Legislature(2011 - 2012)HOUSE FINANCE 519

03/29/2011 01:30 PM FINANCE


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02:09:32 PM Start
02:10:23 PM HB110
05:18:20 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 110 PRODUCTION TAX ON OIL AND GAS TELECONFERENCED
Moved CSHB 110(FIN) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 110                                                                                                            
                                                                                                                                
     "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;                                                                    
     relating  to  the  oil and  gas  production  tax  rate;                                                                    
     relating to  monthly installment payments  of estimated                                                                    
     oil and  gas production  tax; relating  to oil  and gas                                                                    
     production  tax   credits  for   certain  expenditures,                                                                    
     including  qualified capital  credits for  exploration,                                                                    
     development,   and   production;    relating   to   the                                                                    
     limitation  on assessment  of  oil  and gas  production                                                                    
     taxes;  relating to  the determination  of oil  and gas                                                                    
     production  tax values;  making conforming  amendments;                                                                    
     and providing for an effective date."                                                                                      
                                                                                                                                
2:10:23 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stoltze reviewed  the  amendment  and fiscal  note                                                                    
process  and stated  his intent  to report  the bill  out of                                                                    
committee.                                                                                                                      
                                                                                                                                
Representative Gara queried the fiscal note.                                                                                    
                                                                                                                                
BRYAN   BUTCHER,   COMMISSIONER,  DEPARTMENT   OF   REVENUE,                                                                    
reviewed  the  fiscal note.  He  noted  that the  department                                                                    
would  cover pages  2  and  3 of  the  analysis section  and                                                                    
pointed out that  page 4 provided a  side-by-side listing of                                                                    
the expected effects of the fiscal note.                                                                                        
                                                                                                                                
Commissioner  Butcher detailed  that  the  interest rate  on                                                                    
delinquent taxes would change  from the greater 5 percentage                                                                    
points, or 11 percent to  the lesser of 3 percentage points,                                                                    
or  11  percent.  Over  the last  three  fiscal  years,  the                                                                    
average  annual  net revenue  to  the  state was  about  $30                                                                    
million  in  revenue to  the  general  fund and  about  $111                                                                    
million  in revenue  to  the  Constitutional Budget  Reserve                                                                    
(CBR), or about $140  million total. Both underpayments that                                                                    
a company  would have to  pay to the state  and overpayments                                                                    
that the state would have to  pay back to a company would be                                                                    
affected. Passage of  HB 110 (based on the  estimates of the                                                                    
past three  years) would result  in reductions of  about $50                                                                    
million  to  $60  million; the  number  would  vary  greatly                                                                    
depending on the  year and the activities.  He stressed that                                                                    
the  department could  not  predict  either overpayments  or                                                                    
underpayments.                                                                                                                  
                                                                                                                                
2:14:14 PM                                                                                                                    
                                                                                                                                
Representative Doogan asked what would be reduced.                                                                              
                                                                                                                                
Commissioner  Butcher responded  that the  interest rate  on                                                                    
delinquent taxes  would be  lowered from  the greater  of 11                                                                    
percent or  the fed plus  5 percentage points to  11 percent                                                                    
or the fed plus 3 percentage points the lesser of.                                                                              
                                                                                                                                
Representative Doogan  asked whether  the cost to  the state                                                                    
would be bigger or smaller.                                                                                                     
                                                                                                                                
Commissioner  Butcher answered  that  currently, rates  were                                                                    
being compounded  quarterly. The statute referred  to a time                                                                    
when  interest rates  were  very high;  11  percent was  not                                                                    
unusual.  With the  last few  years of  low fiscal  interest                                                                    
rate environments,  it was prohibitive  on the  company side                                                                    
and  the state  side because  of quarterly  compounding. The                                                                    
amount paid  in interest  would almost  equal the  amount of                                                                    
the taxes owed if there were a couple years building up.                                                                        
                                                                                                                                
Representative Doogan queried the $60 million number.                                                                           
                                                                                                                                
Commissioner  Butcher answered  the  amount  was a  ballpark                                                                    
number.                                                                                                                         
                                                                                                                                
Representative Guttenberg  noted that the title  of the bill                                                                    
referred to the interest rate.  He hoped the bill was mostly                                                                    
about increasing  exploration, development,  and production.                                                                    
He queried the effect of the proposed change.                                                                                   
                                                                                                                                
Commissioner Butcher  responded that the piece  was a clean-                                                                    
up  rather than  a change  in order  to put  more production                                                                    
into  the pipeline.  He explained  that  the department  had                                                                    
discretion  (depending on  the circumstances)  regarding the                                                                    
amount of  taxes paid  or owed, but  not with  the interest.                                                                    
Discussions  had revealed  the  opinion that  having to  pay                                                                    
such a  high interest on  an overpayment or  underpayment in                                                                    
the current low-interest environment  made sense and was not                                                                    
any fault of the company or  the state; it might have had to                                                                    
do with regulation change.                                                                                                      
                                                                                                                                
Representative Guttenberg  wanted to see  more understanding                                                                    
about  the  fiscal  relationship.  He  believed  the  action                                                                    
should  be taken  if  it  made sense;  he  did  not want  to                                                                    
penalize  people for  under- or  over-reporting. He  thought                                                                    
there could be a quantitative revenue impact on somebody.                                                                       
                                                                                                                                
2:18:58 PM                                                                                                                    
                                                                                                                                
Commissioner Butcher thought the  change could provide a net                                                                    
increase to  the state in  some years; the  department still                                                                    
felt there needed to be a change.                                                                                               
                                                                                                                                
Representative  Guttenberg did  not think  the state  should                                                                    
look  forward  to  delinquent tax  charges,  but  should  be                                                                    
helping people.                                                                                                                 
                                                                                                                                
Commissioner  Butcher addressed  the second  change, dealing                                                                    
with one of three large  policy pieces of the bill: changing                                                                    
the taxes  from the  current progressivity rate  to brackets                                                                    
as well as  capping them at 50 percent. He  pointed out that                                                                    
the fiscal note  showed the change in  two different charts.                                                                    
The first chart focused on production  tax only (page 2 of 4                                                                    
of the  fiscal note analysis).  The first column  showed the                                                                    
projected reductions  in revenue  over the years  covered by                                                                    
the fiscal  note (based on  the Department of  Revenue (DOR)                                                                    
preliminary  spring revenue  forecast)  and estimates  about                                                                    
what the  numbers would look  like if there was  an increase                                                                    
in  production. He  noted  that  increased production  would                                                                    
result in an increase in  credits as well as spending, which                                                                    
had been factored in.                                                                                                           
                                                                                                                                
Commissioner Butcher continued that  the second chart showed                                                                    
production tax  plus total royalties.  The first  chart only                                                                    
showed  production  tax;  the   second  chart  included  the                                                                    
royalty piece  that would  result from  increased production                                                                    
and provided more of a  big-picture view based on production                                                                    
scenarios.                                                                                                                      
                                                                                                                                
2:21:27 PM                                                                                                                    
                                                                                                                                
Representative  Gara  directed  attention to  column  2  and                                                                    
asked  whether forecasting  5 percent  meant 5  percent more                                                                    
than  the  forecasted  decline.   He  wondered  whether  the                                                                    
forecast  of  5  percent  meant essentially  zero  or  a  10                                                                    
percent  increase  in  production,  erasing  the  5  percent                                                                    
decline plus adding 5 percent more.                                                                                             
                                                                                                                                
Commissioner Butcher  answered that  the 5  percent forecast                                                                    
meant  5 percent  on  the total  production  number; if  the                                                                    
number was $600,000,  it would mean a 5  percent increase on                                                                    
the $600,000.                                                                                                                   
                                                                                                                                
Representative Gara  asked whether the number  was 5 percent                                                                    
above  what was  forecast  or 5  percent  above the  current                                                                    
year's level.                                                                                                                   
                                                                                                                                
Commissioner  Butcher  replied  5  percent  above  what  was                                                                    
forecast.                                                                                                                       
                                                                                                                                
Commissioner  Butcher  turned to  Analysis  3  (page 3).  He                                                                    
explained that  the item had  to do with production  tax for                                                                    
areas that  had not been  commercialized or unitized,  of 15                                                                    
percent  with brackets  of progressivity  up to  40 percent.                                                                    
The  fields were  ones that  had never  had production;  the                                                                    
fiscal note  was zero, but  the number would be  positive if                                                                    
there was  any production at all  as a result of  HB 110. He                                                                    
emphasized that the number could  not go negative, but there                                                                    
was  not a  specific  prediction on  the potential  millions                                                                    
that could result.                                                                                                              
                                                                                                                                
Representative  Gara disagreed  with  the  premise that  the                                                                    
number could not  go negative. He maintained  that the state                                                                    
could  grant a  15  percent  tax rate  to  fields that  were                                                                    
already going on line, such  as Great Bear, which bought its                                                                    
leases in 2010. He thought  new production could be spurred,                                                                    
or  a lower  tax rate  could be  given to  fields that  were                                                                    
going to  go on-line  anyway, which would  cost the  state a                                                                    
lot of money.                                                                                                                   
                                                                                                                                
Commissioner  Butcher  responded  that he  was  speaking  to                                                                    
fields that had  not been unitized as of  December 31, 2008.                                                                    
He did  not expect  any of the  fields to be  at a  point to                                                                    
come   on-line,  with   or  without   the  passage   of  the                                                                    
legislation.                                                                                                                    
                                                                                                                                
2:24:07 PM                                                                                                                    
                                                                                                                                
Commissioner  Butcher directed  attention to  Analysis 4,  a                                                                    
provision that  would require credits  to be taken  over two                                                                    
years.  He  noted  that  the  provision  would  be  revenue-                                                                    
neutral;  the first  year  that it  took  effect, the  state                                                                    
would have  an entire year  during which a company  would be                                                                    
taking  credit. For  example, in  2011, companies  had taken                                                                    
the last half of the 2010  credit and the first half of 2011                                                                    
credit, which  would more or  less equal an entire  year. He                                                                    
noted that trying  to sort the numbers  out half-way through                                                                    
the year had been an extreme burden on the tax division.                                                                        
                                                                                                                                
Commissioner Butcher  turned to  Analysis 5, the  40 percent                                                                    
credit  for well-lease  expenditures  expanded  north of  68                                                                    
degrees  North Latitude.  He estimated  the effect  would be                                                                    
$200  million to  $400 million  annually,  which would  vary                                                                    
according  to how  much the  credit was  used. The  more the                                                                    
credit  was used,  the  higher the  number  would be,  which                                                                    
would be a positive in  terms of getting more production for                                                                    
the state.  The department had  tried to speculate  a higher                                                                    
number  with the  belief that  it would  result in  a higher                                                                    
number of credits being taken  than had been taken recently.                                                                    
The department  believed $400 million  would be on  the high                                                                    
end.                                                                                                                            
                                                                                                                                
Commissioner  Butcher   moved  to  Analysis  6,   the  small                                                                    
producer  new area  development and  alternative tax  credit                                                                    
for exploration  programs, which would be  extended from the                                                                    
current sunset date of 2016 to  2021. He noted that the item                                                                    
was added  in the House Resources  Committee. The department                                                                    
expected the  small producer credits to  increase within the                                                                    
next several years to $40  million to $50 million each year;                                                                    
however,  it was  extremely difficult  for  DOR to  estimate                                                                    
what  that   would  mean  for   the  state.  He   said  that                                                                    
ultimately, the tax credits would  not come in until between                                                                    
five and ten years into the future.                                                                                             
                                                                                                                                
Commissioner Butcher  directed attention to Analysis  7; the                                                                    
tax information  disclosure statute was expanded  to include                                                                    
disclosures  of  types  of  credits  claimed  and  types  of                                                                    
expenditures for  which the credits  were claimed.  He noted                                                                    
that  the  item  was  also  added  in  the  House  Resources                                                                    
Committee.  The   department  would  be  allowed   to  share                                                                    
information it collected and analysis with the legislature.                                                                     
                                                                                                                                
Commissioner  Butcher  concluded  that  the  last  paragraph                                                                    
discussed  the   addition  of   two  auditor   positions  to                                                                    
administer the  additional credit and  reporting provisions,                                                                    
starting in FY 13.                                                                                                              
                                                                                                                                
2:27:23 PM                                                                                                                    
                                                                                                                                
Representative Guttenberg was  glad to see the  last line in                                                                    
the  fiscal note.  He pointed  to a  comment in  4 regarding                                                                    
another $100  million in funds  that would likely  be sought                                                                    
for  credit certificates,  another  comment  in 5  regarding                                                                    
estimates that  the provision would decrease  annual revenue                                                                    
based  on estimates  for drilling  costs, and  6 related  to                                                                    
expectations that the small  producer credit would increase.                                                                    
He commented  that the department had  constantly been asked                                                                    
about  the modeling  used and  expectations; the  consistent                                                                    
answer had  been that there  was no  way to do  modeling. He                                                                    
believed some  modeling had  been done to  come up  with the                                                                    
fiscal  note and  estimates of  changes. He  asked for  more                                                                    
information  about the  process  and information  underlying                                                                    
the overall assumptions.                                                                                                        
                                                                                                                                
Commissioner   Butcher   responded    that   page   1   gave                                                                    
indeterminate information,  because the department  had been                                                                    
asked by all  the committees to give the  best estimate. The                                                                    
department  felt that  a  snapshot could  be  given in  some                                                                    
situations.  For  example  number 3  discussed  non-unitized                                                                    
fields with no  production, and the department  did not have                                                                    
enough information to make an  assumption. When dealing with                                                                    
small  producer credits,  he could  look in  the very  short                                                                    
term and give at least a snapshot of the out-years.                                                                             
                                                                                                                                
Representative Doogan pointed  to page 4 of  the fiscal note                                                                    
and asked  whether the committee had  gotten the preliminary                                                                    
spring 2011 forecast from DOR.                                                                                                  
                                                                                                                                
Commissioner   Butcher  responded   that  he   expected  the                                                                    
forecast to  be out  the first week  of April.  He explained                                                                    
that the  forecast was always  put together after  March 31,                                                                    
the true-up date for the previous  year and when DOR got the                                                                    
hard numbers  of what  each of the  companies had  spent and                                                                    
were able to tighten down  the numbers going forward. He did                                                                    
not  anticipate that  the numbers  would  be much  different                                                                    
from what was prepared in the analysis.                                                                                         
                                                                                                                                
2:31:21 PM                                                                                                                    
                                                                                                                                
Representative  Doogan  requested   more  detail  about  how                                                                    
getting more revenue would change the numbers.                                                                                  
                                                                                                                                
CHERYL   NIENHUIS,   PETROLEUM  ECONOMIC   POLICY   ANALYST,                                                                    
DIVISION  OF TAX,  DEPARTMENT OF  REVENUE, acknowledged  the                                                                    
difficulty in  comparing the  different numbers.  She stated                                                                    
the one  thing that  DOR had "nailed  down" on  the forecast                                                                    
related to the  adjustment of the price  forecast. She noted                                                                    
the change  in the price  forecast from about $8  per barrel                                                                    
more  for FY  12; the  number for  FY 13  was $7  per barrel                                                                    
more. There were  differences in the revenue  between HB 110                                                                    
and the DOR forecast. Adjustments  had also been made to the                                                                    
production forecast and the cost  part, but those were still                                                                    
being worked on. She referred  to recent announcements about                                                                    
developments by Repsol, Great Bear, and other companies.                                                                        
                                                                                                                                
