Legislature(2005 - 2006)
2006-05-07 House Journal
Full Journal pdf2006-05-07 House Journal Page 3821 SB 305 The following, which was moved to the bottom of the calendar (page 3789), was read the third time: 2006-05-07 House Journal Page 3822 HOUSE CS FOR CS FOR SENATE BILL NO. 305(FIN) "An Act repealing the oil production tax and the gas production tax and providing for a production tax on oil and gas; relating to the calculation of the gross value at the point of production of oil and gas and to the determination of the value of oil and gas for purposes of the production tax on oil and gas; providing for tax credits against the production tax on oil and gas; relating to the relationship of the production tax on oil and gas to other taxes, to the dates those tax payments and surcharges are due, to interest on overpayments of the tax, and to the treatment of the tax in a producer's settlement with the royalty owners; relating to flared gas, and to oil and gas used in the operation of a lease or property under the production tax; relating to the prevailing value of oil and gas under the production tax; relating to surcharges on oil; relating to statements or other information required to be filed with or furnished to the Department of Revenue, to the penalty for failure to file certain reports for the tax, to the powers of the Department of Revenue, and to the disclosure of certain information required to be furnished to the Department of Revenue as applicable to the administration of the tax; relating to criminal penalties for violating conditions governing access to and use of confidential information relating to the tax, and to the deposit of tax money collected by the Department of Revenue; amending the definitions of 'gas,' 'oil,' and certain other terms for purposes of the production tax, and as the definition of the term 'gas' applies in the Alaska Stranded Gas Development Act, and adding further definitions; making conforming amendments; and providing for an effective date." The Speaker stated that, without objection, HCS CSSB 305(FIN) would be returned to second reading for all amendments. Representative Hawker moved and asked unanimous consent that he be allowed to abstain from voting because of a conflict of interest. Objection was heard, and Representative Hawker was required to vote. Representative Berkowitz placed a call of the House on the bill. The call was satisfied. 2006-05-07 House Journal Page 3823 Representatives Meyer and Crawford moved and asked unanimous consent that they be allowed to abstain from voting because of a conflict of interest. Objection was heard, and the members were required to vote. Amendment No. 10 was offered by Representative Crawford: Page 1, line 1, through Page 2, line 9 (title amendment): Delete all material. Insert ""An Act relating to oil and gas, the oil and gas properties production (severance) tax as it applies to oil; providing for an adjustment to increase the tax collected when oil prices exceed $20 per barrel and to reduce the tax collected when oil prices fall below $16 per barrel; providing for relief from the tax when the price per barrel is low or when the taxpayer demonstrates that a reduction in the tax is necessary to establish or reestablish production from an oil field or pool that would not otherwise be economically feasible; delaying until July 1, 2016, the deadline for certain exploration expenditures that form the basis for a credit against the tax on oil and gas produced from a lease or property in the state; and amending the powers and duties of the Alaska Oil and Gas Conservation Commission."" Page 2, line 11, through Page 35, line 14: Delete all material and insert: "* Section 1. AS 31.05.030(d) is amended to read: (d) The commission may require (1) identification of ownership of wells, producing leases, tanks, plants and drilling structures; (2) the making and filing of reports, well logs, drilling logs, electric logs, lithologic logs, directional surveys, and all other subsurface information on a well drilled for oil or gas, or for the discovery of oil or gas, or for geologic information, and the required reports and information shall be filed within 30 days after the completion, abandonment, or suspension of the well; (3) the drilling, casing, and plugging of wells in a manner that will prevent the escape of oil or gas out of one stratum into another, the intrusion of water into an oil or gas stratum, the pollution of fresh water supplies by oil, gas, or salt water, and prevent blowouts, cavings, seepages and fires; 2006-05-07 House Journal Page 3824 (4) the furnishing of a reasonable bond with