Legislature(2013 - 2014)HOUSE FINANCE 519

04/09/2013 09:00 AM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Continued at 4:30 p.m. Today --
Heard & Held
Scheduled But Not Heard
Scheduled But Not Heard
Scheduled But Not Heard
Scheduled But Not Heard
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSHB 76(FIN) Out of Committee
Moved CSHB 63(FIN) Out of Committee
CS FOR SENATE BILL NO. 21(FIN) am(efd fld)                                                                                    
     "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;                                                                    
     providing a  tax credit against the  corporation income                                                                    
     tax  for   qualified  oil  and  gas   service  industry                                                                    
     expenditures; relating  to the  oil and  gas production                                                                    
     tax rate; relating  to gas used in  the state; relating                                                                    
     to  monthly installment  payments  of the  oil and  gas                                                                    
     production tax; relating to oil  and gas production tax                                                                    
     credits for  certain losses and  expenditures; relating                                                                    
     to  oil and  gas  production  tax credit  certificates;                                                                    
     relating  to  nontransferable   tax  credits  based  on                                                                    
     production;  relating to  the  oil and  gas tax  credit                                                                    
     fund; relating  to annual  statements by  producers and                                                                    
     explorers;    establishing    the     Oil    and    Gas                                                                    
     Competitiveness  Review  Board; and  making  conforming                                                                    
9:01:38 AM                                                                                                                    
Co-Chair   Stoltze   noted   that  the   current   meeting's                                                                    
testifiers  were  smaller companies  than  the  oil and  gas                                                                    
producers that  the committee had  talked to the  prior day.                                                                    
He  pointed  out that  some  companies  had been  unable  to                                                                    
attend the  meeting, but had  sent in letters that  would be                                                                    
distributed to members and included in the record.                                                                              
BILL ARMSTRONG, OWNER AND PRESIDENT,  ARMSTRONG OIL AND GAS,                                                                    
discussed the North  Slope of Alaska. He stated  that he was                                                                    
in  big  support  of  the  intent  of  SB  21  and  that  it                                                                    
represented a  very courageous move to  tackle a politically                                                                    
hot  tax  bill.  He  stated that  Armstrong  Oil  and  Gas's                                                                    
activity in  Alaska was unique  and that he had  operated in                                                                    
the  state for  12 years;  most  of the  company's time  was                                                                    
dedicated  to its  efforts  in Alaska.  He  shared that  the                                                                    
first independent  field on the  North Slope, which  was the                                                                    
Oooguruk field,  had been thought  up and dreamed up  in his                                                                    
office;  furthermore,   his  company  had   brought  Pioneer                                                                    
Natural  Resources to  the table  to develop  the field.  He                                                                    
pointed  out  that  second independent  development  on  the                                                                    
North  Slope also  originated from  Armstrong Oil  and Gas's                                                                    
office  in  Denver;  the  company   had  conducted  all  the                                                                    
geological and geophysical engineering  work and had brought                                                                    
in Eni Petroleum to operate the field.                                                                                          
Mr.  Armstrong related  that Armstrong  Oil  and Gas,  along                                                                    
another  group of  partners, were  the  operators that  were                                                                    
developing a gas field on the  Cook Inlet; the field was now                                                                    
the  sixth largest  in the  inlet and  was supplying  gas to                                                                    
South-Central  Alaska. He  believed that  Armstrong Oil  and                                                                    
Gas was  the largest  lease holder on  the North  Slope that                                                                    
was  outside  of the  legacy  fields.  He related  that  his                                                                    
company  was in  an  aggressive  "wildcat" drilling  program                                                                    
with a  Spanish company, Repsol,  which had been  brought to                                                                    
the  table on  some of  its ideas;  the program  had drilled                                                                    
$250 million  worth of  wells on the  North Slope  the prior                                                                    
year and  would drill  another $250  million worth  of wells                                                                    
this year.                                                                                                                      
9:07:38 AM                                                                                                                    
Co-Chair Stoltze  requested a description of  Repsol and its                                                                    
dynamics.  Mr. Armstrong  replied  that Repsol  was a  semi-                                                                    
major out of  Madrid, Spain and was the  largest employer in                                                                    
that country. He stated that Repsol  was not quite as big as                                                                    
ConocoPhillips, but  was a very large,  multi-billion dollar                                                                    
company; additionally,  the company was very  well respected                                                                    
globally  and  was  arguably one  of  the  best  exploration                                                                    
companies in the world.                                                                                                         
Mr. Armstrong  believed that  as a  private company,  he had                                                                    
spent  more   money  in  Alaska  than   possibly  any  other                                                                    
individual in  the history  of the oil  and gas  industry in                                                                    
the  state. He  explained that  he did  not work  for a  big                                                                    
company, did  not have  stock options,  and did  not receive                                                                    
promotions and  that costs  for his  company in  Alaska came                                                                    
out of his wallet. He shared  that Armstrong Oil and Gas was                                                                    
a  great oil  finding company  and conducted  the hard  work                                                                    
regarding   finding  new   drill   locations;  the   company                                                                    
conducted all  the geological and  geophysical work  and ran                                                                    
down  all the  dead ends  that  typically did  not work.  He                                                                    
relayed  that Armstrong  Oil and  Gas drilled  a lot  of dry                                                                    
holes,  which was  very disappointing;  the company  did all                                                                    
the hard  work and then  managed risk by bringing  in larger                                                                    
companies.   He  expounded   that  Pioneer   Petroleum,  Eni                                                                    
Petroleum, and Repsol were examples  of the larger companies                                                                    
that Armstrong Oil and Gas had brought to Alaska.                                                                               
Mr. Armstrong shared  that he was always  pitching Alaska to                                                                    
other companies and that he  had always believed in "putting                                                                    
your money  where your  mouth is"; therefore,  he had  put a                                                                    
lot  of  money  into  Alaska  because  he  was  a  "massive"                                                                    
believer  in the  potential of  the state.  He related  that                                                                    
Alaska had fantastic  resources and that he  was a "walking,                                                                    
talking, chamber  of commerce for  the State of  Alaska." He                                                                    
spent time talking to bigger  oil and gas companies and knew                                                                    
what they  said about  the pitfalls, problems,  assets, etc.                                                                    
of  the  Alaska;  these  companies   said  that  Alaska  had                                                                    
problems. He related  that the bigger oil  and gas companies                                                                    
knew about  the bad weather  in Alaska, understood  that the                                                                    
infrastructure was controlled  by ConocoPhillips and British                                                                    
Petroleum   (BP),  acknowledged   the  tough   environmental                                                                    
regulations, and  recognized that  the permitting  was slow;                                                                    