Ms.  Nienhuis believed  DOR was  looking more  long-term for                                                                    
the first  time. In the recent  past (FY 08 through  FY 10),                                                                    
there had been quite a bit  of price volatility; as a group,                                                                    
they  were instructed  to  look at  the  near term,  because                                                                    
prices were  so volatile.  The analysis  in the  fiscal note                                                                    
presented  a longer-term  forecast; DOR  was trying  to make                                                                    
sure production  and cost  forecasts were  reasonable, given                                                                    
all the assumptions.                                                                                                            
                                                                                                                                
2:34:38 PM                                                                                                                    
                                                                                                                                
Representative Doogan asked whether  the fiscal note was the                                                                    
same as  the last time  the committee  had looked at  it; it                                                                    
ran from  $200 million to $400  million in FY 12  to over $2                                                                    
billion in FY 17.                                                                                                               
                                                                                                                                
Commissioner  Butcher   responded  that  the   numbers  were                                                                    
updated from  the original  fiscal note  that came  into the                                                                    
committee with  the bill,  which had been  based on  the DOR                                                                    
fall forecast. The numbers in  the current bill were updated                                                                    
to the preliminary spring forecast.                                                                                             
                                                                                                                                
Representative  Doogan believed  the numbers  in the  fiscal                                                                    
note currently before the committee  had been seen before in                                                                    
last couple of days.                                                                                                            
                                                                                                                                
Commissioner  Butcher  replied  that the  numbers  had  been                                                                    
presented on Saturday [March 26] for the first time.                                                                            
                                                                                                                                
Commissioner Butcher  pointed to an  error on page 4  of the                                                                    
fiscal note. Under  number 6 in the  description (extend the                                                                    
small producer credits), there was  a "125" entered in FY 16                                                                    
and FY 17  that should have been a  negative number, because                                                                    
the  credits would  be paid  out.  He added  that the  total                                                                    
revenue impact at the bottom was correct.                                                                                       
                                                                                                                                
Representative Gara summarized that  there would be $287,000                                                                    
for  2016  for  hiring  the auditors,  $50  million  to  $60                                                                    
million for  changing the interest rate,  about $1.4 billion                                                                    
in lost  tax revenue, over  $400 million for  extra credits,                                                                    
with a total around $1.9 billion for 2016.                                                                                      
                                                                                                                                
Commissioner Butcher  answered that taking the  high numbers                                                                    
and  factoring  in zero  new  production  would produce  the                                                                    
listed numbers.                                                                                                                 
                                                                                                                                
Representative Gara stated concerns about  a chart on page 2                                                                    
showing what would  happen in terms of losses  to the state.                                                                    
He  did  not  believe  the bill  was  tailored  to  increase                                                                    
production. He indicated the bottom  box in 2017 (production                                                                    
tax plus total royalties) and  asked whether the state would                                                                    
lose  $1.2 billion  in production  taxes if  production were                                                                    
increased by 5 percent.                                                                                                         
                                                                                                                                
2:38:00 PM                                                                                                                    
                                                                                                                                
Commissioner  Butcher  replied  that   the  number  was  the                                                                    
number, and would also include  additional credits taken out                                                                    
as a result of production coming  on line. He noted that the                                                                    
number  did not  factor in  jobs and  prolonging the  Trans-                                                                    
Alaska  Pipeline System  (TAPS); the  focus was  specific to                                                                    
the production tax.                                                                                                             
                                                                                                                                
Representative  Gara expressed  amazement. He  asked whether                                                                    
the  $1.2 billion  in less  revenue would  include the  $200                                                                    
million to $400 million in credit costs.                                                                                        
                                                                                                                                
Commissioner Butcher replied that  the number applied to the                                                                    
change in  production tax;  it applied  to the  brackets and                                                                    
did not include  new 15 percent areas that would  not have a                                                                    
cost but would be looking at more production.                                                                                   
                                                                                                                                
Representative Gara pointed to  the 40 percent credit, which                                                                    
he  had heard  could cost  the  state $200  million to  $400                                                                    
million per year as well.  He asked whether the number would                                                                    
be added to the $1.2 billion loss.                                                                                              
                                                                                                                                
Commissioner  Butcher answered  that he  would not  classify                                                                    
the number  as a "loss" as  the revenue had not  come in; it                                                                    
was a  projection of  potential less  revenue. He  said that                                                                    
the $200  million to $400  million would  be added if  a big                                                                    
picture was  being put together,  but the  increased royalty                                                                    
also  should be  added. He  stated that  the issue  was more                                                                    
complex than adding the negatives.                                                                                              
                                                                                                                                
Representative Gara stated  that the way he  read the fiscal                                                                    
note, in  2017, if  the bill succeeded  in adding  5 percent                                                                    
production,  the  state  would  receive  $1.2  billion  less                                                                    
revenue plus  another $200 million  to $400 million  in less                                                                    
revenue because  of the 40  percent tax credit; even  if the                                                                    
bill  were to  increase production  by 10  percent (although                                                                    
there was  no evidence  presented that it  would), according                                                                    
to  the bottom  box, the  state would  lose $914  million in                                                                    
production  taxes,  plus $200  million  to  $400 million  in                                                                    
credits. He  summarized that if  the bill worked,  the state                                                                    
would lose over $1 billion per year.                                                                                            
                                                                                                                                
2:40:46 PM                                                                                                                    
                                                                                                                                
Commissioner  Butcher responded  that the  argument was  not                                                                    
considering that  part of the  negative number  involved the                                                                    
state cashing  in credits that  would be an  investment into                                                                    
future-year  production.  He  did  not  recommend  taking  a                                                                    
snapshot of  one year without acknowledging  that the number                                                                    
also reflected more credits being  used for more exploration                                                                    
and production.                                                                                                                 
                                                                                                                                
Representative Costello queried  the chart on page  4 of the                                                                    
fiscal  note. She  wondered whether  the  totals assumed  no                                                                    
increase  in  production   and  represented  the  worst-case                                                                    
scenario and corresponded to the top chart on page 2.                                                                           
                                                                                                                                
Commissioner  Butcher  responded  in  the  affirmative;  the                                                                    
changes  to the  bill would  be assumed  as well  as no  new                                                                    
production,  which neither  he nor  the governor  considered                                                                    
was a realistic scenario.                                                                                                       
                                                                                                                                
Representative  Wilson addressed  the job  issue related  to                                                                    
service industries  as well as  the companies.  She wondered                                                                    
whether there  would be money  brought in  through corporate                                                                    
taxes to the state.                                                                                                             
                                                                                                                                
Commissioner  Butcher  responded   in  the  affirmative  and                                                                    
stated that he believed the point was important.                                                                                
                                                                                                                                
Representative Wilson asked whether  the purpose of the bill                                                                    
was good-paying jobs.                                                                                                           
                                                                                                                                
Commissioner Butcher  agreed. He explained  that experienced                                                                    
Alaskans  were losing  jobs and  were leaving  the state  to                                                                    
search for work.                                                                                                                
                                                                                                                                
Representative Wilson  believed whole companies  were moving                                                                    
out-of-state.  She wondered  whether  there  were more  jobs                                                                    
offered in  the developmental  stage of  the oil  fields, as                                                                    
opposed to the exploration stage.                                                                                               
                                                                                                                                
2:43:59 PM                                                                                                                    
                                                                                                                                
Commissioner Butcher  responded that  the question  would be                                                                    
better  answered  by  the Department  of  Natural  Resources                                                                    
(DNR).                                                                                                                          
                                                                                                                                
Ms.  Nienhuis   answered  that  a  developing   field  could                                                                    
possibly provide more employment.                                                                                               
                                                                                                                                
Representative  Wilson  believed  that more  service  groups                                                                    
were  connected  with developing  infrastructure,  including                                                                    
roads.                                                                                                                          
                                                                                                                                
Representative  Doogan  wanted to  add  to  the question  by                                                                    
Representative Wilson.  He wondered what  additional revenue                                                                    
would  be  brought  in through  corporate  income  tax  from                                                                    
companies that hired workers.                                                                                                   
                                                                                                                                
Commissioner Butcher  replied that he had  been referring to                                                                    
other  taxes  not  included  in the  fiscal  note,  such  as                                                                    
production and property taxes.                                                                                                  
                                                                                                                                
Representative  Doogan  restated  his question.  He  relayed                                                                    
that the  commissioner had  told Representative  Wilson that                                                                    
other revenue existed besides the  income in the fiscal note                                                                    
that  ought to  be  accounted  for in  terms  of what  would                                                                    
happen  if the  state  gave  money to  the  industry and  it                                                                    
produced  jobs. He  asked how  much additional  income there                                                                    
might be.                                                                                                                       
                                                                                                                                
Commissioner Butcher summarized that  the question was about                                                                    
possible  additional  income to  the  state  other than  the                                                                    
production  tax income.  He thought  Representative Wilson's                                                                    
question was  related to a  multiplier effect for  the state                                                                    
economy of creating oil jobs.                                                                                                   
                                                                                                                                
Representative  Doogan asked  Representative Wilson  to help                                                                    
out.                                                                                                                            
                                                                                                                                
Representative Wilson stated that  she had been referring to                                                                    
the service industry  aside from the oil  companies; she had                                                                    
assumed they  paid other taxes  that were not  factored into                                                                    
the fiscal note.                                                                                                                
                                                                                                                                
Commissioner Butcher  responded that  the taxes  referred to                                                                    
were corporate and property taxes.                                                                                              
                                                                                                                                
Representative Doogan asked what  the additional taxes would                                                                    
be worth.                                                                                                                       
                                                                                                                                
Commissioner Butcher responded that  DOR had yearly listings                                                                    
of  what  the  state  received  through  various  taxes.  He                                                                    
offered to get more information to the committee.                                                                               
                                                                                                                                
2:48:57 PM                                                                                                                    
                                                                                                                                
Vice-chair Fairclough  directed attention to page  86 of the                                                                    
DOR fall revenue forecast, which  indicated the numbers were                                                                    
$80 million  for general corporate taxes  and $447.9 million                                                                    
for petroleum corporate taxes.                                                                                                  
                                                                                                                                
Representative  Doogan  wondered   what  the  increment  was                                                                    
worth. He referred to the  argument that the state would get                                                                    
more  activity that  would generate  more money.  He queried                                                                    
the department's expectation of  the increment of additional                                                                    
taxes.                                                                                                                          
                                                                                                                                
Commissioner Butcher  asked whether  Representative Doogan's                                                                    
question related to the  department's estimate of additional                                                                    
taxes based on future developments.                                                                                             
                                                                                                                                
Representative Doogan  agreed. He recognized  that answering                                                                    
the question  could be  difficult, but  it had  been brought                                                                    
into the discussion.                                                                                                            
                                                                                                                                
Commissioner  Butcher  replied  that   he  had  simply  been                                                                    
agreeing with  Representative Wilson  when she said  that an                                                                    
increase in activity  and jobs would bring  more income into                                                                    
the  state.  He  offered  to   produce  a  matrix  comparing                                                                    
increases  in oil  and gas  production tax  to increases  in                                                                    
corporate tax for service companies.                                                                                            
                                                                                                                                
Representative Doogan waved the white flag on the question.                                                                     
                                                                                                                                
Representative  Gara referred  to  the subject  of jobs.  He                                                                    
realized  that  the  committee  had  never  heard  from  the                                                                    
Department of Labor and  Workforce Development (DLWD), which                                                                    
had given  him the latest  forecast of  oil and gas  jobs in                                                                    
the  state. He  maintained that  the numbers  indicated that                                                                    
the forecast  for jobs  in 2010 was  20 percent  higher than                                                                    
under the  prior tax system.  In 2006, jobs were  at 10,100;                                                                    
in 2005 under  the Economic Limit Factor  (ELF) system, jobs                                                                    
were at  8,700; in  2010, jobs  were at  12,700. He  did not                                                                    
think that  a 4,000 increase  by 2010 sounded like  the job-                                                                    
loss case that DOR had been making.                                                                                             
                                                                                                                                
2:52:39 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze appreciated the  information, but wanted to                                                                    
direct attention to the fiscal note.                                                                                            
                                                                                                                                
Representative  Gara  pointed  to  the  fiscal  note  as  it                                                                    
related to  jobs. He noted  that page 2 included  the impact                                                                    
of increased  production on royalties, which  he thought was                                                                    
fair. The  department forecasted  that the state  would take                                                                    
in $1.2  billion less in  production taxes and  $200 million                                                                    
to $400 million less from credits  if the bill resulted in 5                                                                    
percent more production. He believed  taking in $1.4 million                                                                    
less each year  would negatively impact service  jobs in the                                                                    
state; he wondered whether that had been factored in.                                                                           
                                                                                                                                
Commissioner Butcher responded that  the state would have in                                                                    
excess of  $10 billion in the  CBR at the end  of a ten-year                                                                    
period,  assuming  the   preliminary  spring  forecast,  the                                                                    
passage  of HB  110,  no  new development  in  the next  ten                                                                    
years, and factoring in the  Legislative Finance estimate on                                                                    
budget  increases.   He  added  information  from   DLWD  on                                                                    
comparisons   of    calendar-year   unemployment   insurance                                                                    
claimants;  oil  and  gas  industry  related  claimants  had                                                                    
tripled in Alaska between 2006 and calendar year 2010.                                                                          
                                                                                                                                
Representative Doogan asked for more details.                                                                                   
                                                                                                                                
Commissioner Butcher  answered that in 2006,  there were 904                                                                    
claimants; in 2010, there were 2,540.                                                                                           
                                                                                                                                
Representative Doogan  asked whether  there had been  a rise                                                                    
in actual employment  in the oil patch and  whether that had                                                                    
continued.                                                                                                                      
                                                                                                                                
Commissioner  Butcher replied  that there  had been  a small                                                                    
increase in total  jobs up until 2009; there had  been a dip                                                                    
in 2010. He did not think the increase was "just a blip."                                                                       
                                                                                                                                
2:56:24 PM                                                                                                                    
                                                                                                                                
Representative  Hawker pointed  to page  6 of  DLWD's Alaska                                                                    
Economic  Trends  (January  2011),  which  highlighted  that                                                                    
"less  oil production  means more  risk…the  problem of  low                                                                    
production increases  uncertainty of its  potential economic                                                                    
growth." He  noted that Section  8 addressed how oil  was no                                                                    
longer  fueling   the  state's  expansion.  He   wanted  the                                                                    
committee to have the most current information.                                                                                 
                                                                                                                                
Representative  Hawker  also  had   a  technical  point.  He                                                                    
believed the state  was in uncharted territory  with HB 110.                                                                    
He did not  think the state had ever  considered a reduction                                                                    
in  the level  at which  government would  confiscate wealth                                                                    
from the  private sector;  the state  had increased  what it                                                                    
took. He  thought the film  tax credits were  a "spectacular                                                                    
exhibit to the  contrary"; the state had  given $100 million                                                                    
to the film industry.                                                                                                           
                                                                                                                                