sufficient surety conditions for the performance of the duty to plug each dry or abandoned well or the repair of wells causing waste; (5) the operation of wells with efficient gas-oil and water-oil ratios, and may fix these ratios; (6) the gauging or other measuring of oil and gas to determine the quality and quantity of oil and gas; (7) every person who produces oil or gas in the state to keep and maintain for a period of five years in the state complete and accurate records of the quantities of oil and gas produced, which shall be available for examination by the Department of Natural Resources or its agents at all reasonable times; (8) the measuring and monitoring of oil and gas pool pressures; (9) the filing and approval of a plan of development and operation for a field or pool in order to prevent waste, ensure [INSURE] a greater ultimate recovery of oil and gas, and protect the correlative rights of persons owning interests in the tracts of land affected. (10) working interest owners to provide, at a commercially reasonable rate of return, not to exceed costs plus 10 percent, access to production and other facilities whenever necessary; the commission may act under this paragraph (A) to (i) maximize the economic and physical recovery of the state's oil and gas resources; (ii) maximize competition among parties seeking to explore and develop the state's oil and gas resources; (iii) minimize the adverse affects of exploration, development, production, and transportation activity; or (iv) otherwise protect the best interest of the state; and (B) only if the commission finds that the facility has excess capacity and that directing the working interest owner to provide access by or for the benefit of others would not materially interfere with the owner's paramount use of the facility. 2006-05-07 House Journal Page 3825 * Sec. 2. AS 36.30.850(b)(33) is amended to read: (33) contracts between the Department of Natural Resources or the Department of Revenue, as appropriate, and contractors qualified to evaluate hydrocarbon development, production, transportation, and economics, to assist the commissioner of natural resources or the commissioner of revenue, as appropriate, in evaluating applications for (A) royalty increases or decreases or other royalty adjustments, and evaluating the related financial and technical data, entered into under AS 38.05.180(j); or (B) tax reductions, and evaluating the related financial and technical data, as authorized by AS 43.55.011(i) and (j); * Sec. 3. AS 43.55.011(a) is amended to read: (a) There is levied upon the producer of oil a tax for all oil produced from each lease or property in the state, less any oil the ownership or right to which is exempt from taxation. The tax is equal to, (1) in the case of North Slope oil, either the percentage- of-value amount calculated under (b)(1) [(b)] of this section or the cents-per-barrel amount calculated under (c)(1) [(c)] of this section, whichever is greater; if [, MULTIPLIED BY THE ECONOMIC LIMIT FACTOR DETERMINED FOR THE OIL PRODUCTION OF THE LEASE OR PROPERTY UNDER AS 43.55.013. IF] the amounts calculated under (b)(1) and (c)(1) [(b) AND (c)] of this section are equal, the amount calculated under (b)(1) [(b)] of this section shall be treated as if it were the greater for purposes of this section; (2) in the case of oil that is not North Slope oil, either the percentage-of-value amount calculated under (b)(2) of this section or the cents-per-barrel amount calculated under (c)(2) of this section, whichever is greater, multiplied by the economic limit factor determined for the oil production of the lease or property under AS 43.55.013; if the amounts calculated under (b)(2) and (c)(2) of this section are equal, the amount calculated under (b)(2) of this section shall be treated as if it were the greater for purposes of this section. * Sec. 4. AS 43.55.011(b) is amended to read: (b) The percentage-of-value amount equals, (1) in the case of North Slope oil, the tax rate set out 2006-05-07 House Journal Page 3826 in (e) of this section multiplied by the gross value at the point of production of taxable oil produced from the lease or property; (2) in the case of oil that is not North Slope oil, 12.25 percent of the gross value at the point of production of taxable oil produced on or before June 30, 1981, from the lease or property and 15 percent of the gross value at the point of production of taxable oil produced from the lease or property after June 30, 1981; except that, for a lease or property coming into commercial oil production after June 30, 1981, the percentage-of-value amount equals 12.25 