Alaska's New Oil Tax in Unknown Waters

Moody's Investors Service said triple-A rated Alaska appears in good shape to overhaul its tax on oil production.

The ratings firm said in note Wednesday that a new law changing its tax on oil production is dependent on unknown variables such as the future price of oil and finding new oil wells.

Moody's said if it increases efforts to find oil it could lead to higher production and revenues for the state, but if production falters, the new tax law could reduce Alaska's oil tax revenue.

"While revenue losses could produce headwinds for the state's rating, we believe Alaska's large reserves allow the state to try a new strategy to stabilize oil production," Moody's said.

Alaska's general fund revenue from oil and gas producers - which includes property taxes, corporate income taxes, production taxes and royalties - was $8.9 billion last fiscal year, or 93% of its general fund, according to Moody's.

The rating firm said oil production in the state has been steadily decreasing for 25 years, with daily production expected to fall 6% per year.

The new tax system will raise the base rate from 25% to 35%, and producers will be allowed to exclude 20% of revenue from projects that are new or from an expanded area of an existing field, Moody's said.

The new tax system is the state's third in seven years. It replaces the prior tax regime that increased rates along with oil prices.

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Alaska
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