State Pushes In Clutch On Oil Exploration Incentives

Concerns that Alaska oil exploration could be coming to a hard stop soon are being addressed by members of the Alaska State Legislature.

Last month, the State announced that the oil cash credit program will end completely, leaving nearly a billion dollars in outstanding obligations left unpaid.

Alaska’s cash credit program was unique in that it was the only oil economy to reimburse companies for their losses, but the reimbursement was never a sure thing under the program.

As controversial as the tax credits may be, Representative Mike Chenault (R-D29) says the proof of how effective they were is in the pudding.

Representative Mike Chenault: “The tax incentives that were applied through the Cook Inlet Recovery Act and and through SB-21 they did exactly what they were designed to do: they incentivised new corporations coming to Alaska, and they invested money in the state.  They actually went out and found new reserves.” 

Chenault confirmed that if already earned credits had been paid, Alaska wouldn’t be seeing slow down with Blue Crest and North Slope projects. 

Unfortunately, with the price of oil dropping, the State of Alaska simply couldn’t afford to continue to pay out cash credits that would have equated to a quarter of the State budget.

Representative Mike Chenault: “In the legislation that was passed this year, there is other ways now that will allow them to recoup some of their costs as soon as they go into production, but they are going to have to go into production in order to receive those credits.”

Fallout from the delinquency is already hitting Alaska’s economy, with two oil companies recently announcing they are stopping work until the State catches up on its account payables.

This as the US Energy Administration announced a trifecta of robust marketplace indicators late last week: U.S. gasoline demand and exports reached a record high, U.S. natural gas production is forecast to hit a record high in 2018, and U.S. oil producers are expected to produce more crude oil.

EIA forecasts crude oil production to average 9.9 million barrels per day (b/d) in 2018, which would mark the highest annual average production in U.S. history, surpassing the previous record of 9.6 million b/d set in 1970.