however,  most  importantly,  these companies  thought  that                                                                    
Alaska's  Clear  and Equitable  Share  (ACES)  tax law  made                                                                    
Alaska a non-player for them as an investment.                                                                                  
Mr. Armstrong  stated that the  major oil and  gas companies                                                                    
thought  that ACES  was  too confiscatory  on  the high  end                                                                    
regarding  prices and  that when  they had  an option  to go                                                                    
other  places, they  did so.  He shared  that some  of these                                                                    
major companies questioned  why he was in  Alaska and stated                                                                    
that  his  response  was  that   laws  can  be  changed.  He                                                                    
explained that the major companies'  issues with Alaska were                                                                    
all man-made  and were above  ground; facilities  access and                                                                    
permitting  issues could  be  solved and  tax  law could  be                                                                    
changed. He  related that you  could find more  resources in                                                                    
Alaska by  mistake than you  could find on purpose  in other                                                                    
9:12:08 AM                                                                                                                    
Mr.  Armstrong   related  that  he  originally   prepared  a                                                                    
PowerPoint presentation,  but that  it would have  been very                                                                    
similar to the presentations  of AOGA, Exxon Mobile, Pioneer                                                                    
Natural Resources,  etc.; therefore,  he had decided  to not                                                                    
present the PowerPoint. He pointed  out that the only number                                                                    
that the legislature  needed to focus on was  the number 10,                                                                    
which was the number of  rigs that were actively drilling in                                                                    
Alaska  currently. He  explained that  a rig  count included                                                                    
rigs that  were actually  drilling in  a certain  region and                                                                    
offered  that  the  count  had   always  been  the  easiest,                                                                    
simplest, and cleanest  way to measure the health  of an oil                                                                    
industry  in  a  particular  region. He  shared  that  Texas                                                                    
currently  had   over  820   rigs  drilling.   North  Dakota                                                                    
currently  had 200  active rigs  and  Oklahoma likewise  had                                                                    
200. He  opined that the  number of active drilling  rigs in                                                                    
Alaska  compared to  active  rigs in  some  of the  Lower-48                                                                    
states  was "pathetic"  and  "ridiculous."  He offered  that                                                                    
people thought of great fishing,  good scenery, big country,                                                                    
and big oil when they thought  of Alaska, but that the state                                                                    
was  an  "afterthought"  currently  regarding  oil  and  gas                                                                    
because no one  was coming here to  invest; furthermore, the                                                                    
committee  should  consider  the  reason  for  the  lack  of                                                                    
investment currently.  He pointed  out that  the legislature                                                                    
had  as much  control over  what  happened in  the state  as                                                                    
anyone  and  that it  needed  to  question why  people  were                                                                    
leaving the  state and not  arriving droves; the  answer was                                                                    
the  tax laws  in the  state. He  offered that  Alaska's tax                                                                    
regime was not the only problem, but it was the foremost.                                                                       
9:14:58 AM                                                                                                                    
Mr. Armstrong  believed that SB  21 was a "massive"  move in                                                                    
the  right  direction; it  was  not  perfect, but  was  much                                                                    
better than  ACES. He  spoke to the  current version  of the                                                                    
bill, which  was HCS  CSSB21 (RES) and  related that  the 35                                                                    
percent base  tax rate,  the loss  carry forward,  the gross                                                                    
revenue exclusion (GRE), the $5  per barrel (bbl) credit for                                                                    
explorers, and  the small producer  credit that were  in the                                                                    
current version  had hit a  very nice sweet spot.  He stated                                                                    
that  the 35  percent  base  tax rate  was  higher than  the                                                                    
majors  wished to  see, but  that it  was a  big improvement                                                                    
over  the progressivity  problem  that  was associated  with                                                                    
ACES. He  shared that the  GRE, the  $5 per bbl  credit, and                                                                    
the small producer credit opened  the door for areas outside                                                                    
of the legacy fields, which  was where he thought the future                                                                    
of Alaska's oil  and gas industry was. He  reported that the                                                                    
boom occurring in the Lower-48  was changing the dynamics of                                                                    
the world's oil  industry and that it  represented a massive                                                                    
windfall  for   all  the   states  involved.   He  discussed                                                                    
hydraulic   fracturing   technology,  which   was   commonly                                                                    
referred to  as "fracking,"  horizontal-drilling technology,                                                                    
multi-stage   fracking   technology,   and   other   various                                                                    
technologies  that were  being used  to extract  oil in  the                                                                    
Lower-48 and  pointed out  that none  of those  methods were                                                                    
being  used in  Alaska; however,  the rocks  in Alaska  were                                                                    
well suited  for these technologies.  He concluded  that HCS                                                                    
CSSB21 (RES) was a massive step in the right direction.                                                                         
Co-Chair Stoltze  inquired if Mr. Armstrong  was saying that                                                                    
advances in technology  alone would not "do  it" for Alaska.                                                                    
Mr.  Armstrong replied  in the  affirmative  and added  that                                                                    
technology combined  with the ACES  tax structure  still did                                                                    
not work. He  reported that Alaska was  competing with every                                                                    
other oil  region in the  world and that the  ACES structure                                                                    
had  a  tax  rate  somewhere   right  around  the  level  of                                                                    
Venezuela  and  Russia.  He  felt   that  he  had  a  unique                                                                    
perspective  that  a  lot  of   the  testifiers  before  the                                                                    
committee did not have.                                                                                                         
Representative Costello  inquired what  types of  leases Mr.                                                                    
Armstrong  had, as  well  as  his tax  rate  on royalty  and                                                                    
severance  tax. Mr.  Armstrong stated  that  he should  have                                                                    
been clearer  earlier, but that  his company was not  in the                                                                    
legacy fields;  it was  working was in  the areas  that were                                                                    
the future  of Alaska,  which most  people agreed  were good                                                                    
areas  to  go  "chase."  He  explained  that  there  was  no                                                                    
"corporate give away"  in the areas outside  of the existing                                                                    
units because there  was nothing to give  away and expounded                                                                    
that  these areas  did  not have  any  production; what  was                                                                    
being  discussed  was  future  income that  had  yet  to  be                                                                    
Mr.   Armstrong  responded   to  Representative   Costello's                                                                    
question.  He stated  that Armstrong  Oil and  Gas's royalty                                                                    
rate was  one-sixth on all  its leases and compared  that to                                                                    
the one-eighth royalty rate inside the legacy fields.                                                                           
Co-Chair  Stoltze  inquired if  the  royalty  rate was  16.7                                                                    
percent versus  12.5 percent. Mr. Armstrong  replied that it                                                                    
