Legislature(2005 - 2006)HOUSE FINANCE 519
04/11/2005 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB123 | |
| HB71 | |
| HB219 | |
| HB91 | |
| HB109 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 109 | TELECONFERENCED | |
| + | HB 91 | TELECONFERENCED | |
| + | HB 219 | TELECONFERENCED | |
| + | HB 71 | TELECONFERENCED | |
| = | HB 123 | ||
HOUSE BILL NO. 71
"An Act relating to a credit for certain exploration
expenses against oil and gas properties production
taxes on oil and gas produced from a lease or property
in the state; relating to the deadline for certain
exploration expenditures used as credits against
production tax on oil and gas produced from a lease or
property in the Alaska Peninsula competitive oil and
gas areawide lease sale area after July 1, 2004; and
providing for an effective date."
WILLIAM CORBUS, COMMISSIONER, DEPARTMENT OF REVENUE,
related:
House Bill 71 extends from July 1, 2007 to July 1, 2010
the deadline for making qualified exploration
expenditures under new AS 43.55.025 (passed in 2003) in
the Bristol Bay area. Leases in the Bristol Bay
(Alaska Peninsula) Competitive Oil and Gas Lease Sale
are not expected to be issued prior to the spring of
2006. Production expenditures on these leases thus
will most likely be made after July 1, 2007 and will
not qualify for tax credits under the current law.
House Bill 71 is intended to encourage exploration and
development of one of the largest undeveloped onshore
oil and gas fields remaining in Alaska outside of the
North Slope. Development of this field has the
potential to bring stable, high paying, year round jobs
to an area which has traditionally relied on a seasonal
commercial fishing economy. Gas from this field can
provide an efficient relatively low cost energy source
for heating and the production of electricity to the
Alaska Peninsula area. Oil and gas development can
provide transportation infrastructure and lower the
cost of living in this area. Local residents and
commercial interests, including native corporations in
the Alaska Peninsula area support development of the
gas and oil resources in this area. Under the terms of
the lease sale, any development of oil and gas under
state waters within the three-mile limit would have to
be done by directional drilling from onshore.
Three changes were made to HB 71 in the House Resources
Committee substitute:
1. A change to HB 71 was added in the House Resources
Committee to extend the exploration tax credit to wells
drilled in the Nenana Basin through July 1, 2008. The
Administration supports this amendment.
2. A second change added in the Resources Committee
substitute eliminates the exploration tax credit for
exploration in ANWR.
3. The third change added in House Resources eliminates
the exploration tax credit for certain wells that might
be considered delineation wells under the current law.
The Administration does not support this change to
existing tax policy. The idea behind the original bill
was if an explorer was going to push the boundaries of
the area under production out 25 miles, then the state
would underwrite the well work associated with that
exploration, even to the extent of figuring out how
much production is there. All the other limits -of
kinds of expense and when the work has to be done still
exist. We think that was good idea then, we think it's
a good idea now and if explorers thought it was a good
idea, we shouldn't change the law now. These companies
have made and are making decisions based on a law that
was to be in effect from July 1, 2004 to July 1, 2007
it would be inappropriate to make changes to that law
at this time.
2:04:20 PM
Representative Hawker asked which change was not endorsed.
Commissioner Corbus deferred to Dan Dickinson.
2:05:01 PM
DAN DICKINSON, DIRECTOR, TAX DIVISION, DEPARTMENT OF
REVENUE, (via teleconference) responded that the tax policy
change made in the House Resources CS, which the
Administration is not endorsing, changed the requirements
and limitations on which wells might or might not qualify
for the last two years of the four years from which this tax
credit can apply.
Representative Hawker asked for clarification on the
language at issue.
Mr. Dickinson replied the language is found in Section 1,
lines 7-10 (new subsection 3), Section 3, 4 and 5. Under
the current legislation, a 20 percent credit is set up if an
exploration well is drilled more than 3 miles from an
existing well. There is also a 20 percent credit if an
exploration well is more than 25 miles from a unit boundary,
as it existed on the date in the bill. If a company
qualifies for both credits, then a 40 percent credit is
possible. The CS does not allow for credit for wells that
are less than 3 miles from a prior well, but more than 25
miles from a leased boundary. He gave an example.
2:09:30 PM
Representative Hawker inquired about the rational behind the
change. Mr. Dickinson replied that once hydrocarbons have
been found, the thought is that the state should stop
subsidizing and not allow any more dollars for the credit.
If the boundaries are pushed out, the credit is then earned.
The issue is how far the boundaries can be extended and
still qualify for credit.
Representative Hawker asked if there could be one or two
wells in proximity to each other as part of an initial
exploratory find, or if that is prohibited.
