Legislature(2013 - 2014)BARNES 124
04/03/2013 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB21 |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 21 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 21-OIL AND GAS PRODUCTION TAX
1:49:16 PM
CO-CHAIR FEIGE announced that the only order of business is CS
FOR SENATE BILL NO. 21(FIN) am(efd fld), "An Act relating to the
interest rate applicable to certain amounts due for fees, taxes,
and payments made and property delivered to the Department of
Revenue; providing a tax credit against the corporation income
tax for qualified oil and gas service industry expenditures;
relating to the oil and gas production tax rate; relating to gas
used in the state; relating to monthly installment payments of
the oil and gas production tax; relating to oil and gas
production tax credits for certain losses and expenditures;
relating to oil and gas production tax credit certificates;
relating to nontransferable tax credits based on production;
relating to the oil and gas tax credit fund; relating to annual
statements by producers and explorers; establishing the Oil and
Gas Competitiveness Review Board; and making conforming
amendments." [Before the committee was HCS CSSB 21, Version 28-
GS1647\K, Nauman/Bullock, 4/2/13, adopted as the working
document on 4/2/13.]
1:50:25 PM
REPRESENTATIVE HAWKER moved to adopt Amendment 1, labeled 28-
GS1647\K.7, Nauman/Bullock, 4/2/13, which read:
Page 17, following line 11:
Insert a new bill section to read:
"* Sec. 24. AS 43.55.024(d) is amended to read:
(d) A producer may not take a tax credit under
(c) of this section for any calendar year after the
later of
(1) 2022 [2016]; or
(2) if the producer did not have commercial
oil or gas production from a lease or property in the
state before April 1, 2006, the ninth calendar year
after the calendar year during which the producer
first has commercial oil or gas production before
May 1, 2016, from at least one lease or property in
the state."
Renumber the following bill sections accordingly.
Page 29, line 6:
Delete "sec. 31"
Insert "sec. 32"
Page 29, line 20:
Delete "sec. 36"
Insert "sec. 37"
Page 29, line 24:
Delete "28, and 37"
Insert "29, and 38"
Page 29, line 25:
Delete "31"
Insert "32"
REPRESENTATIVE TARR objected.
REPRESENTATIVE HAWKER explained Amendment 1 extends the small
producer tax credit expiration date from 2016 to 2022. As a
balance is sought to provide an appropriate suite of incentives
across the entire spectrum of explorers, producers, legacy
producers, and new producers, it is appropriate to extend this
credit. The committee was asked to allow this credit to act
indefinitely, but that is inappropriate. The credit for each
one of those is a maximum of $12 million a year, which is not a
threat to the treasury.
1:51:31 PM
CO-CHAIR FEIGE requested the administration to comment on
Amendment 1.
MICHAEL PAWLOWSKI, Oil & Gas Development Project Manager, Office
of the Commissioner, Department of Revenue (DOR), pointed out
that extension of the small producer tax credit was included in
the governor's original bill in the same manner as proposed in
Amendment 1 for the reasons articulated by Representative
Hawker. However, as the bill moved through the process,
committees weighed the balance and made different decisions.
This provision fit the concept, as the governor introduced, that
benefits come with production. The small producer tax credit is
a non-transferable credit that is taken when a company has
production. He offered appreciation that Amendment 1 is drafted
in the same manner as which it was considered in the original
bill.
REPRESENTATIVE TARR requested further discussion of the fiscal
impacts.
REPRESENTATIVE HAWKER replied Amendment 1 extends the tax credit
under AS 43.55.024(c). Subsection (c) applies to a calendar
year for which a producer's tax liability for production taxes
exceeds zero. A producer that is not producing more than 50,000
British Thermal Unit (BTU) equivalent barrels may apply a tax
credit of not more than $12 million for the calendar year. A
formula under (c)(2) provides that for more than 50,000 but less
than 100,000 BTU equivalent barrels, a producer may apply a tax
credit of not more than 12 factored by a fraction for the
calendar year; the mechanics of that fraction are in statute.
1:54:09 PM
REPRESENTATIVE P. WILSON surmised Amendment 1 attempts to ensure
long-term as well as short-term results because it is on
exploration.
REPRESENTATIVE HAWKER replied extension of this credit is all
about crafting a tax policy that ensures the state's policy
focus shifts from pure spending by industry to production by
industry. This credit requires production to receive benefit.
REPRESENTATIVE SEATON, given this is barrel of oil equivalent,
inquired what the effect will be on gas producers and whether it
is within the range of the amount of natural gas that would be
produced by explorers in Cook Inlet now.
REPRESENTATIVE HAWKER deferred to the Department of Revenue
(DOR) for an answer.
MR. PAWLOWSKI responded AS 43.55.024(f) has two small producer
credits. He said AS 43.55.024(b) is the small producer credit
for areas outside of Cook Inlet and outside of the North Slope.
He deferred to the Department of Law (DOL) to discuss the impact
in Cook Inlet.
1:57:06 PM
REPRESENTATIVE SEATON reiterated his question to the Department
of Law, asking whether the 50,000 barrel of oil equivalent per
day would mean that just about everyone producing gas would be
tax free.
SUSAN POLLARD, Assistant Attorney General, Oil, Gas & Mining
Section, Civil Division (Juneau), Department of Law, said she
cannot answer the economic question, but the particular credit
being amended is the small producer credit, so, yes, it does
apply statewide. She said Mr. Pawlowski mentioned the AS
43.55.024(a) credit, which is just a "Middle Earth" tax credit,
and Amendment 1 is for AS 43.55.024(c) small producer credit.
1:58:20 PM
CO-CHAIR FEIGE said his reading of Amendment 1 is that it would
amend AS 43.55.024(d) by extending the date under which it can
be applied for. He offered his belief that what Representative
Seaton is getting to is that the credit under AS 43.55.024(a)
applies to south of 68 degrees North [latitude].
REPRESENTATIVE SEATON advised he does not have the statute book,
but noted that while 50,000 barrels of oil is a small producer,
when the math is done to get the barrel of oil equivalent in gas
it could mean that a much larger gas producer would qualify for
this small producer tax credit. He asked where it covers and
how much gas production is being talked about.
CO-CHAIR FEIGE inquired whether Representative Seaton is trying
to propose an amendment to AS 43.55.024(c).
REPRESENTATIVE SEATON replied he is trying to understand.
CO-CHAIR FEIGE said he does not think the committee is trying to
change AS 43.55.024(c).
MR. PAWLOWSKI suggested the DOR staff in Anchorage address the
issue of the relationship of the small producer tax credit under
AS 43.55.024(d) to gas production in the Cook Inlet.
2:00:10 PM
LENNIE DEES, Audit Master, Production Audit Group, Tax Division,
Department of Revenue (DOR), offered his understanding that
Representative Seaton is trying to determine the size of a gas
producer in Cook Inlet that would qualify for this credit. He
explained Alaska statutes have a conversion factor for BTU
equivalent barrels of 6:1. So, essentially, a gas producer
producing less than "300,000 mcf" of gas per day would qualify
for the full $12 million. It is not necessarily that it would
be tax free; it depends on what the tax liability is for that
particular producer. A producer could have a big enough
production tax value that it could use this credit and still owe
tax. So, it depends on the size of the producer as to whether
it is tax free. A producer producing "300,000 mcf" of gas per
day would qualify for the full $12 million or whatever the tax
liability is if it is less than $12 million.
CO-CHAIR FEIGE inquired whether under AS 43.55.024(a) it would
be limited to $6 million for a gas producer in Cook Inlet.
MR. DEES responded AS 43.55.024(a) does not apply to Cook Inlet;
it only applies to Middle Earth, the area outside of Cook Inlet
that is south of 68 degrees North latitude.
2:02:18 PM
REPRESENTATIVE SEATON asked whether it is 300,000 or 300
million.
MR. DEES answered 300,000. In further response, he said it is a
6:1 ratio.
CO-CHAIR FEIGE understood that to be 50,000 times 6.
MR. DEES stated "300,000 mcf" of gas, or "300 million cubic
feet."
REPRESENTATIVE SEATON said he thinks it is "300 million cubic
feet a day" and he is trying to compare that to the size of the
gas producers in Cook Inlet.
REPRESENTATIVE HAWKER pointed out this is not a new credit, so
it would not be granting anything that is not already in
statute. It would simply extend the current tax regime
statewide with regard to this activity.
2:03:33 PM
CO-CHAIR FEIGE asked whether DOR has an estimated fiscal note on
the impact of extending this credit.
MR. PAWLOWSKI replied the rough estimate for fiscal years 2017
and 2018 is around $25 million a year. In fiscal year 2019 it
will be about $50 million in total, and that is based on the
forecast and companies expected to have a tax liability. The
reason this provision was included in the previous version of
the bill is that 2022 is the date at which many of the tax
ceilings expire and the preferential treatment for tax in Cook
Inlet will transition out.
2:04:43 PM
REPRESENTATIVE TARR maintained her objection to Amendment 1.
A roll call vote was taken. Representatives Hawker, Johnson,
Olson, Seaton, P. Wilson, Tuck, Saddler, and Feige voted in
favor of Amendment 1. Representative Tarr voted against it.
Therefore, Amendment 1 passed by a vote of 8-1.
2:06:03 PM
REPRESENTATIVE TUCK moved to adopt Amendment 2, labeled 28-
GS1647\K.20, Nauman/Bullock, 4/2/13, [text provided at end of
this document].
REPRESENTATIVE HAWKER objected.
REPRESENTATIVE TUCK posited that Alaska's Clear and Equitable
Share (ACES) may not be broken and just needs fixing; a bill to
fix much of that has been introduced, but there will not be time
in this session to address it. Amendment 2 attempts to keep the
ACES structure, but caps progressivity at 55 percent, given that
progressivity has been cited as making Alaska unattractive.
Testimony has been heard that new investments are happening on
the North Slope, employment is at its highest ever, and
investments do lead to production. The ACES system gives heavy
tax credits to attract new competition/new explorers on the
North Slope. It has been heard in the past that many of the
legacy fields are in a harvest mode. It is a matter of trying
to move the needle to get those fields into exploration and new
development, such as using tax credits to make that closer to
the wellhead.
2:08:48 PM
REPRESENTATIVE HAWKER, regarding the preservation of ACES, said
the committee has had a more than adequate dialogue about how
ACES is definitely counterproductive to the preservation of a
good economic future for Alaska. Amendment 2 would completely
remove the substantive core of the legislation before the
committee, which has been discussed and analyzed and offers up a
very viable mechanism and a very reasonable rate structure for
going forward that will restore Alaska's global competitiveness.
The issue in Alaska is not taxes, he argued, it is production
decline, and Amendment 2 is absolutely counter to addressing
production decline.
REPRESENTATIVE TUCK, responding to Representative P. Wilson,
said Amendment 2 deletes a portion of the title so a title
amendment will be needed.
REPRESENTATIVE TUCK, responding to Co-Chair Feige, confirmed
that line 1 would remain in the bill's title and the language
beginning at the end of line 2 would be removed down to the
semi-colon in line 11. Thus, the Oil and Gas Competitiveness
Review Board would be kept in the title.
2:11:22 PM
REPRESENTATIVE SEATON observed Amendment 2, page 2, lines 4-9,
would provide that above a price of $92.50 the tax would still
be multiplied one-tenth of a percent.
REPRESENTATIVE TUCK responded correct and noted it also reduces
the progressivity after the tax rate reaches about 50 percent,
which occurs when the profit is about $92.50. Thus, the
progressivity is reduced at the top end as well as capped.
REPRESENTATIVE TARR pointed out Amendment 2 maintains those
credits identified in testimony as important to new exploration
work and the new production that will happen as a result.
REPRESENTATIVE P. WILSON inquired whether Amendment 2 takes away
credits since it removes the credits from the title.
REPRESENTATIVE TUCK answered it removes the portion of the title
that deals with credits.
2:13:13 PM
REPRESENTATIVE HAWKER maintained his objection to Amendment 2.
REPRESENTATIVE TUCK stated he is unconvinced that taxes alone
are deterring new production on the North Slope and the key is
to get new production. He recalled charts that were provided to
the committee that demonstrated how a producer can significantly
buy down its tax liability. The administration has said
investments do not necessarily lead to production; however, it
was heard from small and big producers that all investments
eventually lead to production on the North Slope. A lot of
natural decline happens and reversing that on the legacy fields
is difficult, but it can be slowed down and that is where much
additional oil can come from immediately and quickly. Long-term
investments need to continue being made to ensure the state has
brand new oil. As new oil is discovered, even those wells will
have a natural decline, so continuous drilling needs to occur.
Investments have been made on North Slope facilities, and
facilities are needed to do additional drilling. More drilling
rigs, modules being built, and new facilities or agreements with
existing facilities will result in more production. A benefit
of ACES is that there is a penalty to taking profits outside the
state. The significant buydown for existing producers and the
tax credits along with the windfall revenues coming in help the
state to invest. While it is a complex system, it provides
balance and gets new investments on the North Slope.
2:16:08 PM
SENATOR OLSON asked whether Representative Tuck has submitted
documentation, such as charts and graphs, from the consultants
he is referencing.
REPRESENTATIVE TUCK replied the documents are the ones that have
been previously submitted over the last four years to the
resources and finance committees.
SENATOR OLSON understood, then, that it was not a separate
consultant but the legislature's consultants.
REPRESENTATIVE TUCK drew attention to page 23 of the 2/13/13
PowerPoint presentation provided to the committee by Econ One
Research, Inc. He recalled it being stated at the time that in-
field projects are very lucrative in Alaska. The slide shows
that if a company increases its investment by 15 percent it can
buy down its taxes anywhere from 63 percent to 95 percent,
depending on the price of oil.
REPRESENTATIVE TUCK, responding to Co-Chair Feige, confirmed the
2/13/13 presentation was on HB 72, but pointed out that slide 23
was demonstrating the buydown effect of existing ACES at oil
prices of $80, $100, and $120.
2:18:44 PM
REPRESENTATIVE HAWKER said this is the argument that was made
when ACES passed, the argument being the state can tax itself
into productivity with high rates. This has not proven out, nor
has it proven anywhere in any tax regime in the world.
REPRESENTATIVE TARR disagreed, citing testimony [by Brooks Range
Petroleum Corporation] that its Mustang project is coming on
line because the credits enabled the company to accelerate that
project as well as four or five others. While not sanctioned,
the other projects have been considered under the existing ACES
structure and show 50,000 barrels of oil coming on line by about
2016. It is on the record that that part [of ACES] has worked.
She expressed her wish that there was more time because she has
been trying to get dates aligned with when things happened and
when they did not. The Mustang oil will be the newest oil going
into the Trans-Alaska Pipeline System (TAPS) and it will happen
under ACES. While ACES may not be working in the way
legislators want it for everyone, there are parts that have been
demonstrated to have some positive impact.
CO-CHAIR FEIGE agreed the aforementioned was heard from Brooks
Range Petroleum Corporation, but noted there are companies that
are no longer in Alaska, such as "FEX, Chevron, Anadarko."
2:20:33 PM
CO-CHAIR SADDLER recalled the consultants stating that a high
tax regime and allowing companies to buydown by spending is less
attractive both effectively and philosophically than having a
more reasonable base rate. The evidence he heard was that the
complexity, unpredictability, and high government take was not
the way to go. This evidence, along with the lack of increased
production, leads him to believe that Amendment 2 is the wrong
way to go.
REPRESENTATIVE HAWKER recounted Mr. Armfield [of Brooks Range
Petroleum Corporation] saying it is because of the credits that
his company is here. Credits are where the state gives back and
makes projects profitable. There is a history of testimony by
Mr. Armfield and many other producers of all size that the
confiscatory tax rates existing under ACES are a huge challenge
for them to obtain the capital they need to come to Alaska and
develop any oil they have found. Requests have been made that
Alaska Industrial Development and Export Authority (AIDEA)
provide financing to assist these people because the commercial
markets will not provide it under Alaska's current fiscal
structure and the exigencies of working in the North Slope. He
said he therefore thinks that question was asked and answered by
the same person.
REPRESENTATIVE TARR pointed out the base rate in Amendment 2 is
25 percent and the tax is capped at 55 percent; so she would not
characterize it as a high base rate.
CO-CHAIR FEIGE noted there would be progressivity on top of that
base rate.
REPRESENTATIVE TARR nodded yes.
2:22:41 PM
REPRESENTATIVE TUCK reiterated the progressivity is reduced to
25 percent at a profit per barrel of $92.50. He recalled
Pioneer Natural Resources stating it would love to be paying
taxes in Alaska because that would mean it is making a profit.
The state is guaranteeing these companies are profitable once
they start producing, he argued. Being partners with the oil
industry, the state takes more of its fair share as those
profits go up. It is a finite resource, so the state does not
want to dump all of its production all at one time on the
markets. Rather, there must be consistent production and the
state has not seen that because production is declining. He
said ACES is a good way for taking advantage of today's high
prices and is combined with making sure there are new
investments for long-term production down the road. It is a
combination of expanding the current fields as well as more
fields in the future. He added it is difficult to compare
conventional plays to unconventional plays. North Dakota has a
high production cost of $50 per barrel, which is higher than the
cost in Alaska. The advantage in North Dakota is the quick
return in that investments can pay off as soon as 18 months.
However, with shale the decline is very rapid, so drilling must
be done constantly to keep that production up, unlike the
conventional plays on the North Slope. He urged that ACES be
retained and refined.
2:25:33 PM
REPRESENTATIVE HAWKER maintained his objection to Amendment 2.
A roll call vote was taken. Representatives Tarr and Tuck voted
in favor of Amendment 2. Representatives Olson, Seaton, Hawker,
Johnson, Saddler, and Feige voted against it. Therefore,
Amendment 2 failed by a vote of 2-6.
2:26:48 PM
REPRESENTATIVE TARR moved to adopt Amendment 3, labeled 28-
GS1647\K.21, Nauman/Bullock, 4/3/13, [text provided at end of
this document].
REPRESENTATIVE HAWKER objected.
REPRESENTATIVE TARR, referring to the different tools of base
rate, credits, and progressivity, noted a variety of options is
being considered that manipulate those different tools to get to
the end goal of more production. She explained Amendment 3
makes the $5 per barrel credit applicable to all oil, retains
the 35 [percent] base tax rate, and adds a small amount of
progressivity per dollar of profit above $55 until it caps out
at 50 percent. She said the 50 percent cap is reached at about
$130 profit. Thus, Amendment 3 is a compromise between ACES and
SB 21. She related she has heard from constituents that they
support progressivity because they like for the state to receive
more as prices go up. When constituents see articles about
company profits being record high, it is hard to sell the idea
that the companies are not doing well.
2:28:55 PM
REPRESENTATIVE HAWKER opposed Amendment 3, saying the difference
between progressivity in the tax calculation and a progressive
tax system must be understood. Version K is a progressive tax
system; it provides progressive taxes, especially on legacy
fields. The genius in the bill's progressivity feature is that
it only rewards production; it does not reward someone who fails
to produce. No matter how small or how progressivity is re-
crafted that is based purely on the tax rate, no incentive is
created for anyone to produce. All that is created is an
incentive to guild the lily, to increase expenses to buy down a
company's tax rate. There is no reason for a company to
economize and seek to maximum profits. Version K causes people
to seek to maximize production, not expenditures, which is a
fundamental flaw of Amendment 3.
REPRESENTATIVE TUCK reiterated Amendment 3 maintains the 35
percent base tax rate, adds progressivity, and gives a $5 per
barrel credit for all oil. It is a good combination of trying
to take care of legacy fields as well as ensuring a production
tax credit. Since the credit is for all production there would
be no need to figure out what is old or new production. It is a
good balance because it needs to be ensured that facilities are
maintained to prevent shutdowns due to equipment or pipeline
failures. The amendment would provide a stable tax regime for
quite a while.
2:32:53 PM
CO-CHAIR FEIGE inquired whether a fiscal note is available for
Amendment 3.
REPRESENTATIVE TARR replied time constraints did not allow an
opportunity to work that out. Regarding Representative Hawker's
concerns, she said Amendment 3 does not maintain the ACES
structure in terms of the credits. It uses the structure in
Version K for doing away with the credits and only the net
operating loss (NOL) credit is retained. She argued Amendment 3
does incentivize new production because it applies the $5 credit
on all new barrels. She reiterated she has heard from folks
that they like that the state shares in the upside, which is
done by the progressivity that would be capped at 50 percent.
2:34:16 PM
REPRESENTATIVE HAWKER maintained his objection to Amendment 3.
A roll call vote was taken. Representatives Seaton, Tarr, and
Tuck voted in favor of Amendment 3. Representatives Olson,
Hawker, Johnson, Saddler, and Feige voted against it.
Therefore, Amendment 3 failed by a vote of 3-5.
2:35:55 PM
REPRESENTATIVE TUCK moved to adopt Amendment 4, labeled 28-
GS1647\K.25, Nauman/Bullock, 4/3/13, [text provided at the end
of this document].
REPRESENTATIVE HAWKER objected.
REPRESENTATIVE TUCK explained Amendment 4 would remove the per
barrel credit, replacing it with a per barrel credit of $12 for
all oil, and would change the base rate up to 50 percent as a
balance. It would establish a minimum tax of 10 percent of the
gross value at the point of production, protecting the state at
the lower end of prices. Responding to Co-Chair Feige, he
confirmed that Amendment 4 would maintain the current minimum
tax structure of AS 43.55.011(f) until the end of 2013. On page
7, following line 1, of the bill, Amendment 4 would add a new
section, Section 15, defining the size of the reservoir. In
response to Co-Chair Feige, he confirmed Section 15 would set
the minimum tax rate at 10 percent of the gross.
2:40:15 PM
REPRESENTATIVE TUCK, continuing his explanation of Amendment 4,
stated page 10, lines 27-31, Version K, would be deleted and new
language inserted to set the 10 percent floor in that section of
the bill. Version K, page 10, line 17, would be amended to
change the base tax rate from 35 percent to 50 percent; this
change from 35 percent to 50 percent would also be applied to
page 11, lines 1, 14, and 23 of the bill. Version K, page 15,
line 10, would be amended from a 35 percent to a 50 percent
carried-forward annual loss. Version K, page 17, line 23, would
be amended from a tax credit of $5 to a credit of $12 for each
barrel of oil. In addition to the aforementioned, Amendment 4
would make conforming amendments.
2:43:30 PM
REPRESENTATIVE TUCK, in response to Co-Chair Feige, said the
fiscal impact of Amendment 4 could be seen on the graph
accompanying the amendment. Responding to Co-Chair Saddler, he
said the bottom axis represents the price per barrel and the
vertical axis is the percent tax. With 50 percent tax, $12 [per
barrel] credit, and a tax floor, the percent tax would parallel
the path of the tax rate under [Version K] but would remove the
stair steps. The floor would set in when prices go down to
about $65 a barrel, protecting the state on the bottom since the
state would no longer be taking windfall profits at the top.
CO-CHAIR FEIGE inquired how this would compare to ACES.
REPRESENTATIVE TUCK replied he could find a chart that makes a
comparison with ACES, but Amendment 4 would be significantly
lower than ACES. In further response, he said he will find a
chart by Econ One Research, Inc.
SENATOR OLSON believed the highest model the committee has is
for $105 per barrel, which makes it difficult to make a
comparison. Part of the problem was that no one anticipated the
price going up to $140 per barrel or higher.
REPRESENTATIVE TUCK responded that even if the chart only goes
up to $105, the line can just be extended as it approaches, and
that is where a big divide is seen between ACES and the current
bill. The current bill "flat lines" because 35 percent is the
highest the tax rate gets. The proposed 50 percent tax under
Amendment 4 would never approach the height seen under ACES.
2:47:39 PM
CO-CHAIR FEIGE inquired whether the Department of Revenue has a
slide that would help provide some comparison.
MR. PAWLOWSKI answered he does not have a chart on an effective
tax rate basis under ACES so as to provide an apples-to-apples
comparison. Additionally, he said he does not know the
assumptions that went into Representative Tuck's chart.
REPRESENTATIVE TUCK said he is trying to locate a chart he
believes the committee has that compares ACES to Version K.
2:48:33 PM
The committee took an at-ease from 2:48 p.m. to 2:49 p.m.
2:49:23 PM
REPRESENTATIVE HAWKER said it looks like Amendment 4 is trying
to preserve the minimum taxes that apply across the state until
January 1, 2014. Section 15, page 2, of Amendment 4, is for
after January 2014 and talks about each lease or property within
a unit or nonunitized reservoir that has cumulatively produced
1 billion British Thermal Unit (BTU) equivalent barrels of oil.
He said his recollection is that there is only one such property
- Prudhoe Bay - so the provisions of this would apply only to
Prudhoe Bay. This provision says there is a 10 percent minimum
gross value tax on Prudhoe production, but yet ...
CO-CHAIR FEIGE interjected "no minimum tax on anything else."
REPRESENTATIVE HAWKER, continuing, said it seems Amendment 4
removes the minimum tax after January 1, 2014, on everything
else. Page 3, Amendment 4, deals with payment provisions and
talks about how a company makes its deposits, which are the
installment payments of estimated tax. While it substitutes the
ten percent for the zero, one, two, three, and four percent as
applicable, somewhere along the way it seems the minimum tax is
lost as it would apply across the rest of the world. He guessed
that when the rest of the minimum tax goes away, that provision
would still apply, so it would just be zero, but Amendment 4
seems to take away the minimum tax provisions from the rest of
the North Slope.
2:52:07 PM
REPRESENTATIVE TUCK, in response to Co-Chair Feige, stated the
aforementioned is not the intent, but concurred it appears to be
the effect.
REPRESENTATIVE HAWKER further noted that Amendment 4 would also
increase the base tax rate and the net effective tax.
Regardless of what Amendment 4 does to minimum taxes, he said he
does not think the committee should support the amendment
because it would further increase taxes over Version K.
REPRESENTATIVE TUCK responded the intent is to increase the tax
revenue to offset the revenues that will be lost. It protects
the state on the down end, as was the intent of Version K; as an
offset it gives a higher per barrel tax credit.
2:53:58 PM
REPRESENTATIVE HAWKER maintained his objection to Amendment 4.
A roll call vote was taken. Representatives Tarr and Tuck voted
in favor of Amendment 4. Representatives Seaton, Hawker,
Johnson, Olson, Saddler, and Feige voted against it. Therefore,
Amendment 4 failed by a vote of 2-6.
2:55:22 PM
REPRESENTATIVE TARR moved to adopt Amendment 5, labeled, 28-
GS1647\K.24, Nauman/Bullock, 4/3/13, [text provided at the end
of this document].
REPRESENTATIVE HAWKER objected.
REPRESENTATIVE TARR advised that she and Representative Tuck did
not receive their amendments from Legislative Legal and Research
Services until the start of the meeting, so they have not had an
opportunity to review them. She said Amendment 5 is similar to
Amendment 4, but has a tax rate of 45 percent, a $10 credit, and
a floor. She drew attention to the graph accompanying the
amendment that compares the tax rate under Amendment 4 to
Version K. She explained the hook on the left side of the graph
represents the tax floor; the tax rate then smooths out over
time over many price ranges and would be a little bit above the
35 percent tax rate in Version K. Amendment 5 would provide
protection to the state at low prices because the tax would
never go to zero. There is one marginal tax rate, which is the
base rate, and the other credits and provisions are the same.
REPRESENTATIVE TUCK added that the sections in Amendment 5 are
the same as in Amendment 4, but the amendment is much closer to
Version K and would ensure the state is protected on the lower
end of prices. It would be less regressive than Version K and
would help the small producers as well.
2:58:34 PM
CO-CHAIR SADDLER asked which basins would qualify for the
cumulative 1 billion BTUs in production. He further asked what
the aim is in setting that parameter for cumulative and annual
production.
REPRESENTATIVE TUCK answered that when requesting this amendment
from Legislative Legal and Research Services, he asked to:
remove the change in per barrel credit and give a per barrel
credit of $10 for all oil, change the base rate tax to 45
percent; and establish the minimum tax at 10 percent of the
gross value at the point of production. The language in
Amendment 5 is what Legislative Legal and Research Services came
up with. He and Representative Tarr did not specifically look
to exclude any type of legacy producers or small producers in
the amendment, so he does not know why this section was put in.
He assumed it was conforming language given there was no intent
to exclude anyone in particular.
REPRESENTATIVE HAWKER reiterated it appears Amendment 5 applies
the 10 percent alternative minimum tax only to Prudhoe Bay and
would remove it from all other potential producers. If the
graph is accurate, the amendment would increase the tax over the
tax proposed in Version K. Increasing taxes beyond what is in
Version K is not wanted, he argued; rather, the committee might
want to consider further decreasing them.