was 16.667 percent versus 12.5 percent.                                                                                         
9:19:15 AM                                                                                                                    
Representative  Costello opined  that Alaska  had laws  that                                                                    
were  great for  the explorers  and observed  that Armstrong                                                                    
Oil  and  Gas  would  eventually   be  looking  to  move  an                                                                    
exploration  development into  production. She  queried what                                                                    
kind of  response Armstrong  Oil and  Gas had  received from                                                                    
potential partners to  Alaska as it looked  into moving into                                                                    
the  production  phase  of   a  development.  Mr.  Armstrong                                                                    
related that all of them were  appalled by ACES and the high                                                                    
progressivity with high  oil prices. He shared  that when he                                                                    
had brought  Pioneer Natural Resources and  Eni Petroleum to                                                                    
the North  Slope, Alaska had  been under the  Economic Limit                                                                    
Factor (ELF) tax regime and that  ACES had not been in place                                                                    
at the time.  He further explained that when  he had brought                                                                    
Repsol to  Alaska, HB 110  had been written by  the governor                                                                    
and passed  by the  House. He offered  that Repsol  had been                                                                    
"looking at the tea leaves"  and thought that tax reform was                                                                    
on  the way;  as  a result,  Repsol had  chosen  to come  to                                                                    
Alaska.  He explained  that  Repsol had  come  to the  state                                                                    
because they  were playing the  "Wayne Gretzky"  approach to                                                                    
hockey, which  was that  "you don't play  where the  puck is                                                                    
now, but you play where the puck is going to be."                                                                               
Mr.  Armstrong   continued  to  respond   to  Representative                                                                    
Costello's  question  and  related that  potential  partners                                                                    
that  he   was  talking  to   currently  viewed  SB   21  as                                                                    
competitive. He stated that  potential partners thought that                                                                    
SB 21 would put Alaska  in line with other investment areas,                                                                    
but that  they still  had other issues  with Alaska  such as                                                                    
high costs, inaccessibility, and bad weather.                                                                                   
Co-Chair  Stoltze attested  that news  of impending  help or                                                                    
doom was  a strong  signal. He  recalled introducing  a bill                                                                    
that would  have made modifications  on the film  tax credit                                                                    
and was  told in testimony  that he had killed  the industry                                                                    
by talking about the bill.                                                                                                      
Representative Gara  offered that  Mr. Armstrong  has stated                                                                    
in  a prior  committee that  one of  the big  impediments to                                                                    
independents in Alaska were the  majors and inquired what he                                                                    
had meant by  the statement. Mr. Armstrong  replied that one                                                                    
of the impediments in Alaska  was that the majors controlled                                                                    
the  lion's  share  of  almost all  of  the  facilities.  He                                                                    
offered that  the only  facilities in  Alaska that  were not                                                                    
controlled by the majors were  the processing facilities and                                                                    
pointed  out that  the Trans-Alaska  Pipeline System  (TAPS)                                                                    
was  an  open  access  pipeline  for  anyone;  however,  the                                                                    
ability to get to TAPS was  one of the aspects that stood in                                                                    
the way.  He pointed out that  the majors had a  lot of land                                                                    
holdings that trades  were difficult to be made  on, as well                                                                    
as seismic  work that was  difficult, if not  impossible, to                                                                    
make trades for.                                                                                                                
Representative   Gara   inquired   if  Mr.   Armstrong   was                                                                    
referencing seismic  work that crossed the  major companies'                                                                    
lands.  Mr.  Armstrong  replied   that  he  was  referencing                                                                    
seismic that had already been  shot and made available to be                                                                    
Mr. Armstrong continued to  respond to Representative Gara's                                                                    
question and related  that he got along well  with guys from                                                                    
ConocoPhillips and BP,  but offered that the  majors did not                                                                    
want  the  independents to  be  in  Alaska. He  opined  that                                                                    
although  ConocoPhillips   claimed  that  they   wanted  the                                                                    
independents in  Alaska, its  actions had  demonstrated that                                                                    
it did not.                                                                                                                     
9:24:49 AM                                                                                                                    
Representative Gara inquired how  the majors not wanting the                                                                    
independents  in Alaska  manifested  itself in  the form  of                                                                    
deterrence. Mr.  Armstrong replied that  he did not  want to                                                                    
get into  a "major bashing"  exercise because they  were not                                                                    
the  independents' foremost  problem;  the foremost  problem                                                                    
was the state's current tax law.                                                                                                
Representative  Gara queried  if Mr.  Armstrong had  brought                                                                    
Repsol  to Alaska  in 2011  or 2012.  Mr. Armstrong  thought                                                                    
that  it was  2011. Representative  Gara inquired  if Repsol                                                                    
had bid on  leases at that time. Mr.  Armstrong responded in                                                                    
the affirmative.                                                                                                                
Representative  Gara inquired  if Mr.  Armstrong had  helped                                                                    
bring  Pioneer  Natural Resources  to  Alaska  as well.  Mr.                                                                    
Armstrong  replied in  the affirmative.  Representative Gara                                                                    
inquired if  Pioneer Natural Resources had  moved ahead with                                                                    
production that  had started  when ACES  was in  effect. Mr.                                                                    
Armstrong replied in the affirmative.                                                                                           
Representative Gara  observed that every oil  company in the                                                                    
world would  like taxes to be  lower all the time,  but that                                                                    
he  was  a little  skeptical.  He  acknowledged that  reform                                                                    
might be needed  in some areas, such as at  high oil prices.                                                                    
He recalled that  when Repsol had come to  Alaska, its press                                                                    
release  had stated  that Alaska  had low  exploratory risk,                                                                    
great  rocks,  and  had great  potential;  furthermore,  the                                                                    
release stated  that some potential was  disappearing around                                                                    
the world,  and that Alaska  was a stable,  Organisation for                                                                    
Economic Co-operation  and Development (OECD) area  that did                                                                    
not nationalize  oil companies. He asserted  that nowhere in                                                                    
the 2012  press release did  Repsol claim that  Alaska's tax                                                                    
laws were out of whack; the  release led him to believe that                                                                    
Repsol was interested  in coming to Alaska.  He offered that                                                                    
only when HB  110 was being debated later on  did Repsol say                                                                    
that it wanted lower taxes.                                                                                                     
Representative Gara wondered why  he should not be skeptical                                                                    