percent of the gross value at the point of production of taxable oil produced from the lease or property in the first five years after the start of commercial oil production and equals 15 percent of the gross value at the point of production of taxable oil produced [THEREAFTER] from the lease or property. * Sec. 5. AS 43.55.011(c) is amended to read: (c) The cents-per-barrel amount equals, (1) in the case of North Slope oil, $0.80 per barrel of taxable crude oil produced from the lease or property, as adjusted by AS 43.55.012, multiplied by the economic limit factor determined for oil production of the lease or property under AS 43.55.013 and by the price adjustment factor set out in (e)(2)(D) of this section; (2) in the case of oil that is not North Slope oil, $0.60 per barrel of taxable old crude oil produced from the lease or property, and $0.80 per barrel for all other taxable oil produced from the lease or property, both as adjusted by AS 43.55.012. * Sec. 6. AS 43.55.011 is amended by adding new subsections to read: (e) This subsection and (f) - (k) of this section apply only to North Slope oil. Except as provided in (h) of this section for heavy oil, the tax rate is the lesser of (1) 25 percent; or (2) the product of the volume adjusted tax rate multiplied by the price adjustment factor; for purposes of (A) this paragraph, the volume adjusted tax rate is the greater of (i) the applicable tax rate, not to exceed five percent, determined under (C) of this paragraph, except that, if during a month in which the West Coast prevailing 2006-05-07 House Journal Page 3827 value for oil under AS 43.55.020(f) is less than $12, the applicable tax rate is zero and the volume adjusted tax rate is determined only by the application of (ii) of this subparagraph; or (ii) the economic limit factor determined for the oil production of the lease or property under AS 43.55.013 multiplied by the nominal tax rate; (B) subparagraph (A) of this paragraph, the nominal tax rate is (i) 12.25 percent during the first five years from the date that is the start of commercial oil production; and (ii) 15 percent after the first five years from the date that is the start of commercial oil production; (C) sub-subparagraph (A)(i) of this paragraph, during each month in which the West Coast prevailing value for oil under AS 43.55.020(f) averages (i) at least $16, the applicable rate is five percent; (ii) at least $15 but not $16, the applicable rate is four percent; (iii) at least $14 but not $15, the applicable rate is three percent; (iv) at least $13 but not $14, the applicable rate is two percent; and (v) at least $12 but not $13, the applicable rate is one percent; and (D) this paragraph and for the purpose of determining the cents-per-barrel amount under (c) of this section, the price adjustment factor is one, except that the price adjustment factor is the West Coast prevailing value divided by (i) 16 during each month in which the West Coast prevailing value for oil under AS 43.55.020(f) averages less than $16 per barrel; (ii) 20 during each month in which the West Coast prevailing value for oil under AS 43.55.020(f) averages more than $20 per barrel. (f) During a month in which the West Coast prevailing value for oil determined under AS 43.55.020(f) on which tax is due under this chapter averages less than $10 per barrel, the payment 2006-05-07 House Journal Page 3828 of (1) one-half of the tax due and payable under this chapter is waived; and (2) the remaining one-half of the tax due and payable under this chapter is deferred, subject to the following: (A) the amount of tax payment that is deferred under this paragraph is payable by the taxpayer (i) during each month in which the West Coast prevailing value for oil on which tax is due under this chapter averages at least $16 per barrel; and (ii) sequentially on a month-for-month basis in the order in which the tax payment was deferred based on payment of one month's deferred tax during each month that the West Coast prevailing value for oil on which tax is due under this chapter averages at least $16 per barrel; and (B) amounts due and payable because of a payment deferral under this paragraph bear interest at the rate of a 10- year note of the United States treasury at the time of the deferral. (g) On and after July 1, 2006, the commissioner shall (1) annually revise the dollar prices described in (e) and (f) of this section and the related denominators setout in (e)(2)(D)(i) and (ii) of this section to reflect inflation as defined by regulation adopted by the department; and (2) promptly report the application of the revisions to all taxpayers