Representative Hawker  referenced 2013 and  2014 information                                                                    
from the  DOR chart presented during  the department's March                                                                    
26  hearing  before the  committee  related  to revenue  was                                                                    
anticipated under  Alaska Clear and Equitable  Share (ACES).                                                                    
He pointed to the original  fiscal note that had accompanied                                                                    
the ACES legislation  to the final vote on the  floor of the                                                                    
Senate.  He reported  that  during the  debate  on the  ACES                                                                    
bill, the outside  realm considered for oil  prices had been                                                                    
$80  per barrel;  ACES was  never "stress-tested"  at higher                                                                    
oil  prices  for  consequences   to  the  industry  and  the                                                                    
economy.                                                                                                                        
                                                                                                                                
Representative  Hawker  detailed  that  CSHB  2001(FIN)  had                                                                    
projected production  tax revenue for 2013  at $1.9 billion;                                                                    
currently  the  projection for  2013  was  $3.1 billion.  He                                                                    
believed the difference was $1.2  billion more that would be                                                                    
taken from  industry in 2013 than  was voted on in  the ACES                                                                    
bill.                                                                                                                           
                                                                                                                                
3:00:42 PM                                                                                                                    
                                                                                                                                
Representative  Hawker noted  that  the worst-case  scenario                                                                    
(no production  increase, the adjustments, the  reduction in                                                                    
government  take from  the private  sector, the  loss of  as                                                                    
much as  $500 million)  and pointed out  that the  state was                                                                    
already  taking   in  $1.2  billion   more  than   what  was                                                                    
anticipated when  the bill passed.  He believed  the factors                                                                    
should be  taken into consideration when  evaluating whether                                                                    
the state had  reached a level of overtaxing.  He noted that                                                                    
the  same number  worked for  the year  2014. The  state was                                                                    
currently  taking  in  $1.7  billion   more  than  what  was                                                                    
originally  voted on  in  ACES. He  thought  there had  been                                                                    
compelling testimony  about reducing  taxes. He  stated that                                                                    
he did not  subscribe to the theory of  taxing industry into                                                                    
production, but to a more  free-market concept that lowering                                                                    
taxes would increase production.                                                                                                
                                                                                                                                
Representative Hawker addressed  what motivated industry. He                                                                    
pointed to Bloomberg news published  March 29, 2011, related                                                                    
to  the  United  Kingdom's  increase in  its  taxes  on  oil                                                                    
production  profits  from  50  percent  to  62  percent.  He                                                                    
reported  that Statoil  in Norway  had officially  announced                                                                    
putting  a  $10 million  plan  to  develop the  Mariner  and                                                                    
Bressay fields in the UK on  hold, saying it was less likely                                                                    
to buy British assets after a tax increase.                                                                                     
                                                                                                                                
Representative  Hawker recalled  the  two-tiered graph  seen                                                                    
previously by  the committee related  to UK  oil production;                                                                    
he referred to  the last time the UK wanted  to use money to                                                                    
pay for  social programs.  The UK  had eliminated  the high-                                                                    
production profits tax on new  oil field development and the                                                                    
North  Sea  production  rose  even  higher  than  under  the                                                                    
existing tax regime.                                                                                                            
                                                                                                                                
Representative Hawker summarized that  HB 110 represented an                                                                    
investment in  a sustained and  robust Alaskan  economy, and                                                                    
not a give-away. He believed  the fiscal note pointed in the                                                                    
right direction.                                                                                                                
                                                                                                                                
3:04:37 PM                                                                                                                    
                                                                                                                                
Representative  Gara  noted  that  the job  numbers  he  had                                                                    
referred to  earlier had come  from DLWD and were  from July                                                                    
2010; the  numbers showed jobs  were 27 percent  higher than                                                                    
they had been in 2005.                                                                                                          
                                                                                                                                
Co-Chair Stoltze  turned attention to the  amendments for HB                                                                    
110. He  noted that Amendments  1 and  2 would be  held back                                                                    
for the time being.                                                                                                             
                                                                                                                                
Representative  Gara  MOVED   Amendment  3,  27-GH1007\I.11,                                                                    
Bullock, 3/28/11 (copy on file):                                                                                                
                                                                                                                                
     Page 1, lines 1 - 8:                                                                                                       
          Delete all material and insert:                                                                                       
          ""An Act relating to a tax credit applicable to                                                                     
     the oil and gas production tax based on capital                                                                          
     expenditures; relating to the alternative tax credit                                                                     
     for oil and gas exploration; and providing for an                                                                        
     effective date.""                                                                                                        
                                                                                                                                
     Page 1, line 10, through page 20, line 25:                                                                                 
          Delete all material and insert:                                                                                       
        "* Section 1.  AS 43.55.023(a) is amended to read:                                                                  
               (a)  A producer or explorer may take a tax                                                                       
          credit  for  a  qualified capital  expenditure  as                                                                    
          follows:                                                                                                              
                    (1)  except as limited by (p) of this                                                                   
          section, 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);                                                                     
                         (B)  submits to the Department of                                                                      
               Natural Resources all data that would be                                                                         
               required     to     be    submitted     under                                                                    
               AS 43.55.025(f)(2).                                                                                              
        * Sec. 2. AS 43.55.023(d) is amended to read:                                                                         
               (d)  Except as limited by (i) and (p) of                                                                     
          this section, 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  (1)  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;  (2)  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 (3)                                                                    
          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.                                                                                           
        * Sec. 3. AS 43.55.023 is amended by adding a new                                                                     
     subsection to read:                                                                                                        
               (p)  The amount of credit for a capital                                                                          
          expenditure  under  (a)  of this  section  for  an                                                                    
          expenditure  that  is  also  a  lease  expenditure                                                                    
          under  AS 43.55.165  is   reduced  by  the  amount                                                                    
          necessary so  that the  tax benefit  percentage is                                                                    
          not   more  than   85  percent   of  the   capital                                                                    
          expenditure. The  amount of  credit for  a capital                                                                    
          expenditure  under (a)  of this  section that  may                                                                    
          not  be taken  because of  the limitation  in this                                                                    
          subsection may not be applied  in a later calendar                                                                    
          year  under (c)  of this  section and  may not  be                                                                    
          included  in  an  application  for  a  tax  credit                                                                    
          certificate  under (d)  of this  section. In  this                                                                    
          subsection,  "tax  benefit percentage"  means  the                                                                    
          sum  of   the  average  monthly  tax   rate  under                                                                    
          AS 43.55.011(e)  for the  calendar  year in  which                                                                    
          the  credit is  taken  and the  percentage of  the                                                                    
          capital expenditure that may  be taken as a credit                                                                    
          under (a) of this section.                                                                                            
        * Sec. 4. AS 43.55.025(a) is amended to read:                                                                         
               (a)  Subject to the terms and conditions of                                                                      
          this section, a credit  against the production tax                                                                    
          levied   by   AS 43.55.011(e)   is   allowed   for                                                                    
          exploration  expenditures that  qualify under  (b)                                                                    
          of this section  in an amount equal to  50 [ONE OF                                                                
          THE FOLLOWING:                                                                                                        
                    (1)  30] percent of the total                                                                               
          exploration expenditures [THAT  QUALIFY ONLY UNDER                                                                    
          (b) AND (c) OF THIS SECTION;                                                                                          
                    (2)      30   PERCENT   OF   THE   TOTAL                                                                    
          EXPLORATION EXPENDITURES  THAT QUALIFY  ONLY UNDER                                                                    
          (b) AND (d) OF THIS SECTION;                                                                                          
                    (3)      40   PERCENT   OF   THE   TOTAL                                                                    
          EXPLORATION EXPENDITURES  THAT QUALIFY  UNDER (b),                                                                    
          (c), AND (d) OF THIS SECTION;                                                                                         
                    (4)      40   PERCENT   OF   THE   TOTAL                                                                    
          EXPLORATION EXPENDITURES  THAT QUALIFY  ONLY UNDER                                                                    
          (b) AND (e) OF THIS SECTION; OR                                                                                       
                    (5)  80, 90, OR 100 PERCENT, OR A                                                                           
          LESSER AMOUNT  DESCRIBED IN  (l) OF  THIS SECTION,                                                                    
          OF  THE TOTAL  EXPLORATION EXPENDITURES  DESCRIBED                                                                    
          IN  (b)(1)  AND  (2)  OF   THIS  SECTION  AND  NOT                                                                    
          EXCLUDED BY  (b)(3) AND (4)  OF THIS  SECTION THAT                                                                    
         QUALIFY ONLY UNDER (l) OF THIS SECTION].                                                                               
        * Sec. 5. AS 43.55.025(b) is amended to read:                                                                         
               (b)  To qualify for the production tax                                                                           
          credit under  (a) of this section,  an exploration                                                                    
          expenditure  must be  incurred for  work performed                                                                    
          after  June 30,  2008,  and  before  July 1,  2021                                                                
          [2016], and                                                                                                           
                    (1)  may be for seismic or other                                                                            
          geophysical exploration  costs not  connected with                                                                    
          a specific well;                                                                                                      
                    (2)  if for an exploration well,                                                                            
                         (A)  must be incurred by an                                                                            
               explorer that holds an interest in the                                                                           
               exploration well for which the production                                                                        
               tax credit is claimed;                                                                                           
                         (B)  may be for either a well that                                                                     
               encounters an oil or gas deposit or a dry                                                                        
               hole;                                                                                                            
                         (C)  must be for a well that has                                                                       
               been completed, suspended, or abandoned at                                                                       
               the time  the explorer claims the  tax credit                                                                    
              under (f) of this section; and                                                                                    
                         (D)  must be for goods, services,                                                                      
               or  rentals of  personal property  reasonably                                                                    
               required   for   the   surface   preparation,                                                                    
               drilling, casing,  cementing, and  logging of                                                                    
               an exploration  well, and, in  the case  of a                                                                    
               dry  hole,  for  the  expenses  required  for                                                                    
               abandonment if  the well is  abandoned within                                                                    
               18  months  after  the   date  the  well  was                                                                    
               spudded;                                                                                                         
                    (3)  may not be for administration,                                                                         
          supervision,   engineering,  or   lease  operating                                                                    
          costs; geological  or management  costs; community                                                                    
          relations or environmental  costs; bonuses, taxes,                                                                    
          or other  payments to  governments related  to the                                                                    
          well; costs,  including repairs  and replacements,                                                                    
          arising  from or  associated  with fraud,  willful                                                                    
          misconduct,     gross     negligence,     criminal                                                                    
          negligence,  or  violation  of  law,  including  a                                                                    
          violation  of 33  U.S.C. 1319(c)(1)  or 1321(b)(3)                                                                    
          (Clean  Water  Act);  or   other  costs  that  are                                                                    
          generally   recognized   as  indirect   costs   or                                                                    
          financing costs; and                                                                                                  
                    (4)  may not be incurred for an                                                                             
          exploration  well or  seismic exploration  that is                                                                    
          included in  a plan  of exploration  or a  plan of                                                                    
          development for any unit before May 14, 2003.                                                                         
        * Sec. 6. AS 43.55.025(k) is amended to read:                                                                         
               (k)   Subject to the terms  and conditions of                                                                    
          this section, if a claim  is filed under (f)(1) of                                                                    
          this  section  before  January 1, 2021  [2016],  a                                                                
          credit  against  the   production  tax  levied  by                                                                    
          AS 43.55.011(e) is  allowed in an amount  equal to                                                                    
          five  percent  of  an eligible  expenditure  under                                                                    
          this subsection  incurred for  seismic exploration                                                                    
          performed  before  July 1,  2003. To  be  eligible                                                                    
          under this subsection, an expenditure must                                                                            
                    (1)  have been for seismic exploration                                                                      
          that                                                                                                                  
                         (A)  obtained data that the                                                                            
               commissioner  of natural  resources considers                                                                    
               to be  in the best  interest of the  state to                                                                    
               acquire for public distribution; and                                                                             
                         (B)  was conducted outside the                                                                         
               boundaries  of  a production  unit;  however,                                                                    
               the  amount   of  the  expenditure   that  is                                                                    
               otherwise  eligible  under  this  section  is                                                                    
               reduced  proportionately  by the  portion  of                                                                    
               the   seismic   exploration   activity   that                                                                    
               crossed into a production unit; and                                                                              
                    (2)  qualify under (b)(3) of this                                                                           
          section.                                                                                                              
        *    Sec.    7.    AS 43.55.025(c),    43.55.025(d),                                                                  
     43.55.025(e), 43.55.025(l), and 43.55.025(m) are                                                                           
     repealed.                                                                                                                
        * Sec. 8. This Act takes effect January 1, 2012."                                                                     
                                                                                                                                
Vice-chair Fairclough OBJECTED.                                                                                                 
                                                                                                                                
3:06:08 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:29:16 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative Gara  explained that Amendment 3  would offer                                                                    
a   different  approach   than  the   governor's  bill.   He                                                                    
maintained that there  were two ways to  approach an attempt                                                                    
to increase production on the  North Slope. He described the                                                                    
main  thrust of  the governor's  approach as  reducing taxes                                                                    
with the  hope that the  companies would spend the  money in                                                                    
the state.  He did  not believe the  approach had  worked in                                                                    
2006, when tax rates were  very low and investment was lower                                                                    
and oil production was declining.                                                                                               
                                                                                                                                
Representative Gara  pointed to  an advertisement  taken out                                                                    
by the state  in Petroleum News and said  that using credits                                                                    
attracted  investment; with  credits,  the money  had to  be                                                                    
spent in Alaska, Alaskans had  to be hired, and the activity                                                                    
had to relate  to what the credit was aimed  at in order for                                                                    
someone to receive the state's money.                                                                                           
                                                                                                                                
Representative Gara  continued that Amendment 3  would raise                                                                    
the  exploration credit  to  50  percent and  cap  it at  85                                                                    
percent  when   the  other   credits  and   deductions  were                                                                    
considered. The  amendment intended  to address  the concern                                                                    
from  the  administration raised  at  the  beginning of  the                                                                    
debate that exploration and exploration  wells were down. He                                                                    
believed  the smartest  way to  increase exploration  was to                                                                    
grant  an enhanced  credit to  encourage companies  to drill                                                                    
exploration wells.  He emphasized  that the  companies would                                                                    
not get the money unless the wells were drilled.                                                                                
                                                                                                                                
Representative Gara  argued that  the measure  would address                                                                    
the  weakness  in  the  governor's   bill,  which  was  that                                                                    
companies could  get the money even  if they took it  out of                                                                    
Alaska. The  amendment would require  the money to  be spent                                                                    
inside  the   state.  The  amendment  would   make  it  more                                                                    
profitable for a company to drill an exploration well.                                                                          
                                                                                                                                
Representative   Gara  referred   to   DOR  testimony   that                                                                    
development  wells  would  not  get the  state  out  of  the                                                                    
production  decline (even  though they  were at  the highest                                                                    
level since  2005 or 2006);  new exploration was  needed. He                                                                    
did  not  believe the  governor's  bill  would lead  to  new                                                                    
exploration. He  believed the governor's version  would lead                                                                    
to capital  flight; under the  most recent fiscal  note, the                                                                    
state  would lose  around $1.5  billion each  year, even  if                                                                    
production went up.                                                                                                             
                                                                                                                                
Representative  Gara  thought   Amendment  3  represented  a                                                                    
"smarter  way  to  go."  The   amendment  would  provide  an                                                                    
exploration credit that required  hiring people in Alaska to                                                                    
do  more exploration,  in  return for  help  paying for  the                                                                    
wells.                                                                                                                          
                                                                                                                                