3:00:44 PM
MR. PAWLOWSKI, responding to Co-Chair Feige, said the Department
of Revenue's opinion is that Representative Hawker is correct in
the long term, but in the short term this minimum would also
apply to the Kuparuk Unit. However, according to the Revenue
Sources Book, the Kuparuk Unit would fall out of the minimum
qualification by fiscal year 2017, which is the beginning of
calendar year 2016, because it would not have 100,000 barrels a
day of production.
REPRESENTATIVE HAWKER quipped "maybe it is a good amendment."
REPRESENTATIVE TARR said she is unsure that is being interpreted
in the way intended. Amendment 5 would protect the state at low
prices, thereby sharing on both the low and high ends. It is
not a significant increase over Version K and is a more
reasonable sharing of the profits from Alaska's common property
resource on the North Slope.
3:02:49 PM
REPRESENTATIVE HAWKER maintained his objection to Amendment 5.
A roll call vote was taken. Representatives Tarr and Tuck voted
in favor of Amendment 5. Representatives Hawker, Johnson,
Olson, Seaton, Saddler, and Feige voted against it. Therefore,
Amendment 5 failed by a vote of 2-6.
3:03:47 PM
REPRESENTATIVE TUCK moved to adopt Amendment 6, labeled 28-
GS1647\K.11, Nauman/Bullock, 4/2/13, which read:
Page 6, line 8:
Delete "35"
Insert "50"
Page 10, line 17:
Delete "35"
Insert "50"
Page 11, line 1:
Delete "35"
Insert "50"
Page 11, line 14:
Delete "35"
Insert "50"
Page 11, line 23:
Delete "35"
Insert "50"
Page 15, line 10:
Delete "35"
Insert "50"
Page 17, line 21:
Delete "new subsections"
Insert "a new subsection"
Page 17, line 23:
Delete "$5"
Insert "$12"
Page 17, line 24:
Delete "that meets one or more of the criteria in
AS 43.55.160(f) and"
Page 17, line 28, through page 18, line 28:
Delete all material.
REPRESENTATIVE HAWKER objected.
3:03:55 PM
REPRESENTATIVE TUCK explained Amendment 6 removes the change in
per barrel credit and gives a per barrel credit of $12 for all
oil, changes the base tax rate to 50 percent, and does not set a
floor. A graph accompanying the amendment was distributed.
CO-CHAIR SADDLER observed Amendment 6 raises the tax and said
that may not be the direction - as a policy call - in which the
committee wants to go.
REPRESENTATIVE TARR pointed out there is no hook in the graph
because there is no floor. This is a trade-off of giving up
protection at lower prices in return for sharing more when
prices are high.
REPRESENTATIVE P. WILSON opposed Amendment 6, saying that if she
was going to make some changes she would "bring it down a little
bit further on the top end so that it could go up a little
further on the bottom end."
3:05:59 PM
REPRESENTATIVE HAWKER said Amendment 6 would leave in place the
low end protections that currently exist in statute through the
minimum tax structure. But, by removing the stepped per barrel
credit, it would remove the progressivity feature that is built
into that credit for legacy fields. While an interesting idea,
he would recommend including that progressivity feature because
it is a production-based incentive with that per barrel credit;
it is not the policy direction the committee wants to go.
REPRESENTATIVE SEATON stated regardless of how the graphs look
and whether the committee likes them, he has a problem with
raising the base rate too high. When people are considering
coming to Alaska the base rate is the first thing they look at.
Progressivity worked because it has a lower base rate and
accelerates at higher profits. But, when it starts out with too
high a base rate, even with deductions from the base rate it is
harder for someone trying to make a decision.
REPRESENTATIVE TUCK said Amendment 6 would take away the stair
step that both consultants had advised yesterday to take out.
There would still be a progressive function and it would solve
the regressivity problem for the oil companies. At low prices
the state would not be making any money but would make more
money at higher prices.
3:08:50 PM
REPRESENTATIVE HAWKER maintained his objection to Amendment 6.
A roll call vote was taken. Representatives Tarr and Tuck voted
in favor of Amendment 6. Representatives Hawker, Johnson,
Olson, Seaton, P. Wilson, Saddler, and Feige voted against it.
Therefore, Amendment 6 failed by a vote of 2-7.
3:09:39 PM
REPRESENTATIVE TUCK moved to adopt Amendment 7, labeled 28-
GS1647\K.22, Nauman/Bullock, 4/2/13, which read:
Page 6, line 8:
Delete "35"
Insert "45"
Page 10, line 17:
Delete "35"
Insert "45"
Page 11, line 1:
Delete "35"
Insert "45"
Page 11, line 14:
Delete "35"
Insert "45"
Page 11, line 23:
Delete "35"
Insert "45"
Page 15, line 10:
Delete "35"
Insert "45"
Page 17, line 21:
Delete "new subsections"
Insert "a new subsection"
Page 17, line 23:
Delete "$5"
Insert "$10"
Page 17, line 24:
Delete "that meets one or more of the criteria in
AS 43.55.160(f) and"
Page 17, line 28, through page 18, line 28:
Delete all material.
REPRESENTATIVE HAWKER objected.
REPRESENTATIVE TUCK explained Amendment 7 is very similar to
[Amendment 6]. He reported Mr. Janak Mayer [of PFC Energy] was
unable to get a model back to the committee, but the graph for
Amendment 7 would be close to the graph for Amendment 5, except
there would be no hook. Yesterday Econ One Research, Inc. drew
its line underneath the stair steps while PFC Energy drew its
line on top of the stair steps. Amendment 7 draws the line just
above the top of the stair steps, so is more of a compromise.
REPRESENTATIVE JOHNSON offered a friendly amendment to the
amendment to delete "45" everywhere it appears in Amendment 7
and insert "30". He then withdrew his amendment saying he had
made his statement.
REPRESENTATIVE TUCK reiterated Amendment 7 would bring the tax
rate closer to the stair step line of Version K and would smooth
out that line.
3:11:41 PM
REPRESENTATIVE HAWKER maintained his objection to Amendment 7.
A roll call vote was taken. Representatives Tuck and Tarr voted
in favor of Amendment 7. Representatives Hawker, Johnson,
Olson, Seaton, P. Wilson, Saddler, and Feige voted against it.
Therefore, Amendment 7 failed by a vote of 2-7.
3:12:33 PM
REPRESENTATIVE TARR moved to adopt Amendment 8, labeled 28-
GS1647\K.9, Bullock, 4/3/13, which read:
Page 1, line 4, following "rate;":
Insert "providing an additional tax on the
production of oil when the production tax value of a
barrel of oil is more than a certain amount;"
Page 6, line 7, following "2014":
Insert "the sum of
(A)"
Page 6, line 9, following "percent":
Insert "; and
(B) the sum, over all months of a calendar
year after December 31, 2013, of the tax amounts
determined under (q) of this section"
Page 7, following line 1:
Insert a new bill section to read:
"* Sec. 14. AS 43.55.011 is amended by adding a new
subsection to read:
(q) In addition to the tax in (e) of this
section, for a month in which the average production
tax value of a barrel of oil is more than $150, there
is levied on the producer of oil for each barrel of
oil produced and taxable under (e) of this section a
tax of $1 for each $10 amount of production tax value
that exceeds $150. The tax in this subsection does not
apply to oil the ownership or right to which is exempt
from taxation or constitutes a landowner's royalty
interest. The tax levied under this subsection shall
be paid at the time and manner in which taxes under
(e) of this section are paid under AS 43.55.020."
Renumber the following bill sections accordingly.
Page 29, line 6:
Delete "sec. 31"
Insert "sec. 32"
Page 29, line 7:
Delete "18 and 20 - 23"
Insert "19 and 21 - 24"
Delete "sec. 18"
Insert "sec. 19"
Page 29, line 9:
Delete "Section 19"
Insert "Section 20"
Page 29, line 20:
Delete "sec. 36"
Insert "sec. 37"
Page 29, line 24:
Delete "Sections 13, 20 - 23, 28, and 37"
Insert "Sections 13, 21 - 24, 29, and 38"
Page 29, line 25:
Delete "sec. 18"
Insert "sec. 19"
Delete "sec. 31"
Insert "sec. 32"
REPRESENTATIVE HAWKER objected.
3:13:04 PM
REPRESENTATIVE TARR noted that in Version K the tax credit per
barrel scales down from $8 to $0 by $1 for every $10 of gross
value at the point of production. Amendment 8 would allow the
credit to "go negative" so that if the gross value at the point
of production is $160-$170 there would be a bonus to the state.
It would keep the stair step going down and there would be no
minimum tax. The makers of the amendment are characterizing as
a bonus a simplified progressivity at the higher prices. It is
similar to the 45 percent base rate, $8 per barrel credit, with
a little bit more sharing on the upside for the state.
3:13:54 PM
REPRESENTATIVE HAWKER posited that this overall debate, manifest
in the discussion of tax rates and shopping for tax rates and
shopping for metrics, is really not the issue before the
committee. The issue is production decline. The committee has
heard it repeatedly testified that investment equals production
and to attract investment the folks making those decisions must
model and compare. Alaska has to compete against their
alternatives on a worldwide basis and in that is a probabilistic
analysis of future oil prices and the taxes that would be in
effect. Amendment 8 would directly exasperate the current
problem with ACES, which is that government take is more with
each rise in price, rather than providing either a levelized or
very predictable staged and capped tax rate at those higher
ends. Amendment 8 would take away a significant part of a
potential investor's upside analysis, which is one reason why
Alaska is not seeing investment and is experiencing production
decline and a reason not to vote for the amendment.
3:15:28 PM
REPRESENTATIVE TUCK pointed out Amendment 8 pretty much "leaves
the line" seen [on the graph] for Version K. The difference is
that the amendment protects the state's interests when the price
goes above $170 a barrel. It increases the same curve in
Version K for prices above $170 a barrel and is asymptotic, so
there is a cap to it. Rather than flat-lining at 35 percent
when prices reach $150 a barrel, it continues once $170 is
reached. Also, unlike ACES, it is a very small curve. It would
provide benefits for those times when prices do get up that high
versus how much the state expects to lose when prices drop below
$100 a barrel.
3:17:00 PM
REPRESENTATIVE TARR, while appreciating Representative Hawker's
comments, said she does not think anyone would be complaining
about what happens at oil prices of $170 and above because
people would be swimming in profits at that price. Amendment 8
is a way for the state to protect itself at very high prices.
She recently heard from BP that it is doing its modeling at $90
a barrel. In checking with other sources, it even may be $80-
$95 a barrel. Looking at what happens above $170 a barrel is
not a problem today or likely to be one in the next five years
if one believes the Futures Forecast, but this amendment would
provide that Alaska shares in that windfall profit should prices
reach $170 a barrel. The tax rate graph for Amendment 8 mimics
the version of the bill that the committee is considering.
3:19:06 PM
REPRESENTATIVE HAWKER maintained his objection to Amendment 8
A roll call vote was taken. Representatives Tarr and Tuck voted
in favor of Amendment 8. Representatives Johnson, Hawker,
Olson, Seaton, P. Wilson, Saddler, and Feige voted against it.
Therefore, Amendment 8 failed by a vote of 2-7.
3:20:07 PM
REPRESENTATIVE TUCK moved to adopt Amendment 9, labeled 28-
GS1647\K.26, Nauman/Bullock, 4/3/13, which read:
Page 18, lines 4 - 11:
Delete all material.
Renumber the following paragraphs accordingly.
REPRESENTATIVE HAWKER objected.
The committee took a brief at-ease.
3:23:30 PM
REPRESENTATIVE TUCK explained Amendment 9 would protect the
state at low prices by limiting the credit to a maximum of $5
per barrel at lower prices. At an average gross value at the
point of production of $110 and above, the credit would step
down as currently written in Version K.
CO-CHAIR FEIGE noted there would be no per barrel exclusion
below a taxable value of $100 under Amendment 9 and asked
whether the tax rate would then be the base rate of 35 percent.
3:24:27 PM
The committee took an at-ease from 3:24 p.m. to 3:32 p.m.
3:32:57 PM
REPRESENTATIVE TUCK withdrew Amendment 9 because it was
incorrectly drafted.
3:33:18 PM
REPRESENTATIVE TUCK moved to adopt Amendment 10, labeled 28-
GS1647\K.19, Nauman/Bullock, 4/2/13, which read:
Page 17, line 21:
Delete "new subsections"
Insert "a new subsection"
Page 17, line 24:
Delete "one or more"
Insert "either or both"
Page 17, line 28, through page 18, line 28:
Delete all material.
Page 24, line 14:
Delete "one or more"
Insert "either or both"
Page 24, lines 20 - 23:
Delete "; (3) the oil or gas is produced from
acreage that was added to an existing participating
area by the Department of Natural Resources after
December 31, 2012, and the producer demonstrates to
the department that the volume of oil or gas produced
is from acreage added to an existing participating
area"
REPRESENTATIVE HAWKER objected.
REPRESENTATIVE TUCK explained that under Amendment 10 the per-
barrel credit would apply to new oil. He said he does not think
"the field development should be counted as new oil." If a
producer gets the gross reduction exclusion (GRE) then it would
also get the per barrel credit. By deleting in Version K, page
24, lines 20-23, the amendment would remove the third section of
the GRE that was discussed as not having clarity.
3:34:22 PM
REPRESENTATIVE TUCK, in response to Co-Chair Feige, concurred
the GRE is now called the gross value reduction (GVR).
CO-CHAIR FEIGE said on [3/29/13] the committee changed the third
GVR in CSSB 21(FIN) am(efd fld) to make it clearer and that
change was included in Version K.
REPRESENTATIVE TUCK specified Amendment 10 would also give the
$5 per barrel taxable oil and would remove the stair stepping.
In further response to Co-Chair Feige, he confirmed Amendment 10
would remove what would become subsection (j) of AS 43.55.024
and would entirely remove the floating per barrel credit
provision.
3:36:19 PM
REPRESENTATIVE HAWKER opposed Amendment 10, saying it appears
the intent of the amendment is to delete the per barrel credit
for legacy fields and further make it difficult by removing the
third gross value reduction, which in Version K was an important
clarification of intent to ensure that the GVR would be
appropriately applicable to oil and gas that was added to a
participating area. Amendment 10 would "make the legacy fields
pay, eliminate all future benefits from the legacy fields, or
severely compromise those benefits to legacy fields." It seems
the thought is to take that money and use it to subsidize
everyone else as well as pay for the future operations of the
State of Alaska. It is a false conception that the state can
tax productivity out of legacy fields while at the same time
falling over itself to incentivize some other mysterious
definition of new oil and new fields. It defeats the purpose of
trying to create a levelized, predictable, durable tax system
that can be applied universally across all spectrums of those
that explore and produce in the state.
3:39:16 PM
CO-CHAIR FEIGE opposed Amendment 10, stating that taking out the
third GVR would take away one of the incentives to find new oil
within the legacy fields. Eliminating the floating per barrel
credit essentially leaves the base rate in effect on anything
coming out of the legacy fields, which would drive investment in
new oil outside of the legacy fields. Testimony was heard that
most new oil would come from the legacy fields because in
Prudhoe Bay a 1 percent rise is a significant volume of oil.
REPRESENTATIVE TARR clarified the per barrel credit allowance is
only specific to part three of the [GVR/GRE]. She recalled it
was heard from producers that they did not expect to use part
three. If it qualifies for part one or part two of the GVR,
then it would also apply for the per barrel credit, so it is
just part three of the GVR that would be removed.
3:41:13 PM
CO-CHAIR FEIGE noted part one and part two of the GVR would be
either new units outside legacy fields or new participating
areas within. He understood Representative Tarr to be assuming
there would be new participating areas in the legacy fields, but
said he does not believe testimony was heard to that effect.
REPRESENTATIVE TUCK said the intent of Amendment 10 is to
incentivize new oil from new areas. Production is already
planned for the easy oil in the legacy fields and significant
reduction of the state's tax income will help to incentivize
those legacy fields.
3:43:07 PM
REPRESENTATIVE HAWKER maintained his objection to Amendment 10.
He understood the amendment would leave the $5 per barrel credit
for all fields, including the legacy fields.
REPRESENTATIVE TUCK confirmed that is correct.
A roll call vote was taken. Representatives Tarr and Tuck voted
in favor of Amendment 10. Representatives Seaton, P. Wilson,
Olson, Hawker, Johnson, Saddler, and Feige voted against it.
Therefore, Amendment 10 failed by a vote of 2-7.
3:44:14 PM
REPRESENTATIVE TARR moved to adopt Amendment 11, labeled 28-
GS1647\K.18, Nauman/Bullock, 4/2/13, which read:
Page 17, line 24:
Delete "one or more of the criteria in
AS 43.55.160(f)"
Insert "the criteria in AS 43.55.160(f)(1) or (2)
or both"
Page 17, line 28, through page 18, line 28:
Delete all material.
REPRESENTATIVE HAWKER objected.
REPRESENTATIVE TARR explained there is a series of amendments
related to the GVR/GRE. She said she likes to call it GRE
because it is revenue exclusion. The amendments manipulate
different portions of the GVR/GRE to look at ways to accomplish
incentivizing new development. Like Amendment 10, Amendment
[11] is specific to part three, but instead of eliminating the
per-barrel credit and the GVR/GRE, it eliminates only the per
barrel credit. The thinking behind Amendment 11 is that much of
this may be planned development and it is new development that
is trying to be incentivized, not things already in the works.
The GRE would still be given, so there would still be incentive
to do in-field work. She added it is a policy call as to where
to incentivize the behavior of the oil companies.
3:46:34 PM
REPRESENTATIVE HAWKER maintained his objection to Amendment 11.
A roll call vote was taken. Representatives Tarr and Tuck voted
in favor of Amendment 11. Representatives Seaton, P. Wilson,
Hawker, Johnson, Olson, Saddler, and Feige voted against it.
Therefore, Amendment 11 failed by a vote of 2-7.
3:47:21 PM
REPRESENTATIVE TUCK moved to adopt Amendment 12, labeled 28-
GS1647\K.23, Nauman/Bullock, 4/2/13, which read:
Page 17, line 21:
Delete "new subsections"
Insert "a new subsection"
Page 17, line 28, through page 18, line 28:
Delete all material.
REPRESENTATIVE HAWKER objected.
REPRESENTATIVE TUCK explained that under Amendment 12 if the
Department of Natural Resources determines that an in-field has
new oil, then the per barrel credit would apply.
REPRESENTATIVE HAWKER understood Amendment 12 would eliminate
what is now in Version K, which is a progressive tax feature
that is also a production-based feature that provides a balanced
benefit to legacy production. He said the amendment is counter
to everything that is trying to be done.
REPRESENTATIVE TARR respectfully disagreed, saying that in this
case for a legacy field if it can be proved that it qualifies
for the third component of the GVR/GRE, then it is eligible for
the credit.
3:49:04 PM
The committee took a brief at-ease.
3:50:14 PM
REPRESENTATIVE TUCK pointed out that subsection (i) of Section
25, Version K, would still remain. Thus, parts one and two of
the GVR/GRE for new oil would remain, and if the provisions of
part three are met for new oil, both the credit and the GRE
would be received.
CO-CHAIR FEIGE opposed Amendment 12, stating a consideration
while crafting the floating per barrel exclusion was that it is
easy to identify a drilling rig and easy to identify new oil,
but very difficult to quantify the effects of a field-wide
effort to enhance production from the legacy fields using new
technology or applying existing technology. The floating per
barrel credit was chosen as a way where the more produced in
those legacy fields, the more of a tax reduction overall, and at
lower prices it is even more advantageous in terms of the per
barrel credit. While it can be argued some of that oil in the
legacy fields would be produced anyway because the wells are
there, the intent is to incentivize investment using new
technology or more of the current technology to increase the
extraction rate and get more oil out of existing rocks over
time. Putting Section 25, subsection (j), into law enhances
that and enhances it in a way that rewards greater production.
3:53:52 PM
REPRESENTATIVE TUCK argued government take is being reduced
significantly throughout Version K and industry is doing very
well in Alaska. A benefit of doing business in Alaska is that
the finds are large and very good, unlike in North Dakota where
the finds are small and give oil immediately but quickly die.
Decline on the North Slope is slow because it is conventional
oil. The intent, he reiterated, is to not incentivize things
that are already being done.
3:55:01 PM
REPRESENTATIVE HAWKER maintained his objection to Amendment 12.
A roll call vote was taken. Representatives Tarr and Tuck voted
in favor of Amendment 12. Representatives P. Wilson, Hawker,
Johnson, Olson, Seaton, Saddler, and Feige voted against it.
Therefore, Amendment 12 failed by a vote of 2-7.
3:55:51 PM
REPRESENTATIVE TARR moved to adopt Amendment 13, labeled GS-
1647\K.12, Nauman/Bullock, 4/2/13, which read:
Page 24, line 14:
Delete "one or more"
Insert "either or both"
Page 24, lines 20 - 23:
Delete "; (3) the oil or gas is produced from
acreage that was added to an existing participating
area by the Department of Natural Resources after
December 31, 2012, and the producer demonstrates to
the department that the volume of oil or gas produced
is from acreage added to an existing participating
area"
REPRESENTATIVE HAWKER objected.
REPRESENTATIVE TARR explained that under Amendment 13 the credit
is maintained for part three of the GVR/GRE, but the credit is
modified for non-GVR/GRE oil. By taking away part three of
GVR/GRE a producer could not go back and add acreage. Some of
the uncertainty is removed. She understood from testimony that
folks did not anticipate much use of part three. Amendment 13
would add some certainty to how this would be applied.
3:57:31 PM
REPRESENTATIVE HAWKER argued this has nothing to do with credits
as stated, but has to do specifically with the GVR/GRE.
Amendment 13 would remove part three of the GVR/GRE, which was
added after a deliberative committee process. The whole idea is
that the GVR/GRE is to provide benefits for new oil and new oil
alone; the devil is in the details of defining new oil.
Committee debate identified that a significant amount of new oil
might come from an acreage that was added to an existing
participating area. The language originally drafted in the bill
was unclear. [Co-Chair Feige] worked with the agencies to
provide a great deal more clarity while still leaving a great
deal of latitude with the Department of Natural Resources (DNR)
to make the determination that the oil or gas produced was from
the added acreage. It is very clear and is an important part of
clarifying the intent/applicability of the GVR/GRE. It is
absolutely consistent with the intent to provide an extra
benefit and incentivize new oil, no matter where it comes from.
3:59:50 PM
REPRESENTATIVE SEATON supported Amendment 13, saying he does not
think part three is clear. A new reservoir or a new reservoir
at a different vertical level is clearly a new participating
area. Making a determination for acreage that is added to a
participating area will add much work for [DNR]. The Prudhoe
Bay operator testified it does not foresee using expansion of
participating areas. While an effort was made to clean up the
language, the demonstration process was not cleaned up.
4:02:04 PM
CO-CHAIR FEIGE asked whether the administration has a position
on Amendment 13.
JOE BALASH, Deputy Commissioner, Office of the Commissioner,
Department of Natural Resources (DNR), replied the
administration is quite pleased with the current language in
Version K. It is much clearer and will be less of a burden on
the department's staff to go through these discussions with the
operators on whether a given sub-participating area is in fact
contributing to production in the main reservoir. Having the
bright line of whether the particular acreage is an addition to
the existing PA makes it clear. That is just one step. The
second step is the one the Department of Revenue will take in
determining whether there is a reasonable accounting for
production from that addition. Under this language not all
expansions of participating areas will qualify for the GVR/GRE
because not all will be able to account for the production from
the expanded area. Responding further, he confirmed two
elements must be proven to both DNR and DOR: 1) the company
must prove it is an addition to the existing area, and 2) the
company must prove it can be accounted for separately.
4:03:58 PM
REPRESENTATIVE TARR recalled the deputy commissioner previously
stating that he did not expect this part of the GVR/GRE would be
widely used, which led her to believe that this was not as
important a provision as the first two in terms of determination
and help in clarity.
MR. BALASH agreed there will not be many instances in which this
would be of benefit. However, he continued, based on the review
done and work that is currently out there, it is expected the
number of barrels that would be able to take advantage of this
is material. Potential examples include "Ipad," expansions at
West Sac, Sharktooth prospect at Kuparuk, and CD-5 at Alpine.
These are material and are things the state will want to happen.
MR. PAWLOWSKI added it is important to distinguish between the
starting language of this provision versus the current language.
The starting language was on an individual well-by-well basis,
whereas [Version K] goes back to the actual acreage and the
leases and the tracts that are added. That is a material
difference from the department's perspectives about how this
process might play out. It was heard last night from one of the
operators of the non-Prudhoe Bay unit that future opportunities
are seen to perhaps use this. He concurred with Mr. Balash that
those volumes are currently not being developed and could
provide meaningful additions to the state.
4:06:15 PM
REPRESENTATIVE TARR inquired whether the fiscal impact of the
provision has been appropriately assessed in the fiscal note.
MR. PAWLOWSKI replied he believes it has because the majority of
these expansions of PAs are prospective going forward, so they
are new additions that are not necessarily included in the
department's revenue forecasts.
CO-CHAIR FEIGE interjected that any new oil would actually
decrease the impact of the fiscal note, which would be good.
REPRESENTATIVE TARR said it is a policy call on where to
incentivize activity. Some changes made in the bill have been
characterized in the public as a giveaway. There is a question
about how much to give and whether the changes are giving
opportunities for manipulating the system for production that
was already planned.
4:07:44 PM
REPRESENTATIVE HAWKER maintained his objection to Amendment 13.
A roll call vote was taken. Representatives Tarr, Tuck, and
Seaton voted in favor of Amendment 13. Representatives Hawker,
Johnson, Olson, P. Wilson, Saddler, and Feige voted against it.
Therefore, Amendment 13 failed by a vote of 3-6.
4:08:34 PM
REPRESENTATIVE TUCK withdrew Amendment 14, labeled 28-
GS1647\K.17, Bullock, 4/3/13.
4:09:13 PM
REPRESENTATIVE TARR moved to adopt Amendment 15, labeled 28-
GS1647\K.15, Bullock, 4/3/13, [text provided at the end of this
document].
REPRESENTATIVE HAWKER objected.
REPRESENTATIVE TARR explained Amendment 15 would protect the
state's interests by providing that the state would go back to
[ACES] if, by close of the 2017 calendar year, North Slope
production does not increase at least 10 percent over 2012
levels. While the state is unable to get any guarantees from
the "big three" about what their plans are should this tax
change be made, this amendment would give the state some
protections to encourage activity to start quickly.
4:10:55 PM
CO-CHAIR FEIGE noted Amendment 15, page 1, line 16, would amend
Version K to make a reference to AS 43.55.011(g). He offered
his belief that this subsection pertaining to progressivity has
been deleted.
REPRESENTATIVE HAWKER said the conditional effect is about the
volume of oil being produced in 2017 that exceeds the volume of
oil produced in the 2012 calendar year. However, the issue
before the state is about stemming decline. There is a natural
decline rate in the fields, so it is an affirmative 10 percent
increase over 2012. For this legislation to actually result in
more revenue to the State of Alaska, an increase of 40,000
barrels [per day] is needed [3/25/13 PowerPoint testimony by
Econ One Research, Inc., slide 20]. Amendment 15 would set a
hurdle of 10 percent more than the 2012 calendar year and
putting in this kind of artificial hurdle is exactly what is
wrong. This short timeframe and sort of absolute are not going
to result in any increased investment and will probably decrease
investment because this is all about aggregate production across
the North Slope. When the majority of that production likely
has to come from legacy producers, or one small guy hitting the
mega-find, it is discriminatory. It does not represent how to
incentivize and create a balanced and durable incentive program
across all tranches of people the state wants working on the
North Slope. The objective is to recognize market forces and
the laws of economics, and put in place what is believed to be
an economic environment that will result in the desired increase
in production across all spectrums. Another legislature will be
sitting here in 2017 and if it does not like what it sees it can
make changes.
4:14:53 PM
REPRESENTATIVE TARR, addressing Co-Chair Feige's earlier
statement regarding Amendment 15, page 1, line 16, explained
that that language needs to be included in the amendment because
if the tax regime reverts back to the ACES structure then that
language will be relevant. Responding further, she said
additional language related to this provision is on page 16 of
the amendment. She reminded members that today's meeting was
delayed while Legislative Legal and Research Services prepared
the amendments, so she was unable to proof this amendment prior
to the start of the meeting, which is one of the problems with a
rushed process. If the amendment is incorrect, she continued,
she can offer a conceptual amendment.
4:19:09 PM
The committee took an at-ease from 4:19 p.m. to 4:21 p.m.
