04/24/2002 09:16 AM Senate FIN

     HOUSE BILL NO. 307                                                                                                         
     "An  Act delaying  to June  30, 2007,  the last  date by  which                                                            
     hydrocarbon  exploration geophysical work must  be performed or                                                            
     drilling of a stratigraphic  test well or exploratory well must                                                            
     be  completed   in order   for  a  person  to  qualify  for  an                                                            
     exploration incentive credit."                                                                                             
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  HUGH  FATE, the  bill's  sponsor, explained  to  the                                                            
Committee that  this bill would facilitate  further natural  gas and                                                            
oil exploration  in Alaska  by extending  the exploration  incentive                                                            
credit  for petroleum  exploration  activities  an additional  three                                                            
years.  He noted  that  any  seismic research  obtained  by  private                                                            
industry  exploration processes  under this  agreement would  not be                                                            
proprietary  and copies of  the findings would  be available  to the                                                            
State. He stated  that this stratigraphic information  is beneficial                                                            
to  the State  and is  an  incentive for  offering  lease-sales.  He                                                            
shared the history  of drilling and exploration in  the Tanana area.                                                            
                                                                                                                                
MARK MYERS, Director,  Division of Oil & Gas, Department  of Natural                                                            
Resources,  testified via teleconference  from Anchorage  and shared                                                            
with  the  Committee  information  about  the  State's  Exploration                                                             
Incentive Credit  (EIC) program. He  communicated that this  program                                                            
was created in  1994 to allow the State to acquire  more geophysical                                                            
data   information   that  it   could   not  obtain   under   normal                                                            
circumstances  on un-leased  or  private land.  He  stated that  the                                                            
program  provides for exploration  incentive  credits that  could be                                                            
applied toward  royalties and taxes. He told of a  total program cap                                                            
of $30  million, and  an individual  project cap  of $5 million.  He                                                            
detailed how the credits  might be issued and stressed that the data                                                            
supplied  by the research  is beneficial.  He noted  that some  data                                                            
would be confidential  for a limited amount of time  and then become                                                            
available to the State and other entities.                                                                                      
                                                                                                                                
Mr. Myers stated that the  EIC program has not been extensively used                                                            
by  industry because  the  information  garnered from  the  research                                                            
could be "shown  to a third party." He furthered that  the State has                                                            
at times,  denied an EIC,  as sufficient  geophysical or  geological                                                            
information was already available on the area.                                                                                  
                                                                                                                                
Senator  Austerman  asked   the  benefit  of  this  program,  if  no                                                            
corporate tax credits have been applied since 1994.                                                                             
                                                                                                                                
                                                                                                                                
SFC 02 # 75, Side B 10:03 AM                                                                                                    
                                                                                                                                
                                                                                                                                
Mr. Myers stated that the  program "is applicable to frontier basins                                                            
where there  is very little or limited  geological information."  He                                                            
stated that  drilling activity has  declined since this legislation                                                             
was first enacted, as there  is "a fundamental shift" occurring with                                                            
the  increased  economic  interest  in gas,  particularly  with  the                                                            
prospect  of a natural  gas pipeline.  He stated  that this  program                                                            
could be used  in the future, to gather baseline data  from multiple                                                            
basins.                                                                                                                         
                                                                                                                                
Mr. Myers,  responding to a question  posed by Senator Ward,  stated                                                            
that the  intent of the  program focuses on  the value of  obtaining                                                            
data,  not  so  much  as  being  a  stimulus  for  exploration.   He                                                            
concurred;  however, that a "positive  benefit" would be  derived by                                                            
the State  contributing  a credit  toward the cost  of developing  a                                                            
well,  provided that  the  criteria for  the exploration  meets  the                                                            
needs of the State.                                                                                                             
                                                                                                                                
Representative  Fate stated  that several  exploration projects  are                                                            
being discussed  for areas of rural  Alaska, and if the EIC  program                                                            
could  provide the  incentive  for these  projects  to occur,  there                                                            
would be an economic  stimulation in those areas.  He stressed that,                                                            
"there are multiple advantages of this type of incentive."                                                                      
                                                                                                                                
Senator Austerman  voiced concern  about the State's fiscal  gap and                                                            
budget,  and noted  that  the State  derives  tax revenue  from  its                                                            
natural resources,  and this EIP credit  would reduce those  monies.                                                            
                                                                                                                                
Senator Green moved to  report "House Bill 307 out of Committee with                                                            
individual recommendations and accompanying fiscal notes."                                                                      
                                                                                                                                
There  being  no  objections,  House  Bill  307  was  REPORTED  from                                                            
Committee with a previous  zero fiscal note, dated January 30, 2002,                                                            
from the  Department  of Revenue and  a previous  zero fiscal  note,                                                            
dated January 30, 2002 from the Department of Natural Resources.