3:33:04 PM                                                                                                                    
                                                                                                                                
Co-Chair   Stoltze   queried   materials   handed   out   by                                                                    
Representative Gara.                                                                                                            
                                                                                                                                
Representative  Gara  explained  that the  handout  was  the                                                                    
advertisement taken  out by the  state making the  case that                                                                    
ACES was working and that the  state had been a good partner                                                                    
for new explorers.  He maintained that DOR did  not make the                                                                    
same case, but almost the opposite one.                                                                                         
                                                                                                                                
Co-Chair Stoltze commended DNR for the ad.                                                                                      
                                                                                                                                
Vice-chair Fairclough  spoke in  opposition to  Amendment 3.                                                                    
She  referred to  testimony before  the  committee that  the                                                                    
state   already   greatly  incentivized   exploration.   She                                                                    
referred  to interest  by companies  in taking  advantage of                                                                    
the  credits  put out  by  the  state for  exploration.  She                                                                    
reminded the  committee that  it had  agreed with  the House                                                                    
Resources  Committee in  accepting  an amendment  in the  CS                                                                    
currently  before the  Finance Committee  that extended  the                                                                    
years;  there were  people  interested,  but she  maintained                                                                    
that  the  state  did  not   yet  have  the  actual  capital                                                                    
investment. She  referred to  interest in  the progressivity                                                                    
and  the severance  tax that  would have  to be  paid, which                                                                    
would  mean that  they could  not  yet take  the product  to                                                                    
market and sell it.                                                                                                             
                                                                                                                                
Vice-chair Fairclough  emphasized that there  were different                                                                    
phases  and different  entities  that wanted  to invest  and                                                                    
were  attracted  to  different components  of  Alaska's  tax                                                                    
policy for  exploration. She argued  that the  state already                                                                    
had great  exploration credits, but  could not  get anything                                                                    
in  the  pipeline to  monetize,  because  the entities  were                                                                    
ready  to sell  to  someone  who would  have  to  go to  the                                                                    
capital  market  and  find  an investor  to  invest  in  the                                                                    
facilities to take the oil and monetize it.                                                                                     
                                                                                                                                
Vice-chair Fairclough  believed the governor's  amended bill                                                                    
before the committee would extend  the years, as recommended                                                                    
by  the  House  Resources  Committee, so  that  there  could                                                                    
possibly be a  few more interested parties.  She agreed with                                                                    
Representative Hawker  that the state had  never anticipated                                                                    
the amount  of revenue that  would come into the  state; the                                                                    
higher level  of production was  not "stress-tested"  at the                                                                    
higher dollar  amount per barrel  (above $80 per  barrel) to                                                                    
see its effect on the opportunity to attract capital.                                                                           
                                                                                                                                
Vice-chair  Fairclough   believed  Alaska   already  offered                                                                    
excellent  incentives   for  exploration  credits,   and  so                                                                    
opposed Amendment 3.                                                                                                            
                                                                                                                                
3:36:49 PM                                                                                                                    
                                                                                                                                
Representative  Hawker  testified  against Amendment  3.  He                                                                    
thought the  goals in  the amendment  were laudable,  but he                                                                    
felt the  execution was flawed.  He addressed  the technical                                                                    
aspects  of  the  amendment.  He  thought  the  first  three                                                                    
sections were basically adding a  new limit to the amount of                                                                    
credits  that could  be  taken, in  the form  of  a cap.  He                                                                    
pointed  to the  language on  page 2,  lines 28  through 30,                                                                    
which  stipulated that  to put  the cap  on the  credit, the                                                                    
amount of  the credit for  the capital expenditure  would be                                                                    
reduced by  another amount  that was  necessary so  that the                                                                    
tax benefit percentage  was not more than 85  percent of the                                                                    
capital  expenditure.  He  called the  proposal  "accounting                                                                    
alchemy."  He  did  not  know how  a  person  could  convert                                                                    
percentages into  hard dollar  expenditures. He  thought the                                                                    
sentence was a technical error.                                                                                                 
                                                                                                                                
Representative  Hawker  turned  to  Section  4,  related  to                                                                    
enhancing the  majority of  the credits,  particularly those                                                                    
affecting the  North Slope,  from a 30  and 40  percent tier                                                                    
(depending  on  certain  criteria)  to a  fixed  50  percent                                                                    
allowed  for  exploration  expenditures. The  section  would                                                                    
delete an area where the state  was taking 80 to 100 percent                                                                    
of  an amount  described in  (l)  of the  section, which  he                                                                    
maintained would  actually lower  the credits  available. He                                                                    
believed Section (l)  should be of "grave  concern" to those                                                                    
in Southcentral  Alaska, as  it was  the language  added the                                                                    
prior year intended to create  the Cook Inlet land rush. The                                                                    
provision  provided  for  a substantial  incentive  for  the                                                                    
first  three  unaffiliated   persons  drilling  an  offshore                                                                    
exploration well for  the purpose of discovering  oil or gas                                                                    
in  the Cook  Inlet  that drilled  deep  and penetrated  and                                                                    
evaluated a prospect in the  pre-tertiary zone using a jack-                                                                    
up rig.                                                                                                                         
                                                                                                                                
Representative Hawker  argued that  there were at  least two                                                                    
organizations that  were in the  process of  working towards                                                                    
taking  advantage of  the provision  already in  statute and                                                                    
getting the  vital drilling done.  He thought the  issue was                                                                    
keeping  the heat  and lights  on in  his community  and not                                                                    
letting people  "freeze in the  dark" while the  state tried                                                                    
to bring  the necessary production enhancements  to the Cook                                                                    
Inlet. He  referred to previous  discussion and  stated that                                                                    
he  did not  want  to  compromise the  issue  through a  new                                                                    
statute.                                                                                                                        
                                                                                                                                
3:40:54 PM                                                                                                                    
                                                                                                                                
Representative  Guttenberg  acknowledged   DNR  for  the  ad                                                                    
communicating  that Alaska  was open  for business  and "the                                                                    
more  you   invest  the   less  you   pay."  He   hoped  the                                                                    
administration would  continue the  trend, and not  give the                                                                    
impression that the state was closed for business.                                                                              
                                                                                                                                
Representative Guttenberg  spoke in support of  Amendment 3.                                                                    
He believed that  there were two parts to the  bill and that                                                                    
the  amendment  addressed  exploration, the  more  important                                                                    
part.  He  referred  to testimony  about  understanding  the                                                                    
nature  of the  oil  basin,  and how  little  was known.  He                                                                    
wanted to "gold plate" and  not "gold fence." He thought the                                                                    
amendment  would  help  focus   the  issue  and  bring  more                                                                    
exploration to the state.                                                                                                       
                                                                                                                                
Representative Wilson voiced opposition  to Amendment 3. She                                                                    
believed the  state was already  open for business  and that                                                                    
more explorers  had come and  drilled, but the  key question                                                                    
was  why   there  was  no   development.  She   thought  the                                                                    
incentives  had to  be for  the producers.  She had  learned                                                                    
that the Interior had less than  two weeks of heating oil in                                                                    
reserve if the  pipeline shut down. She wanted  effort to go                                                                    
towards development.                                                                                                            
                                                                                                                                
3:45:31 PM                                                                                                                    
                                                                                                                                
Representative   Gara  MOVED   Conceptual  Amendment   1  to                                                                    
Amendment 3:                                                                                                                    
                                                                                                                                
     Page 3, lines 21-25                                                                                                        
     Delete text                                                                                                                
                                                                                                                                
Representative  Hawker OBJECTED.  He  argued against  making                                                                    
"conceptual amendments  on the  fly." He  questioned whether                                                                    
there  could  be  absolute  assurance  that  the  conceptual                                                                    
amendment would do what it intended to do.                                                                                      
                                                                                                                                
Co-Chair  Stoltze  acknowledged   that  Representative  Gara                                                                    
could not guarantee  that, but thought he  could clarify his                                                                    
intentions.                                                                                                                     
                                                                                                                                
Representative Hawker REMOVED his OBJECTION.                                                                                    
                                                                                                                                
There being NO further OBJECTION, it was so ordered.                                                                            
                                                                                                                                
Representative   Gara  MOVED   Conceptual  Amendment   2  to                                                                    
Amendment  3  to  include  a  possible  conforming  language                                                                    
change that could be required later in Amendment 3:                                                                             
                                                                                                                                
     Page 5, line 8                                                                                                             
     Eliminate the repealer to 43.55.025(l)                                                                                     
                                                                                                                                
There being NO OBJECTION, it was so ordered.                                                                                    
                                                                                                                                
3:48:29 PM                                                                                                                    
                                                                                                                                
Representative  Gara noted  a  further  need for  conforming                                                                    
language  page 2,  line 29.  He responded  to Representative                                                                    
Hawker's statement  that the 85  percent cap was  not clear.                                                                    
He believed line 29 stated  the issue clearly, and said that                                                                    
a  company would  only  get as  high as  85  percent of  the                                                                    
capital expenditure.                                                                                                            
                                                                                                                                
Representative Gara  pointed out  that ACES had  passed over                                                                    
three years prior. He summarized  that all the testimony had                                                                    
shown that it  took five to seven years to  get a field from                                                                    
exploration to being on-line; there  had only been three and                                                                    
one-half  years  since  exploration started.  The  unopposed                                                                    
testimony had been  that there had been  lots of exploration                                                                    
on the North  Slope. He did not think  companies would spend                                                                    
money on  exploration if they  did not think there  would be                                                                    
the capital to produce.                                                                                                         
                                                                                                                                
Representative  Gara  emphasized  that the  three  to  seven                                                                    
years needed in order to produce  had not passed, and he did                                                                    
not  want to  put  a stop  to a  process  that was  probably                                                                    
working before  the necessary time  needed to get  fields to                                                                    
development.                                                                                                                    
                                                                                                                                
Representative Gara  argued that  Amendment 3  was necessary                                                                    
(along with  another amendment that was  forthcoming) if the                                                                    
goal was  more jobs, more  exploration, and more oil  in the                                                                    
pipeline.                                                                                                                       
                                                                                                                                
3:50:26 PM                                                                                                                    
                                                                                                                                
Vice-chair Fairclough MAINTAINED  her OBJECTION to Amendment                                                                    
3.                                                                                                                              
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Guttenberg, Doogan, Gara                                                                                              
OPPOSED:   Joule,   Hawker,    Wilson,   Costello,   Edgmon,                                                                    
Fairclough, Stoltze, Thomas                                                                                                     
                                                                                                                                
The MOTION FAILED (8/3). Amendment 3 was not adopted.                                                                           
                                                                                                                                
Vice-chair Fairclough  requested fiscal notes  for Amendment                                                                    
3 and  Amendment 4. She  wanted to know the  potential costs                                                                    
of the proposals.                                                                                                               
                                                                                                                                
Representative  Gara  MOVED   Amendment  4,  27-GH1007\I.13,                                                                    
Bullock, 3/28/11 (copy on file):                                                                                                
                                                                                                                                
     Page 1, lines 1 - 8:                                                                                                       
          Delete all material and insert:                                                                                       
          ""An Act providing for a tax credit applicable to                                                                   
     the oil and gas production tax based on capital                                                                          
     expenditures for a production facility for new oil and                                                                   
     gas production; and providing for an effective date.""                                                                   
                                                                                                                                