4:21:36 PM
REPRESENTATIVE TARR noted Amendment 15 has a drafting error and
moved to adopt Amendment 1 to Amendment 15:
Page 1, line 16, following "AS 43.55.011":
Delete "(g)"
Insert "(q)"
The language on line 16 would therefore read: "during the
previous calendar year under AS 43.55.011(q) ...". There being
no objection, the Amendment 1 to the Amendment 15 passed.
REPRESENTATIVE TARR said Amendment 15 would provide a timeline
to prove that there is new production. She agreed another
legislature could come back, but said she would not rely on that
given the amount of time it has taken this legislature to get
this far. She stressed she is getting dozens of e-mails that
the proposed bill is a giveaway with no guarantee of any new
production. The public would be much more comfortable if the
bill included a timeline and performance expectations, she
stressed, since the legislation gives up nearly $1 billion [in
revenue] which could result in Alaskans making sacrifices due to
lack of funding for schools, roads, and public safety.
4:24:10 PM
REPRESENTATIVE P. WILSON disagreed, saying Version K, pages 17
and 24, provide that no allowances are given unless there is
production; thus, something is being done to ensure production.
REPRESENTATIVE JOHNSON recounted when ACES was first passed it
was thought to be the best thing that had ever happened to the
state; only about 12 people in the House said it was not. The
next year a bill was introduced and about 14 people said ACES
was not what it was supposed to be. Today, nearly everyone says
ACES either needs to be tweaked or totally disregarded. It is
almost universally recognized that ACES is flawed. To return to
what is, in his opinion, the most flawed tax plan on the planet
is unconscionable. He recalled his reference to ACES on the
House floor when it first passed as being a hurricane that would
devastate Alaska's economy and said he believes that is where
the state is now.
4:26:19 PM
REPRESENTATIVE TUCK argued the change proposed by Amendment 15
promotes more production, but provides protection should that
not happen by returning to the system that protected Alaska
during a time when the rest of the U.S. was going through a
recession. There are more jobs and more players on the North
Slope. Referring to statements that the fastest way to making
more production happen is to make it happen on existing fields,
he said he has not seen where any existing fields have had their
declines reversed. While natural decline can be slowed, it will
take new oil from other areas. Amendment 15 is a safeguard for
the state's future.
4:28:12 PM
REPRESENTATIVE HAWKER maintained his objection to Amendment 15.
REPRESENTATIVE TARR, responding to Representative P. Wilson's
earlier comment, drew attention to the bill's fiscal note which
has one portion tied to new production through the $5 credit.
She said this pales in scale to the loss of the progressive
portion of the tax and this give away of hundreds of millions of
dollars with no guarantee of production is of concern to the
public. The public expects the legislature to play hardball
like the industry does in its board rooms to advance its
interests; therefore, it is not inappropriate to put some
expectations in place. The state will be taking a budget hit of
nearly $1 billion [per year] at least through fiscal year 2019.
It will take the state's savings in its statutory budget
reserve, which is from the ACES tax, to get through this time
period. The people of Alaska are being asked to shoulder the
burden of a tax break for the most profitable oil companies in
the world.
4:30:33 PM
A roll call vote was taken. Representatives Tuck and Tarr voted
in favor of Amendment 15. Representatives Hawker, Johnson,
Olson, Seaton, P. Wilson, Saddler, and Feige voted against it.
Therefore, Amendment 15 failed by a vote of 2-7.
4:31:17 PM
REPRESENTATIVE TUCK moved to adopt Amendment 16, labeled 28-
GS1647\K.16, Bullock, 4/3/13, [text provided at the end of this
document].
REPRESENTATIVE HAWKER objected.
REPRESENTATIVE TUCK explained Amendment 16 deals with Section 11
and, as heard from the administration, Section 11 would include
both Prudhoe Bay and Kuparuk. The proposed legislation would
reduce government take at high oil prices where things tend to
be most profitable. Amendment 16 would protect the state at low
prices by putting in a floor of 10 percent of gross value at the
point of production and this would apply to the legacy fields.
4:32:33 PM
REPRESENTATIVE HAWKER said Amendment 16 repeals and reenacts AS
43.55.011(f), which is the minimum tax subsection that applies
to all oil and gas produced north of 68 degrees North latitude
other than oil and gas production that is essentially a private
royalty interest. It would eliminate the minimum tax provisions
on everyone except Prudhoe Bay and Kuparuk, although Kuparuk
would soon not be subject to this minimum tax because of its
production decline. Thus, the minimum tax level on Prudhoe Bay
will be raised to 10 percent. Lines 12-14 make no sense. It is
not good public policy to increase the minimum taxes on,
essentially, only Prudhoe Bay, and to remove the minimum tax
levels on all other producers today and in the future.
REPRESENTATIVE TUCK added Amendment 16 attempts to ensure that
the state does not go into negative production tax after credits
when oil prices dip to roughly $65 per barrel. It would protect
the state's interests by ensuring revenue at low prices.
4:35:28 PM
REPRESENTATIVE HAWKER maintained his objection to Amendment 16.
A roll call vote was taken. Representatives Tarr and Tuck voted
in favor of Amendment 16. Representatives Johnson, Olson,
Hawker, Seaton, P. Wilson, Saddler, and Feige voted against it.
Therefore, Amendment 16 failed by a vote of 2-7.
4:36:25 PM
REPRESENTATIVE TARR moved to adopt Amendment 17, labeled 28-
GS1647\K.8, Nauman/Bullock, 4/2/13, which read:
Page 24, line 22:
Delete "2014"
Insert "2017"
REPRESENTATIVE HAWKER objected.
REPRESENTATIVE TARR stated she has had trouble with application
of the GVR/GRE - what it would apply to, when it would not
apply, and whether it should apply in circumstances where it is
oil that is already in the plans for the next few years. The
legislature is basing a lot of its decisions on the revenue
forecasts, so there is some idea of the plan development in the
near term. Amendment 17 would delay implementation of part
three of the GVR/GRE from 2014 to 2017, which would increase her
comfort level in regard to ensuring it is really new activity
and new production that is being incentivized and not just
things that were going to happen in the next couple years.
4:38:06 PM
REPRESENTATIVE HAWKER said he does not understand why it would
be wanted to delay someone wishing to pursue an addition to an
existing participating area - an addition that must be approved
by, and demonstrated to, the Department of Natural Resources
that it results in production from that added acreage. This is
a "slow-it-down" amendment, he argued, because if he were a
producer he would ensure that his decisions and determinations
were slowed down until 2017 rather than pursuing them
immediately. He said he opposes Amendment 17 because it is
immediate and expeditious results that are wanted from the bill.
CO-CHAIR FEIGE agreed with Representative Hawker, saying this
would be for new oil and new oil is exactly what is trying to be
found. If a producer adds to an existing participating area,
that is an additional reservoir that will have production.
There will be natural logistical challenges to increasing the
activity on the North Slope, but it should not be the
legislature's objective to put an artificial limit on that by
having an effective date for this GVR/GRE of three more years
into the future.
4:40:10 PM
REPRESENTATIVE TARR argued it depends on how one feels - whether
one is "comfortable with a substantial giveaway to the most
profitable companies ... in the world for work that they were
already going to do." She said this is an area for which she is
receiving much constituent communication - people uncomfortable
about the idea of the state not getting anything new for what is
being given away. Amendment 17 would take into account that
producers have already planned what they will be doing for the
next few years. Incentive would still be provided for producers
to continue doing work that would qualify for parts one and two
of the GVR/GRE. She allowed that in practical terms it may not
have an impact because of the time it would take for the
application process to add acreage to a participating area. It
is a policy call on whether to give a tax break for work that
was already going to be done in addition to a tax break with no
guarantees or whether to incentivize new efforts.
CO-CHAIR FEIGE posited that lowering the tax rate makes it
possible for an investment to go forward and this is investment
that would be new oil.
4:42:32 PM
REPRESENTATIVE HAWKER maintained his objection to Amendment 17.
A roll call vote was taken. Representatives Tarr and Tuck voted
in favor of Amendment 17. Representatives Johnson, Olson,
Seaton, P. Wilson, Hawker, Saddler, and Feige voted against it.
Therefore, Amendment 17 failed by a vote of 2-7.
4:43:14 PM
CO-CHAIR FEIGE recessed the meeting to a call of the chair.
7:33:53 PM
CO-CHAIR FEIGE called the meeting back to order at 7:33 p.m.
Representatives Seaton, P. Wilson, Tuck, Hawker, Johnson,
Saddler, and Feige were present at the call back to order.
Representatives Olson and Tarr arrived as the meeting was in
progress.
7:33:58 PM
REPRESENTATIVE SEATON moved to adopt Amendment 18, labeled 28-
GS1647\K.29, Nauman/Bullock, 4/2/13, [text provided at the end
of this document].
REPRESENTATIVE HAWKER objected for discussion purposes.
REPRESENTATIVE SEATON explained Amendment 18 addresses the need
on the North Slope for investment opportunities for getting
production in the pipeline. Brooks Range Petroleum Corporation
has spoken about staying on track with production coming on line
of 15,000 barrels a day, the first new oil the state would have.
Last year the committee heard a presentation regarding the
Alaska Industrial Development and Export Authority (AIDEA)
having the ability to loan money at terms that would make money
for the state. An interest rate of 10 percent for 10 years was
discussed for up to $200 million on production facilities.
Those production facilities were intended to be constructed
within Alaska and trucked to the North Slope. Amendment 18 is
an amendment the committee included in last year's bill. It
would accelerate production, increase jobs in Alaska and, at 10
percent interest, would make more money than the state's other
investments. It is for production facilities and is applicable
to many of the small producers.
7:37:36 PM
REPRESENTATIVE HAWKER said he has some trepidation about the
amendment because this issue may have been largely resolved by
other bills that have moved through the committee this session.
He has some worry about expanding the scope of a production tax
revision bill, but is comfortable when looking at it through the
ultimate objective, which is to increase production without
placing the state's treasury at undue risk. He said he will
therefore remove his objection to the amendment when that
opportunity comes.
REPRESENTATIVE JOHNSON liked the concept, but questioned whether
Amendment 18 would positively or negatively affect someone's
ability to raise capital given that money is usually raised in
the private market. Responding to Co-Chair Feige, he agreed the
state might be competing with the private sector and said he
would like to talk with someone who has tried to raise money as
to whether the amendment would be of help.
7:39:57 PM
REPRESENTATIVE HAWKER shared that when talking with folks
interested in this sort of legislation he was not excited about
the idea of AIDEA getting involved in oil and gas field finance.
However, after thinking about it he has become comfortable with
the concept and has a bit different stand. Because the bill
will receive a thorough financial review in the finance
committee, he will support the amendment. It is a good policy
statement from this committee that helping develop facilities
could be as helpful in increasing production as an appropriate
economic fund.
CO-CHAIR FEIGE noted the amendment includes a title change, so a
title change resolution will be required.
REPRESENTATIVE JOHNSON concurred it would require a title
change. In further response, he said the House would have to
vote for the change and then the Senate would need to do the
same. He confirmed it would take a majority vote to accept.
7:41:48 PM
REPRESENTATIVE SADDLER asked whether the intent of Amendment 18
is to eliminate bottlenecks for small or for large producers.
REPRESENTATIVE SEATON replied there would be no restriction on
this money for naming participants or the size of participants.
Members were approached last year by producers that were trying
to rapidly move forward with production into the pipeline. The
Brooks Range project will come on line long before Point Thomson
or any of the other major projects. The bottlenecks that occur
in the production facilities of gas and oil handling can be
significant and challenging to work out, so this would be an
alternative method. Getting production into the Trans-Alaska
Pipeline System (TAPS) is not just the fiscal system. While the
fiscal system is a challenge for some, it is the regulatory
system that is a challenge for others and this amendment would
help with that bottleneck.
7:43:24 PM
CO-CHAIR SADDLER recalled industry cautioning that legislators
should try not to drive from the back seat. He inquired what
assurance the maker of the amendment has that this is the exact
place where this money will be most efficacious in eliminating
bottlenecks. He further inquired whether the fund should be
made available to any purpose and let people borrow and spend as
they will.
REPRESENTATIVE SEATON responded this is an identified bottleneck
that would accelerate production getting into TAPS and the state
would make money doing it. He said he does not support the
state loading money to be used for anything. This discussion
was had last year with AIDEA and with producers; the amendment
was not crafted at the last minute, it is basically what the
committee had last year. It would move the state toward its
goal of production. He agreed with Representative Hawker that
the finance committee could remove the provision if that
committee dislikes it.
CO-CHAIR FEIGE asked whether AIDEA is currently able to do this.
REPRESENTATIVE SEATON answered AIDEA does not currently have
specific authority for oil and gas production facilities, so
Amendment 18 would allow that. He further noted that AIDEA has
a $400 million bond limit.
7:46:09 PM
REPRESENTATIVE SEATON, responding to Co-Chair Saddler regarding
Amendment 18, page 3, lines 9 and 17, he explained $400 million
is AIDEA's bonding limit currently, so taking up to $200 million
out of AIDEA's current authority for economic development would
be problematic. Amendment 18 would put [a limit] of $200
million so it does not restrict or take away from AIDEA's
current ability.
CO-CHAIR SADDLER therefore understood it is not a per bond
issue, but is the entire bonding authority. He requested
elaboration on how the flow of money would go through the
financing and why that would be savings to the state.
REPRESENTATIVE SEATON explained last year's negotiations were in
the range of 10 percent interest over a 10 year period for pay
back. Currently, the state is not making near 10 percent on
most of the things that it is investing. The facilities would
be built in Alaska so the jobs would be in Alaska. While the
facilities could still be built in Alaska using someone else's
money, this amendment would assure that the facilities are built
in Alaska. Responding further, he said if AIDEA made a loan of,
say, $100 million, it would negotiate for 10 percent interest
with a 10-year payback. Originally, the company that came to
the committee was willing to do a much shorter time, but AIDEA
said it wanted a longer duration at that interest rate, and that
was acceptable to everybody.
7:49:04 PM
CO-CHAIR FEIGE requested the administration to comment on
Amendment 18.
MR. PAWLOWSKI noted AIDEA has broad powers currently to engage
in financing, development, and infrastructure in the state. The
administration is trying to understand the section of the
amendment on page 2, lines 12-28, about the actual separate
establishment of an oil and gas infrastructure fund within AIDEA
itself and the relationship of that to the bond authorizations.
Being unable to consult directly with AIDEA, he offered his
belief that AIDEA is already engaged in conversations and has
stepped forward in regard to the aforementioned project.
Without input from AIDEA, the administration is relatively
uncomfortable with understanding the difference between the fund
and the bond authorizations and the total project. However,
because it is the will of the committee, the administration will
continue working with members on all of these issues.
REPRESENTATIVE SEATON explained it was brought up during
discussions with AIDEA that the legislature may not necessarily
want AIDEA to sell bonds and might instead prefer depositing
money into a fund that AIDEA could loan because the state is not
making 10 percent money in its statutory budget reserve nor its
other accounts. While AIDEA is using some of its money for
helping in the construction of that road and pad, AIDEA has said
it does not have authority to do oil and gas production
facilities without a change in statute. If the legislature did
not appropriate money into the fund, AIDEA would use the bonding
authority being grant to it.
7:52:38 PM
REPRESENTATIVE TUCK supported Amendment 18, saying that even if
AIDEA could do this already it would be nice to have it in the
regulations and laws for oil and gas so people are aware of it.
The processing facilities could potentially be a bottleneck on
the North Slope if a small producer cannot get a facility
sharing agreement with a big producer. This would allow a small
producer to build its own facilities or would allow a big
producer to expand its facilities.
CO-CHAIR FEIGE drew attention to Amendment 18, page 2, lines 21-
24, which read "the state or a political subdivision of the
state may levy a tax or special assessment on an oil or gas
processing facility ...." He asked what would be the purpose of
the tax.
REPRESENTATIVE SEATON replied the language is to make it clear
that just because the state is participating in the financial
arrangement in these facilities, the facilities do not then
escape property tax. There became this question of at what
point in the financing does it become a state facility and then
escape tax. There is no intent to have the state's financing
ability change the property tax status.
MR. PAWLOWSKI understood that AIDEA's statutory problem in being
involved in the proposed North Slope project, at least
initially, is really related to page 3 of the amendment - the
authorization to issue the bonds. Currently, AIDEA has a broad
range of statutory ability to be involved in different projects,
but AIDEA does not have the actual authorization to issue that
large amount of debt to go into a project. That typically goes
to the AIDEA board for review and then it is released to the
legislature for approval; it is the legislature that authorizes
the issuance of that debt. He said would need to talk to the
department and to AIDEA to understand their feelings on the
creation of the fund.
7:55:56 PM
The committee took an at-ease from 7:55 p.m. to 7:58 p.m.
7:58:16 PM
REPRESENTATIVE HAWKER removed his objection to Amendment 18.
There being no further objection, Amendment 18 passed.
7:58:44 PM
REPRESENTATIVE SEATON moved to adopt Amendment 19, labeled 28-
GS1647\K.27, Nauman/Bullock, 4/2/13, which read:
Page 1, lines 2 - 4:
Delete "providing a tax credit against the
corporation income tax for qualified oil and gas
service industry expenditures;"
Page 4, line 5, through page 5, line 11:
Delete all material.
Renumber the following bill sections accordingly.
Page 29, line 5:
Delete "Section 13"
Insert "Section 12"
Page 29, line 6:
Delete "sec. 31"
Insert "sec. 30"
Page 29, line 7:
Delete "Sections 18 and 20 - 23"
Insert "Sections 17 and 19 - 22"
Delete "sec. 18"
Insert "sec. 17"
Page 29, line 9:
Delete "Section 19"
Insert "Section 18"
Page 29, line 20:
Delete "sec. 36"
Insert "sec. 35"
Page 29, line 24:
Delete "Sections 13, 20 - 23, 28, and 37"
Insert "Sections 12, 19 - 22, 27, and 36"
Page 29, line 25:
Delete "sec. 18"
Insert "sec. 17"
Delete "sec. 31"
Insert "sec. 30"
REPRESENTATIVE HAWKER objected.
7:59:16 PM
REPRESENTATIVE SEATON explained Amendment 19 would delete the
section providing a tax credit against the corporation income
tax for qualified oil and gas service industry expenditures. He
said the problem is that there are other tax credits for
workforce development and educational purposes. It really does
not have anything to do with the production of oil and gas; it
is service companies. While the fiscal note says a maximum of
$25 million, a good number was not available. In the last 10
years the maximum paid was about $10 million for the entire oil
and gas service industry sector. Thus, this 10 percent or $10
million per company would probably eliminate all of the
corporate income tax. There is also a five-year carry forward
provision. The committee has looked at trying to stimulate oil
and gas production workforce training. "Processing tech
facilities" can be done through the state's universities and
colleges. Amendment 19 would have no effect on the bottom line
of the producers or anybody that is going to be putting oil in
TAPS. Responding to Co-Chair Feige, he confirmed the section
that would be deleted was added to the bill in the Senate
Resources Committee by Senator Bishop.
8:01:51 PM
CO-CHAIR SADDLER requested clarification on whether Amendment 19
would eliminate or supplant the workforce development and
educational tax credits.
REPRESENTATIVE SEATON responded if there is no corporate income
tax liability for any of these companies then there is
absolutely no tax credit that they can take by doing educational
tax credits. Educational tax credits are 50 percent of the
first $100,000 and 100 percent of the second $100,000 and 50
percent of the amount up to $5 million. That upper amount has
not been used, but smaller amounts have. If there is no tax
liability there is no incentive to earn a tax credit to do
workforce development issues because 100 percent of the money
would be taken out of the corporation rather than diverting tax
money that would have been paid to the state to an educational
institution. Therefore, the tax incentive goes away.
8:03:10 PM
REPRESENTATIVE P. WILSON commented the training is used by the
mining companies to ensure there are people who are qualified
and trained before hire. The companies donate to the three or
four schools in the state that provide this training.
MR. PAWLOWSKI called attention to the fall 2012 Revenue Sources
Book, page 113, which describes the credits that are applicable
under multiple programs. The education credit in particular is
applicable to the corporate income tax, he said. Other taxes
having a credit for education are the fisheries business tax,
fishery resource landing tax, insurance premium tax, title
insurance premium tax, mining license tax, oil and gas
production tax, and oil and gas property tax. The total amount
used in 2012 was $4 million. Recognizing that a healthy service
industry supports a healthy oil industry, this provision was
added in the Senate to provide incentive for work being done
within the state that does not necessarily have to be done here,
which is the manufacture and modification of tangible personal
property that then is used in the oil and gas and exploration
industry. The administration has supported the intent of this
provision, as well as the provision, throughout the process.
The education credit can be taken against lots of other taxes,
and the importance of this to the overall perspective is a key
part of building a vibrant oil and gas industry in Alaska.
8:05:44 PM
CO-CHAIR FEIGE understood this credit would enable a service
company to put in a lower bid and improve its competitiveness
against outside suppliers of those manufactured items.
MR. PAWLOWSKI concurred, saying the intent behind the provision
is to improve the economics for the type of work being done in
state. Manufacturing and modification companies testified
before other committees that this would be a valuable credit to
them in their ability to compete against infrastructure that is
built out of state and shipped here.
8:06:24 PM
REPRESENTATIVE HAWKER pointed out the language being proposed
for removal from statute is that $10 million credit, but it is
against Chapter 20, the Alaska Net Income Tax Act, so it is the
corporate income tax. He said he was concerned when the Senate
first included this section because he was uncomfortable with
going that far down into the economy when he really thought this
legislation should be specifically looking at the upstream oil
and gas economy. However, after thinking about it, he came to
see it as an equalizer or leveling of the playing field. For
example, limited liability corporations and S corporations enjoy
the benefits of legal protection of corporations but yet any tax
liability flows to the individual. Because Alaska has no
personal income tax it is extremely advantageous to organize a
business as a tax pass-through entity. This provision is a tax
equalizer for regional and Native-owned corporations and others
that are C corporations because C corporations cannot avail
themselves of the ability to organize in a tax pass-through
entity. Testimony regarding the state's perceived exposure
indicated this provision would not be a threat to the treasury
but would aid in the long-term and overall objective of creating
an economic environment across the state to facilitate and
increase oil and gas production. Reiterating that he has worked
his way from not liking this section in the bill to liking it,
he said he will maintain his objection to the amendment.
8:10:22 PM
CO-CHAIR FEIGE allowed he had not thought about the equalizing
between C corporations and S corporations; rather he had been
thinking about it from the viewpoint of Alaskans versus Outside
and anything that gives Alaska businesses an advantage to get
more business, especially the increase in business that should
come as a result of this bill lowering taxes. In the end the
revenue from the corporate tax, even with the 10 percent
deduction, may still exceed what the state is receiving under
its current tax regime. He said he would therefore like to keep
Section 8 in the bill.
REPRESENTATIVE TUCK said he would like to ensure that as much of
the new investment on the North Slope is built in Alaska as is
possible. The aforementioned provision is an opportunity to
offer credits for value-added industries within the state.
REPRESENTATIVE SEATON, in response to Representative P. Wilson,
said the definition of "qualified" oil and gas service industry
expenditures is found in Version K, page 5, beginning on line 7.
8:13:04 PM
REPRESENTATIVE SEATON stated if the committee's mood is to make
C corporations on par with limited liability corporations it can
do that. This is the only tax that C corporations have to
receive that tax credit. According to Version K, page 5, lines
10-11, components or equipment used for or in the process of
manufacturing are not included, meaning welding equipment is not
included but pipe that is welded would be included. Inventory
activities would also not be included. It appears from the
modification language in Version K, page 5, line 3, that most
things will be included because almost everything has a useful
life of three years. Given the will of the committee to not
move this way, he withdrew Amendment 19.
8:14:52 PM
REPRESENTATIVE SEATON moved to adopt Amendment 20, labeled 28-
GS1647\K.30, Nauman/Bullock, 4/2/13, which read:
Page 1, line 11, following "properties;":
Insert "relating to the additional conservation
surcharge on oil;"
Page 25, following line 20:
Insert a new bill section to read:
"* Sec. 33. AS 43.55.300(a) is amended to read:
(a) Every producer of oil shall pay a surcharge
of $.07 for each [$.04 PER] barrel of oil produced
from each lease or property in the state, less any oil
the ownership or right to which is exempt from
taxation."
Renumber the following bill sections accordingly.
Page 29, line 20:
Delete "sec. 36"
Insert "sec. 37"
Page 29, line 24:
Delete "37"
Insert "38"
REPRESENTATIVE HAWKER objected.
REPRESENTATIVE SEATON explained Amendment 20 deals with the
spill prevention account. He provided a two-page handout from
the House finance subcommittee's 2/7/2013 overview of the
Department of Environmental Conservation (DEC). He noted the
graph in the handout shows this account will become bankrupt in
fiscal year 2015. At the current surcharge of $.04 per barrel
for this account, the projected annual revenue in fiscal year
2018 is $8,800,000 and the expenses are projected at
$15,455,000. Amendment 20 would increase the surcharge to $.07
per barrel to ensure the spill prevention and response fund has
funding for the future and provides for a safe industry.
8:17:55 PM
CO-CHAIR FEIGE noted there are two surcharges: the one under AS
43.55.300 that would be affected by Amendment 20, and the one
under AS 43.55.201 that is a levy of $.01 per barrel.
REPRESENTATIVE SEATON said the response fund [AS 43.55.201] is
capped at $50 million and right now it is capped, so the $.01 is
not being charged. Amendment 20 applies to the prevention
account [AS 43.55.300], which includes inspection activities.
8:18:55 PM
CO-CHAIR FEIGE understood the account under [AS 43.55.201] is
money in the bank to cover an event, and the account that
Amendment 20 would apply to [AS 43.55.300] runs the operations
of that division of DEC.
REPRESENTATIVE SEATON answered correct, saying [AS 43.55.300]
runs all of the activities for spill prevention and response
oversight and it is running dry.
CO-CHAIR SADDLER observed that in fiscal year 2013 the category
of cost recovery/fines/penalties was at $976,400, but in fiscal
year 2014 it jumps to $11,500,000.
REPRESENTATIVE SEATON said this is from a lawsuit settlement
with a company coming due.
8:20:54 PM
REPRESENTATIVE P. WILSON recalled that when she was on the
finance subcommittee there was discussion about increased ship
traffic due to the Arctic Ocean opening up and concern was
expressed about spills, having to cover more territory, and
running out of money.
REPRESENTATIVE HAWKER recounted his experience on the finance
committee was that this fund was always said to be out of money.
The fund was examined and some of the applications of the money
were questioned. He maintained it is a management issue and
said the surcharge ultimately gets transferred and can be used
under AS 46.08.040, which is "the oil and hazardous substance
release prevention ... mitigation account." The statute
includes two pages of what this money can be used for. A lot of
good is intended here, but it is a shadow appropriation, it is
unaccountable money. Statutorily, so much latitude has been
granted that these funds can be used in far too many ways that
are not necessarily directly related to the oil and gas
producers. A larger question, in his opinion, is about how the
prevention and response accounts are established in statutes,
and he is unsure he wants to give more money that is not
accountable to the legislature. When money is needed for one of
these purposes, the agency can come to the legislature and ask
for it through appropriations.
REPRESENTATIVE P. WILSON said the agency did ask for this money
but the money was not given.
REPRESENTATIVE HAWKER maintained that that is the proper way for
a funding request to occur; so, if it was not honored, he is not
sure he wants to second guess the budgeting decisions that were
made in the budgeting process.
8:25:19 PM
CO-CHAIR FEIGE pointed out the penny per barrel tax goes to the
[response fund] that is capped at $50 million and is for an
event. Looking ahead to, hopefully, increases in production,
exploration in other areas, and development in some of the
offshore areas, he posited it might be prudent to consider
increasing the amount in the response fund. Rather than
changing the penny per barrel, the cap on the fund could be
raised. Responding to Representative P. Wilson, he disagreed
with removing the cap. He requested Mr. Pawlowski to comment.
MR. PAWLOWSKI, referring to the second page of Representative
Seaton's handout, noted the prevention account balance starts
off at $7 million in fiscal year 2014 and declines to $4.7
million in fiscal year 2022, while expenditures are flat. The
$.04 per barrel is based on production and the bill, at its
root, is about increasing production. So, that increase in
production will increase the revenues at $.04 per barrel, which
will therefore do something to support this program. Regarding
the bigger question about changing the rate, he said he is not
sure he can comment at this point.