subject to the tax levied and collected under this chapter. (h) Notwithstanding (e) of this section, the tax rate for heavy oil is the volume adjusted tax rate. The volume adjusted tax rate for heavy oil is determined by multiplying the economic limit factor determined for the oil production of the lease or property under AS 43.55.013 by the nominal tax rate set out in (e)(2)(A)(i) and (ii) of this section. In this subsection, "heavy oil" means oil equal to or less than 20 degrees API gravity. (i) A producer of oil that is North Slope oil may apply for a reduction of the tax due under (e), (j), and (k) of this section on the production of the oil (1) if and to the extent that the amount calculated under (A) of this paragraph is greater than the amount calculated under 2006-05-07 House Journal Page 3829 (B) of this paragraph, but a reduction of the tax may not result in collection of tax due under this section that is less than the amount calculated under (B) of this paragraph: (A) the amount of tax on the production of the oil that results from applying the provisions of (e) of this section; (B) the amount of tax on the production of the oil that would result from not applying the provisions of (e) of this section; and (2) if the commissioner determines that the application meets the requirements of AS 38.05.180(j)(1)(A), (j)(1)(B), or (j)(1)(C). (j) When the commissioner receives an application under (i) of this section, the commissioner (1) may not approve a tax reduction (A) unless the applicant makes a clear and convincing showing that the tax reduction meets the requirements of (i) of this section and this subsection and is in the best interests of the state; (B) that reduces the amount of the tax recovered to less than the amount determined under (i)(1)(B) of this section; (C) without including an explicit condition that the tax reduction is not assignable without the prior written approval, which may not be unreasonably withheld, by the commissioner; the commissioner shall, in the preliminary and final findings and determinations, set out the conditions under which the tax reduction may be assigned; (2) shall require the applicant to submit, with the application for the tax reduction, financial and technical data that demonstrate that the requirements of (i) of this section and this subsection are met; the commissioner (A) may require disclosure of only the financial and technical data related to development, production, and transportation of oil and gas or gas only from the field or pool that are reasonably available to the applicant; and (B) shall keep the data confidential under AS 38.05.035(a)(9) at the request of the applicant; the confidential data may be disclosed by the commissioner to legislators and to the legislative auditor and as directed by the chair or vice-chair of the Legislative Budget and Audit 2006-05-07 House Journal Page 3830 Committee to the director of the division of legislative finance, the permanent employees of their respective divisions who are responsible for evaluating a tax reduction, and to agents or contractors of the legislative auditor or the legislative finance director who are engaged under contract to evaluate the tax reduction, if they sign an appropriate confidentiality agreement; (3) may require the applicant for the tax reduction under (i) of this section and this subsection to pay for the services of an independent contractor, selected by the applicant from a list of qualified consultants compiled by the commissioner, to evaluate hydrocarbon development, production, transportation, and economics and to assist the commissioner in evaluating the application and financial and technical data; if, under this paragraph, the commissioner requires payment for the services of an independent contractor, the total cost of the services to be paid for by the applicant may not exceed $150,000 for each application, and the commissioner shall determine the relevant scope of the work to be performed by the contractor; selection of an independent contractor under this paragraph is not subject to AS 36.30; (4) shall make and publish a preliminary findings and determination on the tax reduction application, give reasonable public notice of the preliminary findings and determination, and invite public comment on the preliminary findings and determination during a 30-day period for receipt of public comment; (5) shall offer to appear before the Legislative Budget and Audit Committee, on a day that is not earlier than 10 days and not later than 20 days after giving public notice under (4) of this subsection, to provide the committee a review