that people  wanted lower taxes  when the "carrot"  of lower                                                                    
taxes was dangled  in from of them.  Mr. Armstrong responded                                                                    
that when Repsol had partnered  with his company, HB 110 had                                                                    
been submitted by  the governor and passed by  the House; as                                                                    
a  result, Repsol  had assumed  that the  Senate would  also                                                                    
pass  the bill.  He  expounded that  Repsol had  anticipated                                                                    
lower taxes when  it had partnered with him  and pointed out                                                                    
that a  press release  only reflected a  fraction of  what a                                                                    
major oil company was thinking.  He observed that Repsol had                                                                    
released a  later press release  in which it stated  that it                                                                    
needed some version of a modified tax scheme in Alaska.                                                                         
Representative  Gara noted  that in  Repsol's initial  press                                                                    
release,  it  had  announced   a  $768  million  development                                                                    
program in  Alaska and inquired  if the company  had started                                                                    
that program. Mr. Armstrong responded in the affirmative.                                                                       
Representative Gara  surmised that an oil  company coming up                                                                    
to Alaska and investing and  buying leases under an existing                                                                    
law would  not know  that the law  would change  and queried                                                                    
why he should believe  Mr. Armstrong's statement that Repsol                                                                    
knew the  law would change.  Mr. Armstrong replied  that oil                                                                    
companies made decisions all the  time where uncertainty was                                                                    
involved.  He questioned  what  the oil  price  would be  in                                                                    
another year and  whether Repsol would be  nationalized in a                                                                    
foreign country  or have a spill  in the Gulf of  Mexico; he                                                                    
explained  that things  like this  represented a  calculated                                                                    
game that  "all of us"  play all  the time. He  offered that                                                                    
the word  was out that Alaska  had a broken oil  and gas tax                                                                    
system  and that  Repsol had  made a  calculated move  to be                                                                    
where the "puck was going to be."                                                                                               
9:29:15 AM                                                                                                                    
Representative Gara  noted that he liked  Mr. Armstrong, but                                                                    
that he did not believe  what he was asserting. He explained                                                                    
that Repsol  had come in  to Alaska and had  been interested                                                                    
in  it and  that  only  after the  tax  reform bill  started                                                                    
moving did the company say  that it was something they would                                                                    
really like; he opined that any oil company would say that.                                                                     
Representative  Gara  inquired  about  the  rig  counts.  He                                                                    
stated  that in  Alaska, the  rigs could  horizontally drill                                                                    
for 3 miles or more and  that technology was being worked on                                                                    
that  could horizontally  drill  even  further. He  asserted                                                                    
that  a lot  of the  drilling  rigs that  Mr. Armstrong  had                                                                    
referenced  in the  Lower-48 fit  in  the back  of a  pickup                                                                    
truck.  He  opined  that  the   rig  sizes  in  Alaska  were                                                                    
massively  different  than  they  were in  the  areas  where                                                                    
fracking was  being done and  inquired if that  was correct.                                                                    
Mr. Armstrong replied that in  some cases that was true, but                                                                    
not in all cases.                                                                                                               
Representative  Gara   asserted  that   in  the   major  oil                                                                    
producing  states, such  as Texas  and Wyoming,  the overall                                                                    
increase in production was not  because of the production of                                                                    
conventional  oil,   but  was   related  to   the  "fracking                                                                    
revolution";  he inquired  if that  assumption was  correct.                                                                    
Mr. Armstrong responded in the affirmative.                                                                                     
Co-Chair Stoltze interjected and  inquired which part of the                                                                    
question  Mr.  Armstrong  was  agreeing  to.  Mr.  Armstrong                                                                    
replied  that   he  was  agreeing   that  the   increase  in                                                                    
production  in   the  Lower-48  was  predominantly   due  to                                                                    
advancements  in  technology  and the  exploitation  of  the                                                                    
unconventional  reservoirs;  furthermore,   he  agreed  that                                                                    
Alaska did not  have that activity yet, but  that it should.                                                                    
He explained  that Alaska had  just as good, if  not better,                                                                    
geology,  rocks, and  formations as  many of  the successful                                                                    
plays in the Lower-48.                                                                                                          
Representative  Gara thought  that  fracking  would come  to                                                                    
Alaska,  but did  not know  that for  sure; however,  he had                                                                    
heard that Alaska's  fracking rocks were very  good and that                                                                    
there  was exploration  being conducted.  He stated  that it                                                                    
was not  a compelling case  to him when investment  had gone                                                                    
up in the Lower-48 due  to technology advances and fracking,                                                                    
but  conventional  oil  production  was not  going  up.  Mr.                                                                    
Armstrong  replied that  for the  most part,  there was  not                                                                    
anyone pursuing  unconventional plays in Alaska  and offered                                                                    
that everyone  who understood geology and  engineering would                                                                    
state   that   Alaska   was  a   fantastic   candidate   for                                                                    
unconventional drilling.  He opined  that a question  to ask                                                                    
was  why  unconventional plays  were  not  being pursued  in                                                                    
Alaska.  He asserted  that other  Alaskan oil  players would                                                                    
attest that  the state had these  resources underground that                                                                    
needed  to  be  developed  and   pointed  out  that  it  was                                                                    
indisputable  that the  recourses were  not currently  being                                                                    
Representative  Gara noted  that  Great  Bear Petroleum  had                                                                    
moved ahead  with fracking exploration and  that the company                                                                    
had indicated that its early  drilling results had been very                                                                    
promising.  He acknowledged  that Great  Bear Petroleum  was                                                                    
not  a major  and would  have to  partner with  someone, but                                                                    
offered that fracking drilling had  moved forward in Alaska;                                                                    
although fracking in  the state was not  progressing as fast                                                                    
as it was in the Lower-48, it was coming up here.                                                                               
9:33:58 AM                                                                                                                    
Co-Chair Stoltze noted that the  committee had invited Great                                                                    
Bear Petroleum  to attend the proceeding  multiple times and                                                                    
that the company had chosen not to attend.                                                                                      
Mr.  Armstrong responded  to Representative  Gara's comments                                                                    
and  related that  unconventional plays  were difficult  and                                                                    
involved  lots  of  trial  and error.  He  shared  that  any                                                                    
successful  unconventional play  in  the Lower-48  typically                                                                    
