful that Gov. Sean Parnell's proposed large tax breaks for existing fields on the North Slope, as well as new exploration, was a good idea. Senators are more inclined to give tax breaks for discovering and developing new fields.
More testimony is slated for Wednesday, when an independent company called Great Bear testifies before the Senate Resources Committee. Great Bear would like to explore and develop Alaska's abundant supply of untapped shale oil, obtained by using high-pressure water to crack rock formations deep beneath the earth.
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