of the commissioner's preliminary findings and determination on the tax reduction application and administrative process; if the Legislative Budget and Audit Committee accepts the commissioner's offer, the committee shall give notice of the committee's meeting to all members of the legislature; (6) shall make copies of the preliminary findings and determination available to (A) the presiding officer of each house of the legislature; 2006-05-07 House Journal Page 3831 (B) the chairs of the legislature's standing committees on resources; and (C) the chairs of the legislature's special committees on oil and gas, if any; and (7) shall, within 30 days after the close of the public comment period under (4) of this subsection, (A) prepare a summary of the public response to the commissioner's preliminary findings and determination; (B) make a final findings and determination; the commissioner's final findings and determination prepared under this subparagraph regarding a tax reduction is final and not appealable to the court; (C) transmit a copy of the final findings and determination to the lessee; and (D) make copies of the final findings and determination available to each person who submitted comment under (4) of this subsection and who has filed a request for the copies. (k) In this section, "North Slope oil" means oil produced from a portion of a reservoir located north of 68 degrees North latitude. * Sec. 7. AS 43.55.012(b) is amended to read: (b) The cents-per-barrel amount set out in AS 43.55.011(c)(1) and (2) [AS 43.55.011(c)] applies to oil of 27 degrees API gravity. For each degree of API gravity less than 27 degrees, the cents-per-barrel amount shall be reduced by $.005 and for each degree of API gravity greater than 27 degrees the cents-per-barrel amount shall be increased by $.005 except that oil above 40 degrees API gravity shall be taxed as 40 degree oil. In applying the gravity adjustment under this subsection, fractional degrees of API gravity shall be disregarded. * Sec. 8. AS 43.55.025(b) is amended to read: (b) To qualify for the production tax credit under (a) of this section, an exploration expenditure must be incurred for work performed on or after July 1, 2003, and before July 1, 2016 [2007], except that an exploration expenditure for a Cook Inlet prospect must be incurred for work performed on or after July 1, 2005, [AND BEFORE JULY 1, 2010, AND EXCEPT THAT AN EXPLORATION EXPENDITURE, IN WHOLE OR IN PART, SOUTH OF 68 DEGREES, 15 MINUTES, NORTH LATITUDE, 2006-05-07 House Journal Page 3832 AND NOT PART OF A COOK INLET PROSPECT MUST BE INCURRED FOR WORK PERFORMED ON OR AFTER JULY 1, 2003, AND BEFORE JULY 1, 2010,] and (1) may be for seismic or geophysical exploration costs not connected with a specific well; (2) if for an exploration well, (A) must be incurred by an explorer that holds an interest in the exploration well for which the production tax credit is claimed; (B) may be for either an oil or gas discovery well or a dry hole; and (C) must be for goods, services, or rentals of personal property reasonably required for the surface preparation, drilling, casing, cementing, and logging of an exploration well, and, in the case of a dry hole, for the expenses required for abandonment if the well is abandoned within 18 months after the date the well was spudded; (3) may not be for testing, stimulation, or completion costs; administration, supervision, engineering, or lease operating costs; geological or management costs; community relations or environmental costs; bonuses, taxes, or other payments to governments related to the well; or other costs that are generally recognized as indirect costs or financing costs; and (4) may not be incurred for an exploration well or seismic exploration that is included in a plan of exploration or a plan of development for any unit on May 13, 2003." Representative Crawford moved and asked unanimous consent that Amendment No. 10 be adopted. Representative Samuels objected. The question being: "Shall Amendment No. 10 be adopted?" The roll was taken with the following result: HCS CSSB 305(FIN) Second Reading Amendment No. 10 YEAS: 12 NAYS: 28 EXCUSED: 0 ABSENT: 0 2006-05-07 House Journal Page 3833 Yeas: Berkowitz, Cissna, Crawford, Croft, Gara, Gardner, Gruenberg, Guttenberg, Joule, Kapsner, Kerttula, Salmon Nays: Anderson, Chenault, Coghill, Dahlstrom, Elkins, Foster, Gatto, Harris, Hawker, Holm, Kelly, Kohring, Kott, LeDoux, Lynn, McGuire, Meyer, Moses, Neuman, Olson, Ramras, Rokeberg, Samuels, Seaton, Stoltze, Thomas, Weyhrauch, Wilson And so, Amendment No. 10 was not adopted. Representative Berkowitz lifted the call.