involved a whole  number of players who had  to "unlock" the                                                                    
code  and  that the  timelines  on  these plays  involved  a                                                                    
lengthy learning  curve. He opined  that Great  Basin [Great                                                                    
Bear]  was drilling,  but that  the chance  of it  finding a                                                                    
"needle in  the haystack" on  its first couple of  wells was                                                                    
low.  He  stated  that  there were  dozens  of  people  like                                                                    
himself and dozens  of companies like Repsol  working in the                                                                    
Lower-48 that  were not  in Alaska.  He offered  that Alaska                                                                    
needed those companies and players  up here to try to unlock                                                                    
the code  because doing so  would result  in a boom  for the                                                                    
state; Alaska would  not see 800 drilling  rigs running like                                                                    
there were in Texas, but that it might see 75 rigs.                                                                             
Representative Holmes  noted that  the committee  was trying                                                                    
to determine if  the current version of the  bill, which was                                                                    
HCS CSSB21 (RES),  was getting it right and  opined that Mr.                                                                    
Armstrong  was saying  that the  legislation was  getting it                                                                    
right;  furthermore, the  committee wanted  a feel  for what                                                                    
passing  the bill  or something  similar would  mean on  the                                                                    
ground.  She inquired  what Mr.  Armstrong  would expect  to                                                                    
see, from  his company's perspective  as well as  others, on                                                                    
the ground and  in what timeframe if the bill  were to pass.                                                                    
Mr. Armstrong replied  that HCS CSSB21 (RES)  was getting it                                                                    
right,  but noted  for the  record that  there was  no clear                                                                    
right or  wrong. He  offered that  the target  was amorphous                                                                    
and that  if the state  missed it  a little with  HCS CSSB21                                                                    
(RES),  the  legislation  could always  be  tweaked  in  the                                                                    
future.  He pointed  out that  he could  only speak  for his                                                                    
current partner  on the  North Slope,  which was  Repsol. He                                                                    
shared that  Repsol was  about half of  the way  through its                                                                    
$768 million obligation  and that Armstrong Oil  and Gas and                                                                    
Repsol had several  accumulations that it was  ready to take                                                                    
to development  once SB 21  passed. He explained that  the 2                                                                    
developments would  involve a capital expenditure  in excess                                                                    
of $2.8 billion and pointed  out that the developments would                                                                    
not be  commercialized under ACES,  but would sit  there. He                                                                    
believed that  $2.8 billion would  be just the  beginning of                                                                    
their  investment, but  pointed out  that it  was already  a                                                                    
large investment on its own.                                                                                                    
Mr. Armstrong  reported that the  oil business was  like any                                                                    
other  business and  that success  begot  other success.  He                                                                    
opined that once  the industry saw that  companies in Alaska                                                                    
liked  the  tax laws  and  were  having success,  the  other                                                                    
companies would follow  to the state. He  offered that there                                                                    
would be  a whole new level  of attention on to  Alaska, but                                                                    
that  it  would  not  happen   overnight;  however,  he  was                                                                    
confident that more companies would be coming to Alaska.                                                                        
9:39:30 AM                                                                                                                    
Representative Holmes did  not want to change  taxes for tax                                                                    
changing  purposes.  She  explained that  if  the  committee                                                                    
changed taxes,  it would  be because it  wanted to  see more                                                                    
production,  did not  want the  decline rate,  and wanted  a                                                                    
steady, predictable  future, so  that the  legislature would                                                                    
know what  it could count  on year-by-year to  fund schools,                                                                    
roads, and keep people working.                                                                                                 
Co-Chair  Austerman did  not want  to  leave the  impression                                                                    
that  the majority  of  the committee  did  not believe  Mr.                                                                    
Armstrong's  testimony   and  remarked  that  most   of  the                                                                    
legislature understood the risk  in gambling. He opined that                                                                    
Repsol had  made a bet and  taken a gamble and  thought that                                                                    
the  company had  made the  "right" gamble;  furthermore, he                                                                    
anticipated that Repsol and Mr.  Armstrong, as well as their                                                                    
work outside of  the legacy fields would carry  the state in                                                                    
the  long-term.  He  opined  that  the  small  players  were                                                                    
carrying places  like Texas and  Wyoming, where there  was a                                                                    
long-term  development  of  oil.  He pointed  out  that  the                                                                    
committee  would move  forward with  something, but  that it                                                                    
did not know exactly what that was yet.                                                                                         
Representative Wilson  stated that she  had not been  in the                                                                    
legislature when ACES had been  passed and inquired how many                                                                    
rigs there  were on the  North Slope before that  policy had                                                                    
been enacted.  Mr. Armstrong  replied that  he was  not sure                                                                    
about the number of rigs at the time.                                                                                           
Co-Chair  Stoltze interjected  that AOGA  would probably  be                                                                    
better suited to answer the question.                                                                                           
Mr. Armstrong  replied that  he was not  aware of  the exact                                                                    
number  of rigs,  but  that  it not  a  massive number  even                                                                    
before ACES; however,  the same thing had  been occurring in                                                                    
every state in the Lower-48 at the time.                                                                                        
Co-Chair Stoltze interjected  that oil had been  $60 per bbl                                                                    
at  the time.  Mr. Armstrong  replied that  Co-Chair Stoltze                                                                    
was  correct  and added  that  the  technology advances  and                                                                    
fracking  in general  also did  not  exist at  the time.  He                                                                    
concluded that the Lower-48 states  had boomed, while Alaska                                                                    
had  not; therefore,  asserting  that ACES  did  not do  any                                                                    
damage because there were not a  lot of rigs in Alaska prior                                                                    
to  the policy  was  not a  fair argument  to  bring up.  He                                                                    
pointed  out that  there was  currently  a boom  in the  oil                                                                    
business because the price of oil  was over $100 per bbl and                                                                    
that the boom involved a  combination of technology and high                                                                    
oil prices.                                                                                                                     
Representative Wilson  noted that Pioneer  Natural Resources                                                                    
had come  to Alaska under  the ELF tax regime.  She inquired                                                                    
if  Pioneer  Natural  Resources would  have  still  come  to                                                                    
Alaska if  ACES had been in  place at the time  and if there                                                                    
was no  HB 110. Mr.  Armstrong related that  Pioneer Natural                                                                    
Resources  would not  have come  to  Alaska if  ACES was  in                                                                    
