Legislature(2005 - 2006)HOUSE FINANCE 519

04/01/2006 10:00 AM FINANCE


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Audio Topic
10:08:27 AM Start
01:55:15 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 488 OIL AND GAS PRODUCTION TAX TELECONFERENCED
Heard & Held
Public Testimony:
10:00 am - Anchorage
11:30 am - Juneau Testimony by Invitation
12:00 pm - Fairbanks
1:15 pm - All other sites (Incl. Juneau)
                  HOUSE FINANCE COMMITTEE                                                                                       
                       April 1, 2006                                                                                            
                        10:08 a.m.                                                                                              
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Chenault called the House Finance Committee meeting                                                                    
to order at 10:08:27 AM.                                                                                                      
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Mike Chenault, Co-Chair                                                                                          
Representative Kevin Meyer, Co-Chair                                                                                            
Representative Bill Stoltze, Vice-Chair                                                                                         
Representative Richard Foster                                                                                                   
Representative Mike Hawker                                                                                                      
Representative Reggie Joule                                                                                                     
Representative Mike Kelly                                                                                                       
Representative Beth Kerttula                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Jim Holm                                                                                                         
Representative Carl Moses                                                                                                       
Representative Bruce Weyhrauch                                                                                                  
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Paul Laird,  The Alliance,  Anchorage; Bob  Stinson, Conam                                                                      
Construction, Anchorage; Chris  Johansen, Flowline Alaska,                                                                      
Anchorage; Representative Paul  Seaton, Representative Les                                                                      
Gara; Representative Vic Kohring; Kevin Ritchie, Executive                                                                      
Director, Alaska Municipal League, Juneau.                                                                                      
                                                                                                                                
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                              
ANCHORAGE                                                                                                                       
Dr. Paul B. Simons, Anchorage; Mike Koy, Anchorage; Shirley                                                                     
Nelson,  Anchorage;  James   Gilbert,  Anchorage;  Jananna                                                                      
Caselli, Anchorage; Hillary McIntosh, Anchorage; Tadd Owens,                                                                    
Executive Director, Resource Development Council, Anchorage;                                                                    
Eric  Badger, Anchorage;  Scott  Thorson, Anchorage;  Lori                                                                      
Backes,  Anchorage; Mary  Shields,  General Manager,  Tech                                                                      
Services, Anchorage; Maynard Tapp, Business Owner Anchorage                                                                     
Lynn    Johnson,   Anchorage;   Karl    Hoenack,   Carlile                                                                      
Transportation    Anchorage;    Randy    Payne,    Carlile                                                                      
Transportation  Anchorage; Dave  Miller,  Anchorage;  Judy                                                                      
Brady, Alaska Oil and Gas; Paul Laird, The Alliance;                                                                            
Bob  Stinson, President, Conam  Construction; Tom  Lakosh,                                                                      
Anchorage.                                                                                                                      
                                                                                                                                
                                                                                                                                
FAIRBANKS                                                                                                                       
 Chris Johansen, Flowline Alaska, Fairbanks; David Gottstein,                                                                   
 Backbone II;  Mark Sharp,  Fairbanks; Nicholas  Van Wyck,                                                                      
 Fairbanks; Rebecca Kyle, Fairbanks; Luke Hopkins, Assembly,                                                                    
 Fairbanks; Mark  Ames, Fairbanks;  Greg Thies,  Fairbanks;                                                                     
 Steve Hovenden, Fairbanks; Merrick Peirce, North Pole;                                                                         
                                                                                                                                
 OTHER AREAS:                                                                                                                   
 Joey Crum,  MatSu, Northern  Industrial Training;  William                                                                     
 Phillips,  Kenai;  Scott  Hamann,  Nikiski; Bruce   Passe,                                                                     
 Soldotna; Jim Pfeiffer, Seward-Lowell Point; Joe Hegna, MWH                                                                    
 Globa, MatSu; Bill Warren, Kenai; Ed Martin, Soldotna; Jim                                                                     
 Sykes, Palmer                                                                                                                  
                                                                                                                                
 GENERAL SUBJECT(S):                                                                                                          
                                                                                                                                