Mr. Dickinson replied that the new language would prohibit
that situation. HB 61 created a credit in the income tax
for certain exploration and development work in the Cook
Inlet. It is appropriate at times to issue a credit
pertinent to the activity needed to get additional
production, which is the goal. Representative Hawker noted
that the line is clear in this CS between exploration
drilling and development drilling.
Co-Chair Meyer asked if Mr. Dickinson agreed with
Representative Hawker. He replied that the definitions are
based on the location of the well.
2:13:13 PM
Representative Weyhrauch noted on page 2, line 6, in Version
S, the word "or" appears. He recalled that the Ways and
Means version had the word "and". He asked if this is a
change. Mr. Dickinson thought the wording should say "and".
He clarified that the Resource Committee set up three
situations in subsections 1, 2, and 3.
2:16:26 PM
Representative Weyhrauch referred to Section 4 and asked
whether outer boundaries that have not been delineated by
the required date might prevent eligibility. Mr. Dickinson
explained that the lack of a unit boundary would still
qualify a new well in the Bristol Bay extension area for the
20 percent credit. Mr. Dickinson recalled that if the
boundary had not been delineated, you did not qualify.
REPRESENTATIVE RALPH SAMUELS explained that is a policy call
about the second well. In response to the question about
"and" and "or", he explained that the Resources Committee
switched from "and" to "or" because it didn't want anyone
receiving an 80 percent credit. He opined that the wording
still needs clarification. He shared discussions that
happened in the Resources Committee Meeting.
2:21:26 PM
Representative Holm asked about the rationale for only
allowing one well.
Representative Samuels explained the thinking behind the
decision. The idea was not to give credit for exploration
on a known property.
Mr. Dickinson strongly urged that the committee adopt HB 71
be adopted with the additional conceptual language changes.
2:23:43 PM
MITCH USIBELLI, MANAGER, USIBELLI ENERGY, NENANA, related
that his company is involved in two projects, Nenana Basin
and Healy Basin. He referred to handouts on each project
(copy on file.) He shared the history of the Nenana Basin
project and explained the maps in the handout. He termed
this project an exciting, yet high-risk frontier
exploration. He highlighted the summary sheet of
Exploration Incentive Credit Programs. He noted that the
sunset date on the project is 2007.
2:30:33 PM
Mr. Usibelli described the history of the second project,
the proposed Healy Basin exploration license. He spoke of
projects delays. He described the maps in the handout. He
noted that this project is a gas-only project, for coalbed
methane and shallow gas exploration. The coalbed methane
industry has grown rapidly and the Department of Energy's
forecast is for the production of non-conventional gas to
increase. He reviewed the summary sheet on Healy
Exploration License Application and discussed the current
timeline.
2:35:40 PM
In response to a question from Co-Chair Meyer, Mr. Usibelli
replied that he thinks that this tax system works.
Representative Holm asked how long before data will be
available on the projects. Mr. Usibelli replied that his
company is processing that data now and will know more over
next two to three months, by mid-summer.
In response to a question from Representative Kelly, Mr.
Usibelli replied that both areas' wells would be outside of
the 25-mile and 3-mile limits. He added that if well is
over the 30 years old the limit does not apply.
2:39:05 PM
Co-Chair Chenault asked how this tax incentive is going to
affect his company's coalbed methane, and oil and gas,
exploration. Mr. Usibelli replied that initial exploration
work would qualify for this tax credit. Co-Chair Chenault
referred to the Healy Basin and asked about its size in
relation to the tax incentive. Mr. Usibelli said it is his
understanding that the area falls outside of the 25-mile
limit. He explained that there is plenty of opportunity for
exploration there.
2:41:55 PM
Co-Chair Meyer suggested that a new CS be written
incorporating potential amendments. He asked for
information about Cook Inlet drilling. Mr. Dickinson
reported that AS 43.55.025. applies to any gas or oil
exploration drilling in the state and creates a four-year
window. This bill expands the window for specific areas at
the request of the Governor.
2:44:25 PM
Representative Kelly suggested finding middle ground between
the extremes of opinion surrounding this bill. He noted
that he feels under-informed about the bill. Mr. Dickinson
offered to provide additional information. He related that
Representative Samuels summed it up earlier.
Co-Chair Chenault noted that the mile limits need to be
addressed and that he would be offering amendments.
2:48:56 PM
Mr. Dickinson summarized that the intent is to push the
boundaries of exploration. The Cook Inlet would only be
able to move south. A lot of activity would be excluded
that would otherwise qualify.
2:50:12 PM
Representative Kelly asked for clarification on the
department's position. Mr. Dickinson observed that there
were several changes made. The department has no problem
with the extension to the Nenana Basin. There is only one
aspect that the department objects to.
HB 71 was HELD in Committee for further consideration.
2:51:19 PM
At ease.
3:03:56 PM
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