8:27:36 PM
REPRESENTATIVE SEATON stressed the importance of ensuring that
facilities are well-kept and that one would think the companies
should do that on their own without oversight. However,
industry does require some oversight. Numerous companies will
hopefully come on to production and it should be ensured that
they are all using best practices. He concurred there are a
number of statutory uses for this money, but pointed out that
this year there were no increases in DEC's budget for this or
for anything else. While the state is hoping to increase
production, just stemming the decline will take a while to do.
In the meantime, it can be seen what is happening with the
state's liability. Through this fund, this committee has the
ability to ensure the state protects itself from liability and
protects the way things are done across the entire state.
REPRESENTATIVE TUCK supported Amendment 20, citing the decline
of the fund's revenues. Alaska is unique because of its short
construction seasons on the North Slope, it logistics, and its
supply-chain issues. It takes many years for projects to get
off the ground and for oil to get on line, so it may be quite
some time before increased production is seen. Even if the
decline is stopped and flat-lined, the fund will go backwards.
8:31:21 PM
REPRESENTATIVE JOHNSON understood this is not out of the oil
companies' pockets, but rather is something that comes out of
the state's treasury. However, it looks like fuel storage and
other things are being carried on the back of one industry. He
posited it might be appropriate to add a penny per ton of ore
delivered or three cents per fish since spills happen
everywhere, not just in the oil industry.
CO-CHAIR FEIGE said Representative Johnson's suggestion has
merit, given the many different applications both inside and
outside of the oil industry that the fund may be used for. For
example, there have been fuel truck incidents along the state's
highways that have drawn from the fund for cleanup.
REPRESENTATIVE JOHNSON interjected there is also marine shipping
and the railroad for which this fund is used.
CO-CHAIR FEIGE, continuing, said it does not strike him as being
fair to put this increase squarely on the backs of the oil
producers and not necessarily the spillers of the oil.
8:33:39 PM
REPRESENTATIVE SEATON noted the bill will be going on to the
House Finance Committee, so this provision could be broadened in
that committee when time allows it to consider what proportion
for other industries would be appropriate. He therefore urged
that the committee go forward with this mechanism at this time.
REPRESENTATIVE JOHNSON said he is confident the finance co-chair
will be happy to add a commercial fish tax under this. He said
he opposes Amendment 20, however, because he thinks this is
budgetary and should be done through the budgeting process. If
the amendment passes, he advised he will pursue adding other
industries for contributing to this fund.
CO-CHAIR FEIGE inquired whether Representative Johnson would
consider raising the total amount of the fund.
REPRESENTATIVE JOHNSON replied he would have no problem with
that, but said Amendment 20 does not apply to the $50 million.
8:35:54 PM
REPRESENTATIVE P. WILSON supported Amendment 20, saying she
thinks it is appropriate. She added she would be willing to
reduce it from the $.07 and said the committee should consider
that it is not going to get funded any other way. Other
industries already tax themselves to take care of things; for
example, commercial fishers tax themselves 3 percent to provide
money for other things. This is important and is something the
state has to do whether or not it likes it.
CO-CHAIR SADDLER understood money from other sources, such as
federal funds and penalties, can be put into this fund. He
asked whether this tax is the only source of money for the fund
or could money be directly appropriated from general funds.
MR. PAWLOWSKI responded the $.04 surcharge is not the only
revenue that goes into the fund. He recounted that in his
previous work he was involved in some appropriations directly to
this account at the finance committee level to help carry the
fund through. In further response, he said that appropriation
was in response to declining revenues due to declining
production and to increasing expenditures.
8:38:29 PM
CO-CHAIR FEIGE inquired whether Representative Seaton has any
data on how much of the fund has been spent on issues created by
the oil industry versus issues created by other industries.
REPRESENTATIVE SEATON answered he does not have a breakdown, but
most all of the designations that he is aware have gone to fuel
clean up, whether processed or bulk fuel; for example, the Exxon
Valdez. Tankers have rolled over, which is a fuel spill that is
not a crude oil spill. The purpose of this prevention account
is to protect the State of Alaska and to protect its resources.
If the committee desires it can decide to let it go so the fund
does not have money to operate, but this is what has been
established in statute as the funding mechanism. He said the
committee does not have the ability through any other bills to
ensure that this fund is stable and protects the State of Alaska
and the industry.
8:40:47 PM
REPRESENTATIVE HAWKER contended this is not an account into
which money just goes and then gets paid out in the event of an
oil spill. Generally the spiller of crude oil has some depth of
pocket and assets. The State of Alaska does not just step up
and remediate a spill without wanting to be reimbursed. Under
AS 46.08.075 the state can put a lien against the spiller's
assets. Under AS 46.08.070 the commissioner must promptly seek
reimbursement of any funds spent from the account for spills by
a major oil producer in the state. The good and noble reason
for establishing the account was to ensure the state could have
an immediate emergency response to a circumstance and the state
intends to bill and collect those costs back. It is his opinion
that over time this has become a slush fund for DEC and DEC uses
it for far more than what he believes it should, although, he
allowed, there is that broad statutory authority. There has
been tax creep and the burden of supporting DEC's slush fund
activities is on the oil industry, so he is hesitant to raise
the amount of money given to DEC's slush fund.
8:44:02 PM
REPRESENTATIVE P. WILSON recounted that during [finance]
subcommittee deliberations, it was brought up that lots of oil
has been spilled by the federal government. Responding to Co-
Chair Feige, she confirmed she is talking about legacy wells.
She added those wells are all over the North Slope and the state
does not have the money.
REPRESENTATIVE TARR stated she sat on the DEC budget
subcommittee and she believes there is some confusion about
this. As far as the spill prevention and response, only 1
percent of this funding goes to staffing, so she does not think
it can be considered a slush fund for DEC. The rest goes to
contaminated sites, of which there are thousands yet to be
cleaned up. The cost of cleaning them up far exceeds what has
been brought into the fund even though DEC has been diligent in
its actions. Referring to a letter from the Senate Rules
Committee chairman, she said she is concerned that failing to
address the coming shortfall threatens to undermine the state's
reputation as a diligent regulator of the oil and gas industry.
The estimated fiscal impact will be at least $6 million out of
the general fund for next year. She noted that the big deposit
[in fiscal year 2014] is coming from spills in 2006 by BP, so
there is quite a lag in time for collecting the money despite
the state's efforts. She referenced a letter from the Office of
Management & Budget (OMB) which discusses the legislative intent
of the fund.
8:47:56 PM
REPRESENTATIVE TUCK said he sees the fund as an insurance policy
for the State of Alaska. It protects the state's reputation and
shows the world the state is doing it right. The state needs to
be able to act quickly if there are mistakes and this fund
allows that to happen, rather than relying on court proceedings.
REPRESENTATIVE SEATON listed some of the outstanding open
balances for the fund: River Terrace Laundromat - $391,000;
U.S. Department of Transportation for Forest Service road 3030 -
$284,000; ConocoPhillips Alaska, Inc. for CPADS1L22 - $35,000;
BP Exploration (Alaska) Inc. for Lisburne common line release -
$24,000; Flint Hills Resources for the North Pole refinery -
$792,000; BP Exploration (Alaska) Inc. for ES1L11 - $25,000;
Repsol for Q2 shallow gas kick - about $1,000; BP Exploration
(Alaska) Inc. for BPXAL1 - $17,000; Oil Spill Liability Trust
Fund for St. Lawrence oiled wildlife - $19,000; oil spill
liability for a drill rig on the Kulluk - $175,000. He said
most of these have to do with oil and gas production, although
not all. About $2 million is owed to the fund because it takes
a long time to collect.
8:50:32 PM
CO-CHAIR SADDLER argued this appears to be a hard dedication of
money which violates the intent of the constitution. The system
is predicated on the legislature having the power to appropriate
general funds with maximum flexibility. The course is either to
eliminate all hard dedications like this fund or more fairly
allocate the costs amongst all the spillers. He said he must
oppose Amendment 20 on principle of legislative discretion as
opposed to dedication of funds.
REPRESENTATIVE OLSON opposed Amendment 20, saying he sat on the
DEC budget subcommittee for six years and two notable groundings
occurred up north: a ship full of soybeans that was rotting and
a ship full of king crab that was rotting. Virtually all of the
money that came out of this fund went into cleaning up the
cargo, not petroleum leakage. An underground storage leak at a
mini-mart in Sterling was over $1 million, but those funds may
have been recovered. Another problem is foreign-flagged vessels
in that the state has never recovered anything from foreign
vessels. He understood DEC has used the fund for training
purposes for spill cleanup as well as other purposes unrelated
to the fund, such as travel.
CO-CHAIR FEIGE opined it is a fairness issue. The surcharge
puts the financial burden on one particular industry while the
expenses are being distributed throughout all the industries.
The revenue for the fund should be across a broader range of
industry.
8:54:20 PM
REPRESENTATIVE HAWKER maintained his objection to Amendment 20.
A roll call vote was taken. Representatives Seaton, P. Wilson,
Tarr, and Tuck voted in favor of Amendment 20. Representatives
Olson, Hawker, Johnson, Saddler, and Feige voted against it.
Therefore, Amendment 20 failed by a vote of 4-5.
The committee took a brief at-ease.
8:56:19 PM
REPRESENTATIVE SEATON moved to adopt Amendment 21, labeled 28-
GS1647\K.31, Nauman/Bullock, 4/2/13, which read:
Page 24, line 13, following "section,":
Insert "for the first five years immediately
following the commencement of production subject to
tax under AS 43.55.011(e),"
REPRESENTATIVE HAWKER objected.
REPRESENTATIVE SEATON explained Amendment 21 would sunset the
GVR/GRE five years after production begins. Since the purpose
of the GVR/GRE is to enhance the economics of a project for new
oil, it will mostly be going to where facilities and pipelines
need to be built. Because production declines, a significant
portion of the production will have occurred five years after
production was begun. The costs will have been recovered during
this time and from there onward the wells are much more
profitable because those capital expenses are no longer being
written off. Amendment 21 would ensure that new oil is not new
oil forever. After receiving a tax break that succeeded in
bringing that new oil on line, it will at some point become old
oil. If there is not a change, then over time everything is
going to become new oil and the state will have a tax system
that no longer has a balance of old and new oil. Revenue
analyses have not included what revenues are going to look like
to the state or to the companies after the capital expenditures
are all paid off and also what happens over time when the
majority of production becomes new oil.
8:58:37 PM
REPRESENTATIVE HAWKER spelled out his concern with sunsetting
the GVR/GRE. He noted the GVR/GRE is structured with parts one,
two, and three that are intended to be new oil, places that do
not contain a reservoir that has been previously participating.
The statement that this will ultimately transition the state's
entire future to new oil seems to contradict the statement that
has been heard over and over from industry and state agencies
that the best place to find oil is in an oil field, and that is
why there is the old oil classification. The majority of future
oil will continue to come from those older legacy-producing
areas. Enhancing future and new production is what is wanted.
He also cited his concern about the sunset's application. For
example, if somebody has a lease that was not in a lease on
January 2003 - it was new - he asked whether that means it
sunsets after the very first day that a well starts producing in
the area that qualifies. He further asked about the next
several wells that were developed and whether this is
essentially a reinstallation of the metering and measuring
requirement that the committee discussed as being an unworkable
requirement. The premise of sunsetting one of the most
fundamental aspects of this legislation, which is to create a
long-term and durable incentive for companies to invest and
create new oil, is troublesome, let alone the question of
interpretations. He further noted that he has had some great
disagreements with DOR's and DNR's interpretation of statutes
via regulation. Unless the legislature ties it down absolutely
rock solid and clear, something that is as vague a qualification
as in this amendment is of concern. He maintained his objection
to Amendment 21.
9:01:29 PM
REPRESENTATIVE SEATON reiterated that under Amendment 21 there
would be five years of gross revenue exclusion after a new well
begins production. Due to production decline, most of the oil
from a well is produced in the well's first five years. The
companies would know there is a transition after those five
years. Metering from well expansions or expansions of
participating areas would be no more of a challenge than
currently. It makes sense to give a leg up for new production
because there are new facilities and many things that need to be
paid for, but when the capital costs are recovered then it
should be just like any of the other old oil that has the
production facilities paid off. Any company will know how to
gauge this and how to analyze the field. This would make the
tax system more durable because the legislature will not have to
come back and re-do the tax system because of a transition to
more and more oil that is taxed forever at less value.
9:04:00 PM
CO-CHAIR SADDLER requested an estimate as to what the fiscal
impact might be of Amendment 21.
MR. PAWLOWSKI replied that off the top of his head he does not
have a concept of the fiscal impact of the limitation. The
impact of the gross revenue exclusion throughout the [current]
fiscal note is in the range of $25-$50 million because this is
geared toward the definitively new oil that is not currently in
the forecast. The fiscal impact of limiting it is less
concerning to the administration than the actual impact of the
limitation in and of itself; it is an issue that has been
debated throughout the process of this legislation.
9:05:35 PM
CO-CHAIR FEIGE inquired whether the administration believes
there would be a behavior change on the part of the investors if
this five-year limitation was put on the GVR/GRE.
MR. BALASH confirmed that the administration has concerns in
terms of the distortions it would have and the impacts it would
have on drilling behavior. If it is going to be triggered by
the first production that comes from a given well, it has "some
real hair on it" in terms of the incentive it would create for a
company to game the system by shutting in a particular portion
of a well or well bore. It would potentially result in
inefficient behavior that would not be in the state's interest
and would not achieve what is trying to be done with the
GVR/GRE.
MR. PAWLOWSKI interjected that another concern is Version K
steps away from the well-by-well analysis and the five-year time
limit is based on the unit itself. [Page 24, lines 15-16,]
state "(1) the oil or gas is produced from a lease or property
that does not contain a lease that was within a unit ...", so it
is linking back to the actual property itself. The concern is
the duration of time it takes to actually develop that lease or
property, how long it can take to drill all of the wells in a
fashion to actually develop them. Additionally, removing the
gross revenue exclusion during a period in the well's productive
life is essentially a tax increase on that well, specifically as
it is becoming less productive. It would change the economic
equation precisely when that well is becoming more expensive to
operate and may encourage the shutting in of production before
it would naturally be necessary.
9:08:05 PM
REPRESENTATIVE HAWKER said a foundational premise underlying the
entire development of this legislation is the need to rebalance
Alaska's tax system from giving too much upfront and taking too
much at the end. Alaska is not looking at its fields and
development as lifecycle economics the way that industry does.
Alaska is providing benefits and taxing in a manner that is
incongruent with the natural economics of development. There
has been some hollering about taking away all those frontend
credits, but the decision being made here is to lower those
frontend benefits and spread them out over the lifecycle
economics of the entire development. Passing Amendment 21 would
again impose an element of additional frontend short-term
benefits that do not aid the state in its long-term objective of
creating better lifecycle economics and attracting the needed
investment for increased sustained production.
9:10:05 PM
REPRESENTATIVE SEATON disagreed about the lifecycle economics.
Credits are not being given upfront, he said, it is changing
those economics and then going to the base case, the reduced tax
rates in this bill. The GVR/GRE is an additional help for
starting out because of capitalization costs. Amendment 21
would apply to all three kinds of new oil [in the GVR/GRE]. It
would limit the state's liability to the base case plus five
years of gross revenue exclusion on new oil. The lifecycle
economics are totally calculable by the oil industry under this.
It sounds as if people are saying that the base case is no good,
as if there is massive progressivity back in the bill, which is
not the case at all. The reversion after five years would be to
the base case that has been brought forward for the oil fields.
Over time the state will be transitioning to more and more new
oil because it is always going to be new oil, even though after
30 years it should be old oil at the base case. The committee
has never received an analysis for what it will look like when
there is 50 percent new oil, despite it being asked for long
ago. The state needs to protect itself and ensure the system is
durable over time.
9:12:30 PM
REPRESENTATIVE TARR asked how to resolve the issue being raised
by Representative Seaton - that at some point all oil is going
to be new oil and the GVR/GRE will apply to everything.
MR. BALASH responded the discovered and in-place reserves in
North Slope legacy fields, and the smaller fields surrounding
them, are estimated at 3.3 billion barrels. If they are proven
reserves they probably should be in the participating areas and
part of the reserve reports. Additionally, the estimate for
undiscovered resource is about 3 billion barrels. Existing
production, existing reserves, are expected to continue to be an
enormous portion of the production going forward for the
foreseeable future. As additional resource is proven up,
brought into production, eligible for the GVR/GRE, it will
become a bigger and bigger fraction over time, but it will still
be a fraction over that time.
9:14:25 PM
REPRESENTATIVE TARR offered her appreciation for the intent of
Amendment 21. She asked whether the time period in the
amendment should be changed or does the administration believe
the fraction will not be a large enough problem to address.
MR. BALASH recounted that similar angst came up about this
mechanism in a previous stage of the process - a different
committee was heading toward some kind of time limitation for
the reasons expressed by Representative Seaton. An illustration
was presented by the administration to those members that
suggested making the GVR/GRE smaller rather than to truncate its
application. After the administration laid out the economic
case and showed the potential unintended consequences of having
a cutoff, the decision was made to reduce the GVR/GRE from 30
percent to 20 percent, rather than having a time limitation.
MR. PAWLOWSKI called attention to the Revenue Sources Book, page
43, which talks about currently producing and new oil. Based on
the fiscal note and the revisions made to the gross revenue
exclusion by this committee, very little of that risk-adjusted
new oil counts for the gross revenue exclusion looking forward.
Even by 2022, if all of it counted, which in the fiscal note it
does not, 75 percent of the oil production would still be from
the legacy fields. Under the proposed committee substitute
before the committee, very little of the new oil within the next
decade, or very little of the oil within the revenue forecast
over the next decade, will be eligible for the gross revenue
exclusion. He added the administration will work on getting the
requested information to members.
9:17:39 PM
REPRESENTATIVE TUCK stated he is concerned about all oil being
considered new oil. The bill is a significant investment for
Alaska and therefore the state should expect some rate of return
on its investment. He supported Amendment 21, saying it ensures
the state some sort of rate return. By spelling it out now, it
further ensures changes will not be made down the road.
CO-CHAIR FEIGE, voicing his opinion on the amendment, said the
gross value reduction is an attempt to grow the pie. It is oil
the state does not have in production currently and oil that the
state is not really counting towards the bill's fiscal note.
So, if it is discovered, it is a sizeable return to the state.
This is an outstanding rate of return for the State of Alaska
because the state is not investing in anything, yet the state
will reap the benefits of taxable revenue on that new production
for a long time into the future. He said he views the proposed
five-year limitation on the GVR/GRE as a disincentive for trying
to find new oil and looking for new production.
REPRESENTATIVE SEATON, regarding the statement on distortion of
behavior about drilling new wells into a reservoir, maintained
that that has been taken care of because it must be expansion of
participating areas. New wells could not just be drilled into a
reservoir and others closed in.
9:20:47 PM
REPRESENTATIVE HAWKER maintained his objection to Amendment 21.
A roll call vote was taken. Representatives Seaton, Tarr, and
Tuck voted in favor of Amendment 21. Representatives P. Wilson,
Hawker, Johnson, Olson, Saddler, and Feige voted against it.
Therefore, Amendment 21 failed by a vote of 3-6.
9:22:04 PM
REPRESENTATIVE SEATON moved to adopt Amendment 22, labeled 28-
GS1647\K.32, Nauman/Bullock, 4/2/13, which read:
Page 11, line 10, following "AS 43.55.160(f)":
Insert "or (g)"
Page 24, following line 27:
Insert a new subsection to read:
"(g) In the calculation of an annual production
tax value of a producer under (a)(1) of this section,
the gross value at the point of production of oil or
gas produced from a shale formation from a lease or
property in the state is reduced by 20 percent for the
first three years immediately following the
commencement of production subject to tax under
AS 43.55.011(e). A reduction under this subsection may
not reduce the gross value at the point of production
below zero."
Reletter the following subsection accordingly.
REPRESENTATIVE HAWKER objected.
REPRESENTATIVE SEATON provided a handout depicting the decline
curves of shale oil that were included in the response he
received to a question he put forth to PFC Energy. Noting that
50 percent of the oil in shale is recovered in the first three
years, he explained that Amendment 22 would provide a three-year
sunset on the GVR/GRE. He withdrew the amendment given the
previous amendment, but said he wanted the committee to have the
information that went along with this amendment.
9:23:17 PM
REPRESENTATIVE SEATON moved to adopt Amendment 23, labeled 28-
GS1647\K.33, Nauman/Bullock, 4/3/13, which read:
Page 11, line 10, following "AS 43.55.160(f)":
Insert "or (g)"
Page 24, following line 27:
Insert a new subsection to read:
"(g) In the calculation of an annual production
tax value of a producer under (a)(1) of this section,
the gross value at the point of production of oil or
gas produced from a shale formation from a lease or
property in the state is reduced by 10 percent. A
reduction under this subsection may not reduce the
gross value at the point of production below zero."
Reletter the following subsection accordingly.
REPRESENTATIVE HAWKER objected.
REPRESENTATIVE SEATON explained Amendment 23 also deals with the
shale situation but in a different light on the GVR/GRE. The
amendment is an idea for providing protection by reducing the
GVR/GRE for shale to 10 percent because those wells will be
different as has been seen in the Bakken and Eagle Ford plays.
Saying the committee has not had enough analysis on different
rates of GVR/GRE, he withdrew the amendment.
9:25:02 PM
REPRESENTATIVE SEATON moved to adopt Amendment 24, labeled 28-
GS1647\K.28, Nauman/Bullock, 4/2/13, which read:
Page 1, line 5, following "state;":
Insert "relating to the taxation of certain
natural gas that is reinjected;"
Page 12, following line 31:
Insert a new bill section to read:
"* Sec. 16. AS 43.55.020(f) is amended to read:
(f) If oil or gas is produced but not sold, gas
is produced but is stored in a gas storage facility,
or oil or gas is produced and sold under circumstances
where the sale price does not represent the prevailing
value for oil or gas of like kind, character, or
quality in the field or area from which the product is
produced, the department may require the tax to be
paid upon the basis of the value of oil or gas of the
same kind, quality, and character prevailing for that
field or area during the calendar month of production
or sale. If an economic sale is available for gas and
the producer determines it is in the best interest of
the producer to reinject rather than sell the gas, the
producer shall pay the tax on the volume of gas
reinjected."
Renumber the following bill sections accordingly.
Page 29, line 6:
Delete "sec. 31"
Insert "sec. 32"
Page 29, line 7:
Delete "18 and 20 - 23"
Insert "19 and 21 - 24"
Delete "sec. 18"
Insert "sec. 19"
Page 29, line 9:
Delete "Section 19"
Insert "Section 20"
Page 29, line 20:
Delete "sec. 36"
Insert "sec. 37"
Page 29, line 24:
Delete "20 - 23, 28, 37"
Insert "21 - 24, 29, 38"
Page 29, line 25:
Delete "sec. 18"
Insert "sec. 19"
Delete "sec. 31"
Insert "sec. 32"
REPRESENTATIVE HAWKER objected.
9:25:24 PM
REPRESENTATIVE SEATON explained Amendment 24 deals with gas
sales agreements. In the time since the Alaska Stranded Gas
Development Act, many producers have consistently said there
must be fiscal certainty for a gas sales agreement to happen.
By definition, this means that a gas sales agreement would have
to have a long-term contract guarantee that the state will
reimburse the gas producers for any future legislature
increasing either gas or oil tax, something he does not think
should be done. Even if the state itself builds a gas line to
the North Slope and the gas could be sold economically, the
condition could well be put on that the producer will not sell
the gas until the state agrees to fiscal certainty - and that
would be fixing oil and gas tax rates for 35 years because that
is what it was during the stranded gas act. There has never
been any indication that the producers would take anything less
than 35 years. Amendment 24 provides that if a gas pipeline is
built, and if there is an economic sale, and if the producers
will not sell the gas without entering an agreement of fiscal
certainty, then the gas will be declared produced at that time,
just like a lease says that a producer must produce and sell if
it is economic. Amendment 24 would ensure the state is not
"over the barrel" by requiring that if the producer will not
sell natural gas in an economic sale, then it will be assumed to
have been produced gas if it is reinjected for storage.
However, this will not apply to gas reinjected for the recovery
of oil.
9:28:39 PM
CO-CHAIR SADDLER requested Representative Seaton to restate his
point about long-term fiscal certainty.
REPRESENTATIVE SEATON replied fiscal certainty was defined by
the producers as a long-term contract guarantee that if a future
legislature changes oil or gas taxes the state will guarantee
through the gas sales contract that it will take money out of
the treasury and reimburse producers for any difference from the
tax rate at the time of the gas contract. Responding further,
he agreed it would be a make-good-by-contract basis. A
legislature cannot constitutionally prevent a future legislature
from changing a tax rate. Fiscal certainty says the state will
reimburse the producer if a future legislature changes the tax
rate. The link between this and Amendment 24 is the amendment
prevents producers from deciding that they will not sell the gas
unless the state gives them 35 years of fiscal certainty.
9:30:11 PM
REPRESENTATIVE HAWKER opposed Amendment 24 as currently
constructed, cautioning that producers have people who will
interpret the words as they see them on paper and not
necessarily how legislators had intended. These words would not
accomplish the same thing as the sponsor says. The amendment
would be in the section that states if oil or gas is produced
but not sold, is produced but stored in a storage facility, or
produced and sold in circumstances where the price did not meet
prevailing value, then the department may require that tax be
paid based on the value of oil or gas of the same kind, quality,
and character in the prevailing area. Thus, the state can force
the taxes to be paid. The language that Amendment 24 would add
to this section does not say anything about a pipeline or gas
that was stored. It simply says, "If an economic sale is
available for gas", but the definition of economic is unknown.
The amendment goes on to state that the only qualification is
"the producer determines it is in the best interest of the
producer to reinject rather than sell the gas", but the
amendment does not state for what purpose it is being reinjected
instead of sold. So, if the gas is reinjected rather than sold,
then the producer must pay the tax on the volume of gas. In his
opinion, that says if there was the ability to sell that gas but
the producer made a business-based decision to reinject that gas
for the purposes of further oil recovery, then the producer
would be taxed on that gas. While he heard what the sponsor
intends, he said he does not believe the amendment accomplishes
that. Continuing, Representative Hawker said there may be an
issue with entering in the third part of regulation. If an
economic sale is available and a producer determines it is in
its best interest to reinject, the Alaska Oil and Gas
Conservation Commission (AOGCC) could say the producer cannot
offtake and he would argue that it is in the best interest of a
producer to comply with rulings of the AOGCC.
9:34:22 PM
CO-CHAIR FEIGE inquired what scenario the maker of the amendment
envisions where a producer would determine that it is in its
best interest to reinject the gas and not sell it, and why take
it out of the ground in the first place.
REPRESENTATIVE SEATON related that during stranded gas hearings
the legislature's attorney on lease terms, Spencer Hosie, talked
about the duty to produce under the Division of Lands 1 Lease
Form (DL1). Discussion was about the state being a partner in a
pipeline and the big conundrum was the duty to produce and
whether the state could be held "over the barrel" and required
to give 35 years of fiscal certainty before producers would sell
the gas. If AOGCC were to direct it be reinjected to maintain
well pressure, then that is not gas for sale, that is part of
the lease terms. The problem the state has run up against in
the past and could run up against in the future is the
resistance to have a gas sale unless there is fiscal certainty.
Amendment 24 says that gas from an economic sale cannot be
withheld and reinjected until the state gives in and signs
fiscal certainty for oil and gas, thereby binding future
legislatures in a way that is marginally within the constitution
because the legislature can offer contracts but cannot bind
future legislatures. Legislative Legal and Research Services
was requested to draft this amendment around the exact provision
of an economic sale that is included in the DL1. In further
response, he explained DL1 leases were designed for North Slope
oil and gas and their terms include an assumed duty to produce -
the state's resources cannot be warehoused.
9:37:48 PM
CO-CHAIR FEIGE pointed out that currently tax must be paid if a
product crosses a unit boundary.
REPRESENTATIVE SEATON responded the gas can be reinjected; there
is not a sale for it. Also, it cannot be sold unless AOGCC
determines that it can be taken off without leaving petroleum
product behind.
CO-CHAIR FEIGE outlined a potential scenario: Pt. Thomson is
developed and approved for blow down. Part of the considerable
quantity of gas goes into a pipeline, but the operators of Pt.
Thomson and Prudhoe Bay conspire to inject the surplus gas into
the Prudhoe Bay reservoir. He asked whether Amendment 24 would
hinder doing that.
REPRESENTATIVE SEATON answered he does not believe it would be a
hindrance because it is different operators at the two places.
The gas going to Prudhoe Bay for reinjection would be sold, not
given away.
9:39:51 PM
CO-CHAIR FEIGE requested DNR's position on Amendment 24.