 HB 488-OIL AND GAS PRODUCTION TAX                                                                                              
     Public Testimony                                                                                                           
                                                                                                                                
     HB 488 was held in Committee for further discussion                                                                        
                                                                                                                                
The  following  overview was  taken  in  log  note  format.                                                                     
Handouts will be  on file with the House  Finance Committee                                                                     
through  the 24th  Legislative Session,  contact  465-6814.                                                                     
After the 24th  Legislative Session they will be  available                                                                     
through the Legislative Library at 465-3808.                                                                                    
                                                                                                                              
              HB 488-OIL AND GAS PRODUCTION TAX                                                                                 
                    STATEWIDE TESTIMONY                                                                                         
                                                                                                                                
                                                                                                                                
 TIME        SPEAKER        DISCUSSION                                                                                      
 10:08:52 AM Co-Chair       Convened the House Finance Committee                                                              
             Chenault       meeting to take statewide testimony on                                                              
                            HB 488, the oil and gas production tax.                                                           
 10:09:52 AM Dr. Paul B. Expressed       concern   with    "secret"                                                           
             Simons,        discussions in the Governor's Office.                                                               
             Anchorage      He noted other investments in Norway,                                                               
                            which would  increase oil production by                                                             
                            85%.   He   maintained   that   similar                                                             
                            techniques could be used  in Alaska. He                                                             
                            observed    that   a    petrol-chemical                                                             
                            industry could  be built in  Alaska. He                                                             
                            asked  that  caution be  maintained  in                                                             
                            regards to book keeping on  the tax and                                                             
                            pointed to plants in Edmonton, Canada.                                                            
 10:14:13 AM Mike      Koy, He observed that most oil companies use                                                           
             Anchorage      a fixed price of $20 - $30 a barrel                                                                 
                            when  making development decisions.  He                                                             
                            felt  that HB 488 would lose  the state                                                             
                            money in  its current tax structure. He                                                             
                            maintained that  oil fiscal terms  have                                                             
                            no  impact on the viability of  the gas                                                             
                            pipeline.                                                                                         
10:17:51 AM Shirley         Maintained that higher taxes will                                                                 
            Nelson,         reduce investments on the North Slope.                                                              
            Anchorage       She urged that there be reinvestment in                                                             
                            Alaska.    She   emphasized  that  the                                                              
                            outcome of  the tax  bill  will affect                                                              
                            every community in the State.                                                                     
10:19:01 AM James  Gilbert, Felt that the  changes proposed by the                                                            
            Anchorage       Governor   would    jeopardize   small                                                              
                            business statewide.  He urged that the                                                              
                            Committee  enact   the   highest   tax                                                              
                            structure possible.   He noted concern                                                              
                            with the lack  of a  state fiscal plan                                                              
                            and how that  will affect the taxation                                                              
                            consideration.                                                                                    
10:21:12 AM Jananna         She noted that her family's livelihood                                                            
            Caselli,        is directly related to the oil and gas                                                              
            Anchorage       industry in the State.  She addressed                                                               
                            work  opportunities available  in  the                                                              
                            State.   She  urged  the  Committee to                                                              
                            "play their cards right".                                                                         
10:22:37 AM Hillary         Addressed how the oil and gas industry                                                            
            McIntosh,       affects her family structure.  She                                                                  
            Anchorage       noted how much funding the oil                                                                      
                            companies    donate   to    nonprofits                                                              
                            statewide.   She urged passage  of the                                                              
                            Governor's bill.                                                                                  
10:25:16 AM Tadd     Owens, He  questioned  what  provisions  were                                                            
            Executive       being made for lower costs.  He                                                                     
            Director,       questioned decisions being made and if                                                              
            Resource        they   will   contribute   to   budget                                                              
            Development     stability.  He urged that Alaska                                                                    
            Council,        drilling   not   be    placed   at   a                                                              
            Anchorage       disadvantage.  He observed that the                                                                 
                            original  version of  HB  488  doubles                                                              
                            taxation to the Industry.                                                                         
10:28:01 AM Eric    Badger, Testified in support of the Governor's                                                            
            Anchorage       proposed bill.  He acknowledged that                                                                
                            the oil  producers need  to  pay their                                                              
