Legislature(2009 - 2010)BUTROVICH 205
03/31/2010 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB255 | |
| HB162 | |
| Overview by Dnr and Dor on Cook Inlet Incentives | |
| SB309 | |
| SB290 | |
| HB280 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | SB 309 | TELECONFERENCED | |
| *+ | SB 290 | TELECONFERENCED | |
| + | HB 280 | TELECONFERENCED | |
| = | SB 255 | ||
| = | HB 162 | ||
SB 290-TAX CREDIT TO DRILL WELLS IN COOK INLET
4:52:31 PM
CO-CHAIR WIELECHOWSKI announced SB 290 to be up for
consideration.
4:52:53 PM
MARY JACKSON, staff to Senator Wagoner, said the tax credit in
SB 290 is patterned after the Oklahoma land rush and it deals
exclusively with exploration. They call it the Cook Inlet
Stampede. It basically says that the first, second and third
explorer that comes gets a good benefit starting at 100 percent
and then going down to 75 percent and down to 50 percent. It is
offered under the alternative tax credit for oil and gas
exploration in Section 1.
Section 2 of the bill defines exactly what it is by defining the
first three explorers as those drilling into the sub-Cretaceous
zone. It allows for only one credit per explorer and if more
than one qualifies for one event, the department will determine
the percentage of the credit goes to each. A unique twist is if
the exploration results in production in paying quantities, the
credits are required to be repaid by 50 percent. Finally, if
explorers come in and actually start producing it strengthens
the Basin.
MS. JACKSON reviewed materials in the packet that include a
sponsor statement, a sectional analysis, a memorandum of
understanding from the Department of Revenue (November 2009)
that said there was a recent review by the department, a letter
of support from Escopeta Oil, a stratigraphic map that depicts
the zones and a recent DNR oil and gas activity map. A March 30
DOR fiscal note is indeterminate. She pointed out that this new
credit, if it's $20 million and they would have originally
gotten a 40 percent credit; it's a difference of 60 percent, not
the full $20 million.
She said language needed to be developed that clarifies this is
intended only for offshore exploration. State leases are
offshore in the Cook Inlet Basin; therefore, information
received from drilling of the well becomes public and DNR gets
to see it.
4:57:18 PM
The DNR recommended changing the sub-Cretaceous to the pre-
Tertiary period. The third point talks about the possible need
for three credits for jack-up rigs and permanent platforms that
are already there. A fourth is a question from DOR as to what is
considered transportation, although she is reasonably confident
that is addressed. The last issue was raised by the DOR which
was an oversight - a 25 percent net operating loss for capital
credits - and nowhere was it ever intended that anyone get 125
percent. So that needs to be clarified.
4:58:50 PM
CO-CHAIR WIELECHOWSKI read a statement from Escopeta Oil,
because he thought it was "pretty amazing." It predicts that the
Kitchen Lights Unit (KLU) contains approximately 440 million
barrels of recoverable oil and 5 tcf of natural gas. It goes on
to say that after platform and infrastructure implementation
there could be approximately 75,000 million barrels of oil and
300 mmcf of gas per day from the KLU anticlinal feature alone.
SENATOR WAGONER added that a portion of the reserves they are
talking about are from the Sunfish that ARCO discovered years
ago and didn't produce because the price went down to about $9
barrel.
5:00:03 PM
MS. DAVIS said after conferring with Kevin Banks, she believed
SB 290 would require DNR and DOR to work together to administer
this particular credit. First they want to make abundantly clear
that language on page 2, line 6, about the first to bore a hole
either implies that you have spudded the well (begun to drill)
or completed it. The joint recommendation would be to go with
the spud date for two reasons: one, it insures that good quality
field practices are being applied to the drilling well, and
second, the spud date is recorded by date and hour in the event
there is competition between two players. The DNR would have to
come up with some sort of certification or determination on
whether a well results in production in paying quantities.
5:02:41 PM
KEVIN BANKS, Director, Division of Oil and Gas, Department of
Natural Resources (DNR), explained that the notion here is that
you drill a well into a target that hasn't been discovered - a
sub-Cretaceous or pre-Tertiary zone. If production comes from
that zone, then part of the credit would be paid back. He said
that typically exploration wells are not converted in producers
for a number of reasons relating to location of the resource
when it comes time to produce after further field evaluations.
CO-CHAIR WIELECHOWSKI asked if he had any public data on
reserves in the sub-Cretaceous zone.
MR. BANKS answered that they don't know very much about what is
in the sub-Cretaceous zone; possibly a well in the McArthur
River that struck oil at that depth could qualify, but he didn't
know if it had ever been produced.
MS. DAVIS pointed out that if the first rig that comes into Cook
Inlet receives 100 percent of its cost as its credit, then you
have essentially achieved the objective of getting a jack up rig
into Cook Inlet. Under the current lease expenditure
regulations, the cost of mobilizing that rig to the State of
Alaska is fully allowed as a lease expenditure. But once that
rig is in Alaska, they also allow the deduction of the
demobilization to other parts of Alaska, but not if it leaves
Alaska. Hopefully, she said, the rig should be put to work
numerous times in Alaska.
5:05:38 PM
CO-CHAIR WIELECHOWSKI set SB 290 aside.
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