     Page 1, line 10, through page 20, line 25:                                                                                 
          Delete all material and insert:                                                                                       
        "* Section 1. AS 43.20.043(g) is amended to read:                                                                   
               (g)  A taxpayer that obtains a credit for a                                                                      
          qualified capital investment  or cost incurred for                                                                    
          qualified  services  under  this section  may  not                                                                    
          also claim  a tax  credit or  royalty modification                                                                    
          for the same qualified  capital investment or cost                                                                    
          incurred    for     qualified    services    under                                                                    
          AS 38.05.180(i), AS 41.09.010,  AS 43.55.023, [OR]                                                                    
          43.55.025, or  43.55.026. However, a  taxpayer may                                                                
          elect not  to obtain  a credit under  this section                                                                    
          in order  to qualify  for a credit  provided under                                                                    
          AS 38.05.180(i), AS 41.09.010,  AS 43.55.023, [OR]                                                                    
          43.55.025, or 43.55.026.                                                                                          
        * Sec. 2. AS 43.55.023(a) is amended to read:                                                                         
               (a)  A producer or explorer may take a tax                                                                       
          credit  for  a  qualified capital  expenditure  as                                                                    
          follows:                                                                                                              
                    (1)  except as limited by (p) of this                                                                   
          section, 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, or  43.55.026, 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);                                                                     
                         (B)  submits to the Department of                                                                      
               Natural Resources all data that would be                                                                         
               required     to     be    submitted     under                                                                    
               AS 43.55.025(f)(2).                                                                                              
        * Sec. 3. AS 43.55.023(d) is amended to read:                                                                         
               (d)  Except as limited by (i) and (p) of                                                                     
          this section, 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  (1)  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;  (2)  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 (3)                                                                    
          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.                                                                                           
        * Sec. 4. AS 43.55.023 is amended by adding a new                                                                     
     subsection to read:                                                                                                        
               (p)  The amount of credit for a capital                                                                          
          expenditure  under  (a)  of this  section  for  an                                                                    
          expenditure  that  is  also  a  lease  expenditure                                                                    
          under  AS 43.55.165  is   reduced  by  the  amount                                                                    
          necessary so  that the  tax benefit  percentage is                                                                    
          not   more  than   85  percent   of  the   capital                                                                    
          expenditure. The  amount of  credit for  a capital                                                                    
          expenditure  under (a)  of this  section that  may                                                                    
          not  be taken  because of  the limitation  in this                                                                    
          subsection may not be applied  in a later calendar                                                                    
          year  under (c)  of this  section and  may not  be                                                                    
          included  in  an  application  for  a  tax  credit                                                                    
          certificate  under (d)  of this  section. In  this                                                                    
          subsection,  "tax  benefit percentage"  means  the                                                                    
          sum  of   the  average  monthly  tax   rate  under                                                                    
          AS 43.55.011(e)  for the  calendar  year in  which                                                                    
          the  credit is  taken  and the  percentage of  the                                                                    
          capital expenditure that may  be taken as a credit                                                                    
          under (a) of this section.                                                                                            
        * Sec. 5. AS 43.55 is amended by adding a new                                                                         
     section to read:                                                                                                           
               Sec. 43.55.026. Production facility cost                                                                       
          credit. (a)  This section applies to  a credit for                                                                  
          a   qualified   production  facility   expenditure                                                                    
          incurred before  the date of production  of oil or                                                                    
          gas in  paying quantities for a  lease or property                                                                    
          that  is taxable  under  AS 43.55.011(e) and  that                                                                    
          contains land  that, as  of December 31,  2010, is                                                                    
          not or  previously had not  been within a  unit or                                                                    
         produced oil or gas in paying quantities.                                                                              
               (b)  The amount of the credit under this                                                                         
          section is  equal to 50  percent of  the qualified                                                                    
          production   facility    expenditures   that   are                                                                    
          incurred after  the completion  of the  first well                                                                    
          drilled   that  discovers   a   pool  capable   of                                                                    
          commercial production  from the lease  or property                                                                    
          and  before  the  commencement  of  production  in                                                                    
          paying    quantities.     The    department,    in                                                                    
          consultation with the                                                                                                 
                    (1)  Alaska Oil and Gas Conservation                                                                        
          Commission, shall determine the  date on which the                                                                    
          first well  drilled discovered  a pool  capable of                                                                    
          production from a lease or  property for which the                                                                    
          credit is taken; and                                                                                                  
                    (2)  Department of Natural Resources,                                                                       
          shall determine  the date  of the  commencement of                                                                    
          production in paying quantities  from the lease or                                                                    
          property for which the credit is taken.                                                                               
               (c)  The credit under this section may be                                                                        
          applied against the  tax due under AS 43.55.011(e)                                                                    
          during the  two-year period  immediately following                                                                    
          the  date of  the  commencement  of production  in                                                                    
          paying quantities.                                                                                                    
               (d)  A qualified production facility                                                                             
          expenditure that  is taken as a  credit under this                                                                    
          section  may not  be used  as  an expenditure  for                                                                    
          which a credit may  be taken under AS 43.20.043 or                                                                    
          AS 43.55.023.  A credit  under AS 43.55.023  for a                                                                    
          qualified production facility  expenditure may not                                                                    
          be    taken   against    the    tax   due    under                                                                    
          AS 43.55.011(e) during  the same month in  which a                                                                    
          credit  is taken  or purchased  by the  department                                                                    
          under this section.                                                                                                   
               (e)  A credit or portion of a credit under                                                                       
          this  section   may  not  be  used   to  reduce  a                                                                    
          taxpayer's  tax  liability  under  AS 43.55.011(e)                                                                    
          below  zero  for  any  calendar  month.  A  person                                                                    
          eligible for  the credit  under this  section that                                                                    
          does  not  take  the credit  within  the  two-year                                                                    
          period  immediately  following  the  date  of  the                                                                    
          commencement  of production  in paying  quantities                                                                    
          may  apply to  the department  for a  cash payment                                                                    
          under  AS 43.55.028.  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   date  the  department   receives  the                                                                    
          application.  If, based  on  the information  then                                                                    
          available  to  it,  the department  is  reasonably                                                                    
          satisfied  that the  applicant  is  entitled to  a                                                                    
          payment,  the  department  shall  issue  the  cash                                                                    
          payment or  a lesser amount after  applying all or                                                                    
          a portion of the  credit to any outstanding unpaid                                                                    
          balance of a tax owed  by the applicant under this                                                                    
          title.                                                                                                                
               (f)  The department shall adopt regulations                                                                      
          describing  the  procedures  for  determining  the                                                                    
          amount    of   the    credit,   record    keeping,                                                                    
          verification  of   the  accuracy  of   the  credit                                                                    
          claimed,  and   other  regulations   necessary  to                                                                    
          administer this section.                                                                                              
               (g)  In this section,                                                                                            
                    (1)  "production facility" means a flow                                                                     
          station,  a gathering  center, a  pump station,  a                                                                    
          storage  tank,  and   related  appurtenances,  and                                                                    
          other  facilities that  gather, clean,  dehydrate,                                                                    
          condition,  or store  crude oil,  natural gas,  or                                                                    
          associated hydrocarbons and that  are located on a                                                                    
         lease or property leased from the state;                                                                               
                    (2)  "production in paying quantities"                                                                      
          means  production of  oil  and  gas in  quantities                                                                    
          sufficient to  recover the  cost of  operating and                                                                    
          marketing,   although   the    quantity   may   be                                                                    
          insufficient to recover the cost of drilling;                                                                         
                    (3)  "qualified production facility                                                                         
          expenditure"   means   an    expenditure   for   a                                                                    
          production facility  that may  be recognized  as a                                                                    
          qualified  capital   expenditure  as   defined  in                                                                    
          AS 43.55.023.                                                                                                         
        * Sec. 6. AS 43.55.028(a) is amended to read:                                                                         
               (a)  The oil and gas tax credit fund is                                                                          
          established as  a separate fund of  the state. The                                                                    
          purpose of  the fund  is to  purchase transferable                                                                    
          tax credit certificates  issued under AS 43.55.023                                                                    
          and  production  tax  credit  certificates  issued                                                                    
          under AS 43.55.025  and to pay for  unused credits                                                                
          under  AS 43.55.026  and   refunds  claimed  under                                                                
          AS 43.20.046.                                                                                                         
        * Sec. 7. AS 43.55.028(g) 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   and                                                                
          payments  for unused  credits  under this  chapter                                                                
          and  claims for  refunds  under AS 43.20.046  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(m),  a payment  for an  unused credit                                                                
          under  AS 43.55.026(e),  or  a  claim  for  refund                                                                
          under AS 43.20.046.                                                                                                   
        * Sec. 8. AS 43.55.028 is amended by adding a new                                                                     
     subsection to read:                                                                                                        
               (j)  The department, on the written                                                                              
          application  of a  person for  the  payment of  an                                                                    
          unused credit under  AS 43.55.026(e) after the end                                                                    
          of the  two-year period immediately  following the                                                                    
          date of  the commencement of production  in paying                                                                    
          quantities,  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 applicant does not have an                                                                         
          outstanding  liability  to  the state  for  unpaid                                                                    
          delinquent taxes under this title;                                                                                    
                    (2)      the   applicant's   total   tax                                                                    
          liability under  AS 43.55.011(e) for  the calendar                                                                    
          year  in  which  the application  is  made,  after                                                                    
          application  of  all  available  tax  credits,  is                                                                    
          zero; and                                                                                                             
                    (3)  the purchase is consistent with                                                                        
          this  section and  regulations adopted  under this                                                                    
          section.                                                                                                              
        * Sec. 9. AS 43.55.180(a) is amended to read:                                                                         
              (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,  on                                                                    
          investment   expenditures   for    oil   and   gas                                                                    
          exploration,  development, and  production in  the                                                                    
          state, on the entry of  new producers into the oil                                                                    
          and gas  industry in the state,  on state revenue,                                                                    
          and on  tax administration and  compliance, giving                                                                    
          particular  attention to  the  tax rates  provided                                                                    
          under  AS 43.55.011,  the   tax  credits  provided                                                                    
          under  AS 43.55.023  - 43.55.026  [AS 43.55.023  -                                                                
          43.55.025],   and    the   deductions    for   and                                                                    
          adjustments to  lease expenditures  provided under                                                                    
          AS 43.55.160 - 43.55.170; and                                                                                         
                    (2)  the effects of the tax rates under                                                                     
          AS 43.55.011(i) on  state revenue  and on  oil and                                                                    
          gas  exploration, development,  and production  on                                                                    
          private land, and the fairness  of those tax rates                                                                    
          for private landowners.                                                                                               
        * Sec. 10. This Act takes effect January 1, 2012."                                                                    
                                                                                                                                
Vice-chair Fairclough OBJECTED.                                                                                                 
                                                                                                                                
Representative  Gara explained  Amendment  4. He  maintained                                                                    
that  two things  were needed  to get  oil in  the pipeline,                                                                    
exploration  and  the ability  to  monetize.  He noted  that                                                                    
small producers had testified that  it was very difficult to                                                                    
take a  moderate-sized field  on the  North Slope  without a                                                                    
production  facility  and  monetize the  oil.  A  production                                                                    
facility was needed,  which cost in the tens  of billions of                                                                    
dollars or  more. He thought  the state should be  a partner                                                                    
in helping to finance the facilities.                                                                                           
                                                                                                                                
Representative Gara  argued that  Amendment 4 would  grant a                                                                    
50  percent  credit  for   the  construction  of  production                                                                    
facilities,  with a  cap of  85 percent  with the  stackable                                                                    
credits. He  pointed out that  there had only been  one case                                                                    
in  which  a  big  producer  had  allowed  their  processing                                                                    
facilities to be  used by an independent  company. The state                                                                    
wanted to  spur the development of  the necessary production                                                                    
facilities.                                                                                                                     
                                                                                                                                
Representative  Gara continued  that Amendments  3 and  4 in                                                                    
combination would get exploration  and then monetize the oil                                                                    
through production. He said that  members of the legislature                                                                    
had made the  case that access to  processing facilities had                                                                    
been unfairly  blocked; he set  that argument aside  for the                                                                    
moment.  He  believed  the  state should  be  a  partner  in                                                                    
establishing  the production  facilities needed  to get  the                                                                    
oil out  of the ground.  He wanted  the state to  give money                                                                    
that  would   not  be   sent  outside   the  state   and  to                                                                    
shareholders, but  money that  would be  tied to  Alaska. In                                                                    
order  to  use  the  funds   that  Amendment  4  would  make                                                                    
available, a  company would have  to spend money  in Alaska,                                                                    
hire  Alaskan   workers,  and  spend  the   money  to  build                                                                    
production facilities.                                                                                                          
                                                                                                                                
3:55:20 PM                                                                                                                    
                                                                                                                                
Representative Hawker  spoke in  opposition to  Amendment 4.                                                                    
He maintained that the  proposed amendment would essentially                                                                    
delete the  entire bill  that was  before the  committee. In                                                                    
addition, he  believed that the specifics  of the production                                                                    
facility cost  credit in the amendment  looked familiar, and                                                                    
he wondered  whether there was another  piece of legislation                                                                    
proposing the same thing.                                                                                                       
                                                                                                                                
Representative  Hawker pointed  to  page 4,  line 28,  which                                                                    
discussed  what a  production facility  was, including  such                                                                    
things as the flow  station, gathering center, pump station,                                                                    
and  storage  tank.  He  argued   that  pump  stations  were                                                                    
upstream  assets  and  not downstream  assets.  He  did  not                                                                    
believe the  committee had had  the technical  discussion to                                                                    
be able to  understand what the amendment  could empower. He                                                                    
cited the  next line,  related to definitions  of production                                                                    
and quantities "sufficient to recover  the cost of operating                                                                    
and marketing."  He argued that  the committee  had strongly                                                                    
avoided allowing  any tax benefits for  marketing activities                                                                    
in any of the tax work done.                                                                                                    
                                                                                                                                
Representative  Hawker  believed   that  Amendment  4  would                                                                    
require a  great deal more consideration  than the committee                                                                    
could give it.                                                                                                                  
                                                                                                                                
Representative Guttenberg  spoke in support of  Amendment 4.                                                                    
He  stated that  he had  a  bill related  to the  production                                                                    
facility, and  that the bill  was nothing like  the proposed                                                                    
amendment.  He  believed  the  other  bill  that  was  being                                                                    
contemplated was also nothing like the amendment.                                                                               
                                                                                                                                
Representative  Guttenberg  listed  the various  aspects  of                                                                    
production  facilities. He  pointed  out that  a well  could                                                                    
cost  $20 million.  The  process  started with  exploration,                                                                    
with  seismic  work;  there  were  credits  for  that.  When                                                                    
sufficient oil  or gas  was found  to warrant  production, a                                                                    
road  was   built,  wells   were  drilled,   pipelines  were                                                                    
constructed, and  the oil was  pumped to the  facilities. In                                                                    
order to get  into a facility, a company had  to either make                                                                    
a  commercial  agreement  with someone  who  already  had  a                                                                    
facility,  or  have  findings in  sufficient  quantities  to                                                                    
finance their own facility.                                                                                                     
                                                                                                                                
Representative  Guttenberg  noted  that  one  of  the  small                                                                    
explorers  who had  visited his  office had  said that  they                                                                    
would either  come up  with a sound  fiscal contract  to put                                                                    
their  oil   into  an  existing   facility,  or   build  one                                                                    
themselves.  The explorer  had mentioned  that the  existing                                                                    
facilities  were old  and  had  built-in inefficiencies.  He                                                                    
referred  to past  corrosion  problems  and emphasized  that                                                                    
some  explorers might  not want  to use  existing facilities                                                                    
because of safety issues.                                                                                                       
                                                                                                                                
Representative Guttenberg argued that  many things had to be                                                                    
done to oil  before a company could get it  into a pipeline,                                                                    
which was a  common carrier. For example,  the sediments had                                                                    
to be  separated out as well  as the gas and  water, and the                                                                    
resulting product  had to  be at a  standard approved  of by                                                                    
Alyeska. In addition,  the oil had to be  metered because of                                                                    
tariffs and  costs. He emphasized  that it was  expensive to                                                                    
build a new facility. He  referred to Gubik (100 miles south                                                                    
of the pipeline)  and said a company would not  want to ship                                                                    
oil that far and then be  charged to ship it through several                                                                    
legs north  and south  in order  to get  to TAPS.  A company                                                                    
would  want to  build  a facility  near  Gubik, which  would                                                                    
require a small  pump station. He questioned  why a producer                                                                    
out on the Colville River (near  Umiat) would want to pay to                                                                    
ship  all  the external  and  wasteful  components, such  as                                                                    
water and sediment.                                                                                                             
                                                                                                                                
Representative Guttenberg pointed out  that the state should                                                                    
give new  producers credits related  to building  a facility                                                                    
if the state wanted to  give new producers opportunities and                                                                    
the ability  to do things  efficiently. Once a  facility was                                                                    
in a location,  someone else could explore  in that location                                                                    
as well.                                                                                                                        
                                                                                                                                
Representative  Guttenberg  referred  to a  presentation  by                                                                    
Gaffney,  Cline   &  Associates   to  the   House  Resources                                                                    
Committee on February 11, 2011.  The presenter had spoken to                                                                    
how  Alaska was  perceived as  "stranded," which  meant that                                                                    
producers could not get access to infrastructure.                                                                               
                                                                                                                                
Representative  Guttenberg summarized  that new  exploration                                                                    
would   be  encouraged   if  the   state  could   build  new                                                                    
infrastructure. He  believed that Amendment 4  could provide                                                                    
the infrastructure  that new  explorers and  producers would                                                                    
want.                                                                                                                           
                                                                                                                                
Representative Gara acknowledged  that Representative Hawker                                                                    
had  been  correct  in  saying that  both  Amendment  3  and                                                                    
Amendment  4  intentionally  deleted  the  entirety  of  the                                                                    
governor's  bill.  He  argued  that  there  were  many  good                                                                    
reasons  for  such  extensive  change  to  the  legislation,                                                                    
including  the current  fiscal note,  which showed  that the                                                                    
state would lose over $1 billion each year in revenue.                                                                          
                                                                                                                                
Representative  Gara  maintained   that  Amendment  4  would                                                                    
accomplish  something very  important.  He did  not think  a                                                                    
producer would build  a facility unless it was  on the verge                                                                    
of  producing  oil.  He  believed  that  Amendment  4  would                                                                    
incentivize the production of oil.  He stressed that all the                                                                    
other  credits, such  as the  development  well and  service                                                                    
credits, might  or might not  stem a production  decline. He                                                                    
maintained  that a  production  facility would  add new  oil                                                                    
into  the pipeline,  which was  what the  state needed.  The                                                                    
entire goal was to make  sure that the state got exploration                                                                    
and production in exchange for the money it spent.                                                                              
                                                                                                                                
4:03:54 PM                                                                                                                    
                                                                                                                                
Vice-chair Fairclough MAINTAINED her OBJECTION.                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Guttenberg, Doogan                                                                                              
OPPOSED: Joule,     Hawker,   Wilson,    Costello,   Edgmon,                                                                    
Fairclough, Thomas, Stoltze                                                                                                     
                                                                                                                                
The MOTION FAILED (8/3). Amendment 4 was not adopted.                                                                           
                                                                                                                                
