Legislature(2005 - 2006)BUTROVICH 205
03/02/2005 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB53 | |
| SB110 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 53 | TELECONFERENCED | |
| *+ | SB 110 | TELECONFERENCED | |
SB 53-AK PENINSULA OIL & GAS LEASE SALE; TAXES
CHAIR THOMAS WAGONER announced SB 53 to be up for consideration.
DAN DICKERSON, Director, Tax Division, said the intent of SB 53
is to extend the Alaska Peninsula as part of the active oil and
gas province in Alaska. It takes an exploration credit that was
passed two years ago and says if the Department of Natural
Resources (DNR) is contemplating a sale on the Alaska Peninsula,
a four-year window will be opened. "If any exploration occurs,
the state will bear some of that risk." The Governor and folks
in Bristol Bay support this bill.
MARK MYERS, Director, Division of Oil and Gas, noted the
division's preliminary best interest findings that were just put
out for public comment on the recent Alaska Peninsula lease
sale. He hoped to issue final findings and a commissioner's
approval soon; the sale would actually occur in October 2005 and
has significant potential for natural gas and oil. The sale will
cover onshore state lands and waters out to the three-mile limit
with onshore drilling only.
The basin has 20 or so wells that were drilled before 1985.
After that, there was only leasing and drilling on federal and
submerged lands on the Outer Continental Shelf (OCS), but this
was discontinued over environmental concerns. The community has
had a change of heart and it now wants an oil and gas lease
sale.
MR. MYERS said the companies hadn't really looked at the area in
any great detail since about 1985 when it left and a big gap in
oil and gas exploration data exists. This incentive credit is
strategically placed to accelerate the acquisition of modern
seismic data and the potential early exploration drilling in the
basin. The credit is available for the first five years. Because
there are no active leases in the area, a credit like this gets
factored into the bid if people come to the sale at all. It is a
frontier basin without data or oil and gas infrastructure.
"There is significant geologic and economic risk."
The credit is up to 40% and if it is accepted, the state will be
allowed to release the data in 10 years. Generally, data is
released after 25 months unless confidentiality is extended, but
seismic data is never released. This bill provides an
opportunity to get data out there faster. He thinks it will
bring more companies to participate in the sale and increase the
size of their bids. It will be seen very positively by industry.
SENATOR GUESS arrived at 3:42.
SENATOR ELTON asked if he could quantify if the increased
activity that has taken place in other oil and gas regimes since
the passage of the original bill in 2003.
3:45:56 PM
MR. MYERS replied that he hadn't seen any increased spending
activity. He has eight applications under the program and most
of them are on the North Slope; two are on the NPRA. There is no
way to quantify whether it has led to incremental bids because
the program is too young. Much of the perspective acreage on the
North Slope is already under lease. However, the value and
number of the bids have increased as well as the number of
companies bidding in the last two years. He pointed out that
oil prices have been higher, too.
The increased number of applications indicates the credit is
being used. But he didn't know in basins like the North Slope
whether the credit was bringing the companies in or whether the
companies using it were already planning on making the
investment. There is an up-tic of interest in using this credit
in some of the exploration license areas like Copper River and
Nenana. Revenues will not increase until production beings,
however.
3:47:28 PM
GARY ROGERS, Revenue Auditor, Tax Division, said he audits the
exploration tax credits. Drilling an exploration well more than
three miles from a preexisting well receives 20% allowable
expenses. An exploration well drilled more than 25 miles from
the unit receives 20% of exploration drilling costs. If the well
is both more than three miles from a preexisting well and more
than 25 miles from the unit, it gets 40% credit for the drilling
costs. The credit also provides for a 40% credit in seismic
exploration costs.
3:49:37 PM
Once the credit application has been audited and the credit has
been issued, the explorer can either use it to offset his
production tax liability or sell or transfer the credit to
another party that has a production tax liability. In general,
allowable expenses are directly related to the work; excluded
are administration, environmental, overhead indirect costs. SB
53 extends the provisions of last year's credit program to the
Alaska Peninsula lease sale area and extends its deadline.
SENATOR ELTON asked if the bill extends the tax credit in the
Bristol Bay area to 2010 and they are given based on the
distance the new wells are from existing wells.
MR. ROGERS responded that there actually are some old wells out
there.
SENATOR ELTON sought to clarify:
If you go out and drill two wells in a season, say,
right next to each other, the first well won't turn
around and disqualify the second. We'll look at that
as a project. Then the other point, which I think is
made, I think when Mark said there have been 20 wells
drilled up to 1985, there's a cut off.... The ones
that were done back... at the turn of the
century...some very old ones, won't be considered. I
think the cut off is roughly 30 years. Ones that were
drilled as recently as 1985, you would have to be
three miles from that well to get your total 40%
credit.
3:51:41 PM
CHAIR WAGONER said the state might already have all of the
information from that well.
MR. MYERS responded that the information from those old wells
are public knowledge. But wells like the Amoco Pitcherov,
drilled around 1985, would disqualify other wells drilled within
a three-mile radius.
There's two components. The 20% credit applies for -
any well gets at least 20% if it's more than three
miles away from an existing well post 1979. There's a
second criteria that it has to be 25 miles from an
existing oil and gas unit as of 2003. There are no oil
and gas units; so, if a well qualifies in the Bristol
Bay area, at least for the first season, it will
qualify for a full 40% credit.... There may be four or
five wells that are post '79; the rest of the area
would qualify at the full 40%.
3:53:37 PM
SENATOR SEEKINS asked if every new well would qualify unless it
was within three miles of a preexisting well from back then; so
if there is a really hot strike, every other well around it
qualifies for the 40% credit no matter what.
MR. DICKERSON replied that is correct.
3:55:25 PM
SENATOR ELTON said he understood that happened for the first
year, but would the credit only be for new wells outside the
three miles in the second year.
MR. DICKERSON replied that is correct.
CHAIR WAGONER noted a large number of supporting letters from
municipal and tribal governments, which represented the
communities in the area, but commercial fishing groups hadn't
commented yet. He announced that the bill would be held until
the next meeting.
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