place  because it  was his  company's idea;  furthermore, he                                                                    
would have passed  on Alaska completely if ACES  had been in                                                                    
place  at the  time.  He concluded  that  his company  would                                                                    
never have  come up with  the idea to bring  Pioneer Natural                                                                    
Resources  to Alaska  had  ACES been  in  place because  the                                                                    
first  thing  a  business  did  analyze  was  the  potential                                                                    
profit. He  stated that  it did  not make sense  to go  to a                                                                    
place where  even if you  had success, the returns  paled in                                                                    
comparison  to another  place and  opined that  both Pioneer                                                                    
Natural Resources and  Eni Petroleum would not  be in Alaska                                                                    
had ACES been  in place when his company was  coming up with                                                                    
the ideas.                                                                                                                      
9:44:50 AM                                                                                                                    
Representative Wilson  discussed testimony on  the different                                                                    
types  of  tax  credits.  She  offered  that  testimony  had                                                                    
indicated that  Alaska had pretty  much got  its exploration                                                                    
credits right,  but that there were  issues with development                                                                    
and production in the state.  She inquired if it was correct                                                                    
that  an issue  in  Alaska was  that  explorations were  not                                                                    
reaching  development stage.  Mr. Armstrong  replied in  the                                                                    
affirmative and related  that ACES was warped in  2 ways. He                                                                    
explained  that  the  progressivity in  ACES  "crushed"  any                                                                    
producer as oil  prices rose. He thought  that the qualified                                                                    
capital  expenditure  credit,  while well  intentioned,  had                                                                    
unwittingly made the state a  partner with the oil companies                                                                    
and  expounded that  had the  price  of oil  gone down,  the                                                                    
credits  could  have  crippled   the  state's  finances.  He                                                                    
observed that the way that  HCS CSSB 21(RES) was crafted the                                                                    
credits  were  all tied  to  production,  which was  a  much                                                                    
better way of handling the  credits; this way paying less in                                                                    
production taxes would be linked  to success and production.                                                                    
He noted  that the oil  companies would still  pay corporate                                                                    
tax,  royalties, and  lease bonuses.  He concluded  that the                                                                    
way  HCS   CSSB  21(RES)  was  being   approached  was  more                                                                    
sustainable and durable for business.                                                                                           
9:47:45 AM                                                                                                                    
Representative Munoz inquired  what the effect of  SB 21 not                                                                    
passing  would be  on Repsol  and Armstrong  Oil and  Gas in                                                                    
Alaska. He  responded that  he could  not speak  for Repsol,                                                                    
but  that  he  could  speak   for  Armstrong  Oil  and  Gas;                                                                    
furthermore,  if SB  21 did  not pass,  the fields  that the                                                                    
company  had found  over  the  last 2  years  would be  non-                                                                    
commercial and would not be developed.                                                                                          
Representative  Kawasaki  asked  whether Mr.  Armstrong  had                                                                    
been  involved  in  the Pioneer  Natural  Resources  royalty                                                                    
relief.  Mr.   Armstrong  responded  in  the   negative  and                                                                    
explained  that  Pioneer  Natural  Resources  had  been  the                                                                    
operator,  while   Armstrong  Oil  and  Gas   had  been  the                                                                    
originator;  however,   Armstrong  was  involved   with  the                                                                    
testimony that Repsol had submitted  to the state on royalty                                                                    
relief.  He  offered that  the  royalty  relief concept  was                                                                    
wonderful and  that it allowed  the fields that were  on the                                                                    
bubble of being commercial a chance to be developed.                                                                            
Representative Kawasaki  agreed that the royalty  relief was                                                                    
part of the  state's tool box, but that it  did not get used                                                                    
that  often.   He  acknowledged  that  royalty   relief  was                                                                    
recently  used   in  Pioneer  Natural   Resource's  Oooguruk                                                                    
Representative  Kawasaki inquired  why a  partner, explorer,                                                                    
and producer like Armstrong Oil  and Gas would not pitch the                                                                    
royalty relief to companies like  Repsol, Eni Petroleum, and                                                                    
other  groups  that  it was  involved  with.  Mr.  Armstrong                                                                    
replied that  his company  did pitch  royalty relief  to its                                                                    
partners and  that although it  was a nice aspect  of Alaska                                                                    
to tell  them about, in most  cases, it was not  enough with                                                                    
ACES still in place.                                                                                                            
9:51:01 AM                                                                                                                    
Co-Chair  Stoltze indicated  to  Mr. Armstrong  that he  was                                                                    
welcome  to  correspond  with the  committee  regarding  any                                                                    
provisions in the legislation.                                                                                                  
Mr.  Armstrong appreciated  the opportunity  to express  his                                                                    
opinion on HCS  CSSB 21(RES). He thought that  Alaska was on                                                                    
the precipice of bringing a lot  of players to the state and                                                                    
that  there was  a  real potential  of  turning the  decline                                                                    
curve around.  He explained  that if  you were  not drilling                                                                    
wells,  you  were  not  finding oil  and  pointed  out  that                                                                    
Prudhoe  Bay  had been  found  by  accident; in  process  of                                                                    
chasing the  Lisburn idea, the Ibishak  Reservoir in Prudhoe                                                                    
Bay had  be found. He  furthered that the Kuparuk  River was                                                                    
an Ibishak test that did not  work and that Alpine Field was                                                                    
a Kuparuk  play that had  stumbled into the Alpine  sand. He                                                                    
concluded that Alaska needed more drilling activity.                                                                            
Co-Chair  Stoltze apologized  to  the  testifiers that  were                                                                    
still  waiting  and  offered that  other  testimonies  would                                                                    
likely be  shorter because a  lot of the questions  had been                                                                    
KARA MORIARTY, ALASKA OIL AND  GAS ASSOCIATION (AOGA), began                                                                    
a presentation titled "House  Resources Committee HCS CSSB21                                                                    
(RES)  April  9,  2013 Kara  Moriarty,  Executive  Director"                                                                    
(copy on  file). She  spoke to slide  2 titled  "AOGA Member                                                                    
Companies" and  related that AOGA  was a  professional trade                                                                    
association  that  represented   15  member  companies.  She                                                                    
reported  that you  could  see from  the  slide that  AOGA's                                                                    
member  companies represented  the majority  of exploration,                                                                    
production,   development,  refining,   transportation,  and                                                                    
marketing of  oil and gas  in Alaska. She related  that when                                                                    
AOGA testified  on tax numbers,  there had be a  100 percent                                                                    
consensus  from  all  its  member  companies  and  that  the                                                                    
comments she  would make,  as well  as the  detailed written                                                                    