Representative Doogan MOVED Amendment 5, 27-GH1007\I.9,                                                                         
Bullock, 3/28/11 (copy on file):                                                                                                
                                                                                                                                
     Page 1, lines 5 - 6:                                                                                                       
          Delete    "relating    to    certain    additional                                                                  
     nontransferable oil and gas production tax credits;"                                                                     
                                                                                                                                
     Page 1, following line 12:                                                                                                 
          Insert a new bill section to read:                                                                                    
      "* Sec. 2. AS 05.15.095(c) is amended to read:                                                                        
               (c)  A delinquent fee bears interest at the                                                                      
          rate set by AS 43.05.225 [AS 43.05.225(2)]."                                                                      
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 2, following line 5:                                                                                                  
          Insert a new bill section to read:                                                                                    
      "* Sec. 4. AS 34.45.470(a) is amended to read:                                                                        
               (a)  A person who fails to pay or deliver                                                                        
          property  within  the   time  prescribed  by  this                                                                    
          chapter may  be required to pay  to the department                                                                    
          interest  at  the  annual  rate  calculated  under                                                                    
          AS 43.05.225 [AS 43.05.225(2)] on  the property or                                                                
          the value of it from  the date the property should                                                                    
          have been paid or delivered."                                                                                         
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 2, following line 17:                                                                                                 
          Insert a new bill section to read:                                                                                    
        "* Sec. 6. AS 43.05.225 is amended to read:                                                                         
               Sec. 43.05.225. Interest. Unless otherwise                                                                     
          provided,                                                                                                             
                    (1)  when a tax levied in this title                                                                        
          becomes  delinquent,   it  bears  interest   in  a                                                                    
          calendar  quarter  at  the rate  of  five  [THREE]                                                                
          percentage  points above  the annual  rate charged                                                                    
          member  banks for  advances  by  the 12th  Federal                                                                    
          Reserve  District  as of  the  first  day of  that                                                                    
          calendar  quarter, or  at the  annual  rate of  11                                                                    
          percent,    whichever    is   greater    [LESSER],                                                                
          compounded quarterly  as of  the last day  of that                                                                    
          quarter;                                                                                                              
                    (2)  the interest rate is 12 percent a                                                                      
          year for                                                                                                              
                         (A)  delinquent fees payable under                                                                     
               AS 05.15.095(c); and                                                                                             
                         (B)  unclaimed property that is                                                                        
               not timely paid or delivered, as allowed by                                                                      
               AS 34.45.470(a)."                                                                                                
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 2, following line 25:                                                                                                 
          Insert a new bill section to read:                                                                                    
      "* Sec. 8. AS 43.20.046(i) is amended to read:                                                                        
               (i)  The issuance of a refund under this                                                                         
          section  does not  limit the  department's ability                                                                    
          to  later  audit  or  adjust   the  claim  if  the                                                                    
          department determines,  as a result of  the audit,                                                                    
          that the  person that claimed  the credit  was not                                                                    
          entitled  to the  amount of  the  credit. The  tax                                                                    
          liability  of  the  person  receiving  the  credit                                                                    
          under this  chapter is increased by  the amount of                                                                    
          the credit  that exceeds that to  which the person                                                                    
          was entitled.  If the  tax liability  is increased                                                                    
          under   this   subsection,  the   increase   bears                                                                    
          interest   under  AS 43.05.225   [AS 43.05.225(1)]                                                                
          from the date the refund was issued."                                                                                 
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 3, following line 2:                                                                                                  
          Insert a new bill section to read:                                                                                    
        "* Sec. 10. AS 43.50.570 is amended to read:                                                                        
               Sec. 43.50.570. Interest. A licensee who                                                                       
          fails to  pay an  amount due  for the  purchase of                                                                    
          stamps within the time required                                                                                       
                    (1)  is considered to have failed to                                                                        
          pay the  cigarette taxes  due under  this chapter;                                                                    
          and                                                                                                                   
                    (2)  shall pay interest at the rate                                                                         
          established  under AS 43.05.225  [AS 43.05.225(1)]                                                                
          from  the  date on  which  the  amount became  due                                                                    
          until the date of payment."                                                                                           
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 3, following line 20:                                                                                                 
          Insert a new bill section to read:                                                                                    
        "* Sec. 12. AS 43.55.011(e) 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),                                                                    
          and (o) 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 (g) of this section."                                                                                           
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 7, following line 24:                                                                                                 
          Insert a new bill section to read:                                                                                    
        "* Sec. 14. AS 43.55.011(g) is repealed and                                                                         
     reenacted 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) for  each 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  for  each  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  for  each  BTU  equivalent                                                                    
          barrel and $30; or                                                                                                    
                    (2)   if the producer's  average monthly                                                                    
          production  tax  value  for  each  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  for  each 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 10, following line 13:                                                                                                
          Insert a new bill section to read:                                                                                    
      "* Sec. 16. AS 43.55.020(a) is amended to read:                                                                       
               (a)  For a calendar year, a producer subject                                                                     
          to tax  under AS 43.55.011(e) - (i)  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),  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(g)  multiplied                                                                
                    by    [APPLICABLE     TAX    RATES    IN                                                                
                    AS 43.55.011(e),   AS  APPLICABLE,   AND                                                                    
                    43.55.011(g),  AS   APPLICABLE,  APPLIED                                                                    
                    TO]    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(g)  multiplied                                                                
                    by    [APPLICABLE     TAX    RATES    IN                                                                
                    AS 43.55.011(e),   AS  APPLICABLE,   AND                                                                    
                    43.55.011(g),  AS   APPLICABLE,  APPLIED                                                                    
                    TO]    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), or (o), 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(g)  multiplied                                                                
                    by    [APPLICABLE     TAX    RATES    IN                                                                
                    AS 43.55.011(e),   AS  APPLICABLE,   AND                                                                    
                    43.55.011(g),  AS   APPLICABLE,  APPLIED                                                                    
                    TO]    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  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;                                                                                             
                    (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 10, following line 25:                                                                                                
          Insert a new bill section to read:                                                                                    
      "* Sec. 18. AS 43.55.020(g) is amended to read:                                                                       
               (g)  Notwithstanding any contrary provision                                                                      
          of   AS 43.05.225,   an   unpaid  amount   of   an                                                                    
          installment  payment required  under (a)(1)  - (3)                                                                    
          of this  section that is  not paid when  due bears                                                                    
          interest  (1)   at  the   rate  provided   for  an                                                                    
          underpayment  under   26  U.S.C.   6621  (Internal                                                                    
          Revenue Code), as  amended, compounded daily, from                                                                    
          the  date the  installment  payment  is due  until                                                                    
          March 31   following   the    calendar   year   of                                                                    
          production, and  (2) as provided for  a delinquent                                                                    
          tax  under  AS 43.05.225  [AS 43.05.225(1)]  after                                                                
          that March 31. Interest accrued  under (1) of this                                                                    
          subsection   that   remains  unpaid   after   that                                                                    
          March 31  is treated  as an  addition to  tax that                                                                    
          bears interest  under (2)  of this  subsection. An                                                                    
          unpaid  amount of  tax due  under  (a)(4) of  this                                                                    
          section that  is not paid when  due bears interest                                                                    
          as   provided   for   a   delinquent   tax   under                                                                    
          AS 43.05.225 [AS 43.05.225(1)]."                                                                                  
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 11, following line 12:                                                                                                
          Insert a new bill section to read:                                                                                    
      "* Sec. 20. AS 43.55.023(a) 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);                                                                     
                         (B)  submits to the Department of                                                                      
               Natural Resources all data that would be                                                                         
               required     to     be    submitted     under                                                                    
               AS 43.55.025(f)(2)."                                                                                             
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 12, following line 7:                                                                                                 
          Insert a new bill section to read:                                                                                    
      "* Sec. 22. AS 43.55.023(d) is amended to read:                                                                       
               (d)  Except as limited by (i) of this                                                                            
          section, 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  [A]   transferable  tax   credit                                                                    
          certificates  [CERTIFICATE]. 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  (1)  March 31  of the  year                                                                    
          following   the  calendar   year   in  which   the                                                                    
          qualified  capital   expenditure  [,   WELL  LEASE                                                                    
          EXPENDITURE,] or  carried-forward annual  loss for                                                                    
          which the credit is claimed  was incurred; (2) 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 [,  WELL LEASE                                                                    
          EXPENDITURE,] or  carried-forward annual  loss for                                                                    
          which the  credit is claimed was  incurred; or (3)                                                                    
          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  [A]  transferable  tax  credit  certificates,                                                            
          each for  half of [CERTIFICATE FOR]  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 13, following line 4:                                                                                                 
          Insert a new bill section to read:                                                                                    
      "* Sec. 25. AS 43.55.023(g) is amended to read:                                                                       
               (g)  The issuance of a transferable tax                                                                          
          credit  certificate  under  (d) of  this  section,                                                                
          [OR] former  (m) of this  section, or (p)  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                                                                
          [AS 43.05.225(1)] 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 13, line 8:                                                                                                           
          Delete "2021"                                                                                                     
          Insert "2015"                                                                                                     
                                                                                                                                
     Page 13, line 31:                                                                                                          
          Delete "2020"                                                                                                     
          Insert "2014"                                                                                                     
          Delete "2021"                                                                                                         
          Insert "2015"                                                                                                         
                                                                                                                                
     Page 14, line 9, following "expenditure;":                                                                                 
          Insert "a  tax credit under this  paragraph may be                                                                
     applied for a single calendar year;"                                                                                   
                                                                                                                                
     Page 15, line 3, following "(l)":                                                                                          
          Insert "and (p)"                                                                                                  
                                                                                                                                
     Page 15, following line 15:                                                                                                
          Insert a new bill section to read:                                                                                    
        "* Sec. 30. 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, 2014, 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 15, line 16, through page 17, line 16:                                                                                
          Delete all material.                                                                                                  
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 18, following line 6:                                                                                                 
          Insert a new bill section to read:                                                                                    
      "* Sec. 32. AS 43.55.028(e) 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] former  AS 43.55.023(m), or                                                            
          AS 43.55.023(p),  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 18, following line 15:                                                                                                
          Insert a new bill section to read:                                                                                    
      "* Sec. 34. AS 43.55.028(g) 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 under AS 43.20.046                                                                    
          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                                                                    
          former  AS 43.55.023(m)  or AS 43.55.023(p)  or  a                                                                
          claim for refund under AS 43.20.046."                                                                                 
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 19, following line 12:                                                                                                
          Insert a new bill section to read:                                                                                    
        "* Sec. 36. AS 43.55.890 is amended to read:                                                                        
               Sec.    43.55.890.    Disclosure    of    tax                                                                  
          information.    Notwithstanding    any    contrary                                                                  
          provision  of  AS 40.25.100,   and  regardless  of                                                                    
          whether  the   information  is   considered  under                                                                    
          AS 43.05.230(e)    to     constitute    statistics                                                                    
          classified  to   prevent  the   identification  of                                                                    
          particular returns or  reports, the department may                                                                    
          publish  the  following   information  under  this                                                                    
          chapter,  if   aggregated  among  three   or  more                                                                    
          producers  or  explorers,  showing,  by  month  or                                                                    
          calendar year  and by lease or  property, unit, or                                                                    
          area of the state:                                                                                                    
                    (1)     the   amount  of   oil  or   gas                                                                    
          production;                                                                                                           
                    (2)   the amount  of taxes  levied under                                                                    
         this chapter or paid under this chapter;                                                                               
                    (3)  the effective  tax rates under this                                                                    
          chapter;                                                                                                              
                    (4)   the gross value  of oil or  gas at                                                                    
          the point of production;                                                                                              
                    (5)   the  transportation costs  for oil                                                                    
          or gas;                                                                                                               
                    (6)  qualified  capital expenditures, as                                                                    
          defined in AS 43.55.023;                                                                                              
                    (7)     exploration  expenditures  under                                                                    
          AS 43.55.025;                                                                                                         
                    (8)   production  tax values  of oil  or                                                                    
          gas under AS 43.55.160;                                                                                               
                    (9)        lease   expenditures    under                                                                    
          AS 43.55.165;                                                                                                         
                    (10)  adjustments  to lease expenditures                                                                    
          under AS 43.55.170;                                                                                                   
                    (11)  tax credits applicable or                                                                             
          potentially  applicable  against taxes  levied  by                                                                    
          this chapter  [; THE  INFORMATION RELATING  TO TAX                                                                    
          CREDITS UNDER  THIS PARAGRAPH,  TO THE  EXTENT THE                                                                    
          INFORMATION IS  AVAILABLE TO THE  DEPARTMENT, MUST                                                                    
          INCLUDE THE  STATUTORY AUTHORITY FOR EACH  TYPE OF                                                                    
          CREDIT TAKEN,  THE AMOUNT  OF CREDITS  TAKEN UNDER                                                                    
          EACH  STATUTE   AUTHORIZING  A  TAX   CREDIT,  AND                                                                    
          WHETHER THE  CREDIT IS FOR AN  EXPENDITURE RELATED                                                                    
          TO  OIL   OR  GAS  EXPLORATION,   DEVELOPMENT,  OR                                                                    
          PRODUCTION,  INCLUDING  THE   DRILLING  OF  WELLS;                                                                    
          PERFORMING  WORK  ON  EXISTING  WELLS;  CONDUCTING                                                                    
          GEOLOGICAL OR  GEOPHYSICAL EXPLORATION; ACQUIRING,                                                                    
          CONSTRUCTING,  OR  INSTALLING  NEW  FACILITIES  OR                                                                    
          EQUIPMENT;   AND    MAINTAINING,   REPAIRING,   OR                                                                    
          REPLACING EXISTING FACILITIES OR EQUIPMENT]."                                                                         
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 19, following line 17:                                                                                                
          Insert a new bill section to read:                                                                                    
        "* Sec. 38. AS 43.56.160 is amended to read:                                                                        
               Sec. 43.56.160. Interest and penalty. When                                                                     
          the   tax   levied  by   AS 43.56.010(a)   becomes                                                                    
          delinquent,  a  penalty  of 10  percent  shall  be                                                                    
          added.   Interest   on   the   delinquent   taxes,                                                                    
          exclusive of penalty, shall be  assessed at a rate                                                                
          of  eight percent  a year  [THE RATE  SPECIFIED IN                                                                
          AS 43.05.225(1)]."                                                                                                    
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 19, following line 28:                                                                                                
          Insert a new bill section to read:                                                                                    
      "* Sec. 40. AS 43.77.020(d) is amended to read:                                                                       
               (d)  A person subject to the tax under this                                                                      
          chapter shall  make quarterly payments of  the tax                                                                    
          estimated  to be  due for  the  year, as  required                                                                    
          under  regulations adopted  by  the department.  A                                                                    
          taxpayer  will  be  subject to  an  estimated  tax                                                                    
          penalty, determined by  applying the interest rate                                                                    
          specified  in  AS 43.05.225  [AS 43.05.225(1)]  to                                                                
          the  underpayment  for  each quarter,  unless  the                                                                    
          taxpayer  makes estimated  tax  payments in  equal                                                                    
          installments that total either                                                                                        
                    (1)  at least 90 percent of the                                                                             
          taxpayer's  tax liability  under this  chapter for                                                                    
          the tax year; or                                                                                                      
                    (2)  at least 100 percent of the                                                                            
          taxpayer's  tax liability  under this  chapter for                                                                    
          the prior tax year."                                                                                                  
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 20, following line 1:                                                                                                 
          Insert a new bill section to read:                                                                                    
        "* Sec. 42. AS 43.90.430 is amended to read:                                                                        
               Sec. 43.90.430. Interest. When a payment due                                                                   
          to   the   state   under  this   chapter   becomes                                                                    
          delinquent,  the  payment  bears interest  at  the                                                                    
          rate   applicable  to   a  delinquent   tax  under                                                                    
          AS 43.05.225 [AS 43.05.225(1)]."                                                                                  
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 20, line 5:                                                                                                           
         Delete "Sections 10 - 12, 14, 16, and 28"                                                                              
          Insert "Sections 19, 21, 23, 26, 28, and 43"                                                                          
                                                                                                                                