                            fair  share,  but cautioned  that  the                                                              
                            State not become too greedy.                                                                      
10:29:22 AM Scott  Thorson, Voiced concern  regarding  raising oil                                                            
            Anchorage       taxes too high.  He stressed that the                                                               
                            current rate &  future investments are                                                              
                            directly  linked and  emphasized  that                                                              
                            petroleum  companies are  required  to                                                              
                            make large investments in initial set-                                                              
                            up.                                                                                               
10:30:41 AM Lori    Backes, Applauded members for the work done on                                                            
            Anchorage       the legislation.  She voiced concern                                                                
                            that the bill will  become part of the                                                              
                            gas line contract.  She warned about a                                                              
                            situation that will end with a 30-year                                                              
                            lock-in set up with no back line.  She                                                            
                            pointed  out  that  the  Administration                                                             
                            plans to  build in Canada before Alaska                                                             
                            and  maintained  that if  the  Canadian                                                             
                            line is  built first, the one in Alaska                                                             
                            would  be less certain.  She maintained                                                             
                            that Alaskans deserve certainty.                                                                  
 10:33:26 AM Mary  Shields, Voiced  concern  that  passage  of  the                                                           
             General        legislation amended in Committee would                                                              
             Manager,  Tech adversely affect the state's workforce.                                                             
             Services,      She worried about the "fall-out" that                                                               
             Anchorage      might happen with greater taxation.                                                                 
                            She  stated that  the gas  line is  the                                                             
                            future of the State.                                                                              
 10:36:01 AM Maynard  Tapp, Encouraged   more  investment  in   the                                                           
             Business Owner State.  He noted the donations given by                                                             
             Anchorage      the industry toward education.  He                                                                  
                            thought that the bills should be viewed                                                             
                            as  resource  development  rather  than                                                             
                            taxation.  He addressed the PPT number.                                                             
                            The  technologies are not guaranteed or                                                             
                            cheap. He  stressed that the state must                                                             
                            invest by building the gas pipeline.                                                              
 10:39:14 AM Lynn  Johnson, He  noted  that  he employs  28  people                                                           
             Anchorage      year-round. The bulk of his business                                                                
                            originates in the  North Slope and Cook                                                             
                            Inlet.  He cautioned that  the original                                                             
                            Governor's  bill  not  be  changed  and                                                             
                            maintained  that an  increase in  taxes                                                             
                            would  reduce  investment  capital.  He                                                             
                            maintained   that   Alaska   needs   to                                                             
                            encourage      development      through                                                             
                           stability.                                                                                         
 10:43:00 AM Karl  Hoenack, Cautioned  that Alaska  not tax  itself                                                           
             Carlile        out of the market.                                                                                
             Transportation                                                                                                     
             Anchorage                                                                                                          
 10:43:50 AM Randy   Payne, Stressed  the  importance  of  the  oil                                                           
             Carlile        industry.                                                                                         
             Transportation                                                                                                     
             Anchorage                                                                                                          
 10:45:16 AM Dave   Miller, Stressed the  need to look out  for the                                                           
             Anchorage      stakeholders of the state of Alaska. He                                                             
                            maintained that Alaska is  a good place                                                             
                            to  do business with one of  the lowest                                                             
                            tax rates in the world.                                                                           
 10:46:31 AM Judy    Brady, Observed  that the industry is  worried                                                           
             Alaska Oil and about  the   decline  and  the  balance                                                             
             Gas            between     increasing    taxes     and                                                             
                            investments.    She    observed    that                                                             
                            questions must be  asked every time the                                                             
                            Legislature  changes the  balance.  She                                                             
                            urged   the  Legislature  to   continue                                                             
                            asking  the questions regarding who  is                                                           
                            the competition. She acknowledged that                                                              
                            the stakes are high.                                                                              
10:49:54 AM Paul     Laird, Noted discussions regarding finding the                                                           
            The Alliance    right rate. He observed that the 20/20                                                              
                            tax rate would result in $1 billion [in                                                             
                            additional revenues] to the  state. He                                                              
                            maintained that  every dollar  paid to                                                              
                            the additional  tax will  be  a dollar                                                              
