JUNEAU-Yesterday, members of the Senate’s Special Committee on Trans-Alaska Pipeline System (TAPS) Throughput moved Senate Bill 21 out of committee with a letter of intent describing several key findings and recommendations of the TAPS committee to the next two committees of referral, Resources and Finance. The conclusions were reached after the committee held six meetings including several hours of public testimony.

“The committee evaluated Senate Bill 21 through the lens of considering direct impacts to the TAPS production decline,” said TAPS Throughput Co-Chair Peter Micciche. “Our conclusions were formed after many hours of listening to a spectrum of testimony that ranged from everyday Alaskans to experts. We heard from consultants, agencies, industry representatives and Alaskans from every corner of our great state. We believe these key findings are critical to achieving our goal –which is increasing oil production on the North Slope to continue to fund our Alaskan way of life.”

Some of the key findings include:

ï‚· There are many factors in which the State has little control including the price of North Slope oil. Total government take through oil taxation is the only lever under the control of the people of Alaska.

ï‚· The ACES tax structure likely contributed to advancing the decline in oil production because it made the state uncompetitive compared to similar oil producing regions

ï‚· ACES credits should have been more directed towards projects resulting in production and less towards general spending

ï‚· Specific incentives and a competitive oil tax regime will likely result in additional productionrelated spending

ï‚· There is a direct correlation in other similar oil producing regions between production related spending and increased production

ï‚· Although a good starting point for respectful discussion, in its current form, SB21 may not adequately provide production credit incentives and opportunities; a level revenue proportion for Alaskans and protections for Alaskan hire and re-investment

Recommendations include:

ï‚· Evaluate providing a guarantee of investment in Alaska and a further incentive for stemming production decline by fixing the amount of production used in determining the reasonable transportation costs to determine transportation deduction costs for pipelines and gas treatment plants so that producers receive a benefit for increased oil production but incur a corresponding limitation on deductions due to throughput declines after December 31, 2015.

ï‚· Evaluate expanding the application of the Gross Revenue Exclusion in units formed before 2003 (Legacy Areas). The Senate Resources Committee should specifically inquire about expansions of existing Participating Areas, increasing recovery factors in existing Participating Areas, and Participating Areas that contain oil with an API gravity of 20 degrees or less.

ï‚· Evaluate specific production-related credits allowed under ACES for inclusion in SB 21 as a direct incentive for costs that deliver production. Require that credits are charged against actual production to eliminate currently-existing negative revenue liability to the State.

The Committee is united in several philosophies that are also recommendations to be considered in SB 21, not related to throughput, including:

ï‚· Firm incentives for Alaska Hire and Alaska Purchase,

ï‚· Evaluating significant and specific incentives for unconventional and heavy oil,

ï‚· Evaluating a production credit system for producers willing to provide propane fuels for the people of rural Alaska in areas unlikely to receive natural gas distribution if/when a natural gas pipeline is constructed, and

ï‚· Evaluating employing progressivity as a tool to level the proportion of take for Alaskans across the various oil price environments.

“I am proud of the work and time the members of the TAPS Committee put into forming these recommendations,” said TAPS Throughput Co-Chair Senator Dunleavy. “I think these recommendations we are forwarding on to the Resources Committee are very viable points that need to be considered so that Senate Bill 21 can live up to its promise and help put more oil in the pipeline.”

“Senate Bill 21 is only one piece of the picture,” said Senator Micciche. “There are many other production obstacles that we plan to address throughout the rest of the Session, including operational impacts, permitting, leasing and conditional issues. The goal is to streamline the time it takes for discovered oil to become produced oil. All of these issues require careful consideration in order for us to reach our primary objective, which is to responsibly increase oil production in the Trans-Alaska Pipeline System.”

To read the full letter, please click here.

Senate Bill 21 now heads to the Senate Resources Committee for further consideration.