     Page 20, line 7:                                                                                                           
          Delete "Sections 6 - 8"                                                                                               
          Insert "Sections 11, 13, and 15"                                                                                      
                                                                                                                                
     Page 20, line 8:                                                                                                           
          Delete "Sections 15 and 17"                                                                                           
          Insert "Sections 20, 22, 25, 27, 29, and 30"                                                                          
                                                                                                                                
     Page 20, line 9:                                                                                                           
          Delete "2020"                                                                                                         
          Insert "2014"                                                                                                         
                                                                                                                                
     Page 20, following line 9:                                                                                                 
          Insert a new subsection to read:                                                                                      
          "(d)   Sections 12, 14,  and 16 of this  Act apply                                                                    
     to oil and gas produced after December 31, 2014."                                                                          
                                                                                                                                
     Page 20, line 18:                                                                                                          
          Delete "Sections 10 - 12, 14, 16, 22, 23, and 28"                                                                     
          Insert "Sections 19,  21, 23, 26, 28,  31, 33, and                                                                    
     43"                                                                                                                        
                                                                                                                                
     Page 20, line 20:                                                                                                          
          Delete "Section 24"                                                                                                   
          Insert "Section 35"                                                                                                   
                                                                                                                                
     Page 20, line 21:                                                                                                          
          Delete "Sections 6 - 8 and 29(b)"                                                                                     
          Insert "Sections 11, 13, 15, and 44(b)"                                                                               
                                                                                                                                
     Page 20, line 22:                                                                                                          
          Delete "Sections 15, 17, and 29(c)"                                                                                   
          Insert "Sections 2, 4, 6, 8, 10, 12, 14, 16, 18,                                                                      
     20, 22, 25, 27, 29, 30, 32, 34, 36, 38, 40, 42, and                                                                        
     44(c)"                                                                                                                     
          Delete "2021"                                                                                                         
          Insert "2015"                                                                                                         
                                                                                                                                
     Page 20, line 23:                                                                                                          
          Delete "Sections 10 - 12, 14, 16, 22, 23, 28,                                                                         
     29(a), and 31"                                                                                                             
          Insert "Sections 19, 21, 23, 26, 28, 31, 33, 43,                                                                      
     44(a), and 46"                                                                                                             
                                                                                                                                
     Page 20, line 25:                                                                                                          
          Delete "secs. 32 - 35"                                                                                                
          Insert "secs. 47 - 50"                                                                                                
                                                                                                                                
Vice-chair Fairclough OBJECTED.                                                                                                 
                                                                                                                                
Representative Doogan  explained Amendment 5. He  noted that                                                                    
Don Bullock  had drafted the  amendment. He  summarized that                                                                    
the amendment would essentially set a sunset date for 2014.                                                                     
                                                                                                                                
Representative Doogan  stated that  the committee  was being                                                                    
asked to pass  HB 110 without knowing its  cost, the effects                                                                    
it would have,  and the fiscal situation it  could create at                                                                    
any  given point  in time.  He said  that Amendment  5 would                                                                    
allow the state  to see what the proposed bill  would do; by                                                                    
2014, the  effects could be re-evaluated.  The measure could                                                                    
then be sunsetted if it was not working.                                                                                        
                                                                                                                                
4:07:51 PM                                                                                                                    
                                                                                                                                
Representative Doogan  reminded the committee that  a sunset                                                                    
provision  provided an  opportunity  at a  specific date  to                                                                    
change a measure rather than shut it down.                                                                                      
                                                                                                                                
Vice-chair Fairclough  spoke in  opposition to  Amendment 5.                                                                    
She reported that  she had voted in favor of  the 25 percent                                                                    
on  the House  floor  when ACES  was  being considered,  but                                                                    
voted against the overall bill  because of progressivity and                                                                    
other issues. She  liked the idea of a sunset  date in 2014,                                                                    
but  was fearful  that the  sunset date  would still  create                                                                    
uncertainty for investors.                                                                                                      
                                                                                                                                
Vice-chair Fairclough recalled at  least one entity that had                                                                    
testified that  it had made  investment decisions  under the                                                                    
Petroleum  Production Tax  (PPT), and  then under  ACES, and                                                                    
were  having difficulty  being forced  into production.  She                                                                    
was   afraid  Amendment   5  would   create  a   climate  of                                                                    
uncertainty  for investors.  She stated  that she  supported                                                                    
holding   industry  accountable   through  the   15  percent                                                                    
bracketing proposal  in HB 110,  so that the units  would be                                                                    
taxed in a fair way.                                                                                                            
                                                                                                                                
Representative  Wilson   spoke  against  Amendment   5.  She                                                                    
pointed out that  most of the bill would not  go into effect                                                                    
until 2013,  so there  would only  be one  year in  which to                                                                    
find  out  what could  happen.  She  believed that  at  some                                                                    
point, the state had to stop changing the rules.                                                                                
                                                                                                                                
4:12:07 PM                                                                                                                    
                                                                                                                                
Representative Guttenberg testified  in support of Amendment                                                                    
5. He argued that the entire  premise of HB 110 was based on                                                                    
things that  he did  not think  the administration  had been                                                                    
able  to  make   a  case  for.  He  pointed   out  that  the                                                                    
administration had not  done modeling to show  how a reduced                                                                    
tax rate  and changes to credits  would increase exploration                                                                    
and  production.  He  wanted   a  "hard  line"  with  things                                                                    
happening  by a  certain date,  as  well as  data about  the                                                                    
number  of  permits  and the  resulting  infrastructure  and                                                                    
employment.                                                                                                                     
                                                                                                                                
Representative Gara  spoke in support  of the  amendment. He                                                                    
spoke to  fears that  the industry  would follow  through on                                                                    
promises  made during  the discussion  about  the bill.  For                                                                    
example,  Exxon and  BP  had promised  that  they would  not                                                                    
drill a single new exploration  well if the bill was passed,                                                                    
while ConocoPhillips  had said they  might or might  not. He                                                                    
believed   the  amendment   would   address  the   concerns;                                                                    
companies who kept  the promises would lose  the benefits of                                                                    
the  bill. He  also  thought the  amendment would  encourage                                                                    
companies to do something better  than what they promised if                                                                    
they wanted to keep the money the state would offer.                                                                            
                                                                                                                                
Vice-chair   Fairclough   protested   against   "disparaging                                                                    
comments" said  about larger producers. She  stated that she                                                                    
had not  heard companies  promise not  to do  something; she                                                                    
heard companies say they could  not promise to DO something.                                                                    
For example, companies would have  to change their stance to                                                                    
projects  and would  compete for  the assets.   She  did not                                                                    
think all companies were alike and  she did not want to lump                                                                    
all oil and gas companies  together. She believed that there                                                                    
were  many  different  businesses and  that  companies  with                                                                    
large  capital assets  were  buying  smaller companies.  She                                                                    
thought smaller  producers were conducting  exploration with                                                                    
a  business  model  of  looking  for  oil,  coal,  or  other                                                                    
resources.                                                                                                                      
                                                                                                                                
4:18:01 PM                                                                                                                    
                                                                                                                                
Vice-chair  Fairclough maintained  that "labor"  referred to                                                                    
service  industry businesses  that built  infrastructure and                                                                    
supported the oil  and gas industry in  many different ways.                                                                    
She resonated with people who  had run businesses and worked                                                                    
on the North Slope, and then  had to move to North Dakota to                                                                    
remobilize their assets.                                                                                                        
                                                                                                                                
Vice-chair  Fairclough believed  that  the  bill before  the                                                                    
committee  had  to do  with  a  "balanced approach"  to  the                                                                    
different kinds of models and  companies that were investing                                                                    
in Alaska. She believed that the  state was doing a good job                                                                    
on exploration  and credits.  She believed  it was  valid to                                                                    
say that  it was expensive  to try to  capitalize production                                                                    
facilities, but she  thought there was a  combination of two                                                                    
credits  adding up  to 45  percent for  that. She  wanted to                                                                    
balance policy approaches.                                                                                                      
                                                                                                                                
Vice-chair  Fairclough  stressed   that  Amendment  3  would                                                                    
create  uncertainty  for  capitalization on  the  production                                                                    
side  and  not  the  development level  for  producers.  She                                                                    
thought there  three different types  of business  (with the                                                                    
service industry making a possible  forth type) and that the                                                                    
state  (as  far as  credits  went)  was divided  into  three                                                                    
different regions.  She reported that she  had learned about                                                                    
"Middle Earth," or the regions  that credits were associated                                                                    
with that were  between the North Slope region  (north of 68                                                                    
degrees Latitude) and the Cook Inlet region.                                                                                    
                                                                                                                                
Vice-chair  Fairclough   appreciated  the  effort   to  hold                                                                    
industry  accountable. She  believed ACES  had gone  too far                                                                    
and that the state had to revisit the policies.                                                                                 
                                                                                                                                
Representative  Doogan  explained  that the  year  2014  was                                                                    
selected as the  date in the amendment  because it reflected                                                                    
how long  ACES was  in place before  the current  attempt to                                                                    
amend it. He thought the timeframe was long enough.                                                                             
                                                                                                                                
Representative Doogan stated that  his intention was to make                                                                    
sure the  committee did not  inadvertently commit  the state                                                                    
to buying  something it did  not intended to buy  ("buying a                                                                    
pig in  a poke"). He  asserted that  it was not  possible to                                                                    
know  what was  going to  happen; he  believed there  was no                                                                    
assurance that HB 110 would result in a single drop of oil.                                                                     
                                                                                                                                
Representative Doogan  did not  think it was  responsible to                                                                    
give companies  the money without holding  them to anything,                                                                    
and without  having a  sunset date  in order  to re-evaluate                                                                    
the situation. He  pointed out that the state  went to great                                                                    
lengths to do  reviews of other issues. He  wanted the state                                                                    
to at least have a safety net.                                                                                                  
                                                                                                                                
4:24:05 PM                                                                                                                    
                                                                                                                                
Vice-chair Fairclough MAINTAINED her OBJECTION.                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Guttenberg, Doogan                                                                                              
OPPOSED:  Fairclough,   Joule,  Hawker,   Wilson,  Costello,                                                                    
Edgmon, Stoltze, Thomas                                                                                                         
                                                                                                                                
The MOTION FAILED (8/3). Amendment 5 was not adopted.                                                                           
                                                                                                                                
Representative Gara  referred to  accusations that  had been                                                                    
made that  the truth  was not  being told,  particularly the                                                                    
comment  that he  had not  accurately  represented what  was                                                                    
said by BP and ExxonMobil.  He read from transcripts related                                                                    
to the companies claiming that  they would not go ahead with                                                                    
exploration wells. He quoted Clair Fitzpatrick (from BP):                                                                       
                                                                                                                                
     BP  does not  do  what is  referred  to as  traditional                                                                    
     exploratory  wells…It is  not  BP's current  intention,                                                                    
     (although that  may change;  I only  own 20  percent of                                                                    
     Prudhoe Bay) to  do it as technically  classified as an                                                                    
     exploration well.                                                                                                          
                                                                                                                                
Representative Gara  continued that he had  asked ExxonMobil                                                                    
if it  had drilled  an exploration well  in the  last twenty                                                                    
years. The answer  was, "I think the last one  we did was in                                                                    
1982." He  had asked  ExxonMobil whether  their plan  was to                                                                    
continue  the practice  of not  drilling exploration  wells.                                                                    
The  answer had  been, "I  can't  promise you  that it  (the                                                                    
governor's bill) would lead to increased exploration."                                                                          
                                                                                                                                
Representative  Gara recommended  disagreeing on  the merits                                                                    
of  the issue  without accusing  the person  being disagreed                                                                    
with of misrepresenting the facts.                                                                                              
                                                                                                                                
Representative  Hawker agreed  that Representative  Gara was                                                                    
correct  about  his  characterization  of one  part  of  the                                                                    
conversation.  He  wanted the  record  to  reflect that  BP-                                                                    
Alaska and  ExxonMobil had corporate business  profiles that                                                                    
were  not exploration;  in other  words, the  companies were                                                                    
not the  explorers. He  claimed that  BP had  never explored                                                                    
for   and  found   oil  in   the  state   (other  than   the                                                                    
[unintelligible] prospect); BP  acquired production from the                                                                    
explorers whose business  it was to locate and  find oil. He                                                                    
added  that the  same  was largely  true  of ExxonMobil.  He                                                                    
believed    that   characterizing    their   testimony    as                                                                    
disrespecting the  state was not  accurate. He  believed the                                                                    
entities  were looking  for the  support  needed to  operate                                                                    
profitably. He believed HB 110  would try to restore balance                                                                    
to the state's tax-production system.                                                                                           
                                                                                                                                
4:28:14 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze MOVED  Amendment 2, 27-GH1007\I.6, Bullock,                                                                    
3/28/11 (copy on file):                                                                                                         
                                                                                                                                
     Page 7, line 23:                                                                                                           
     Delete "15"                                                                                                                
     Insert "25"                                                                                                                
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Co-Chair Stoltze explained that  the amendment would correct                                                                    
a typographical error.                                                                                                          
                                                                                                                                
Commissioner Butcher agreed that  the number was a technical                                                                    
error, and that the number  should indicate a rise from 22.5                                                                    
to 25, and not down to 15.                                                                                                      
                                                                                                                                
There being  NO OBJECTION,  it was  so ordered.  Amendment 2                                                                    
was adopted.                                                                                                                    
                                                                                                                                
4:30:42 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stoltze  explained  that   Amendment  1  would  be                                                                    
replaced by Amendment 6.                                                                                                        
                                                                                                                                
Co-Chair   Stoltze   MOVED  Amendment   6,   27-GH1007\I.15,                                                                    
Kurtz/Bullock, 3/29/11 (copy on file):                                                                                          
                                                                                                                                
     Page 3, line 15, following "production":                                                                               
     Insert "or produced during the first seven years after                                                                 
     the effective date of this bill section, whichever is                                                                  
     later,"                                                                                                                
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Representative  Hawker explained  Amendment  6. He  directed                                                                    
attention to  the provision referenced  on page 3,  line 14,                                                                    
which would authorize the 15  percent base progressivity and                                                                    
the curve for certain  production from certain areas limited                                                                    
to  the  first  seven  consecutive  years  after  production                                                                    
commenced. The areas  referred to (on lines 16  and 17) were                                                                    
those  that had  not previously  been within  an established                                                                    
unit, or  areas that had  not been in  commercial production                                                                    
as of December 31, 2008.                                                                                                        
                                                                                                                                