comments that  were submitted for  the record, had  all been                                                                    
approved unanimously.                                                                                                           
Ms. Moriarty  spoke to  slide 2  titled "Alaska  North Slope                                                                    
Production." She  pointed out that Alaska's  great challenge                                                                    
currently,  which the  industry shared  with the  state, was                                                                    
the  decline  of oil  production  on  the North  Slope.  She                                                                    
related that  with respect to  oil and gas taxes,  the great                                                                    
issue  facing  Alaska  was  that  there  was  a  fundamental                                                                    
tradeoff between  the short-term and long-term  benefits and                                                                    
the  results for  Alaskans. She  offered that  the challenge                                                                    
would  lie in  striking a  balance between  the size  of the                                                                    
economic  development activity  that occurred  in the  state                                                                    
and  the rate  of  taxation on  that activity;  furthermore,                                                                    
AOGA's role in the current  meeting as the trade association                                                                    
for the  industry would  be to  share its  perspective about                                                                    
how close Alaska  was to achieving that  balance. She stated                                                                    
that   AOGA,   individual   companies,   the   legislature's                                                                    
consultants,  and the  administration's consultants  had all                                                                    
testified   that  the   current   tax   structure  was   not                                                                    
competitive with the opportunities  that were present across                                                                    
the globe.                                                                                                                      
Ms. Moriarty  continued to  speak to  slide 2  and explained                                                                    
that because  the present tax structure  was not competitive                                                                    
or attractive,  investment had shifted to  regions elsewhere                                                                    
in order  to get  more money  for shareholders.  She related                                                                    
that  if   a  restructuring  and  tax-rate   reduction  made                                                                    
investments  in  Alaska  more competitive,  companies  would                                                                    
want to  make investments in  the state, even if  there were                                                                    
no  specific guarantees,  because shareholders  would demand                                                                    
9:55:39 AM                                                                                                                    
Ms.  Moriarty spoke  to  slide 3  titled  "HCS CSSB21  (RES)                                                                    
Component: Progressivity."                                                                                                      
    AOGA supports the elimination of ACES progressivity                                                                         
     1) Progressivity under ACES takes away too large a                                                                         
     2) Progressivity guts the upside potential for Alaska                                                                      
     3) Progressivity makes it difficult to analyze and                                                                         
     quantify the tax effect.                                                                                                   
Ms. Moriarty spoke to slide  3 and opined that repealing the                                                                    
ACES  progressivity  would be  a  material  step forward  in                                                                    
improving Alaska's attractiveness  because progressivity was                                                                    
the  single  most  negative component  of  the  current  tax                                                                    
structure. She spoke  to the first bullet  point and related                                                                    
that  at  current prices,  which  about  $100 per  bbl,  the                                                                    
current tax  rate under progressivity  was over  40 percent.                                                                    
She discussed  the second bullet  point and related  that it                                                                    
occurred because  the more  the upside  was realized  as the                                                                    
price  of oil  increased, the  more progressivity  took that                                                                    
upside  away.  She  addressed the  final  bullet  point  and                                                                    
expounded  that  when  a plan  of  development  had  several                                                                    
elements in  it, progressivity made it  almost impossible to                                                                    
analyze and  quantify the tax  effect of any  single element                                                                    
because the  progressivity for all of  the elements together                                                                    
was greater  than the sum  of the progressivity of  each one                                                                    
Ms.  Moriarty discussed  slide 5  titled  "HCS CSSB21  (RES)                                                                    
Component: Increasing the Base Tax Rate."                                                                                       
     AOGA does not  endorse increasing the base  tax rate to                                                                    
     1)  A higher  tax rate  would be  a step  in the  wrong                                                                    
     2)  Increasing the  base tax  rate is  contrary to  the                                                                    
     Governor's  second principle.  It  would not  encourage                                                                    
     new production.                                                                                                            
     3)  The  lower  the   tax  rate,  the  more  attractive                                                                    
     Alaska's system will be to investors.                                                                                      
Ms. Moriarty  shared that  AOGA felt  that raising  the base                                                                    
rate to  35 percent would be  a step in the  wrong direction                                                                    
because it  had consistently  testified since 2007  that the                                                                    
25   percent   base  rate   was   too   high  even   without                                                                    
9:57:41 AM                                                                                                                    
Ms.  Moriarty turned  to slide  6 and  7 titled  "HCS CSSB21                                                                    
(RES) Component: Tax Credits."                                                                                                  
     1)  AOGA  does  not  support the  repeal  of  Qualified                                                                    
     Capital Expenditure  Credits (QCE)  if it was  the only                                                                    
     change,  but CS  offers other  incentives that  tend to                                                                    
     offset this loss.                                                                                                          
     2) AOGA supports the new credits for new                                                                                   
        · Gross Revenue Reduction for "non-legacy" fields                                                                       
        · Sliding Scale for legacy fields                                                                                       
     3) AOGA supports the extension of the small producer                                                                       
     tax credit.                                                                                                                
     4) AOGA supports maintaining the ability to utilize                                                                        
     the loss carry-forward annual loss credit                                                                                  
Ms. Moriarty  addressed slide 6  and stated that  HCS CSSB21                                                                    
(RES) offered  a package of  tax credits and  new incentives                                                                    
to  spur  production.  She addressed  the  first  sub-bullet                                                                    
point and  related that  the gross  revenue reduction  was a                                                                    
new concept  that balanced  the loss of  the QCE  credit; it                                                                    
was coupled  with the tax credit  of $5 per bbl  of oil that                                                                    
fell in  the new  production categories  as outlined  in the                                                                    
bill. She  spoke to  the final sub  bullet point  and stated                                                                    
that the bill  also included a sliding scale  tax credit for                                                                    
legacy  fields that  started at  $8 per  bbl when  the gross                                                                    
value at the point of  production was less than $80 dollars.                                                                    
She reported  that the sliding  scale credit  would decrease                                                                    
by  $1 per  bbl for  each $10  increment above  the $80  and                                                                    
would  reach zero  when  the  gross value  at  the point  of                                                                    
production  was at  $150; in  doing this,  HCS CSSB21  (RES)                                                                    
filled a gap that the Senate  passed version of the bill had                                                                    