MR. BALASH replied [DNR] is opposed to Amendment 24. He offered
his belief that a variety of things are not being completely
understood in the types of events that occur when a lease
boundary is crossed. For royalty purposes, there is a royalty
event when a boundary is crossed. That is not necessarily the
case in a tax setting; they are basically different mechanisms.
With regard to clarity, the proposed language would appear to
pay a tax on the entire volume, not just the volume being
requested for sale. An enormous volume of gas, 8 billion cubic
feet, is injected every day at Prudhoe Bay. Would an offer to
buy 10 million cubic feet of gas a day trigger a tax on the
entire 8 billion cubic feet? He said Amendment 24 would
function much like the reserves tax that was soundly defeated at
the polls not so long ago.
9:42:17 PM
REPRESENTATIVE SEATON disagreed that Amendment 24 is the same as
a reserves tax that does not involve a sale. The language
"reinject rather than sell the gas" does not mean all the gas,
it means the gas that was economic to sell and was for sale. He
offered his belief that the language "shall pay the tax on the
volume of gas reinjected" is the gas that is being offered for
sale as allowed by AOGCC. He argued the committee needs to
address in this tax bill the circumstances the state may find
itself in in the future because it is the only way available to
protect the legislature.
REPRESENTATIVE JOHNSON ventured the state can very quickly get
out from being "over the barrel" given it took 30 days to pass
ACES from start to finish.
REPRESENTATIVE TUCK said his concern is that rights to leases
are being bought on the North Slope and those rights are not
being exercised; it is a commodity that can be owned and that
can increase in value. It is the state's best interest to see
production, even gas production. Gas has dual purposes, selling
or reinjecting, and he wants to ensure that gas is not going to
be stored under the name of reinjecting. He supported Amendment
24, saying he shares the same concern for ensuring the ability
to enforce the duty to produce. Resource developers oftentimes
do not want to develop some resources because it would compete
against the developers' interests elsewhere, and he does not
want that to be the case here.
9:44:56 PM
REPRESENTATIVE OLSON said his recollection of fiscal certainty
is it was more of a request from the producers for protection
from the tax regime changing every year or two or being adjusted
if gas came on, rather than as described by the maker of the
amendment. He inquired whether his recollection is correct.
MR. BALASH responded the form with which any sort of fiscal
arrangement might come is probably not predictable at this point
in time. Things that were attempted in years past would attempt
to do something Representative Olson described, but a fiscal
arrangement for gas could be as simple as landing a methodology
for valuing the state's royalty before the sales contracts are
entered into. It could be as simple as limiting the state's
rights to switch from in-kind to in-value or vice versa. Fiscal
terms, fiscal certainty, fiscal stability get balled up into a
bogey man, but in peeling apart the pieces they are not as bad
as they maybe could be, but they are all elements that fold into
the concerns expressed by various parties along the way. He
proffered the state is looking for some fiscal certainty in any
sort of gas deal; otherwise, why do it?
REPRESENTATIVE OLSON further recalled the term was dropped in
less than a year and was changed to fiscal stability, which was
a little more encompassing of the direction that producers were
looking for. He said there may have been a third term that he
cannot remember at the moment.
9:47:37 PM
REPRESENTATIVE HAWKER maintained his objection to Amendment 24.
A roll call vote was taken. Representatives Tuck, Seaton, and
Tarr voted in favor of Amendment 24. Representatives Hawker,
Johnson, Olson, P. Wilson, Saddler, and Feige voted against it.
Therefore, Amendment 24 failed by a vote of 3-6.
9:48:47 PM
REPRESENTATIVE SEATON moved to adopt Amendment 25, labeled 28-
GS1647\K.1, Nauman/Bullock, 4/3/13, [text provided at the end of
this document].
REPRESENTATIVE HAWKER objected.
REPRESENTATIVE SEATON noted that "(g)" on page 1, line 16, of
the amendment should be corrected to read "(q)". He said the
entire amendment is really on page 16, the rest is revisionary
language for how things go. He drew attention to page 16, lines
18-19, of the amendment which state "the volume of oil
production for the calendar year 2018 does not exceed the volume
of oil produced for the 2013 calendar year." This provides a
five-year sunset clause if this amount of investment and
production does not, at the least, have the state stay stable at
the 2013 level. If it does not happen, there will be a one-year
timeframe for a sunset to the state's previous provisions.
Testimony has indicated there will be investment in three to
four years and then production.
9:50:31 PM
REPRESENTATIVE SEATON called attention to an affidavit prepared
by William Van Dyke, PE, Petrotechnical Resources Alaska,
entitled "Report on the Estimated Life of the Alaska North Slope
Proven Oil Reserves" dated March 7, 2011. He read from page 17
of the affidavit: "It is important to again emphasize the
earlier comments on 'the timing of production' and 'the
estimated life of TAPS.' Future North Slope oil production is
not a question of 'if' but of 'when.'" He then read from page
18 of the affidavit: "This metered pace of development, at
times, frustrates Alaska state officials and other oil and gas
lessors, but it is a deliberate and very well-managed process.
For better or worse, it is how many multi-billion dollar
companies run their businesses. Projects and project phasing
are optimized for maximum profit and efficiency."
9:54:35 PM
REPRESENTATIVE SEATON then referred to a chart appended to the
affidavit prepared by AOGCC and entitled, "Development & Service
Wells and Wellbores Drilled (1998-2012*), North Slope Oil and
Gas Only**, by ConocoPhillips Alaska, Inc." He explained the
chart represents the strategic build out of this system across
the North Slope as talked about by Mr. Van Dyke. The number of
wells is basically the same going across the entire time span.
It did not matter what the price or tax rate was. He offered
his concern about whether the state will get what it is
expecting out of this [proposed] tax regime. According to
testimony, in three to four years the state will get a lot of
investment based on its new regime. The state has had ACES for
five years and it is being said it did not work. There are more
employees and wells being drilled by non-legacy producers. Some
new fields are coming on. But the question is whether the state
is going to get the expected bump. He said he is worried about
the gas contract and this is another way of doing that. If
there is production that at least maintains the level of 2013,
then this provision would go away and the state will have had
success with its program. The amendment's intent is to ensure
the state has success; things will be revisited if there is not
success in five years. Representative Seaton provided another
handout entitled, "Alaska oil production changes over time:
(1995 to 1998) and (2009 to 2012)." Reading from the handout he
noted that from 1995-1998, oil production declined by 309,000
barrels, a 28 percent decrease, and from 2009-2012, oil
production declined by 119,000 barrels, an 18.4 percent
decrease. Amendment 25 is not punitive, he said, its purpose is
to ensure accomplishment of the bill's goal.
9:58:17 PM
CO-CHAIR FEIGE asked what happens if in 2018 production is just
one barrel below 2013.
REPRESENTATIVE SEATON answered if the state is below the level
of 2013 it means production has not increased sufficiently to
reach the state's goal. In fact, the state is counting on an
increase of 40,000 barrels per day. The goal of this bill is to
arrest decline and to increase production. If it is found that
by 2018 production did not increase, even by one barrel over
2013, then it would go to the sunset provision. This sunset
provision provides a good incentive to ensure that production
does move forward across the North Slope.
CO-CHAIR FEIGE recalled that the figure of 44,000 barrels more
per day was the amount needed to make up the revenue that would
be foregone by lowering the tax rate. However, that is relative
production - it is 44,000 [barrels] a day more than what has
been forecast. What is still forecast is a decline, pending
development in the new fields and pending additional technology
in existing fields. While he is not saying it is impossible, it
could be interpreted by industry as a sunset on the provisions
of the tax code and, he presumed, a rollback to ACES.
REPRESENTATIVE SEATON replied correct, adding that that is a
pretty good incentive.
10:00:52 PM
CO-CHAIR FEIGE posited a future legislature could at the time
make the determination as to whether the tax system is working.
REPRESENTATIVE SEATON responded Amendment 25 is also the backup
for the problem of gas sales contract. If a gas sales contract
is undertaken that locks in fiscal terms, this is a fiscal term.
It says that if there is a gas sales contract but oil production
is not increased at least to the level had in 2013, then these
are going to be the terms. It is a way to protect the state for
the future. All of the industry's news releases state it will
require fiscal certainty; they do not say fiscal durability.
This is a way to ensure that if fiscal certainty is locked in
there will at least be oil production to the level of 2013,
which would accomplish the bill's goal. He has heard no one say
the goal is to let production continue to decline and it is just
a change in the tax rates.
CO-CHAIR FEIGE inquired whether Representative Seaton is
assuming a gas pipeline sending gas to Valdez by 2018.
REPRESENTATIVE SEATON responded he is assuming there will be a
gas contract before a gas pipeline is started to be built
because he does not think a gas pipeline will be built until
there are agreements for a gas sales agreement. That is one of
the precedent agreements that will have to occur before building
of pipeline is started.
10:03:07 PM
REPRESENTATIVE HAWKER opposed Amendment 25, saying it is a
slight variation on Amendment 15, which was defeated, and
anything entered into that debate is applicable to Amendment 25.
This amendment is the "punish the new producers amendment for
the sins of the old producers," he argued, in that if the
current large volume producers do not increase production or do
not mitigate their declines sufficiently, the benefits of this
tax provision are taken away from everyone. Amendment 25 treats
production on the North Slope as if it is one entity rather than
multiple entities each making their own decisions and the state
encouraging each company individually without holding any
investor responsible for the action of other investors.
CO-CHAIR SADDLER noted current production on the North Slope is
not guaranteed either. If there was some way to guarantee oil
production by government action, then he would think every law
book in the world would have it. He offered his belief that
there is no language in the current law of ACES stipulating that
if ACES does not succeed then the tax law reverts to PPT.
10:05:40 PM
REPRESENTATIVE TARR supported Amendment 25, saying it gives some
expectations of a timeline in which activity would increase.
When this would kick in, the fiscal impact will have already
been in the range of $4 billion and at that time it could be too
late if the legislature is unable to act quickly, given it takes
a long time to make substantial changes.
CO-CHAIR FEIGE interjected that ACES took 42 days.
REPRESENTATIVE TARR pointed out that that was just the special
session. She added that Amendment 25 would encourage producers
to move quickly to maintain the change in the tax structure.
The windfall profits in the state's savings account could be
used up, making it even harder in the future when the state is
forced to act.
10:07:39 PM
REPRESENTATIVE TUCK supported Amendment 25, concurring with the
aforementioned reasons. The amendment would make it easier for
producers to meet some goals and not just a flat line decline
curve from 2013. The tax changes that are being made
acknowledge what was heard from the industry and others that
ACES needs to be refined or changed. Amendment 25 provides that
these changes be tried for a bit and if they do not work the tax
regime then returns to the starting base to begin refining ACES.
He referred to a chart that shows how production is carried out
for the maximized benefits and profits of the oil industry, not
necessarily maximizing the benefits of Alaskans. If the state
is going to be more of a partner with the industry, he said, it
must have some sort of rate of return, some sort of guarantee
when moving forward. The only guarantee the state has is that
industry is going to spend its money elsewhere when it gets
windfall profits. He said he does not want to see those
windfall profits go away in trying something new without setting
some benchmarks.
10:09:29 PM
CO-CHAIR FEIGE opposed Amendment 25, stating the outcome in 2018
will be dependent on many variables, including oil taxes,
geologic and political risk, and things beyond anyone's control,
such as an earthquake on the North Slope. Putting such a hard
line on comparing 2018 production to 2013 production is
arbitrary. Many different rabbit trails have been run down in
looking for different ways to incentivize the desired behavior
of more production on the North Slope. It is very difficult to
create an incentive that does not create a disincentive
somewhere else. The tax rate is an incentive that affects each
of these producers relatively equally. A disincentive of this
amendment is that no one producer has the ability to totally
affect that 2018 number and make sure it is higher than 2013,
which means all the producers have to depend on each other
somehow and he does not expect that to occur. Companies will
act on their own behalf for in their own interests. While they
will be able to work together if it is in their best interest,
he will not depend on them to work together as part of a tax
policy. The Oil and Gas Competitiveness Review Board, as
provided in the bill, will meet and report to the legislature
regarding how well the tax rates, gross value reductions, and
other incentives are working. Future legislators will take that
information and do with it as they see fit.
10:12:41 PM
REPRESENTATIVE HAWKER maintained his objection to Amendment 25.
A roll call vote was taken. Representatives Seaton, Tarr, and
Tuck voted in favor of Amendment 25. Representatives Hawker,
Johnson, Olson, P. Wilson, Saddler, and Feige voted against it.
Therefore, Amendment 25 failed by a vote of 3-6.
10:13:34 PM
The committee took an at-ease from 10:13 p.m. to 10:24 p.m.
10:25:04 PM
REPRESENTATIVE SEATON moved to adopt Amendment 26, labeled 28-
GS1647\K.35, Nauman, 4/3/13, which read:
Page 17, line 28, through page 18, line 28:
Delete all material and insert:
"(j) For each month of the calendar year for
which a producer's average monthly gross value at the
point of production of a barrel of taxable oil and gas
is less than $150, a producer may apply against the
producer's tax liability for the calendar year under
AS 43.55.011(e) a tax credit in the amount specified
in this subsection for each barrel of taxable oil
under AS 43.55.011(e) that does not meet any of the
criteria in AS 43.55.160(f) and that is produced
during a calendar year after December 31, 2013. A tax
credit under this section may not reduce a producer's
tax liability for a calendar year under
AS 43.55.011(e) below zero. The amount of the tax
credit for a barrel of taxable oil subject to this
subsection is
(1) if the producer's average monthly gross
value at the point of production of a barrel of
taxable oil and gas is less than or equal to $100, $5
for each barrel of taxable oil; or
(2) if the producer's average monthly gross
value at the point of production of a barrel of
taxable oil and gas is more than $100 and less than
$150, $5 for each barrel of taxable oil, reduced by
one-tenth of the difference between that average
monthly gross value at the point of production of a
barrel of oil and $100."
REPRESENTATIVE HAWKER objected for the purpose of discussion.
10:25:23 PM
REPRESENTATIVE SEATON directed attention to the PFC Energy
PowerPoint presentation entitled, "Alaska Fiscal System
Discussion Slides," dated April 2, 2013. He pointed out on page
5, the graph entitled, "Credit level under Step versus Linear
Function" showed "a smooth line going up" and a stair step
function resulting from an increase of $1 per barrel credit for
every $10 increase in ANS West Coast price. The amendment
accomplishes the smooth line by taking $0.1 of $1, which
prevents stair step increases and the high marginal rates as
shown on the graph entitled, "Marginal Rate under Step versus
Linear Function," also found on page 5. Additionally, the
amendment directs that after per barrel credits increase to $5,
the level is maintained at $5 instead of going up to $6, $7, and
$8 at the lower prices. He said $6, $7, and $8 levels result in
a great deal of liability to the state when prices are low. The
two purposes of the amendment are to maintain the level at $5,
and smoothly decrease, instead of by stair steps, down to $150.
REPRESENTATIVE HAWKER agreed that attempting to smooth the curve
gets around the stair step issue, but creates another complexity
and another detail in the calculation. He said he was
comfortable with the stair step approach as has been presented,
and which has been evaluated by the committee.
REPRESENTATIVE TUCK recalled testimony that was heard during the
committee meeting of 4/2/13, regarding smoothing out the stair
steps. He advised the amendment would smooth out the marginal
rates that could jump from $35 to $135 as prices change. He
expressed his support for the amendment.
10:28:58 PM
CO-CHAIR FEIGE ascertained from the identified slide that for
prices below $100, the per-barrel credit stays the same at $5.
REPRESENTATIVE SEATON said yes. Directing attention to page 2
of the same presentation, he noted "you'll see that $5 is
graphed on there and gives you the tax rate."
CO-CHAIR FEIGE observed that currently in Version K of the bill,
the per barrel exclusion rises up to $8 in a stair step fashion
on the downside, which greatly improves the economics for
projects in the $70-$90 per barrel range. Previous testimony
has revealed that the $70-$90 per barrel range is the range upon
which companies base their investment decisions. He concluded
that the change would make the state less competitive in that
price range.
REPRESENTATIVE SEATON stated that the question is whether the
state intends to be at zero production tax when the ANS West
Coast price is $60, or at 10 percent as shown on page 2. He
acknowledged this is a policy call and given that the state is
losing progressivity, he urged for a bill that provides some
protection on the low side, as was provided in the Senate bill.
He opined the fiscal impact of $8 at an ANS West Coast price of
$90 or below is a big liability for the state. This liability,
and to prevent stair steps and high marginal rates, are the
reasons for the amendment.
10:31:26 PM
REPRESENTATIVE HAWKER maintained his objection.
A roll call vote was taken. Representatives Seaton, P. Wilson,
Tarr, and Tuck voted in favor of Amendment 26. Representatives
Hawker, Johnson, Olson, Saddler, and Feige voted against it.
Therefore, Amendment 26 failed by a vote of 4-5.
10:32:20 PM
CO-CHAIR FEIGE moved to adopt Amendment 27, labeled 28-
GS1647\K.36, Nauman/Bullock, 4/3/13, [text provided at the end
of this document].
REPRESENTATIVE HAWKER objected for the purpose of discussion.
CO-CHAIR FEIGE told the committee Amendment 27 affects the
portion of the bill pertaining to the reports prepared by the
Oil and Gas Competitiveness Review Board (review board). On
page 1, line 5, of the amendment, January 31, 2015, is
established as the due date for a report from the review board,
followed by the details the report is to contain and the subject
of the report. On page 1, line 18, January 31, 2021 is
established as the due date for a second report, followed by the
details of its tasks. The second date was chosen because at the
end of 2022, there are many elements in the state's current tax
and incentive system that are expiring; thus, those issues must
be dealt with by the legislature at that time. Finally, page 2,
line 9 sunsets the review board one month after the final report
is due to the legislature.
10:34:26 PM
REPRESENTATIVE HAWKER expressed his concern about the review
board as established by the bill. He said a review board
institutionalizes a "culture of uncertainty" into the tax
regime. However, he said he would support the amendment.
REPRESENTATIVE P. WILSON asked what changes the amendment makes
in the review board's tasks.
CO-CHAIR FEIGE advised the amendment details the subjects that
will be included in the review board's reports. In further
response to Representative P. Wilson, he said each report covers
separate items. The first report is a review of the state's
regulatory environment, permitting structure, changes that would
be conducive to increased investment, the state's resident labor
pool, related infrastructure, and the competitiveness of the
state's fiscal tax regime compared with those of other entities.
The report due in 2021 will cover the state's fiscal regime,
alternative means to attract and maintain investment, a review
of the current and future effectiveness of related provisions
that may be expiring at that time, and a review of renewed or
newly enacted oil and gas tax legislation.
10:39:31 PM
REPRESENTATIVE TARR asked why a sunset clause in 2021 was added.
CO-CHAIR FEIGE responded that the sunset clause in 2021 is
logical because there will be a general review of oil tax laws
at that time; however, the review board can be retained by a
future legislature if desired.
REPRESENTATIVE TARR suggested the sunset date may interfere with
the completion of the review board's work.
CO-CHAIR FEIGE pointed out the sunset date is one month after
the final report is due.
REPRESENTATIVE TUCK said he will not oppose Amendment 27 but
questions the need for the review board since there are
consultants and state agencies that can be relied upon to
provide accurate information.
10:41:34 PM
REPRESENTATIVE HAWKER removed his objection to Amendment 27.
There being no further objection, Amendment 27 was adopted.
10:41:56 PM
REPRESENTATIVE P. WILSON moved to adopt Amendment 28, labeled
28-GS1647\K.2, Nauman/Bullock, 4/2/13, [text provided at the end
of the document].
REPRESENTATIVE HAWKER objected for the purpose of discussion.
REPRESENTATIVE P. WILSON referred to previous testimony,
explaining that the public may view the members of the review
board as "slanted over to the oil side." Amendment 28 would add
an ex-officio, nonvoting legislator from each body to the review
board. The review board at-large members include a petroleum
engineer, a geologist, and a financial analyst, but the review
board is directed to give financial advice and technical advice
can be gleaned from testimony before the legislature. She
cautioned against the perception of bias because of the
membership of the review board.
10:44:27 PM
REPRESENTATIVE HAWKER said the intent was to separate the review
board from the legislature and its political process. He stated
his concern about removing public members with professional
qualifications; in fact, public members that are appointed by
the governor do not slant the board, but create a knowledgeable
board. He described the members of the board: trade
association members representing the oil and gas industry; the
chair of the Alaska Oil and Gas Conservation Commission; the
commissioner of the Department of Environmental Conservation;
the commissioner of the Department of Natural Resources; and the
commissioner of the Department of Revenue. These members will
be appointed by the governor and confirmed by the legislature,
and will bring a level of state governance to the board. He
pointed out that the three commissioners represent the
administration and reiterated that knowledgeable public members,
such as a petroleum engineer, a geologist, and a financial
analyst, will provide a high level of technical expertise.
10:47:45 PM
REPRESENTATIVE TARR appreciated the amendment and supported
adding members from the legislature. She agreed the public may
perceive that the work product from the review board is biased.
REPRESENTATIVE P. WILSON pointed out the review board can invite
expert testimony from the oil and gas industry if needed. She
remarked:
One of the problems that Alaska's faced in developing
its oil and gas policies over the last several years
is the lack of forum for developing a broad public
understanding and consensus on the nature and depth of
the problems that Alaska faces in competing for
investments.
CO-CHAIR FEIGE observed that nonvoting members from the
legislature would give the public "some comfort perhaps."
Although the board may ask for information, review board members
must be knowledgeable. In addition, the three public members
were designated in a way that will prevent a rogue governor from
appointing his "political cronies." And those members with
specialties will guarantee the review board can interpret the
testimony it hears.
10:52:10 PM
REPRESENTATIVE HAWKER pointed out an error, noting that page 1,
line 18, of the Amendment 28 reads "Page 2," but should probably
read "Page 27,".
REPRESENTATIVE P. WILSON concurred it is an error.
CO-CHAIR FEIGE said he will direct Legislative Legal and
Research Services to make this technical change.
10:53:13 PM
REPRESENTATIVE SEATON proposed a friendly amendment to Amendment
28 to delete page 1, lines 10-12, which read:
Page 26, lines 26 - 28:
Delete ", including one member who is a petroleum
engineer, one member who is a geologist, and one
member who is a financial analyst"
REPRESENTATIVE SEATON explained this would make the number of
people on the review board eleven, with one person from the
House and one from the Senate, while retaining the expertise of
the petroleum engineer, geologist, and financial analyst.
REPRESENTATIVE P. WILSON said that change defeats the purpose of
the amendment. She stressed the importance of having a variety
of financial experts on the board.
REPRESENTATIVE SEATON noted the review board has other duties as
well as analyzing the competitiveness of fiscal terms, such as
understanding relative geology and the types of oil under
production.
CO-CHAIR SADDLER agreed with Representative Seaton.
REPRESENTATIVE TUCK suggested an economist should take the place
of the financial analyst.
REPRESENTATIVE P. WILSON recalled the bill calls for expert
testimony before the review board. She said she would agree to
the proposed amendment to Amendment 28.
10:56:48 PM
CO-CHAIR FEIGE moved to adopt Conceptual Amendment 1 to
Amendment 28 to delete [page 1,] lines 10-12. There being no
objection, it was so ordered.
REPRESENTATIVE TARR expressed her concern about a review board
member who has a clear or perceived financial conflict of
interest which may discredit the work of the review board.
CO-CHAIR FEIGE opined the remedy for that concern rests with the
governor.
10:58:59 PM
REPRESENTATIVE HAWKER removed his objection to Amendment 28, as
amended. There being no further objection, Amendment 28, as
amended, was adopted.
10:59:41 PM
REPRESENTATIVE HAWKER moved to adopt Amendment 29, labeled 28-
GS1647\K.6, Nauman/Bullock, 4/2/13, which read:
Page 1, lines 11 - 12:
Delete "establishing the Oil and Gas
Competitiveness Review Board;"
Page 25, following line 20:
Insert a new bill section to read:
"* Sec. 33. AS 43.55.180(b) is amended to read:
(b) The department shall prepare a report on or
before the first day of the 2016 [2011] regular
session of the legislature on the results of the study
made under (a) of this section, including
recommendations as to whether any changes should be
made to this chapter. The department shall notify the
legislature that the report prepared under this
subsection is available."
Page 26, line 16, through page 28, line 29:
Delete all material.
Renumber the following bill sections accordingly.
Page 29, lines 16 - 21:
Delete all material.
Renumber the following bill section accordingly.
REPRESENTATIVE TARR objected for the purpose of discussion.
REPRESENTATIVE HAWKER continued discussion on the Oil and Gas
Competitiveness Review Board, stating he is troubled by
establishing a board that is complex and difficult to define.
Because a review is valuable, Amendment 29 deletes the review
board and reverts the bill's language to the original production
profits tax (PPT) language requiring that DOR prepare a report
on the results of a study of the tax regime, and recommending
changes. Unlike the review board, DOR has access to
confidential taxpayer information and is in the best position to
prepare a report to the legislature in 2016 on the results of
implementing the proposed tax changes. After the report is
issued, the legislature can assess its content, which is a
better approach toward a stable and durable tax structure.
11:03:40 PM
REPRESENTATIVE P. WILSON asked whether the original report that
was due in 2011 was issued.
REPRESENTATIVE HAWKER indicated yes, adding that the legislature
reviewed the report, disagreed with its findings, and began
revising ACES. He concluded that this mechanism worked.
REPRESENTATIVE SEATON asked whether the report required by the
amendment would be out of DOR.
REPRESENTATIVE HAWKER said yes.
REPRESENTATIVE SEATON endorsed DOR's experience providing
information to the legislature, and said he supports the
amendment.
REPRESENTATIVE TARR asked whether all of the provisions of AS
43.55.180 are being repealed in other parts of the bill.
REPRESENTATIVE HAWKER said he did not believe so.
11:07:16 PM
REPRESENTATIVE TARR questioned the accuracy of the amendment.
She read from AS 43.55.180(a)(1) and (2), stating that other
sections of the statute are ACES provisions. Reading from AS
43.55.180 (b), she suggested additional amendments may be
required to include the statutory references that are necessary,
and asked whether some of the above provisions have been
repealed.
CO-CHAIR FEIGE said no, stating that AS 43.55.011 is production
tax, AS 43.55.023-025 pertain to credits, and AS 43.55.160-170
pertain to calculations.
REPRESENTATIVE HAWKER agreed there have been changes, but
assured the committee the bill revisor will make conforming
amendments to correct any inaccuracies. The point is the
effective date of the bill is the coming year, and there will be
elements of current provisions deleted in statute, but not the
entire section. The report encompasses the entire state, not
just the North Slope, and the intent is to be as comprehensive
as possible and transcend all timelines in the history of the
state's development of production taxes.
REPRESENTATIVE TARR gave the example of the previously discussed
new credit related to in-state work that is a new section of
statute. This new section is a provision that the report should
encompass.
11:10:38 PM
REPRESENTATIVE HAWKER, regarding the required report, read from
AS 43.55.180, which is written as follows:
(a) The department shall study
(1) the effects of the provisions of this chapter
on oil and gas exploration, development, and
production in the state ...
REPRESENTATIVE HAWKER emphasized the statute specifically left
those references from the previous report as linkage to assure
time transcendence.
REPRESENTATIVE TARR restated her concern that the amendment, as
written, does not specify all of the sections desired for the
study. She further inquired as to the shortcomings of the 2011
study.
REPRESENTATIVE HAWKER clarified that he disagreed with the 2011
report.
11:12:16 PM
CO-CHAIR FEIGE supported some aspects of the review board.
First, the board is comprised of nine members, five from outside
government and four inside, giving the public a bias. Second,
the review board's tasks are to address a wider range of
subjects than the report sought by Amendment 29. Third, the
review board is also tasked in its final report to evaluate
provisions of law that will possibly expire in 2022.
REPRESENTATIVE TARR maintained her objection, further suggesting
the information from the report should be modified to that which
was required from the review board.
11:15:43 PM
A roll call vote was taken. Representatives Tuck, Hawker,
Johnson, Olson, and Seaton voted in favor of Amendment 29.
Representatives P. Wilson, Tarr, Saddler, and Feige voted
against it. Therefore, Amendment 29 was adopted by a vote of 5-
4.
11:15:46 PM
REPRESENTATIVE HAWKER moved to adopt Amendment 30, labeled 28-
GS1647\K.3, Nauman/Bullock, 4/2/13, which read:
Page 6, line 8:
Delete "35"
Insert "30"
Page 10, line 17:
Delete "35"
Insert "30"
Page 11, line 1:
Delete "35"
Insert "30"
Page 11, line 14:
Delete "35"
Insert "30"
Page 11, line 23:
Delete "35"
Insert "30"
Page 15, line 10:
Delete "35"
Insert "30"
REPRESENTATIVE TARR objected.