Representative Hawker detailed that  HB 110 as introduced by                                                                    
the  administration   had  originally  contained   the  date                                                                    
December 31, 2010.  The date was moved back  to December 31,                                                                    
2008 by the House  Resources Committee, specifically to make                                                                    
certain that prospective  developments (related to Armstrong                                                                    
and  Repsol)  would qualify  to  incentivize  and bring  new                                                                    
exploration  into  the  state.   During  the  House  Finance                                                                    
Committee process,  the decision had  been made that  the 15                                                                    
percent  benefit  would  only  exist  for  the  first  seven                                                                    
consecutive years of production  for the particular lease or                                                                    
property.                                                                                                                       
                                                                                                                                
Representative Hawker reported that  he had had concerns and                                                                    
had  conferred   with  Mr.  Bullock  (the   drafter  of  the                                                                    
legislation) and Co-Chair Eric  Feige of the House Resources                                                                    
Committee,  who concurred  that  the effective  date of  the                                                                    
provision  (January 1,  2012) would  have been  the starting                                                                    
date for the seven consecutive  years, rather than after the                                                                    
start of sustained production.                                                                                                  
                                                                                                                                
Representative Hawker  summarized that  the language  in the                                                                    
amendment would ensure that anyone  that qualified would get                                                                    
seven  years   of  benefit.  He  believed   there  had  been                                                                    
sufficient  ambiguity in  the bill's  language that  someone                                                                    
who  had actually  started production  before the  effective                                                                    
date could  be denied the  benefits. He emphasized  that the                                                                    
provision  would  be directed  at  new  production and  that                                                                    
there would be no fiscal note consequence to the change.                                                                        
                                                                                                                                
4:34:37 PM                                                                                                                    
                                                                                                                                
Representative Gara questioned whether  the dates were right                                                                    
for  the Liberty  field. He  wondered whether  Liberty field                                                                    
would get the 15 percent  rate under the amendment, since it                                                                    
had not  started production; he  noted that the  field would                                                                    
pay the 25  percent tax rate plus  progressivity without the                                                                    
amendment.  He wondered  which fields  would pay  15 percent                                                                    
rather than 25 percent if the amendment were adopted.                                                                           
                                                                                                                                
Representative  Hawker responded  that  the amendment  would                                                                    
clarify  the intent  of the  House  Resources Committee  and                                                                    
would  not  expand  the  intent or  scope  of  the  original                                                                    
language.                                                                                                                       
                                                                                                                                
Co-Chair Stoltze  wanted to keep consistent  with intent. He                                                                    
referred to mistakes related to the Cook Inlet.                                                                                 
                                                                                                                                
Representative  Hawker pointed  out that  the Liberty  field                                                                    
was  federal and  not state.  He stated  that the  amendment                                                                    
would have no effect on the field.                                                                                              
                                                                                                                                
Representative Doogan  asked whether the  amendment language                                                                    
would  change who  would get  seven "low-cost"  years before                                                                    
paying  an enhanced  tax. He  asked  whether current  fields                                                                    
would be affected.                                                                                                              
                                                                                                                                
Commissioner Butcher  replied that  the discussed  aspect of                                                                    
HB  110  covered  fields  that  had  not  been  unitized  or                                                                    
developed.                                                                                                                      
                                                                                                                                
Co-Chair  Stoltze  noted that  during  the  CS process,  the                                                                    
Finance Committee had inadvertently  undone some of the work                                                                    
of the previous committee.                                                                                                      
                                                                                                                                
4:38:03 PM                                                                                                                    
                                                                                                                                
Representative  Gara  questioned  the intent  of  the  House                                                                    
Resources  Committee related  to the  language. He  wondered                                                                    
whether the amendment would affect  a field already unitized                                                                    
under ACES  and whether the  field would get the  15 percent                                                                    
tax rate because production was  not started until after the                                                                    
effective date of the bill.                                                                                                     
                                                                                                                                
REPRESENTATIVE   ERIC  FEIGE,   CO-CHAIR,  HOUSE   RESOURCES                                                                    
COMMITTEE,  explained that  the intent  of the  date in  the                                                                    
provision was to segregate areas  that had not been put into                                                                    
production from those already in  production. The intent was                                                                    
to leave  the effective  base rate at  25 percent  for areas                                                                    
already in  production; the intent  for areas outside  was a                                                                    
lower  base-rate tax.  He added  that the  problem with  the                                                                    
language  in  the  original  bill   was  the  discussion  of                                                                    
"units." Brooks Range Petroleum  and Armstrong Petroleum had                                                                    
leases that did not have  current production, but the leases                                                                    
were already  in existing units;  leaving the  original date                                                                    
would  have  exempted  those units  and  kept  as-yet-to-be-                                                                    
produced areas  at the higher  base tax rate.  He underlined                                                                    
that  the  House Resources  Committee  changed  the date  in                                                                    
order to segregate the producing  areas from the undeveloped                                                                    
areas.                                                                                                                          
                                                                                                                                
Representative Wilson REMOVED her OBJECTION to Amendment 6.                                                                     
                                                                                                                                
Representative Gara OBJECTED.  He did not want  to grant the                                                                    
lower tax rate to fields that would be produced anyway.                                                                         
                                                                                                                                
Representative Gara  WITHDREW his OBJECTION. There  being NO                                                                    
further  OBJECTION,  it  was so  ordered.  Amendment  6  was                                                                    
adopted.                                                                                                                        
                                                                                                                                
4:42:32 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
4:59:04 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Vice-chair Fairclough  MOVED to report CSHB  110(FIN) out of                                                                    
Committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal notes.                                                                                                      
                                                                                                                                
Representative Gara OBJECTED.                                                                                                   
                                                                                                                                
Representative  Gara  spoke   against  the  legislation.  He                                                                    
acknowledged that the  state would be smart  to do something                                                                    
like HB 110. He noted that  he and Senator Hollis French had                                                                    
asked the governor to start  selling the positive aspects of                                                                    
ACES.                                                                                                                           
                                                                                                                                
Representative Gara reviewed that  the governor had proposed                                                                    
HB 110  as a provision that  would not cost the  state money                                                                    
over the  long-term and that  would increase  production. He                                                                    
continued that based on the  second page of the fiscal note,                                                                    
the state would  lose over $3.5 billion in  revenue over the                                                                    
next  five  years,  even  with   a  5  percent  increase  in                                                                    
production.  He believed  the amount  of revenue  loss would                                                                    
grow as the years passed.                                                                                                       
                                                                                                                                
Representative Gara  wanted the  whole economy of  the state                                                                    
to  be addressed.  He was  concerned that  the $1.5  billion                                                                    
loss  would   affect  state   operations,  such   as  hiring                                                                    
teachers,  fire-fighters, and  state  troopers. He  believed                                                                    
more damage  would be done  to Alaska's economy  by adopting                                                                    
the bill than  would be done by leaving the  situation as it                                                                    
was.  He  believed it  made  more  sense to  give  companies                                                                    
credits only  if they did what  the state wanted them  to do                                                                    
than to give companies money and  hope they put it back into                                                                    
the state.                                                                                                                      
                                                                                                                                
Representative Gara referred  to the decline of  the ELF tax                                                                    
rate to  zero percent on 15  of 19 North Slope  fields, when                                                                    
the production decline remained at  6 percent each year, and                                                                    
employment   and   investment   were   lower.   He   thought                                                                    
historically, giving  companies tax money and  allowing them                                                                    
to  decide what  to do  with it  had resulted  in flight  of                                                                    
money from  the state. He  thought the smart  approach would                                                                    
be to  pay for things that  resulted in more oil,  which was                                                                    
why  the  minority had  proposed  the  series of  amendments                                                                    
offered in the  committee. The goal was more  money for more                                                                    
exploration wells, and money  for processing facilities; the                                                                    
only way  a company could  get more  money would be  to help                                                                    
increase production.                                                                                                            
                                                                                                                                
Representative  Gara   believed  HB  110   would  accomplish                                                                    
something that DOR  had said was not wise  four years prior.                                                                    
Companies that invested in major  oil field developments had                                                                    
an economic  incentive to continue  the production  of wells                                                                    
in  certain fields,  which was  why ACES  granted only  a 20                                                                    
percent credit for in-field  production. The legislature had                                                                    
been told  that giving the  companies more money  would fund                                                                    
what the  companies wanted  to do to  maintain the  lives of                                                                    
the fields.                                                                                                                     
                                                                                                                                
Representative  Gara  summarized  that   he  wanted  to  get                                                                    
something back for state investment.  He did not believe the                                                                    
governor's bill  could provide  adequate assurance  that the                                                                    
state would get anything other than a loss in revenue.                                                                          
                                                                                                                                
5:04:03 PM                                                                                                                    
                                                                                                                                
Representative   Guttenberg  spoke   against   HB  110.   He                                                                    
recommended  looking  at the  long  view.  He believed  that                                                                    
changing a tax  fiscal regime was an equation:  there was an                                                                    
equal sign in  the middle, and two equations  on either side                                                                    
of it. He  felt that sometimes, "two plus  two equaled five"                                                                    
and believed  the value had to  be weighed as to  its return                                                                    
to the state.                                                                                                                   
                                                                                                                                
Representative  Guttenberg referred  to  testimony from  the                                                                    
administration, the  producers, and  others, and  noted that                                                                    
there had  been two  assumptions: the competitive  nature of                                                                    
the  fiscal policy  and chasing  capital. The  themes seemed                                                                    
like a  marketing plan rather  than a balanced  equation. He                                                                    
was troubled  by the  lack of  modeling done  to demonstrate                                                                    
numbers  moving towards  increased production.  He was  also                                                                    
troubled  that the  two consultants  who had  testified (who                                                                    
were  private   consultants,  outside   the  realm   of  the                                                                    
administration,  and  not  producers  with a  "ball  in  the                                                                    
game") had disagreed with the assumption.                                                                                       
                                                                                                                                
Representative Guttenberg  referred to the  DOR presentation                                                                    
by  Gaffney,  Cline  & Associates  to  the  House  Resources                                                                    
Committee,  in   which  there  had  been   discussion  about                                                                    
designing a  fiscal system with  two parts art and  one part                                                                    
science.   There  was   discussion   of  nine   "influencing                                                                    
factors"; the last one was "competition from everywhere."                                                                       
                                                                                                                                
Representative  Guttenberg pointed  out that  the consultant                                                                    
was someone with a lot  of private-sector experience who had                                                                    
been an  industry man and had  to evaluate a lot  of things;                                                                    
he was not seen before the Finance Committee.                                                                                   
                                                                                                                                
5:08:20 PM                                                                                                                    
                                                                                                                                
Representative Guttenberg  recalled testimony  by consultant                                                                    
Rick Harper  in the  committee ["An  Independent View  of HB                                                                    
110,  March 24,  2011"], who  "rolled his  eyes" during  his                                                                    
presentation. He  quoted Mr. Harper  as saying,  "the things                                                                    
that should be important in  building a fiscal structure are                                                                    
the things  you are not  hearing." He questioned  what those                                                                    
"things"   were  and   expressed  disappointment   that  the                                                                    
administration had not addressed  the issue. He claimed that                                                                    
the  only  two   people  who  had  come   from  outside  the                                                                    
administration had serious questions  about the proposal. He                                                                    
did not  believe the  administration had  made the  case for                                                                    
the state to adopt the proposed fiscal regime.                                                                                  
                                                                                                                                
Representative  Wilson  spoke  in  support of  HB  110.  She                                                                    
agreed that  the entire  picture had  to be  considered; the                                                                    
bigger  picture for  her was  about  jobs, development,  and                                                                    
keeping oil coming  down the pipeline. She had  not seen any                                                                    
new oil  coming online and  wanted to know why.  She thought                                                                    
there were  explorers, but she questioned  why the explorers                                                                    
were not developing and becoming  producers. She thought the                                                                    
answer was that explorers were  explorers; the next step was                                                                    
to sell  the package, which  consisted of some  credits. She                                                                    
thought the  worst part  was that the  more money  a company                                                                    
made, the more money the  state would take. She thought that                                                                    
was a "hard sell."                                                                                                              
                                                                                                                                
Representative Wilson  argued that  not using  incentives to                                                                    
bring business in was an  avoidance of reality. She believed                                                                    
it was "normal"  in everyday business to  provide tax relief                                                                    
for  developers in  order to  create jobs.  She felt  HB 110                                                                    
would  produce more  jobs and  allow her  community to  have                                                                    
heating  oil  (although she  also  hoped  to look  at  other                                                                    
energy options).                                                                                                                
                                                                                                                                
Representative  Wilson agreed  that  there  could always  be                                                                    
more  information. She  reported that  she had  gone to  the                                                                    
community and asked people if  they had seen jobs leave with                                                                    
ACES; the  answer in the  Fairbanks and North Pole  area was                                                                    
that jobs had declined.  People believed that making changes                                                                    
in the tax regime would get the service industry jobs back.                                                                     
                                                                                                                                
5:12:08 PM                                                                                                                    
                                                                                                                                
Representative  Doogan  spoke  against the  legislation.  He                                                                    
opined that  HB 110 would give  a lot of state  money to the                                                                    
oil  industry, would  not require  anything  in return,  and                                                                    
would  go  on  forever.  He maintained  that  he  could  not                                                                    
support a bill  with such a profile, and  was surprised that                                                                    
any committee member could support it.                                                                                          
                                                                                                                                
Co-Chair Stoltze acknowledged the work  done on the bill and                                                                    
expressed appreciation  to staff. He thought  the process in                                                                    
the committee was good.                                                                                                         
                                                                                                                                
5:16:34 PM                                                                                                                    
                                                                                                                                
Representative Doogan appreciated the process and tolerance                                                                     
shown.                                                                                                                          
                                                                                                                                
Representative Gara MAINTAINED his OBJECTION.                                                                                   
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Edgmon,   Fairclough,   Joule,   Hawker,   Wilson,                                                                    
Costello, Thomas, Stoltze                                                                                                       
OPPOSED: Gara, Guttenberg, Doogan                                                                                               
                                                                                                                                
The MOTION PASSED (8/3).                                                                                                        
                                                                                                                                
CSHB  110(FIN) was  REPORTED  out of  Committee  with a  "do                                                                    
pass"  recommendation   and  with  new  zero   note  by  the                                                                    
Department  of  Natural  Resources,  new zero  note  by  the                                                                    
Department  of  Labor  and Workforce  Development,  and  new                                                                    
fiscal impact note by the Department of Revenue.                                                                                
                                                                                                                                
5:18:20 PM                                                                                                                    
                                                                                                                                

Document Name Date/Time Subjects
HB 110 Amendments 1-5 03292011.pdf HFIN 3/29/2011 1:30:00 PM
HB 110
HB 110 Handout 03292011.pdf HFIN 3/29/2011 1:30:00 PM
HB 110
HB110 NEW FN(FIN)-DOR-TAX-03-29-11.pdf HFIN 3/29/2011 1:30:00 PM
HB 110
HB 110 Amendment #6 03292011.pdf HFIN 3/29/2011 1:30:00 PM
HB 110
HB 110 Public Testimony #2.pdf HFIN 3/29/2011 1:30:00 PM
HB 110
Public Testimony HB 110 #1.pdf HFIN 3/29/2011 1:30:00 PM
HB 110
HB110 Public Testimony #3.pdf HFIN 3/29/2011 1:30:00 PM
HB 110