                            that will not  be used for investment.                                                              
                            He maintained that the citizens of the                                                              
                            state  would  pay  the   cost  if  the                                                              
                            investment were not  made. He stressed                                                              
                            development will continue if the right                                                              
                            balance is struck. He spoke against an                                                              
                            increase in  taxes beyond the  rate in                                                              
                            the original legislation.                                                                         
10:52:47 AM Bob    Stinson, He spoke in support of the Governor's                                                             
            President,      original proposal. The $20 percent                                                                  
            Conam           credit would encourage large and small                                                              
            Construction,   producers to invest. He maintained that                                                             
                            the 20  percent tax  would be  a large                                                              
                            increase, but  observed  that industry                                                              
                            has agreed to it in order to encourage                                                              
                            stability. He asserted that overtaxing                                                              
                            would drive investment dollars  out of                                                              
                            the state. Producers have agreed to the                                                             
                            20/20 proposal, but might be driven out                                                             
                            with increases.                                                                                   
10:55:40 AM Chris           Observed that millions of dollars are                                                             
            Johansen,       being invested in the Tourism Industry,                                                             
            Flowline        which doesn't pay any taxes to the                                                                  
            Alaska,         state of Alaska. He spoke against                                                                   
            Fairbanks       increases in taxes to the oil industry.                                                           
10:57:10 AM David           Acknowledged the daunting task before                                                             
            Gottstein,      the Legislature. He stressed that the                                                               
            Backbone II     state must increase incentives for                                                                  
                            exploration  without  sacrificing  the                                                              
                            values of economic production. He spoke                                                             
                            in support of an enforceable severance                                                              
                            tax,   based    upon   a   progressive                                                              
                            structured on the wellhead value of the                                                             
                            resource. He  encouraged  an audit  be                                                              
                            conducted  to   verify   oil   company                                                              
                            reports.  He spoke  in  support  of  a                                                              
                            severe penalty  if  companies are  not                                                              
                            honest. He referred to "fair-share". He                                                             
                            maintained that  taxes  are the  state                                                              
                            revenue   base  and   fair-share.   He                                                              
                            provided   members  with   information                                                              
                            regarding ConocoPhillips annual reports                                                             
                            for  2003 -  2005.  He  concluded that                                                              
                            incremental tax is more than offset by                                                              
                            the higher than anticipated increase in                                                           
                            oil  prices. The before tax  margin has                                                             
                            increased  from 50  -  80 percent.  The                                                             
                            after tax  margin has increased from 37                                                             
                            -  57 percent. ConocoPhillips' share of                                                             
                            the  revenue  ranges  form  340  -  950                                                             
                            percent. He  urged that the  state pass                                                             
                            HB 71, retrieve Pt. Thomson and put its                                                             
                            gas out to  bid. He spoke in support of                                                             
                            a  fair and  rational oil  and gas  tax                                                             
                            structure irrespective of whether a gas                                                             
                            line  is built. He urged  a progressive                                                             
                           structure.                                                                                         
 11:06:58 AM At ease.                                                                                                         
 12:08:01 PM FAIRBANKS                                                                                                        
 12:09:08 PM Mark    Sharp, Observed that the major oil producers                                                             
             Fairbanks      have maintained that the future of oil                                                              
                            exploration is only second to the moon.                                                             
                            He  indicated that  he did not  believe                                                             
                            the    testimony   provided   by    the                                                             
                           companies.                                                                                         
 12:14:44 PM Nicholas   Van Agreed that the oil tax structure is                                                              
             Wyck,          broken and must be fixed. He spoke in                                                               
             Fairbanks      support of a sliding scale, which would                                                             
                            recoup benefit when profits are  up. He                                                             
                            suggested a  sliding scale between 20 -                                                             
                            25  percent. He felt that  there should                                                             
                            be  more  discussion regarding the  $73                                                             
                            million  deduction.  He  stressed  that                                                             
                            there needs  to be someway to encourage                                                             
                            small independent companies. He did not                                                             
                            understand  the  need for  secrecy  and                                                             