REPRESENTATIVE HAWKER urged the committee to consider reducing
the base rate in the bill from 35 percent to 30 percent. After
hearing consultant and industry testimony, he is concerned about
what the legislature has done in recent years to the state's
global competitiveness. It is most important to make meaningful
change in the tax structure, and while the bill is well-crafted,
the legislature has "not moved the needle far enough." The
state is approaching a middle range of competitiveness in the
world, but testimony indicates that robust fiscal terms must be
offered, and he opined Alaska is still marginally higher than it
ought to be. He said a change to 30 percent would move from
average fiscal terms to robust fiscal terms in order to attract
investment. Production decline in the state is its single
greatest challenge to "getting our fair share." As this is the
committee of first referral, the committee has an opportunity to
make a statement for a robust tax regime, and then let the
public and legislative processes further review and evaluate the
impact of the change.
11:22:47 PM
BARRY PULLIAM, Managing Director, Econ One Research, Inc.,
speaking as a consultant to the administration, understood the
amendment would reduce the tax rate from 35 percent to 30
percent, and would not alter the credits that are in Version K
of the bill. He provided a slide entitled, "Average Government
Take For All Existing Producers (FY2015-FY2019)," but noted the
effects of the specific structure of Amendment 30 are not
modeled in this slide. To obtain an estimate, he suggested
looking at the following data: column (5), which models the
system in Version K, which is a 35 percent base rate with a
sliding scale [credit] starting at $8 and phasing out; column
(7), which models a 35 percent base rate with $5 credit; and
column (11), which models a 30 percent base rate with $5 credit.
The differences between columns (7) and (11) reduce government
take by about 2.5 percent at each price point; thus, to estimate
under the sliding scale mechanism, subtract 2.5 percent from
column (5) for a rough estimate of government take at 30 percent
with a sliding scale. For example, at $100 per barrel West
Coast ANS price, the government take is about 62 percent, and at
$150 per barrel West Coast ANS price, the government take is
about 64.5 percent.
REPRESENTATIVE HAWKER surmised a 5 percent reduction makes a
significant difference to the investment dynamics of the
affected industry.
11:26:20 PM
DAN STICKLE, Assistant Chief Economist, Anchorage Office, Tax
Division, Department of Revenue (DOR), provided a slide
entitled, "Provisions in HCS CSSB21(RES) and their Estimated
Fiscal Impact as compared to Fall 2012 Forecast ($millions)."
He drew attention to line 2, which gives the estimated increase
in revenue resulting after moving from 25 percent to 35 percent
base rate. An increase of 5 percent would be one-half of what
is shown on line 2; for example, in 2015, the increase would be
a little less than $550 million. Furthermore, there would be a
$20 million increase in appropriations for the conforming net
operating loss credits after a change from 25 percent to 30
percent base rate.
MR. PAWLOWSKI added that to "work down through the table" one
would take one-half of the projection on line 2, and subtract
that from the numbers in yellow [Total Fiscal Impact].
CO-CHAIR FEIGE inferred that for FY 2015, the state would see a
change from negative $1 billion to negative $1.15 billion.
MR. PAWLOSKI said yes.
REPRESENTATIVE HAWKER responded to the aforementioned estimates
of the future by noting that every producer testified that the
base rate is still an issue, and that a lower base rate would
create greater impetus for them to make investments. Greater
investment equals greater production, and "there is no correct
answer here." However, a lower base rate is an objective number
to maximize future production. He informed the committee that
major tax regimes around the world are reducing their taxes to
attract industry because industry cannot be taxed into
productivity. A certain business risk is inherent, but - based
on testimony from the industry - the state has not reached the
right base rate.
11:30:57 PM
REPRESENTATIVE TARR cautioned that reducing the base rate to 30
percent and adjusting the net operating loss (NOL) seems to
disadvantage small producers, because their only credit is NOL
credit, while benefitting large producers that are in
production. The previous proposals struck a balance, but
adjusting the NOL credit downward severely disadvantages
explorers.
MR. PAWLOWSKI reminded the committee that the aforementioned
fiscal impact is a rough estimate without the consideration of
production scenarios; any illustration without additional
production should be taken with a grain of salt. Representative
Tarr brings up an important issue: Studying the full lifecycle
economics around the proposal is the method analysts use to find
a balance between the credits and the overall take. Gross value
reduction, per barrel credit, and upfront credit, viewed
together, create an opportunity for investment that can outweigh
losses upfront, particularly with the addition of the authority
of AIDEA, the impact of which is unknown at this time.
11:32:55 PM
CO-CHAIR SADDLER said he has supported lowering the tax rate and
government take for the oil industry, but has concerns with the
significance of the change proposed by Amendment 30. He
suggested changing to a 33 percent base rate.
REPRESENTATIVE P. WILSON agreed that a 33 percent base rate
would make a difference and she would feel comfortable if Alaska
were "in the middle of the pack" worldwide. She inquired
whether Representative Hawker would accept a friendly amendment
to the amendment.
REPRESENTATIVE HAWKER indicated no.
REPRESENTATIVE JOHNSON recalled testimony that 62 percent total
government take [when oil is priced at $100 per barrel] "is the
winner." He reviewed the difficulties the industry faces when
conducting business in Alaska, and said he is not happy in the
middle of the pack; in fact, to ensure the future for Alaska,
Alaska needs to lead. He supported Amendment 30, saying that it
would put Alaska near the front of the pack.
11:37:26 PM
REPRESENTATIVE TUCK opposed Amendment 30. He recalled testimony
last year and said it is difficult to compare one oil field with
the next due to different construction environments, especially
regarding the time needed for new investments to pay off. In
addition, the difference between the production of conventional
oil and nonconventional oil is significant. In North Dakota,
the production costs of oil developed by "fracking" are between
$40 and $60 per barrel; however, because production is not
seasonal, the rate of return is about 18 months, rather than 10
years as in Alaska. As stated in testimony, Alaska is resource-
rich, which is attractive to investors. In addition, Pedro van
Meurs' comparisons between Alaska's tax rate and that of other
shallow-water oil areas are comparable, and his analysis
indicated that HB 110 [offered during the 27th Legislative
Session] reduced government take from 72 percent to 65 percent.
The current proposal reduces government take to 62 percent when
oil prices are $110 per barrel. Representative Tuck referred to
favorable reports in the past two years from the governor and
DOR, even in the case of a failed well. For example, on an
unsuccessful development project, the state share is 76 percent
and an existing producer's share is 15 percent. Furthermore,
Alaska's tax credit system is the most competitive in the world.
He mentioned ongoing projects on the North Slope, and urged that
legislators fulfill their roles and negotiate with the oil
industry instead of against each other.
11:42:26 PM
REPRESENTATIVE JOHNSON emphasized that not a single new
production project on the North Slope would have been sanctioned
under ACES tax policy. He said that is a fallacious argument
and the record should be set straight: ACES would not have
generated the competition that is there now - it happened
because of a previous regime.
REPRESENTATIVE TUCK stressed the Department of Labor & Workforce
Development reported employment on the North Slope climbed to an
all-time high in 2012; if these statistics are debatable, the
amendment is premature.
CO-CHAIR SADDLER inquired as to DOR's position on Amendment 30.
11:45:01 PM
MR. PAWLOWSKI responded that making Alaska competitive is one of
the goals of the governor and the administration. The
governor's legislation is focused on creating a long-term
environment with four principles: fair to Alaskans; durable;
balanced; and simple. As Version K is in flux, he reserved
comment other than to assist the committee in its efforts.
REPRESENTATIVE TARR maintained her objection.
REPRESENTATIVE HAWKER disputed the statistics that the labor
boom on the North Slope is from new oil production, arguing it
is due to increased maintenance on existing facilities; oil
revenue is metered and every barrel of oil production is
counted. If ACES was working as was represented when it passed,
production would not be in decline. He gave examples of new oil
production in other areas of the world, and urged for the
adoption of Amendment 30, saying it would signify meaningful
change towards Alaska's fair share.
11:49:03 PM
A roll call vote was taken. Representatives Hawker, Johnson,
and Olson voted in favor of Amendment 30. Representatives Tarr,
Tuck, Seaton, P. Wilson, Saddler, and Feige voted against it.
Therefore, Amendment 30 failed by a vote of 3-6.
11:50:09 PM
REPRESENTATIVE HAWKER moved to adopt Amendment 31, labeled GS-
1647\K.4, Nauman/Bullock, 4/2/13, [text provided at the end of
the document].
REPRESENTATIVE TARR objected.
REPRESENTATIVE HAWKER said Amendment 31 addresses another
problem for taxpayers caused by the enactment of ACES.
Amendment 31 will provide legislative guidance and clarity to
state taxing agencies regarding the determination of wellhead
value as the basis for production tax. He explained that
wellhead value is the value one sells the oil for, less the cost
of transportation, and the problem is with how DOR auditors
determine the cost of transportation. Prior to ACES, a taxpayer
deducted its actual costs of transportation unless the following
three circumstances existed: the shipper is affiliated with the
transportation carrier; the transportation contract was not at
arm's length; and the methods or terms of transportation were
not reasonable in light of alternative transportation.
Furthermore, DOR had discretion to apply a "reasonableness"
standard if those same circumstances existed. He characterized
this provision as successful for many years until the ACES
legislation made a number of statutory changes. Following those
statutory changes, DOR developed new regulations that have
garnered complaints. The complaints charge that DOR calculates
what it considers reasonable by regulation, and also calculates
actual costs that really are not actual. Representative Hawker
said this issue arose "through that rather indecipherable
regulation making arguments that actual transportation costs are
not really what we want to consider actual and fair." The
current regulations defer to DOR's discretion in calculating
both actual and reasonable transportation costs, and require
that the lesser amount is used.
11:53:46 PM
REPRESENTATIVE HAWKER remarked:
What the amendment before us does, is simply restores
the language in Section 43.55.150 which is ... the
section of statute on determining the gross value at
the point of production, basically the allowable
transportation costs. This amendment simply restores
the language that existed before ACES passed, when it
was fairly clear, the regulations worked, and we did
not have this circumstance which I believe has
resulted in the department taking a regulatory
position that is inconsistent with what I believe
would be good legislative intent: That what you pay
for transportation is what you pay, unless those three
qualifications are met, and then there's a different
standard applied.
REPRESENTATIVE HAWKER further explained Amendment 31 is one of
two amendments he is offering to address unintended - or
intended but inappropriate - consequences of changes made in the
ACES legislation.
REPRESENTATIVE SEATON was unsure whether the aforementioned
changes were the result of ACES or the result of the tariff
settlement and lawsuit related to actual transportation [costs]
for intrastate transportation. He estimated the calculation
difference for that settlement was about $6 billion over the
lifetime, and questioned whether returning to calculations that
were inaccurate, or that were a basis for a legal settlement,
would be good for the state. At this point there is no time to
review the amendment or for research to confirm his
recollection.
11:56:23 PM
CO-CHAIR FEIGE directed attention to the 2013 edition of Alaska
Oil and Gas Laws and Regulations Annotated, page 186, and said
Representative Hawker was correct on the effect of the
amendment.
REPRESENTATIVE SEATON pointed out the footnotes that reference
the lawsuit and settlement made by the Knowles Administration;
although he did not remember the exact terms, he said that was
the reason for the language. He asked for a response from DOR.
REPRESENTATIVE TARR agreed with Representative Seaton that there
was litigation to protect the state. She requested
clarification from DOL as to her understanding that "these
provisions are the result of some of this activity in the past."
MS. POLLARD said she is unable to give detailed advice on the
methodology related to the TAPS tariff settlement in 1985.
However, in 2007, there was testimony on the reasons supporting
restoring the statute that existed in 2006, which is the intent
of Amendment 31. She recalled the testimony was before the
Senate Judiciary Standing Committee in October of 2007 and
discussed an alternative deduction for tax reasons. Ms. Pollard
was unable to say which tariff issues were directly discussed.
MR. PAWLOWSKI said DOR's understanding of the amendment is that
its language restores what was, at the time, a certain
legislative direction. He solicited additional comments from
the Tax Division.
[See April 4, 2013, minutes and audio for the continuation and
conclusion of this meeting.]
Following is the text for Amendments 2, 3, 4, 5, 15, 16, 18, 25,
27, 28, and 31.
Amendment 2, labeled 28-GS1647\K.20, Nauman/Bullock, 4/2/13:
Page 1, lines 2 - 11:
Delete "providing a tax credit against the
corporation income tax for qualified oil and gas
service industry expenditures; relating to the oil and
gas production tax rate; relating to gas used in the
state; relating to monthly installment payments of the
oil and gas production tax; relating to oil and gas
production tax credits for certain losses and
expenditures; relating to oil and gas production tax
credit certificates; relating to nontransferable tax
credits based on production; relating to the oil and
gas tax credit fund; relating to annual statements by
producers and explorers; relating to the determination
of annual oil and gas production tax value including
adjustments based on a percentage of gross value at
the point of production from certain leases or
properties;"
Page 5, line 27, through page 12, line 31:
Delete all material and insert:
"* Sec. 11. AS 43.55.011(g) is amended to read:
(g) For each month of the calendar year for
which the producer's average monthly production tax
value under AS 43.55.160(a)(2) of a [PER] BTU
equivalent barrel of the taxable oil and gas is more
than $30, the amount of tax for purposes of (e)(2) of
this section is determined by multiplying the monthly
production tax value of the taxable oil and gas
produced during the month by the tax rate calculated
as follows:
(1) if the producer's average monthly
production tax value of a [PER] BTU equivalent barrel
of the taxable oil and gas for the month is not more
than $92.50, the tax rate is 0.4 percent multiplied by
the number that represents the difference between that
average monthly production tax value of a [PER] BTU
equivalent barrel and $30; or
(2) if the producer's average monthly
production tax value of a [PER] BTU equivalent barrel
of the taxable oil and gas for the month is more than
$92.50, the tax rate is the sum of 25 percent and the
product of 0.1 percent multiplied by the number that
represents the difference between the average monthly
production tax value of a [PER] BTU equivalent barrel
and $92.50, except that the sum determined under this
paragraph may not exceed 30 [50] percent."
Renumber the following bill sections accordingly.
Page 14, line 13, through page 16, line 9:
Delete all material.
Renumber the following bill sections accordingly.
Page 16, lines 11 - 12:
Delete "of this section"
Page 16, line 12:
Delete "former"
Page 16, line 26, through page 25, line 20:
Delete all material.
Renumber the following bill sections accordingly.
Page 28, line 30, through page 29, line 15:
Delete all material.
Renumber the following bill sections accordingly.
Page 29, line 20:
Delete "sec. 36"
Insert "sec. 16"
Page 29, lines 22 - 26:
Delete all material.
Amendment 3, labeled 28-GS1647\K.21, Nauman/Bullock, 4/3/13:
Page 6, line 6:
Delete "(g)"
Insert "(g)(1) [(g)]"
Page 6, line 7, following "2014,":
Insert "
(A)"
Page 6, line 9, following "percent":
Insert "; and
(B) the sum, over all the months of the
calendar year, of the tax amounts determined under (g)
of this section"
Page 6, following line 9:
Insert a new bill section to read:
"* Sec. 12. AS 43.55.011(g) is amended to read:
(g) For purposes of (e) of this section, the tax
amount is determined by multiplying the monthly
production tax value of the taxable oil and gas
produced during the month by the tax rate calculated
as follows:
(1) before January 1, 2014, for [FOR] each
month of the calendar year for which the producer's
average monthly production tax value under
AS 43.55.160(a)(2) of a [PER] BTU equivalent barrel of
the taxable oil and gas is more than $30, [THE AMOUNT
OF TAX FOR PURPOSES OF (e)(2) OF THIS SECTION IS
DETERMINED BY MULTIPLYING THE MONTHLY PRODUCTION TAX
VALUE OF THE TAXABLE OIL AND GAS PRODUCED DURING THE
MONTH BY] the tax rate calculated as follows:
(A) [(1)] if the producer's average monthly
production tax value of a [PER] BTU equivalent barrel
of the taxable oil and gas for the month is not more
than $92.50, the tax rate is 0.4 percent multiplied by
the number that represents the difference between that
average monthly production tax value of a [PER] BTU
equivalent barrel and $30; or
(B) [(2)] if the producer's average monthly
production tax value of a [PER] BTU equivalent barrel
of the taxable oil and gas for the month is more than
$92.50, the tax rate is the sum of 25 percent and the
product of 0.1 percent multiplied by the number that
represents the difference between the average monthly
production tax value of a [PER] BTU equivalent barrel
and $92.50, except that the sum determined under this
paragraph may not exceed 50 percent;
(2) on or after January 1, 2014, for each
month of the calendar year for which the producer's
average monthly production tax value under
AS 43.55.160(a)(2) of a BTU equivalent barrel of the
taxable oil and gas is more than $55, the tax rate
calculated by multiplying by 0.2 the number that
represents the difference between that average monthly
production tax value of a BTU equivalent barrel and
$55, except that the tax rate determined under this
paragraph may not exceed 15 percent."
Renumber the following bill sections accordingly.
Page 10, line 17:
Delete "35 percent"
Insert "the sum of 35 percent and the tax rate
calculated for the month under AS 43.55.011(g)"
Page 11, line 1:
Delete "35 percent"
Insert "the sum of 35 percent and the tax rate
calculated for the month under AS 43.55.011(g)"
Page 11, line 14:
Delete "35 percent"
Insert "the sum of 35 percent and the tax rate
calculated for the month under AS 43.55.011(g)"
Page 11, line 23:
Delete "35 percent"
Insert "the sum of 35 percent and the tax rate
calculated for the month under AS 43.55.011(g)"
Page 12, lines 13 - 31:
Delete all material.
Renumber the following bill sections accordingly.
Page 13, line 25, through page 14, line 12:
Delete all material.
Renumber the following bill sections accordingly.
Page 28, line 31:
Delete "43.55.011(g)"
Insert "43.55.011(g)(1)"
Page 29, line 1:
Delete "AS 43.55.020(d), 43.55.023(i),
43.55.023(p), 43.55.160(a)(2), and 43.55.160(c)"
Insert "43.55.023(i), and 43.55.023(p)"
Page 29, line 5:
Delete "Section 13"
Insert "Section 14"
Page 29, line 6:
Delete "sec. 31"
Insert "sec. 30"
Page 29, line 7:
Delete "Sections 18 and 20 - 23"
Insert "Sections 17 and 19 - 22"
Delete "sec. 18"
Insert "sec. 17"
Page 29, line 9:
Delete "Section 19"
Insert "Section 18"
Page 29, line 20:
Delete "sec. 36"
Insert "sec. 35"
Page 29, line 24:
Delete "Sections 13, 20 - 23, 28, and 37"
Insert "Sections 14, 19 - 22, 27, and 36"
Page 29, line 25:
Delete "sec. 18"
Insert "sec. 17"
Delete "sec. 31"
Insert "sec. 30"
Amendment 4, labeled 28-GS1647\K.25, Nauman/Bullock, 4/3/13:
Page 1, line 4:
Delete "rate"
Insert "rates"
Page 6, line 8:
Delete "35"
Insert "50"
Page 6, following line 9:
Insert a new bill section to read:
"* Sec. 12. AS 43.55.011(f) is amended to read:
(f) Before January 1, 2014, the [THE] levy of tax
under this section for oil and gas produced north of
68 degrees North latitude, other than oil and gas
production subject to (i) of this section and gas
subject to (o) of this section, may not be less than
(1) four percent of the gross value at the
point of production when the average price per barrel
for Alaska North Slope crude oil for sale on the
United States West Coast during the calendar year for
which the tax is due is more than $25;
(2) three percent of the gross value at the
point of production when the average price per barrel
for Alaska North Slope crude oil for sale on the
United States West Coast during the calendar year for
which the tax is due is over $20 but not over $25;
(3) two percent of the gross value at the
point of production when the average price per barrel
for Alaska North Slope crude oil for sale on the
United States West Coast during the calendar year for
which the tax is due is over $17.50 but not over $20;
(4) one percent of the gross value at the
point of production when the average price per barrel
for Alaska North Slope crude oil for sale on the
United States West Coast during the calendar year for
which the tax is due is over $15 but not over $17.50;
or
(5) zero percent of the gross value at the
point of production when the average price per barrel
for Alaska North Slope crude oil for sale on the
United States West Coast during the calendar year for
which the tax is due is $15 or less."
Renumber the following bill sections accordingly.
Page 7, following line 1:
Insert new bill sections to read:
"* Sec. 15. AS 43.55.011 is amended by adding a new
subsection to read:
(g) On and after January 1, 2014, except for oil
and gas subject to (i) of this section and gas subject
to (o) of this section, the provisions of this
subsection apply to oil and gas produced from each
lease or property within a unit or nonunitized
reservoir that has cumulatively produced 1,000,000,000
BTU equivalent barrels of oil or gas by the close of
the most recent calendar year and from which the
average daily oil and gas production from the unit or
nonunitized reservoir during the most recent calendar
year exceeded 100,000 BTU equivalent barrels.
Notwithstanding any contrary provision of law, a
producer may not apply tax credits to reduce its total
tax liability under (e) of this section for oil and
gas produced from all leases or properties within the
unit or nonunitized reservoir below 10 percent of the
total gross value at the point of production of that
oil and gas. If the amount of tax calculated by
multiplying the tax rates in (e) of this section by
the total production tax value of the oil and gas
taxable under (e) of this section produced from all of
the producer's leases or properties within the unit or
nonunitized reservoir is less than 10 percent of the
total gross value at the point of production of that
oil and gas, the tax levied by (e) of this section for
that oil and gas is equal to 10 percent of the total
gross value at the point of production of that oil and
gas."
Renumber the following bill sections accordingly.
Page 10, line 15:
Delete "AS 43.55.011(f)"
Insert "AS 43.55.011(q)"
Page 10, line 17:
Delete "35"
Insert "50"
Page 10, line 25:
Delete "AS 43.55.011(f)"
Insert "AS 43.55.011(q)"
Page 10, lines 27 - 31:
Delete all material and insert:
"(ii) 10 percent of the gross value at the point
of production of the oil and gas produced from the
leases or properties during the month for which the
installment payment is calculated; or "
Page 11, line 1:
Delete "35"
Insert "50"
Page 11, line 14:
Delete "35"
Insert "50"
Page 11, line 23:
Delete "35"
Insert "50"
Page 15, line 10:
Delete "35"
Insert "50"
Page 17, line 21:
Delete "new subsections"
Insert "a new subsection"
Page 17, line 23:
Delete "$5"
Insert "$12"
Page 17, line 24:
Delete "that meets one or more of the criteria in
AS 43.55.160(f) and"
Page 17, line 28, through page 18, line 28:
Delete all material.
Page 29, line 5:
Delete "Section 13"
Insert "Section 14"
Page 29, line 6:
Delete "sec. 31"
Insert "sec. 33"
Page 29, line 7:
Delete "Sections 18 and 20 - 23"
Insert "Sections 20 and 22 - 25"
Delete "sec. 18"
Insert "sec. 20"
Page 29, line 9:
Delete "Section 19"
Insert "Section 21"
Page 29, line 20:
Delete "sec. 36"
Insert "sec. 38"
Page 29, line 24:
Delete "Sections 13, 20 - 23, 28, and 37"
Insert "Sections 14, 22 - 25, 30, and 39"
Page 29, line 25:
Delete "sec. 18"
Insert "sec. 20"
Delete "sec. 31"
Insert "sec. 33"
Amendment 5, labeled, 28-GS1647\K.24, Nauman/Bullock, 4/3/13:
Page 1, line 4:
Delete "rate"
Insert "rates"
Page 6, line 8:
Delete "35"
Insert "45"
Page 6, following line 9:
Insert a new bill section to read:
"* Sec. 12. AS 43.55.011(f) is repealed and
reenacted to read:
(f) Except for oil and gas subject to (i) of
this section and gas subject to (o) of this section,
the provisions of this subsection apply to oil and gas
produced from each lease or property within a unit or
nonunitized reservoir that has cumulatively produced
1,000,000,000 BTU equivalent barrels of oil or gas by
the close of the most recent calendar year and from
which the average daily oil and gas production from
the unit or nonunitized reservoir during the most
recent calendar year exceeded 100,000 BTU equivalent
barrels. Notwithstanding any contrary provision of
law, a producer may not apply tax credits to reduce
its total tax liability under (e) of this section for
oil and gas produced from all leases or properties
within the unit or nonunitized reservoir below 10
percent of the total gross value at the point of
production of that oil and gas. If the amount of tax
calculated by multiplying the tax rates in (e) of this
section by the total production tax value of the oil
and gas taxable under (e) of this section produced
from all of the producer's leases or properties within
the unit or nonunitized reservoir is less than 10
percent of the total gross value at the point of
production of that oil and gas, the tax levied by (e)
of this section for that oil and gas is equal to 10
percent of the total gross value at the point of
production of that oil and gas."
Renumber the following bill sections accordingly.
Page 10, line 17:
Delete "35"
Insert "45"
Page 10, lines 27 - 31:
Delete all material and insert:
"(ii) 10 percent of the gross value at the
point of production of the oil and gas produced from
the leases or properties during the month for which
the installment payment is calculated; or"
Page 11, line 1:
Delete "35"
Insert "45"
Page 11, line 14:
Delete "35"
Insert "45"
Page 11, line 23:
Delete "35"
Insert "45"
Page 15, line 10:
Delete "35"
Insert "45"
Page 17, line 21:
Delete "new subsections"
Insert "a new subsection"
Page 17, line 23:
Delete "$5"
Insert "$10"
Page 17, line 24:
Delete "that meets one or more of the criteria in
AS 43.55.160(f) and"
Page 17, line 28, through page 18, line 28:
Delete all material.
Page 29, line 5:
Delete "Section 13"
Insert "Section 14"
Page 29, line 6:
Delete "sec. 31"
Insert "sec. 32"
Page 29, line 7:
Delete "Sections 18 and 20 - 23"
Insert "Sections 19 and 21 - 24"
Delete "sec. 18"
Insert "sec. 19"
Page 29, line 9:
Delete "Section 19"
Insert "Section 20"
Page 29, line 20:
Delete "sec. 36"
Insert "sec. 37"
Page 29, line 24:
Delete "Sections 13, 20 - 23, 28, and 37"
Insert "Sections 14, 21 - 24, 29, and 38"
Page 29, line 25:
Delete "sec. 18"
Insert "sec. 19"
Amendment 15, labeled 28-GS1647\K.15, Bullock, 4/3/13:
Page 1, line 4:
Delete "rate"
Insert "rates"
Page 1, line 12:
Delete the second occurrence of "and"
Page 1, line 12, following "amendments":
Insert "; and providing for an effective date"
Page 2, following line 13:
Insert a new bill section to read:
"* Sec. 3. AS 29.60.850(b), as amended by sec. 2
of this Act, is amended to read:
(b) Each fiscal year, the legislature may
appropriate to the community revenue sharing fund an
amount equal to 20 percent of the money received by
the state during the previous calendar year under
AS 43.55.011(g) [AS 43.20.030(c)]. The amount may not
exceed
(1) $60,000,000; or
(2) the amount that, when added to the fund
balance on June 30 of the previous fiscal year, equals
$180,000,000."
Renumber the following bill sections accordingly.
Page 6, following line 9:
Insert a new bill section to read:
"* Sec. 13. AS 43.55.011(e), as amended by sec. 12
of this Act, is repealed and reenacted to read:
(e) There is levied on the producer of oil or
gas a tax for all oil and gas produced each calendar
year from each lease or property in the state, less
any oil and gas the ownership or right to which is
exempt from taxation or constitutes a landowner's
royalty interest. Except as otherwise provided under
(f), (j), (k), (o), and (p) of this section, the tax
is equal to the sum of
(1) the annual production tax value of the
taxable oil and gas as calculated under
AS 43.55.160(a)(1) multiplied by 25 percent; and
(2) the sum, over all months of the
calendar year, of the tax amounts determined under (q)
of this section."
Renumber the following bill sections accordingly.
Page 7, following line 1:
Insert new bill sections to read:
"* Sec. 16. AS 43.55.011(o), as amended by sec. 15
of this Act, is amended to read:
(o) Notwithstanding other provisions of this
section, for a calendar year before 2022, the tax
levied under (e) of this section for each 1,000 cubic
feet of gas for gas produced from a lease or property
outside the Cook Inlet sedimentary basin and used in
the state [, OTHER THAN GAS SUBJECT TO (p) OF THIS
SECTION,] may not exceed the amount of tax for each
1,000 cubic feet of gas that is determined under
(j)(2) of this section.
