By Yereth Rosen
ANCHORAGE, Alaska, April 14 (Reuters) - Alaska lawmakers onSunday gave final approval to a bill slashing stateoil-production taxes in a change supporters said was needed toboost flagging output from aging fields but which critics saywill severely damage the state's finances.
The new system approved by the Republican-dominatedlegislature does away with a methodology that increases taxrates as oil prices rise, a centerpiece of the aggressive taxlegislation championed by former governor Sarah Palin.
Alaska will impose a base rate of 35 percent on oilcompanies' net profits in the state, replacing a 25 percent baserate that increased by 0.4 percentage points for every $1 abovea net wellhead price of $30.
While the old tax system produced billions of dollars insurpluses for the state treasury, it meant Alaska's tax ratetopped 50 percent when oil prices were high. Governor SeanParnell, Palin's successor, said the cut would set the stage forfuture growth as the state tries to reverse decades of decliningoil output.
"We are signaling to the world that Alaska is back, ready tocompete, and ready to supply more energy once again," Parnell,who introduced the bill, said in a statement.
Oil production from Alaska's North Slope peaked in 1988 atover 2 million barrels per day, led by the Prudhoe Bay fieldwhich averaged 1.6 million bpd that year, according to stateDepartment of Revenue statistics. Production in 2012 averaged579,400 bpd, with Prudhoe Bay production down to 265,200 bpd.
The tax change was promoted by the three major North Slopeoil producers, ConocoPhillips, BP Plc and ExxonMobil Corp. The companies argued that Alaska's currenttax system is punitive and makes the state less attractive thanother regions, such as North Dakota and Alberta.
Republicans said the changes would ultimately coax more oilinto the aged Trans Alaska Pipeline. But minority Democratsrailed against it, with Senator Bill Wielechowski saying ithanded over "billions of dollars, with no strings attached."
"It's an epic give-away," he said.
Senator Bert Stedman of Sitka, one of the few Republicans tooppose the tax cut, said if the new system had been in place in2012, the state would have lost $1.7 billion in revenue from thetwo major North Slope fields, Prudhoe Bay and Kuparuk.
Stedman said the tax changes granted breaks mostly to thelegacy fields, where oil has been flowing for decades and wherereductions are unnecessary. "When you make a colossal financialerror like this, it's going to be difficult to back up and fixit. And we're going to burn through our savings," he said.
With the tax cut, the state will need to take $861.5 millionfrom savings to balance the budget for fiscal 2014, starting onJuly 1, said Senator Hollis French, an Anchorage Democrat.
"I'm very concerned that this bill may bankrupt the state,"he said, estimating that with credits and exemptions included inthe bill, the effective tax rate would be 14 percent.
The legislature on Friday also approved Parnell's bill toauthorize $355 million in grants, loans and other financing fora system to bring liquefied natural gas from the North Slope toFairbanks.
The project would include a small liquefaction plant, asystem to truck the LNG to Fairbanks and a distribution systemthere. Currently, a small amount of LNG is trucked north toFairbanks from Cook Inlet in southern Alaska. Some regionalutilities are considering plans to bring LNG south from theNorth Slope.
Another bill approved on Saturday by the legislatureauthorizes funding for an in-state pipeline to bring natural gasfrom the North Slope to Fairbanks and Anchorage.
Such a project, which would carry up to 500 million cubicfeet a day, would cost $7.7 billion, according to the stateagency developing plans. So far, no companies have submittedformal plans for such an in-state natural gas pipeline, whichcritics claim would hinder chances for a large North Slopenatural gas export project.