                            felt  that gas  negotiations should  be                                                             
                            public.   He   spoke  in   support   of                                                             
                            rewarding  companies  that   have  been                                                             
                            spending money  in the state. He  asked                                                             
                            what  happened  to  the gas  to  liquid                                                             
                            proposal.  He suggested that  liquefied                                                             
                            gas  resources could alleviate the need                                                             
                            for an additional line.                                                                           
 12:19:35 PM Rebecca Kyle, Observed that Alaska is a free and                                                                 
             Fairbanks      independent state and has the ability                                                               
                            to develop its own resources.                                                                     
 12:20:59 PM Luke Hopkins, Urged the Legislature to listen to                                                                 
             Assembly,      their legislative consultants. He spoke                                                             
             Fairbanks      in support of progressivity, which                                                                  
                            would increase the  tax when prices are                                                             
                            above   $50    a   barrel.   He   asked                                                             
                            consideration  of an  earlier effective                                                             
                            date,  such as  January 1  or April  1,                                                             
                            2006.  He  acknowledged arguments  that                                                             
                            there are no guarantees for a gas line.                                                             
                            He  expressed concern that if the price                                                             
                            of  oil falls below  $20 a  barrel that                                                           
                            there would be no  tax revenue for the                                                              
                            state of Alaska.  He expressed concern                                                              
                            for  the  effects of  a  drop  on  the                                                              
                            state's budget. He emphasized the need                                                              
                            for a community dividend program.                                                                 
12:25:32 PM Mark      Ames, Stressed that the maximum use of                                                                  
            Fairbanks       resources needs to be in line with                                                                  
                            public use.  He felt that  the state's                                                              
                            ownership  interest   was  not   being                                                              
                            maintained. He referred to Article XIII                                                             
                            Section 1  and  2.  He  emphasized the                                                              
                            Legislature's role  in  protecting the                                                              
                            public interest.                                                                                  
12:33:38 PM Greg     Thies, He spoke against the direction the PPT                                                            
            Fairbanks       legislation had taken, which he argued                                                              
                            was  not logical.  He  emphasized that                                                              
                            existing fields need new investment or                                                              
                            reinvestment. He acknowledged that the                                                              
                            ELF needs to  be changed, but stressed                                                              
                            the  high cost  of  doing  business in                                                              
                            Alaska. He maintained that independents                                                             
                            are the  key,  and that  the committee                                                              
                            substitute may scare them off. He noted                                                             
                            that 85 percent of the state's revenue                                                              
                            comes from oil and gas.                                                                           
12:38:29 PM Steve           Observed the high cost of gas and oil.                                                            
            Hovenden,       He expressed concern that petrol-                                                                   
            Fairbanks       chemical development is going to                                                                    
                            Canada. He spoke against a 30-year lock                                                             
                            on the tax. He  spoke in support of an                                                              
                            in-state gas line.                                                                                
12:42:34 PM Merrick         He asked for a summary of the loss in                                                             
            Peirce,   North oil revenue the state  has settled for                                                              
            Pole            in regards to a gas pipeline. He                                                                    
                            maintained  that  oil  and  gas  taxes                                                              
                            should be structured so that the state                                                              
                            does not lose  revenues in the future.                                                              
                            He spoke in support of the addition of                                                              
                            progressivity.   He   encouraged   the                                                              
                            Committee to look at the loss of state                                                              
                            revenue when the price falls below $20                                                              
                            a barrel. He felt that more work needed                                                             
                            to be  done on the  effective date. He                                                              
                            stressed that auditors not be put into                                                              
                            compromising positions.                                                                           
12:47:39 PM At ease:                                                                                                          
1:25:01 PM Kevin Ritchie, Thanked the committee for their work on                                                             
            Executive       this important issue. The Alaska                                                                    
            Director,       Municipal League supports this bill to                                                              
            Alaska          ensure a firm economic base in Alaska.                                                            
            Municipal                                                                                                           
            League                                                                                                              
1:27:50 PM Joey       Crum, Noted that the oil industry provides                                                              