* Sec. 17. AS 43.55.011 is amended by adding a new
subsection to read:
(q) For each month of the calendar year for
which the producer's average monthly production tax
value under AS 43.55.160(a)(2) of a BTU equivalent
barrel of the taxable oil and gas is more than $30,
the amount of tax for purposes of (e)(2) of this
section is determined by multiplying the monthly
production tax value of the taxable oil and gas
produced during the month by the tax rate calculated
as follows:
(1) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is not more than
$92.50, the tax rate is 0.4 percent multiplied by the
number that represents the difference between that
average monthly production tax value of a BTU
equivalent barrel and $30; or
(2) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $92.50,
the tax rate is the sum of 25 percent and the product
of 0.1 percent multiplied by the number that
represents the difference between the average monthly
production tax value of a BTU equivalent barrel and
$92.50, except that the sum determined under this
paragraph may not exceed 50 percent."
Renumber the following bill sections accordingly.
Page 12, following line 12:
Insert a new bill section to read:
"* Sec. 19. AS 43.55.020(a), as amended by sec. 18
of this Act, is repealed and reenacted to read:
(a) For a calendar year, a producer subject to
tax under AS 43.55.011(e), (f), (h), (i), (p), or (q)
shall pay the tax as follows:
(1) an installment payment of the estimated
tax levied by AS 43.55.011(e), net of any tax credits
applied as allowed by law, is due for each month of
the calendar year on the last day of the following
month; except as otherwise provided under (2) of this
subsection, the amount of the installment payment is
the sum of the following amounts, less 1/12 of the tax
credits that are allowed by law to be applied against
the tax levied by AS 43.55.011(e) for the calendar
year, but the amount of the installment payment may
not be less than zero:
(A) for oil and gas produced from leases or
properties in the state outside the Cook Inlet
sedimentary basin but not subject to AS 43.55.011(o)
or (p), other than leases or properties subject to
AS 43.55.011(f), the greater of
(i) zero; or
(ii) the sum of 25 percent and the tax rate
calculated for the month under AS 43.55.011(q)
multiplied by the remainder obtained by subtracting
1/12 of the producer's adjusted lease expenditures for
the calendar year of production under AS 43.55.165 and
43.55.170 that are deductible for the leases or
properties under AS 43.55.160 from the gross value at
the point of production of the oil and gas produced
from the leases or properties during the month for
which the installment payment is calculated;
(B) for oil and gas produced from leases or
properties subject to AS 43.55.011(f), the greatest of
(i) zero;
(ii) zero percent, one percent, two
percent, three percent, or four percent, as
applicable, of the gross value at the point of
production of the oil and gas produced from all leases
or properties during the month for which the
installment payment is calculated; or
(iii) the sum of 25 percent and the tax
rate calculated for the month under AS 43.55.011(q)
multiplied by the remainder obtained by subtracting
1/12 of the producer's adjusted lease expenditures for
the calendar year of production under AS 43.55.165 and
43.55.170 that are deductible for those leases or
properties under AS 43.55.160 from the gross value at
the point of production of the oil and gas produced
from those leases or properties during the month for
which the installment payment is calculated;
(C) for oil and gas produced from each
lease or property subject to AS 43.55.011(j), (k),
(o), or (p), the greater of
(i) zero; or
(ii) the sum of 25 percent and the tax rate
calculated for the month under AS 43.55.011(q)
multiplied by the remainder obtained by subtracting
1/12 of the producer's adjusted lease expenditures for
the calendar year of production under AS 43.55.165 and
43.55.170 that are deductible under AS 43.55.160 for
oil or gas, respectively, produced from the lease or
property from the gross value at the point of
production of the oil or gas, respectively, produced
from the lease or property during the month for which
the installment payment is calculated;
(2) an amount calculated under (1)(C) of
this subsection for oil or gas produced from a lease
or property
(A) subject to AS 43.55.011(j), (k), or (o)
may not exceed the product obtained by carrying out
the calculation set out in AS 43.55.011(j)(1) or (2)
or 43.55.011(o), as applicable, for gas or set out in
AS 43.55.011(k)(1) or (2), as applicable, for oil, but
substituting in AS 43.55.011(j)(1)(A) or (2)(A) or
43.55.011(o), as applicable, the amount of taxable gas
produced during the month for the amount of taxable
gas produced during the calendar year and substituting
in AS 43.55.011(k)(1)(A) or (2)(A), as applicable, the
amount of taxable oil produced during the month for
the amount of taxable oil produced during the calendar
year;
(B) subject to AS 43.55.011(p) may not
exceed four percent of the gross value at the point of
production of the oil or gas;
(3) an installment payment of the estimated
tax levied by AS 43.55.011(i) for each lease or
property is due for each month of the calendar year on
the last day of the following month; the amount of the
installment payment is the sum of
(A) the applicable tax rate for oil
provided under AS 43.55.011(i), multiplied by the
gross value at the point of production of the oil
taxable under AS 43.55.011(i) and produced from the
lease or property during the month; and
(B) the applicable tax rate for gas
provided under AS 43.55.011(i), multiplied by the
gross value at the point of production of the gas
taxable under AS 43.55.011(i) and produced from the
lease or property during the month;
(4) any amount of tax levied by
AS 43.55.011(e) or (i), net of any credits applied as
allowed by law, that exceeds the total of the amounts
due as installment payments of estimated tax is due on
March 31 of the year following the calendar year of
production."
Renumber the following bill sections accordingly.
Page 12, following line 31:
Insert a new bill section to read:
"* Sec. 21. AS 43.55.020(d), as amended by sec. 20
of this Act, is repealed and reenacted to read:
(d) In making settlement with the royalty owner
for oil and gas that is taxable under AS 43.55.011,
the producer may deduct the amount of the tax paid on
taxable royalty oil and gas, or may deduct taxable
royalty oil or gas equivalent in value at the time the
tax becomes due to the amount of the tax paid. If the
total deductions of installment payments of estimated
tax for a calendar year exceed the actual tax for that
calendar year, the producer shall, before April 1 of
the following year, refund the excess to the royalty
owner. Unless otherwise agreed between the producer
and the royalty owner, the amount of the tax paid
under AS 43.55.011(e), (f), and (q) on taxable royalty
oil and gas for a calendar year, other than oil and
gas the ownership or right to which constitutes a
landowner's royalty interest, is considered to be the
gross value at the point of production of the taxable
royalty oil and gas produced during the calendar year
multiplied by a figure that is a quotient, in which
(1) the numerator is the producer's total
tax liability under AS 43.55.011(e), (f), and (q) for
the calendar year of production; and
(2) the denominator is the total gross
value at the point of production of the oil and gas
taxable under AS 43.55.011(e), (f), and (q) produced
by the producer from all leases and properties in the
state during the calendar year."
Renumber the following bill sections accordingly.
Page 15, following line 2:
Insert a new bill section to read:
"* Sec. 25. AS 43.55.023(a), as amended by sec. 24
of this Act, is amended to read:
(a) A producer or explorer may take a tax credit
for a qualified capital expenditure as follows:
(1) notwithstanding that a qualified
capital expenditure may be a deductible lease
expenditure for purposes of calculating the production
tax value of oil and gas under AS 43.55.160(a), unless
a credit for that expenditure is taken under
AS 38.05.180(i), AS 41.09.010, AS 43.20.043, or
AS 43.55.025, a producer or explorer that incurs a
qualified capital expenditure may also elect to apply
a tax credit against a tax levied by AS 43.55.011(e)
in the amount of 20 percent of that expenditure;
however, not more than half of the tax credit may be
applied for a single calendar year;
(2) a producer or explorer may take a
credit for a qualified capital expenditure incurred in
connection with geological or geophysical exploration
or in connection with an exploration well only if the
producer or explorer
(A) agrees, in writing, to the applicable
provisions of AS 43.55.025(f)(2); and
(B) submits to the Department of Natural
Resources all data that would be required to be
submitted under AS 43.55.025(f)(2) [;
(3) A CREDIT FOR A QUALIFIED CAPITAL
EXPENDITURE INCURRED TO EXPLORE FOR, DEVELOP, OR
PRODUCE OIL OR GAS DEPOSITS LOCATED NORTH OF 68
DEGREES NORTH LATITUDE MAY BE TAKEN ONLY IF THE
EXPENDITURE IS INCURRED BEFORE JANUARY 1, 2014]."
Renumber the following bill sections accordingly.
Page 15, following line 15:
Insert a new bill section to read:
"* Sec. 27. AS 43.55.023(b), as amended by sec. 26
of this Act, is amended to read:
(b) A [FOR LEASE EXPENDITURES INCURRED TO
EXPLORE FOR, DEVELOP, OR PRODUCE OIL OR GAS DEPOSITS
LOCATED SOUTH OF 68 DEGREES NORTH LATITUDE, A]
producer or explorer may elect to take a tax credit in
the amount of 25 percent of a carried-forward annual
loss. [FOR LEASE EXPENDITURES INCURRED AFTER DECEMBER
31, 2013, TO EXPLORE FOR, DEVELOP, OR PRODUCE OIL OR
GAS DEPOSITS LOCATED NORTH OF 68 DEGREES NORTH
LATITUDE, A PRODUCER OR EXPLORER MAY ELECT TO TAKE A
TAX CREDIT IN THE AMOUNT OF 35 PERCENT OF A CARRIED-
FORWARD ANNUAL LOSS.] A credit under this subsection
may be applied against a tax levied by
AS 43.55.011(e). For purposes of this subsection, a
carried-forward annual loss is the amount of a
producer's or explorer's adjusted lease expenditures
under AS 43.55.165 and 43.55.170 for a previous
calendar year that was not deductible in calculating
production tax values for that calendar year under
AS 43.55.160."
Renumber the following bill sections accordingly.
Page 16, following line 9:
Insert a new bill section to read:
"* Sec. 29. AS 43.55.023(d), as amended by sec. 28
of this Act, is repealed and reenacted to read:
(d) A person that is entitled to take a tax
credit under this section that wishes to transfer the
unused credit to another person or obtain a cash
payment under AS 43.55.028 may apply to the department
for transferable tax credit certificates. An
application under this subsection must be in a form
prescribed by the department and must include
supporting information and documentation that the
department reasonably requires. The department shall
grant or deny an application, or grant an application
as to a lesser amount than that claimed and deny it as
to the excess, not later than 120 days after the
latest of the following: March 31 of the year
following the calendar year in which the qualified
capital expenditure or carried-forward annual loss for
which the credit is claimed was incurred; the date the
statement required under AS 43.55.030(a) or (e) was
filed for the calendar year in which the qualified
capital expenditure or carried-forward annual loss for
which the credit is claimed was incurred; or the date
the application was received by the department. If,
based on the information then available to it, the
department is reasonably satisfied that the applicant
is entitled to a credit, the department shall issue
the applicant two transferable tax credit
certificates, each for half of the amount of the
credit. The credit shown on one of the two
certificates is available for immediate use. The
credit shown on the second of the two certificates may
not be applied against a tax for a calendar year
earlier than the calendar year following the calendar
year in which the certificate is issued, and the
certificate must contain a conspicuous statement to
that effect. A certificate issued under this
subsection does not expire."
Renumber the following bill sections accordingly.
Page 16, following line 25:
Insert a new bill section to read:
"* Sec. 31. AS 43.55.023(g), as amended by sec. 30
of this Act, is amended to read:
(g) The issuance of a transferable tax credit
certificate under (d) or (p) of this section or former
(m) of this section or the purchase of a certificate
under AS 43.55.028 does not limit the department's
ability to later audit a tax credit claim to which the
certificate relates or to adjust the claim if the
department determines, as a result of the audit, that
the applicant was not entitled to the amount of the
credit for which the certificate was issued. The tax
liability of the applicant under AS 43.55.011(e) and
43.55.017 - 43.55.180 is increased by the amount of
the credit that exceeds that to which the applicant
was entitled, or the applicant's available valid
outstanding credits applicable against the tax levied
by AS 43.55.011(e) are reduced by that amount. If the
applicant's tax liability is increased under this
subsection, the increase bears interest under
[AS 43.05.225(a) BEFORE JANUARY 1, 2014, OR UNDER]
AS 43.05.225(b)(1) [ON AND AFTER JANUARY 1, 2014,]
from the date the transferable tax credit certificate
was issued. For purposes of this subsection, an
applicant that is an explorer is considered a producer
subject to the tax levied by AS 43.55.011(e)."
Renumber the following bill sections accordingly.
Page 17, following line 8:
Insert new bill sections to read:
"* Sec. 33. AS 43.55.023(n), as amended by sec. 32
of this Act, is amended to read:
(n) For the purposes of (l) and (p) of this
section, a well lease expenditure incurred in the
state south of 68 degrees North latitude is a lease
expenditure that is
(1) directly related to an exploration
well, a stratigraphic test well, a producing well, or
an injection well other than a disposal well, located
in the state south of 68 degrees North latitude, if
the expenditure is a qualified capital expenditure and
an intangible drilling and development cost authorized
under 26 U.S.C. (Internal Revenue Code), as amended,
and 26 C.F.R. 1.612-4, regardless of the elections
made under 26 U.S.C. 263(c); in this paragraph, an
expenditure directly related to a well includes an
expenditure for well sidetracking, well deepening,
well completion or recompletion, or well workover,
regardless of whether the well is or has been a
producing well; or
(2) an expense for seismic work conducted
within the boundaries of a production or exploration
unit.
* Sec. 34. AS 43.55.023 is amended by adding a new
subsection to read:
(p) For a lease expenditure incurred in the
state south of 68 degrees North latitude after
December 31, 2018, that qualifies for tax credits
under (a) and (b) of this section, and for a well
lease expenditure incurred in the state south of 68
degrees North latitude that qualifies for a tax credit
under (l) of this section, the department shall issue
transferable tax credit certificates to the person
entitled to the credit for the full amount of the
credit. The transferable tax credit certificates do
not expire."
Renumber the following bill sections accordingly.
Page 21, following line 13:
Insert a new bill section to read:
"* Sec. 41. AS 43.55.028(e), as amended by sec. 40
of this Act, is amended to read:
(e) The department, on the written application
of a person to whom a transferable tax credit
certificate has been issued under AS 43.55.023(d) or
(p) or former AS 43.55.023(m) or to whom a production
tax credit certificate has been issued under
AS 43.55.025(f), may use available money in the oil
and gas tax credit fund to purchase, in whole or in
part, the certificate if the department finds that
(1) the calendar year of the purchase is
not earlier than the first calendar year for which the
credit shown on the certificate would otherwise be
allowed to be applied against a tax;
(2) the applicant does not have an
outstanding liability to the state for unpaid
delinquent taxes under this title;
(3) the applicant's total tax liability
under AS 43.55.011(e), after application of all
available tax credits, for the calendar year in which
the application is made is zero;
(4) the applicant's average daily
production of oil and gas taxable under
AS 43.55.011(e) during the calendar year preceding the
calendar year in which the application is made was not
more than 50,000 BTU equivalent barrels; and
(5) the purchase is consistent with this
section and regulations adopted under this section."
Renumber the following bill sections accordingly.
Page 21, following line 23:
Insert a new bill section to read:
"* Sec. 43. AS 43.55.028(g), as amended by sec. 42
of this Act, is amended to read:
(g) The department may adopt regulations to
carry out the purposes of this section, including
standards and procedures to allocate available money
among applications for purchases under this chapter
and claims for refunds and payments under AS 43.20.046
or 43.20.047 when the total amount of the applications
for purchase and claims for refund exceed the amount
of available money in the fund. The regulations
adopted by the department may not, when allocating
available money in the fund under this section,
distinguish an application for the purchase of a
credit certificate issued under AS 43.55.023(p) or
former AS 43.55.023(m), or a claim for a refund or
payment under AS 43.20.046 or 43.20.047."
Renumber the following bill sections accordingly.
Page 22, following line 5:
Insert a new bill section to read:
"* Sec. 45. AS 43.55.030(e), as amended by sec. 44
of this Act, is amended to read:
(e) An explorer or producer that incurs a lease
expenditure under AS 43.55.165 or receives a payment
or credit under AS 43.55.170 during a calendar year
but does not produce oil or gas from a lease or
property in the state during the calendar year shall
file with the department, on March 31 of the following
year, a statement, under oath, in a form prescribed by
the department, giving, with other information
required, the following:
(1) the [EXPLORER'S OR] producer's
qualified capital expenditures, as defined in
AS 43.55.023, other lease expenditures under
AS 43.55.165, and adjustments or other payments or
credits under AS 43.55.170; and
(2) if the explorer or producer receives a
payment or credit under AS 43.55.170, calculations
showing whether the explorer or producer is liable for
a tax under AS 43.55.160(d) or 43.55.170(b) and, if
so, the amount."
Renumber the following bill sections accordingly.
Page 24, following line 10:
Insert a new bill section to read:
"* Sec. 47. AS 43.55.160(a), as amended by sec. 46
of this Act, is repealed and reenacted to read:
(a) Except as provided in (b) of this section,
for the purposes of
(1) AS 43.55.011(e), the annual production
tax value of the taxable oil, gas, or oil and gas
subject to this paragraph produced during a calendar
year is the gross value at the point of production of
the oil, gas, or oil and gas taxable under
AS 43.55.011(e), less the producer's lease
expenditures under AS 43.55.165 for the calendar year
applicable to the oil, gas, or oil and gas, as
applicable, produced by the producer from leases or
properties, as adjusted under AS 43.55.170; this
paragraph applies to
(A) oil and gas produced from leases or
properties in the state that include land north of 68
degrees North latitude, other than gas produced before
2022 and used in the state;
(B) oil and gas produced from leases or
properties in the state outside the Cook Inlet
sedimentary basin, no part of which is north of 68
degrees North latitude; this subparagraph does not
apply to
(i) gas produced before 2022 and used in
the state; or
(ii) oil and gas subject to
AS 43.55.011(p);
(C) oil produced before 2022 from a lease
or property in the Cook Inlet sedimentary basin;
(D) gas produced before 2022 from a lease
or property in the Cook Inlet sedimentary basin;
(E) gas produced before 2022 from a lease
or property in the state outside the Cook Inlet
sedimentary basin and used in the state;
(F) oil and gas subject to AS 43.55.011(p)
produced from leases or properties in the state;
(G) oil and gas produced from a lease or
property no part of which is north of 68 degrees North
latitude, other than oil or gas described in (B), (C),
(D), (E), or (F) of this paragraph;
(2) AS 43.55.011(q), the monthly production
tax value of the taxable
(A) oil and gas produced during a month
from leases or properties in the state that include
land north of 68 degrees North latitude is the gross
value at the point of production of the oil and gas
taxable under AS 43.55.011(e) and produced by the
producer from those leases or properties, less 1/12 of
the producer's lease expenditures under AS 43.55.165
for the calendar year applicable to the oil and gas
produced by the producer from those leases or
properties, as adjusted under AS 43.55.170; this
subparagraph does not apply to gas subject to
AS 43.55.011(o);
(B) oil and gas produced during a month
from leases or properties in the state outside the
Cook Inlet sedimentary basin, no part of which is
north of 68 degrees North latitude, is the gross value
at the point of production of the oil and gas taxable
under AS 43.55.011(e) and produced by the producer
from those leases or properties, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil and gas
produced by the producer from those leases or
properties, as adjusted under AS 43.55.170; this
subparagraph does not apply to gas subject to
AS 43.55.011(o);
(C) oil produced during a month from a
lease or property in the Cook Inlet sedimentary basin
is the gross value at the point of production of the
oil taxable under AS 43.55.011(e) and produced by the
producer from that lease or property, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(D) gas produced during a month from a
lease or property in the Cook Inlet sedimentary basin
is the gross value at the point of production of the
gas taxable under AS 43.55.011(e) and produced by the
producer from that lease or property, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the gas produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(E) gas produced during a month from a
lease or property outside the Cook Inlet sedimentary
basin and used in the state is the gross value at the
point of production of that gas taxable under
AS 43.55.011(e) and produced by the producer from that
lease or property, less 1/12 of the producer's lease
expenditures under AS 43.55.165 for the calendar year
applicable to that gas produced by the producer from
that lease or property, as adjusted under
AS 43.55.170."
Renumber the following bill sections accordingly.
Page 25, following line 20:
Insert a new subsection to read:
"(h) Notwithstanding any contrary provision of
AS 43.55.150, for purposes of calculating a monthly
production tax value under (a)(2) of this section, the
gross value at the point of production of the oil and
gas is calculated under regulations adopted by the
department that provide for using an appropriate
monthly share of the producer's costs of
transportation for the calendar year."
Page 29, following line 2:
Insert a new bill section to read:
"* Sec. 55. AS 43.55.020(l), 43.55.024(i),
43.55.024(j), 43.55.160(f), and 43.55.160(g) are
repealed."
Page 29, line 5:
Delete "Section 13 of this Act and
AS 43.55.160(a)(1)(E), as amended by sec. 31"
Insert "Section 15 of this Act,
AS 43.55.160(a)(1)(E), as amended by sec. 46 of this
Act, and AS 43.55.160(f) and (g) as enacted by sec.
48"
Page 29, line 7:
Delete "Sections 18 and 20 - 23"
Insert "Sections 24, 28, 30, 32, and 35"
Delete "sec. 18"
Insert "sec. 24"
Page 29, line 9:
Delete "Section 19"
Insert "Section 26"
Page 29, following line 10:
Insert a new subsection to read:
"(d) AS 43.55.160(h), enacted by sec. 48 of this
Act, applies to the transportation of oil and gas
produced on and after the effective date of sec. 13 of
this Act."
Page 29, line 20:
Delete "sec. 36"
Insert "sec. 52"
Page 29, line 24:
Delete "Sections 13, 20 - 23, 28, and 37"
Insert "Sections 15, 28, 30, 32, and 53"
Page 29, following line 26:
Insert new bill sections to read:
"* Sec. 60. The uncodified law of the State of
Alaska is amended by adding a new section to read:
CONDITIONAL EFFECT. Sections 3, 13, 16, 17, 19,
21, 25, 27, 29, 31, 33, 34, 41, 43, 45, 47, and 55 of
this Act, and AS 43.55.160(h) in sec. 48 of this Act
take effect only if the volume of oil production for
the calendar year 2017 does not exceed the volume of
oil produced for the 2012 calendar year by more than
10 percent. The commissioner of natural resources
shall notify the lieutenant governor and the revisor
of statutes before January 1, 2018, or as soon as
practicable thereafter, if the volume of oil
production for the calendar year 2017 is greater than
the volume of oil produced during the 2012 calendar
year.
* Sec. 61. If secs. 3, 13, 16, 17, 19, 21, 25, 27,
29, 31, 33, 34, 41, 43, 45, 47, and 55 of this Act,
and AS 43.55.160(h) in sec. 48 of this Act take effect
under sec. 59 of this Act, they take effect January 1,
2018."
Amendment 16, labeled 28-GS1647\K.16, Bullock, 4/3/13:
Page 1, line 4:
Delete "rate"
Insert "rates"
Page 6, following line 9:
Insert a new bill section to read:
"* Sec. 11. AS 43.55.011(f) is repealed and
reenacted to read:
(f) Except for oil and gas subject to (i) of
this section and gas subject to (o) of this section,
the provisions of this subsection apply to oil and gas
produced after December 31, 2013, from each lease or
property within a unit or nonunitized reservoir that
has cumulatively produced 1,000,000,000 BTU equivalent
barrels of oil or gas by the close of the most recent
calendar year and from which the average daily oil and
gas production from the unit or nonunitized reservoir
during the most recent calendar year exceeded 100,000
BTU equivalent barrels. Notwithstanding any contrary
provision of law, a producer may not apply tax credits
to reduce its total tax liability under (e) of this
section for oil and gas produced from all leases or
properties within the unit or nonunitized reservoir
below 10 percent of the total gross value at the point
of production of that oil and gas. If the amount of
tax calculated by multiplying the tax rates in (e) of
this section by the total production tax value of the
oil and gas taxable under (e) of this section produced
from all of the producer's leases or properties within
the unit or nonunitized reservoir is less than 10
percent of the total gross value at the point of
production of that oil and gas, the tax levied by (e)
of this section for that oil and gas is equal to 10
percent of the total gross value at the point of
production of that oil and gas."
Renumber the following bill sections accordingly.
Page 10, lines 27 - 31:
Delete all material and insert:
"(ii) 10 percent of the gross value at the
point of production of the oil and gas produced from
the leases or properties during the month for which
the installment payment is calculated; or"
Page 11, line 8:
Delete "a 20 percent"
Insert "an"
Page 29, line 5:
Delete "Section 13"
Insert "Section 14"
Page 29, line 6:
Delete "sec. 31"
Insert "sec. 32"
Page 29, line 7:
Delete "Sections 18 and 20 - 23"
Insert "Sections 19 and 21 - 24"
Delete "sec. 18"
Insert "sec. 19"
Page 29, line 9:
Delete "Section 19"
Insert "Section 20"
Page 29, line 20:
Delete "sec. 36"
Insert "sec. 37"
Page 29, line 24:
Delete "Sections 13, 20 - 23, 28, and 37"
Insert "Sections 14, 21 - 24, 29, and 38"
Page 29, line 25:
Delete "sec. 18"
Insert "sec. 19"
Delete "sec. 31"
Insert "sec. 32"
Amendment 18, labeled 28-GS1647\K.29, Nauman/Bullock, 4/2/13:
Page 1, line 11, following "properties;":
Insert "allowing the Alaska Industrial
Development and Export Authority to issue bonds for an
oil processing facility; creating a fund to finance
construction or improvement of an oil or gas
processing facility"
Page 28, following line 29:
Insert new bill sections to read:
"* Sec. 37. AS 44.88.140(a) is amended to read:
(a) Except as provided in AS 29.45.030(a)(1) and
AS 44.88.168, the real and personal property of the
authority and its assets, income, and receipts are
declared to be the property of a political subdivision
of the state and, together with any project or
development project financed under AS 44.88.155 -
44.88.159 or 44.88.172 - 44.88.177, and a leasehold
interest created in a project or development project
financed under AS 44.88.155 - 44.88.159 or 44.88.172 -
44.88.177, devoted to an essential public and
governmental function and purpose, and the property,
assets, income, receipts, project, development
project, and leasehold interests shall be exempt from
all taxes and special assessments of the state or a
political subdivision of the state, including, without
limitation, all boroughs, cities, municipalities,
school districts, public utility districts, and other
taxing units. All bonds of the authority are declared
to be issued by a political subdivision of the state
and for an essential public and governmental purpose
and to be a public instrumentality, and the bonds, and
the interest on them, the income from them and the
transfer of the bonds, and all assets, income, and
receipts pledged to pay or secure the payments of the
bonds, or interest on them, shall at all times be
exempt from taxation by or under the authority of the
state, except for inheritance and estate taxes and
taxes on transfers by or in contemplation of death.
Nothing in this section affects or limits an exemption
from license fees, property taxes, or excise, income,
or any other taxes, provided under any other law, nor
does it create a tax exemption with respect to the
interest of any business enterprise or other person,
other than the authority, in any property, assets,
income, receipts, project, development project, or
lease whether or not financed under this chapter. By
January 10 of each year, the authority shall submit to
the governor a report describing the nature and extent
of the tax exemption of the property, assets, income,
receipts, project, development project, and leasehold
interests of the authority under this section. The
authority shall notify the legislature that the report
is available.
* Sec. 38. AS 44.88 is amended by adding a new
section to read:
Sec. 44.88.168. Oil and gas infrastructure fund.
(a) The oil and gas infrastructure fund is established
in the authority. The oil and gas infrastructure fund
consists of money appropriated to the authority for
deposit in the fund, and money deposited in the fund
by the authority. The fund is not an account in the
revolving loan fund established in AS 44.88.060, and
the authority shall account for the fund separately
from the revolving fund. Money in the fund may be used
to finance the construction and improvement of an oil
or gas processing facility on the North Slope and flow
lines and other surface infrastructure for the
facility.
(b) Notwithstanding AS 44.88.140, the state or a
political subdivision of the state may levy a tax or
special assessment on an oil or gas processing
facility, flow lines, and other surface infrastructure
for the facility financed by the oil and gas
infrastructure fund.
(c) In this section, "North Slope" means that
area of the state lying north of 68 degrees North
latitude."
Renumber the following bill sections accordingly.