             MatSu,         many jobs for his industry.  He voiced                                                              
             Northern       concern that raising taxes on oil would                                                             
             Industrial     result in unemployment in Alaska.                                                                 
             Training                                                                                                           
 1:29:30 PM William         Noted that the primary goal of oil                                                                
             Phillips,      companies is to make money for their                                                                
             Kenai          stockholders.  He maintained that                                                                   
                            ConocoPhillips is not  sincere in their                                                             
                            intentions to build a gas pipeline.  He                                                             
                            suggested that many companies are being                                                             
                            forced out  of other companies and need                                                             
                            Alaska for new exploration.                                                                       
 1:32:37 PM  Scott Hamann,  Believed    that   the   Administration                                                           
             Nikiski        negotiated with the oil companies in                                                                
                            good  faith.   He voiced  concern about                                                             
                            the large budget.                                                                                 
 1:34:15 PM  Bruce   Passe, Stated  that Cook Inlet should be  left                                                           
             Soldotna       under the ELF agreement because it is                                                               
                            different  than the other  fields.   He                                                             
                            maintained     that    Cook     Inlet's                                                             
                            infrastructure could not survive such a                                                             
                            high  new  tax.     He  said  that  PPT                                                             
                            misaligns joint ventures in Cook Inlet.                                                           
 1:36:49 PM  Jim  Pfeiffer, Testified  as an  employee of  BP.   He                                                           
             Seward-Lowell  said  there are  no more  Prudhoe Bays.                                                             
             Point          He urged the Committee to accept the                                                                
                            amount   of   tax   included   in   the                                                             
                            governor's bill.                                                                                  
 1:38:16 PM  Joe Hegna, MWH Spoke as  owner of MWH and stressed the                                                           
             Globa, MatSu   need for oil companies to invest in his                                                             
                            company's  projects.  Higher tax  means                                                             
                            less investment and fewer jobs.                                                                   
 1:39:49 PM  Tom    Lakosh, Agreed   with  the  testimony  of   Mr.                                                           
             Anchorage      Gottstein and Mr. Phillips.  He related                                                             
                            that  the current bill fails  to relate                                                             
                            IRS  tax to a specific date.   He spoke                                                             
                            of    Alberta   as   Alaska's   closest                                                             
                            competition and stressed that it should                                                             
                            be  used in comparisons.  He noted that                                                             
                            the more complicated the deductions and                                                             
                            provisions   are,   the   more   likely                                                             
                            litigation   will  take   place.     He                                                             
                            suggested  Alaska get the  full benefit                                                             
                            from  its oil.   He  spoke against  the                                                             
                            claw back provision.                                                                              
 1:48:54 PM  Bill   Warren, Spoke of his long work history with oil                                                           
             Kenai          and gas.  He urged the committee to                                                                 
                            take  its time on  PPT and look at  the                                                             
                            gas  contract before finalizing the oil                                                             
                            tax.   He  warned the Committee not  to                                                             
                            sign a 35-year contract.  He maintained                                                             
                            that  Alaska needs  to take the  reins,                                                             
                            not the oil companies.                                                                            
1:51:15 PM Ed       Martin, Felt that ELF was once a fair tax, but                                                            
            Soldotna        emphasized that another tax is needed.                                                              
                            He maintained that Alaska should share                                                              
                            in the windfall profits.   He proposed                                                              
                            that the Committee keep  the 25/20 tax                                                              
                            and  modify it  so  that  at  $40  per                                                              
                            barrel, Alaska would get a fair share.                                                            
1:55:15 PM Jim       Sykes, Noted that he testified previously on                                                             
            Palmer          HB 488.  He suggested a 50/50 split.                                                                
                            He discussed balancing  the take.   He                                                              
                            mentioned   ways   of   dealing   with                                                              
                            incentives.   He  suggested  that  the                                                              
                            legislature dictate the  definition of                                                              
                            profits and put in a funding provision.                                                             
                            He urged the Committee to  seek a fair                                                              
                            share.                                                                                            
                            HB 488 was held in committee for                                                                    
                            further discussion.                                                                               
            ADJOURNMENT     The meeting was adjourned at 2:00 PM                                                              
                                                                                                                                
                                                                                                                              
                                                                                                                                
                                                                                                                                

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