Page 29, following line 21:
Insert a new bill section to read:
"* Sec. 44. The uncodified law of the State of
Alaska is amended by adding a new section to read:
LEGISLATIVE APPROVAL; NORTH SLOPE OIL OR GAS
PROCESSING FACILITY. (a) The Alaska Industrial
Development and Export Authority may issue bonds to
finance the construction and improvement of an oil or
gas processing facility on the Alaska North Slope and
flow lines and other surface infrastructure for the
facility. The processing facility, flow lines, and
other surface infrastructure for the facility shall be
used to secure bonds issued under this section. The
principal amount of the bonds provided by the
authority for the facility, flow lines, and other
surface infrastructure may not exceed $200,000,000 and
may include the costs of funding reserves and other
costs of issuing the bonds that the authority
considers reasonable and appropriate. Notwithstanding
AS 44.88.140, an oil or gas processing facility, flow
lines, and other surface infrastructure for the
facility constructed or financed by the oil and gas
infrastructure fund are subject to taxes and special
assessments of the state or a political subdivision of
the state.
(b) This section constitutes the legislative
approval required by AS 44.88.095(g) and 44.88.690.
(c) The prohibition on the issuance of bonds in
an amount exceeding $400,000,000 under AS 44.88.095
does not apply to bonds issued under this section, and
the principal amount of bonds issued under this
section may not be considered in determining whether
the limit in AS 44.88.095 has been reached."
Renumber the following bill section accordingly.
Page 29, line 24:
Delete "37"
Insert "39"
Amendment 25, labeled 28-GS1647\K.1, Nauman/Bullock, 4/3/13:
Page 1, line 4:
Delete "rate"
Insert "rates"
Page 1, line 12:
Delete the second occurrence of "and"
Page 1, line 12, following "amendments":
Insert "; and providing for an effective date"
Page 2, following line 13:
Insert a new bill section to read:
"* Sec. 3. AS 29.60.850(b), as amended by sec. 2
of this Act, is amended to read:
(b) Each fiscal year, the legislature may
appropriate to the community revenue sharing fund an
amount equal to 20 percent of the money received by
the state during the previous calendar year under
AS 43.55.011(g) [AS 43.20.030(c)]. The amount may not
exceed
(1) $60,000,000; or
(2) the amount that, when added to the fund
balance on June 30 of the previous fiscal year, equals
$180,000,000."
Renumber the following bill sections accordingly.
Page 6, following line 9:
Insert a new bill section to read:
"* Sec. 13. AS 43.55.011(e), as amended by sec. 12
of this Act, is repealed and reenacted to read:
(e) There is levied on the producer of oil or
gas a tax for all oil and gas produced each calendar
year from each lease or property in the state, less
any oil and gas the ownership or right to which is
exempt from taxation or constitutes a landowner's
royalty interest. Except as otherwise provided under
(f), (j), (k), (o), and (p) of this section, the tax
is equal to the sum of
(1) the annual production tax value of the
taxable oil and gas as calculated under
AS 43.55.160(a)(1) multiplied by 25 percent; and
(2) the sum, over all months of the
calendar year, of the tax amounts determined under (q)
of this section."
Renumber the following bill sections accordingly.
Page 7, following line 1:
Insert new bill sections to read:
"* Sec. 16. AS 43.55.011(o), as amended by sec. 15
of this Act, is amended to read:
(o) Notwithstanding other provisions of this
section, for a calendar year before 2022, the tax
levied under (e) of this section for each 1,000 cubic
feet of gas for gas produced from a lease or property
outside the Cook Inlet sedimentary basin and used in
the state [, OTHER THAN GAS SUBJECT TO (p) OF THIS
SECTION,] may not exceed the amount of tax for each
1,000 cubic feet of gas that is determined under
(j)(2) of this section.
* Sec. 17. AS 43.55.011 is amended by adding a new
subsection to read:
(q) For each month of the calendar year for
which the producer's average monthly production tax
value under AS 43.55.160(a)(2) of a BTU equivalent
barrel of the taxable oil and gas is more than $30,
the amount of tax for purposes of (e)(2) of this
section is determined by multiplying the monthly
production tax value of the taxable oil and gas
produced during the month by the tax rate calculated
as follows:
(1) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is not more than
$92.50, the tax rate is 0.4 percent multiplied by the
number that represents the difference between that
average monthly production tax value of a BTU
equivalent barrel and $30; or
(2) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $92.50,
the tax rate is the sum of 25 percent and the product
of 0.1 percent multiplied by the number that
represents the difference between the average monthly
production tax value of a BTU equivalent barrel and
$92.50, except that the sum determined under this
paragraph may not exceed 50 percent."
Renumber the following bill sections accordingly.
Page 12, following line 12:
Insert a new bill section to read:
"* Sec. 19. AS 43.55.020(a), as amended by sec. 18
of this Act, is repealed and reenacted to read:
(a) For a calendar year, a producer subject to
tax under AS 43.55.011(e), (f), (h), (i), (p), or (q)
shall pay the tax as follows:
(1) an installment payment of the estimated
tax levied by AS 43.55.011(e), net of any tax credits
applied as allowed by law, is due for each month of
the calendar year on the last day of the following
month; except as otherwise provided under (2) of this
subsection, the amount of the installment payment is
the sum of the following amounts, less 1/12 of the tax
credits that are allowed by law to be applied against
the tax levied by AS 43.55.011(e) for the calendar
year, but the amount of the installment payment may
not be less than zero:
(A) for oil and gas produced from leases or
properties in the state outside the Cook Inlet
sedimentary basin but not subject to AS 43.55.011(o)
or (p), other than leases or properties subject to
AS 43.55.011(f), the greater of
(i) zero; or
(ii) the sum of 25 percent and the tax rate
calculated for the month under AS 43.55.011(q)
multiplied by the remainder obtained by subtracting
1/12 of the producer's adjusted lease expenditures for
the calendar year of production under AS 43.55.165 and
43.55.170 that are deductible for the leases or
properties under AS 43.55.160 from the gross value at
the point of production of the oil and gas produced
from the leases or properties during the month for
which the installment payment is calculated;
(B) for oil and gas produced from leases or
properties subject to AS 43.55.011(f), the greatest of
(i) zero;
(ii) zero percent, one percent, two
percent, three percent, or four percent, as
applicable, of the gross value at the point of
production of the oil and gas produced from all leases
or properties during the month for which the
installment payment is calculated; or
(iii) the sum of 25 percent and the tax
rate calculated for the month under AS 43.55.011(q)
multiplied by the remainder obtained by subtracting
1/12 of the producer's adjusted lease expenditures for
the calendar year of production under AS 43.55.165 and
43.55.170 that are deductible for those leases or
properties under AS 43.55.160 from the gross value at
the point of production of the oil and gas produced
from those leases or properties during the month for
which the installment payment is calculated;
(C) for oil and gas produced from each
lease or property subject to AS 43.55.011(j), (k),
(o), or (p), the greater of
(i) zero; or
(ii) the sum of 25 percent and the tax rate
calculated for the month under AS 43.55.011(q)
multiplied by the remainder obtained by subtracting
1/12 of the producer's adjusted lease expenditures for
the calendar year of production under AS 43.55.165 and
43.55.170 that are deductible under AS 43.55.160 for
oil or gas, respectively, produced from the lease or
property from the gross value at the point of
production of the oil or gas, respectively, produced
from the lease or property during the month for which
the installment payment is calculated;
(2) an amount calculated under (1)(C) of
this subsection for oil or gas produced from a lease
or property
(A) subject to AS 43.55.011(j), (k), or (o)
may not exceed the product obtained by carrying out
the calculation set out in AS 43.55.011(j)(1) or (2)
or 43.55.011(o), as applicable, for gas or set out in
AS 43.55.011(k)(1) or (2), as applicable, for oil, but
substituting in AS 43.55.011(j)(1)(A) or (2)(A) or
43.55.011(o), as applicable, the amount of taxable gas
produced during the month for the amount of taxable
gas produced during the calendar year and substituting
in AS 43.55.011(k)(1)(A) or (2)(A), as applicable, the
amount of taxable oil produced during the month for
the amount of taxable oil produced during the calendar
year;
(B) subject to AS 43.55.011(p) may not
exceed four percent of the gross value at the point of
production of the oil or gas;
(3) an installment payment of the estimated
tax levied by AS 43.55.011(i) for each lease or
property is due for each month of the calendar year on
the last day of the following month; the amount of the
installment payment is the sum of
(A) the applicable tax rate for oil
provided under AS 43.55.011(i), multiplied by the
gross value at the point of production of the oil
taxable under AS 43.55.011(i) and produced from the
lease or property during the month; and
(B) the applicable tax rate for gas
provided under AS 43.55.011(i), multiplied by the
gross value at the point of production of the gas
taxable under AS 43.55.011(i) and produced from the
lease or property during the month;
(4) any amount of tax levied by
AS 43.55.011(e) or (i), net of any credits applied as
allowed by law, that exceeds the total of the amounts
due as installment payments of estimated tax is due on
March 31 of the year following the calendar year of
production."
Renumber the following bill sections accordingly.
Page 12, following line 31:
Insert a new bill section to read:
"* Sec. 21. AS 43.55.020(d), as amended by sec. 20
of this Act, is repealed and reenacted to read:
(d) In making settlement with the royalty owner
for oil and gas that is taxable under AS 43.55.011,
the producer may deduct the amount of the tax paid on
taxable royalty oil and gas, or may deduct taxable
royalty oil or gas equivalent in value at the time the
tax becomes due to the amount of the tax paid. If the
total deductions of installment payments of estimated
tax for a calendar year exceed the actual tax for that
calendar year, the producer shall, before April 1 of
the following year, refund the excess to the royalty
owner. Unless otherwise agreed between the producer
and the royalty owner, the amount of the tax paid
under AS 43.55.011(e), (f), and (q) on taxable royalty
oil and gas for a calendar year, other than oil and
gas the ownership or right to which constitutes a
landowner's royalty interest, is considered to be the
gross value at the point of production of the taxable
royalty oil and gas produced during the calendar year
multiplied by a figure that is a quotient, in which
(1) the numerator is the producer's total
tax liability under AS 43.55.011(e), (f), and (q) for
the calendar year of production; and
(2) the denominator is the total gross
value at the point of production of the oil and gas
taxable under AS 43.55.011(e), (f), and (q) produced
by the producer from all leases and properties in the
state during the calendar year."
Renumber the following bill sections accordingly.
Page 15, following line 2:
Insert a new bill section to read:
"* Sec. 25. AS 43.55.023(a), as amended by sec. 24
of this Act, is amended to read:
(a) A producer or explorer may take a tax credit
for a qualified capital expenditure as follows:
(1) notwithstanding that a qualified
capital expenditure may be a deductible lease
expenditure for purposes of calculating the production
tax value of oil and gas under AS 43.55.160(a), unless
a credit for that expenditure is taken under
AS 38.05.180(i), AS 41.09.010, AS 43.20.043, or
AS 43.55.025, a producer or explorer that incurs a
qualified capital expenditure may also elect to apply
a tax credit against a tax levied by AS 43.55.011(e)
in the amount of 20 percent of that expenditure;
however, not more than half of the tax credit may be
applied for a single calendar year;
(2) a producer or explorer may take a
credit for a qualified capital expenditure incurred in
connection with geological or geophysical exploration
or in connection with an exploration well only if the
producer or explorer
(A) agrees, in writing, to the applicable
provisions of AS 43.55.025(f)(2); and
(B) submits to the Department of Natural
Resources all data that would be required to be
submitted under AS 43.55.025(f)(2) [;
(3) A CREDIT FOR A QUALIFIED CAPITAL
EXPENDITURE INCURRED TO EXPLORE FOR, DEVELOP, OR
PRODUCE OIL OR GAS DEPOSITS LOCATED NORTH OF 68
DEGREES NORTH LATITUDE MAY BE TAKEN ONLY IF THE
EXPENDITURE IS INCURRED BEFORE JANUARY 1, 2014]."
Renumber the following bill sections accordingly.
Page 15, following line 15:
Insert a new bill section to read:
"* Sec. 27. AS 43.55.023(b), as amended by sec. 26
of this Act, is amended to read:
(b) A [FOR LEASE EXPENDITURES INCURRED TO
EXPLORE FOR, DEVELOP, OR PRODUCE OIL OR GAS DEPOSITS
LOCATED SOUTH OF 68 DEGREES NORTH LATITUDE, A]
producer or explorer may elect to take a tax credit in
the amount of 25 percent of a carried-forward annual
loss. [FOR LEASE EXPENDITURES INCURRED AFTER DECEMBER
31, 2013, TO EXPLORE FOR, DEVELOP, OR PRODUCE OIL OR
GAS DEPOSITS LOCATED NORTH OF 68 DEGREES NORTH
LATITUDE, A PRODUCER OR EXPLORER MAY ELECT TO TAKE A
TAX CREDIT IN THE AMOUNT OF 35 PERCENT OF A CARRIED-
FORWARD ANNUAL LOSS.] A credit under this subsection
may be applied against a tax levied by
AS 43.55.011(e). For purposes of this subsection, a
carried-forward annual loss is the amount of a
producer's or explorer's adjusted lease expenditures
under AS 43.55.165 and 43.55.170 for a previous
calendar year that was not deductible in calculating
production tax values for that calendar year under
AS 43.55.160."
Renumber the following bill sections accordingly.
Page 16, following line 9:
Insert a new bill section to read:
"* Sec. 29. AS 43.55.023(d), as amended by sec. 28
of this Act, is repealed and reenacted to read:
(d) A person that is entitled to take a tax
credit under this section that wishes to transfer the
unused credit to another person or obtain a cash
payment under AS 43.55.028 may apply to the department
for transferable tax credit certificates. An
application under this subsection must be in a form
prescribed by the department and must include
supporting information and documentation that the
department reasonably requires. The department shall
grant or deny an application, or grant an application
as to a lesser amount than that claimed and deny it as
to the excess, not later than 120 days after the
latest of the following: March 31 of the year
following the calendar year in which the qualified
capital expenditure or carried-forward annual loss for
which the credit is claimed was incurred; the date the
statement required under AS 43.55.030(a) or (e) was
filed for the calendar year in which the qualified
capital expenditure or carried-forward annual loss for
which the credit is claimed was incurred; or the date
the application was received by the department. If,
based on the information then available to it, the
department is reasonably satisfied that the applicant
is entitled to a credit, the department shall issue
the applicant two transferable tax credit
certificates, each for half of the amount of the
credit. The credit shown on one of the two
certificates is available for immediate use. The
credit shown on the second of the two certificates may
not be applied against a tax for a calendar year
earlier than the calendar year following the calendar
year in which the certificate is issued, and the
certificate must contain a conspicuous statement to
that effect. A certificate issued under this
subsection does not expire."
Renumber the following bill sections accordingly.
Page 16, following line 25:
Insert a new bill section to read:
"* Sec. 31. AS 43.55.023(g), as amended by sec. 30
of this Act, is amended to read:
(g) The issuance of a transferable tax credit
certificate under (d) or (p) of this section or former
(m) of this section or the purchase of a certificate
under AS 43.55.028 does not limit the department's
ability to later audit a tax credit claim to which the
certificate relates or to adjust the claim if the
department determines, as a result of the audit, that
the applicant was not entitled to the amount of the
credit for which the certificate was issued. The tax
liability of the applicant under AS 43.55.011(e) and
43.55.017 - 43.55.180 is increased by the amount of
the credit that exceeds that to which the applicant
was entitled, or the applicant's available valid
outstanding credits applicable against the tax levied
by AS 43.55.011(e) are reduced by that amount. If the
applicant's tax liability is increased under this
subsection, the increase bears interest under
[AS 43.05.225(a) BEFORE JANUARY 1, 2014, OR UNDER]
AS 43.05.225(b)(1) [ON AND AFTER JANUARY 1, 2014,]
from the date the transferable tax credit certificate
was issued. For purposes of this subsection, an
applicant that is an explorer is considered a producer
subject to the tax levied by AS 43.55.011(e)."
Renumber the following bill sections accordingly.
Page 17, following line 8:
Insert new bill sections to read:
"* Sec. 33. AS 43.55.023(n), as amended by sec. 32
of this Act, is amended to read:
(n) For the purposes of (l) and (p) of this
section, a well lease expenditure incurred in the
state south of 68 degrees North latitude is a lease
expenditure that is
(1) directly related to an exploration
well, a stratigraphic test well, a producing well, or
an injection well other than a disposal well, located
in the state south of 68 degrees North latitude, if
the expenditure is a qualified capital expenditure and
an intangible drilling and development cost authorized
under 26 U.S.C. (Internal Revenue Code), as amended,
and 26 C.F.R. 1.612-4, regardless of the elections
made under 26 U.S.C. 263(c); in this paragraph, an
expenditure directly related to a well includes an
expenditure for well sidetracking, well deepening,
well completion or recompletion, or well workover,
regardless of whether the well is or has been a
producing well; or
(2) an expense for seismic work conducted
within the boundaries of a production or exploration
unit.
* Sec. 34. AS 43.55.023 is amended by adding a new
subsection to read:
(p) For a lease expenditure incurred in the
state south of 68 degrees North latitude after
December 31, 2018, that qualifies for tax credits
under (a) and (b) of this section, and for a well
lease expenditure incurred in the state south of 68
degrees North latitude that qualifies for a tax credit
under (l) of this section, the department shall issue
transferable tax credit certificates to the person
entitled to the credit for the full amount of the
credit. The transferable tax credit certificates do
not expire."
Renumber the following bill sections accordingly.
Page 21, following line 13:
Insert a new bill section to read:
"* Sec. 41. AS 43.55.028(e), as amended by sec. 40
of this Act, is amended to read:
(e) The department, on the written application
of a person to whom a transferable tax credit
certificate has been issued under AS 43.55.023(d) or
(p) or former AS 43.55.023(m) or to whom a production
tax credit certificate has been issued under
AS 43.55.025(f), may use available money in the oil
and gas tax credit fund to purchase, in whole or in
part, the certificate if the department finds that
(1) the calendar year of the purchase is
not earlier than the first calendar year for which the
credit shown on the certificate would otherwise be
allowed to be applied against a tax;
(2) the applicant does not have an
outstanding liability to the state for unpaid
delinquent taxes under this title;
(3) the applicant's total tax liability
under AS 43.55.011(e), after application of all
available tax credits, for the calendar year in which
the application is made is zero;
(4) the applicant's average daily
production of oil and gas taxable under
AS 43.55.011(e) during the calendar year preceding the
calendar year in which the application is made was not
more than 50,000 BTU equivalent barrels; and
(5) the purchase is consistent with this
section and regulations adopted under this section."
Renumber the following bill sections accordingly.
Page 21, following line 23:
Insert a new bill section to read:
"* Sec. 43. AS 43.55.028(g), as amended by sec. 42
of this Act, is amended to read:
(g) The department may adopt regulations to
carry out the purposes of this section, including
standards and procedures to allocate available money
among applications for purchases under this chapter
and claims for refunds and payments under AS 43.20.046
or 43.20.047 when the total amount of the applications
for purchase and claims for refund exceed the amount
of available money in the fund. The regulations
adopted by the department may not, when allocating
available money in the fund under this section,
distinguish an application for the purchase of a
credit certificate issued under AS 43.55.023(p) or
former AS 43.55.023(m), or a claim for a refund or
payment under AS 43.20.046 or 43.20.047."
Renumber the following bill sections accordingly.
Page 22, following line 5:
Insert a new bill section to read:
"* Sec. 45. AS 43.55.030(e), as amended by sec. 44
of this Act, is amended to read:
(e) An explorer or producer that incurs a lease
expenditure under AS 43.55.165 or receives a payment
or credit under AS 43.55.170 during a calendar year
but does not produce oil or gas from a lease or
property in the state during the calendar year shall
file with the department, on March 31 of the following
year, a statement, under oath, in a form prescribed by
the department, giving, with other information
required, the following:
(1) the [EXPLORER'S OR] producer's
qualified capital expenditures, as defined in
AS 43.55.023, other lease expenditures under
AS 43.55.165, and adjustments or other payments or
credits under AS 43.55.170; and
(2) if the explorer or producer receives a
payment or credit under AS 43.55.170, calculations
showing whether the explorer or producer is liable for
a tax under AS 43.55.160(d) or 43.55.170(b) and, if
so, the amount."
Renumber the following bill sections accordingly.
Page 24, following line 10:
Insert a new bill section to read:
"* Sec. 47. AS 43.55.160(a), as amended by sec. 46
of this Act, is repealed and reenacted to read:
(a) Except as provided in (b) of this section,
for the purposes of
(1) AS 43.55.011(e), the annual production
tax value of the taxable oil, gas, or oil and gas
subject to this paragraph produced during a calendar
year is the gross value at the point of production of
the oil, gas, or oil and gas taxable under
AS 43.55.011(e), less the producer's lease
expenditures under AS 43.55.165 for the calendar year
applicable to the oil, gas, or oil and gas, as
applicable, produced by the producer from leases or
properties, as adjusted under AS 43.55.170; this
paragraph applies to
(A) oil and gas produced from leases or
properties in the state that include land north of 68
degrees North latitude, other than gas produced before
2022 and used in the state;
(B) oil and gas produced from leases or
properties in the state outside the Cook Inlet
sedimentary basin, no part of which is north of 68
degrees North latitude; this subparagraph does not
apply to
(i) gas produced before 2022 and used in
the state; or
(ii) oil and gas subject to
AS 43.55.011(p);
(C) oil produced before 2022 from a lease
or property in the Cook Inlet sedimentary basin;
(D) gas produced before 2022 from a lease
or property in the Cook Inlet sedimentary basin;
(E) gas produced before 2022 from a lease
or property in the state outside the Cook Inlet
sedimentary basin and used in the state;
(F) oil and gas subject to AS 43.55.011(p)
produced from leases or properties in the state;
(G) oil and gas produced from a lease or
property no part of which is north of 68 degrees North
latitude, other than oil or gas described in (B), (C),
(D), (E), or (F) of this paragraph;
(2) AS 43.55.011(q), the monthly production
tax value of the taxable
(A) oil and gas produced during a month
from leases or properties in the state that include
land north of 68 degrees North latitude is the gross
value at the point of production of the oil and gas
taxable under AS 43.55.011(e) and produced by the
producer from those leases or properties, less 1/12 of
the producer's lease expenditures under AS 43.55.165
for the calendar year applicable to the oil and gas
produced by the producer from those leases or
properties, as adjusted under AS 43.55.170; this
subparagraph does not apply to gas subject to
AS 43.55.011(o);
(B) oil and gas produced during a month
from leases or properties in the state outside the
Cook Inlet sedimentary basin, no part of which is
north of 68 degrees North latitude, is the gross value
at the point of production of the oil and gas taxable
under AS 43.55.011(e) and produced by the producer
from those leases or properties, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil and gas
produced by the producer from those leases or
properties, as adjusted under AS 43.55.170; this
subparagraph does not apply to gas subject to
AS 43.55.011(o);
(C) oil produced during a month from a
lease or property in the Cook Inlet sedimentary basin
is the gross value at the point of production of the
oil taxable under AS 43.55.011(e) and produced by the
producer from that lease or property, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(D) gas produced during a month from a
lease or property in the Cook Inlet sedimentary basin
is the gross value at the point of production of the
gas taxable under AS 43.55.011(e) and produced by the
producer from that lease or property, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the gas produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(E) gas produced during a month from a
lease or property outside the Cook Inlet sedimentary
basin and used in the state is the gross value at the
point of production of that gas taxable under
AS 43.55.011(e) and produced by the producer from that
lease or property, less 1/12 of the producer's lease
expenditures under AS 43.55.165 for the calendar year
applicable to that gas produced by the producer from
that lease or property, as adjusted under
AS 43.55.170."
Renumber the following bill sections accordingly.
Page 25, following line 20:
Insert a new subsection to read:
"(h) Notwithstanding any contrary provision of
AS 43.55.150, for purposes of calculating a monthly
production tax value under (a)(2) of this section, the
gross value at the point of production of the oil and
gas is calculated under regulations adopted by the
department that provide for using an appropriate
monthly share of the producer's costs of
transportation for the calendar year."
Page 29, following line 2:
Insert a new bill section to read:
"* Sec. 55. AS 43.55.020(l), 43.55.024(i),
43.55.024(j), 43.55.160(f), and 43.55.160(g) are
repealed."
Page 29, line 5:
Delete "Section 13 of this Act and
AS 43.55.160(a)(1)(E), as amended by sec. 31"
Insert "Section 15 of this Act,
AS 43.55.160(a)(1)(E), as amended by sec. 46 of this
Act, and AS 43.55.160(f) and (g) as enacted by sec.
48"
Page 29, line 7:
Delete "Sections 18 and 20 - 23"
Insert "Sections 24, 28, 30, 32, and 35"
Delete "sec. 18"
Insert "sec. 24"
Page 29, line 9:
Delete "Section 19"
Insert "Section 26"
Page 29, following line 10:
Insert a new subsection to read:
"(d) AS 43.55.160(h), enacted by sec. 48 of this
Act, applies to the transportation of oil and gas
produced on and after the effective date of sec. 13 of
this Act."
Page 29, line 20:
Delete "sec. 36"
Insert "sec. 52"
Page 29, line 24:
Delete "Sections 13, 20 - 23, 28, and 37"
Insert "Sections 15, 28, 30, 32, and 53"
Page 29, following line 26:
Insert new bill sections to read:
"* Sec. 60. The uncodified law of the State of
Alaska is amended by adding a new section to read:
CONDITIONAL EFFECT. Sections 3, 13, 16, 17, 19,
21, 25, 27, 29, 31, 33, 34, 41, 43, 45, 47, and 55 of
this Act, and AS 43.55.160(h) in sec. 48 of this Act
take effect only if the volume of oil production for
the calendar year 2018 does not exceed the volume of
oil produced for the 2013 calendar year. The
commissioner of natural resources shall notify the
lieutenant governor and the revisor of statutes before
January 1, 2019, or as soon as practicable thereafter,
if the volume of oil production for the calendar year
2018 is greater than the volume of oil produced during
the 2013 calendar year.
* Sec. 61. If secs. 3, 13, 16, 17, 19, 21, 25, 27,
29, 31, 33, 34, 41, 43, 45, 47, and 55 of this Act,
and AS 43.55.160(h) in sec. 48 of this Act take effect
under sec. 59 of this Act, they take effect January 1,
2019."
Amendment 27, labeled 28-GS1647\K.36, Nauman/Bullock, 4/3/13:
Page 28, lines 3 - 14:
Delete all material and insert:
"(6) make written findings and
recommendations to the Alaska State Legislature before
(A) January 31, 2015, or as soon thereafter
as practicable, regarding
(i) changes to the state's regulatory
environment and permitting structure that would be
conducive to encouraging increased investment while
protecting the interests of the people of the state
and the environment;
(ii) the status of the oil and gas industry
labor pool in the state and the effectiveness of
workforce development efforts by the state;
(iii) the status of the oil-and-gas-related
infrastructure of the state, including a description
of infrastructure deficiencies; and
(iv) the competitiveness of the state's
fiscal oil and gas tax regime when compared to other
regions of the world;
(B) January 31, 2021, or as soon thereafter
as practicable, regarding
(i) changes to the state's fiscal regime
that would be conducive to increased and ongoing long-
term investment in and development of the state's oil
and gas resources;
(ii) alternative means for increasing the
state's ability to attract and maintain investment in
and development of the state's oil and gas resources;
and
(iii) a review of the current effectiveness
and future value of any provisions of the state's oil
and gas tax laws that are expiring in the next five
years."
Page 29, following line 2:
Insert a new bill section to read:
"* Sec. 39. AS 43.98.040, 43.98.050, 43.98.060, and
43.98.070 are repealed February 28, 2021."
Renumber the following bill sections accordingly.
Amendment 28, labeled 28-GS1647\K.2, Nauman/Bullock, 4/2/13:
Page 26, lines 21 - 23:
Delete all material and insert:
"(1) one ex officio nonvoting member from the
senate, selected by the president of the senate;
(2) one ex officio nonvoting member from
the house of representatives, selected by the speaker
of the house of representatives;"
Renumber the following paragraphs accordingly.
Page 26, lines 26 - 28:
Delete ", including one member who is a petroleum
engineer, one member who is a geologist, and one
member who is a financial analyst"
Page 27, line 5:
Delete "(b)(1) and (3)"
Insert "(b)(4)"
Page 2, line 11:
Delete "(b)(1) and (3)"
Insert "(b)(4)"
Page 29, line 21:
Delete "AS 43.98.040(b)(1) and (3)"
Insert "AS 43.98.040(b)(4)"
ADJOURNMENT
[This meeting continued through to April 4, 2013, and thus the
remainder of the audio and minutes can be found in the document
and audio for that date.]