missed by  providing a  tax incentive for  80 percent  to 90                                                                    
percent of  the remaining  oil potential  that was  on state                                                                    
lands on the North Slope.                                                                                                       
Ms. Moriarty  spoke to slide  7 and related that  HCS CSSB21                                                                    
(RES)  would delay  the  sunset of  the  small producer  tax                                                                    
credit from 2016 to 2022,  which was something that AOGA had                                                                    
specifically   advocated   for    in   previous   committees                                                                    
throughout the  current legislative session;  this extension                                                                    
had been included  in the original version of  the bill. She                                                                    
stated that HCS  CSSB21 (RES) also maintained  the change to                                                                    
the  loss carry-forward  credit that  would allow  a company                                                                    
that spent  more money than  it made  in Alaska to  take the                                                                    
loss in  the form  of a  credit that  was redeemable  by the                                                                    
state  or transferable  to another  tax payer;  furthermore,                                                                    
AOGA believed that this particular  tax credit was extremely                                                                    
valuable  to  the  current  and   future  new  producers  in                                                                    
reducing  the up-front  risk that  was  associated with  new                                                                    
field  development.  She  relayed that  AGOA  believed  that                                                                    
Alaska's  tax policy  should not  create winners  and losers                                                                    
among different types  of companies unless there  was a very                                                                    
sound policy  reason for doing  so. She concluded  that AOGA                                                                    
supported  HCS  CSSB21 (RES)'s  changes  to  the tax  credit                                                                    
Ms.  Moriarty discussed  slide 8  titled  "HCS CSSB21  (RES)                                                                    
Components: Statutory Interest & Joint Interest Billings."                                                                      
     AOGA supports change in statutory interest                                                                                 
          · Lowers risk/makes Alaska more competitive                                                                           
     AOGA supports the  use of Joint Interest  Billings as a                                                                    
     starting point                                                                                                             
          · Using Joint Interest Billings as the initial                                                                        
             source for lease expenditures is more efficient                                                                    
             and provides consistency of what are expenses                                                                      
             are all                                                                                                            
Ms. Moriarty  spoke to slide  8 and related that  there were                                                                    
two other  elements in the  bill that she wanted  to briefly                                                                    
mention. She pointed  out that HCS CSSB21  (RES) addressed a                                                                    
concern  that AOGO  had raise  during testimony  in previous                                                                    
committees; she  addressed the  bill's changes  to statutory                                                                    
interest  and  spoke  from a  prepared  statement  (copy  on                                                                    
     A six-year  statute of limitations  for auditing  and a                                                                    
     minimum interest rate of  11% compounding quarterly can                                                                    
     nearly double-up any underlying  tax liability that the                                                                    
     audit may find.   The heightened risk this  causes is a                                                                    
     material  factor in  terms of  Alaska's competitiveness                                                                    
     relative to  other places.   That risk  - and  not just                                                                    
     the reward  that an investment  can make under  the tax                                                                    
     laws  -  is  an   integral  element  in  an  investor's                                                                    
     comparison  of  investment  opportunities  here  versus                                                                    
     elsewhere.  We endorse  this  change,  which serves  to                                                                    
     compensate  the State  reasonably for  any lost  use of                                                                    
     funds that it suffers from a tax underpayment.                                                                             
Ms.  Moriarty continued  to discuss  slide 8  and the  joint                                                                    
interest  billings  component.  She  pointed  out  that  the                                                                    
question  of using  joint interest  billings as  the initial                                                                    
source of  a tax  payer's lease  expenditures was  not about                                                                    
how much  a tax payer would  be able to deduct;  using joint                                                                    
billings  as  the  initial source  was  more  efficient  and                                                                    
eliminated  uncertainty and  AOGA supported  its use  as the                                                                    
starting point for the auditing process.                                                                                        
Ms. Moriarty  stated that  there were  several areas  of the                                                                    
tax structure  that AOGO  believed needed  to be  changed in                                                                    
order  to improve  the structure's  efficiency, but  that in                                                                    
the interest  of time,  she would not  discuss them  in oral                                                                    
testimony;  however,  AGOA  had  highlighted a  few  of  the                                                                    
things that  it believed were  missing from the bill  in its                                                                    
written testimony.                                                                                                              
10:02:21 AM                                                                                                                   
Ms.  Moriarty  concluded  on  slide  9  titled  "HCS  CSSB21                                                                    
     Current bill is a significant improvement over ACES.                                                                       
          · Repeals high ACES progressivity                                                                                     
          · Maintains key credit provisions while creating                                                                      
             incentives for new production from legacy and                                                                      
             non-legacy fields                                                                                                  
          · Reforms interest rate for tax underpayments                                                                         
          · Restores ability to administer the tax more                                                                         
     Principal downside: higher base tax rate                                                                                   
Ms. Moriarty  spoke to slide  9 and its first  bullet point.                                                                    
She relayed that HCS CSSB21  (RES)'s repeal of the high ACES                                                                    
progressivity would eliminate a  great deal of complexity in                                                                    
the tax,  as well  as the uncertainty  in analyzing  the tax                                                                    
effect on all types of  projects. The bill would also extend                                                                    
or  broaden existing  tax credits  for  small producers  and                                                                    
would create  a gross revenue  reduction; it also  created a                                                                    
system of  per barrel tax  credits that was directed  at new                                                                    
development and production, as well  as more production from                                                                    
legacy fields on the North  Slope. She addressed the slide's                                                                    
principal downside  component and stated that  AOGO believed                                                                    
that even  a 33 percent tax  rate fell on the  high side and                                                                    
that  a lower  rate would  generate greater  investment that                                                                    
would result in more production.                                                                                                
Co-Chair Stoltze surmised  that any member of  AOGA had veto                                                                    
power  over  its comments.  Ms.  Moriarty  responded in  the                                                                    
affirmative  and   furthered  that  AOGA   needed  unanimous                                                                    
consent  before any  written  comments  were submitted.  She                                                                    
expounded that if one member  company of AOGA disagreed with                                                                    
a  particular section  of the  testimony,  that section  was                                                                    
10:04:32 AM                                                                                                                   
CASEY  SULLIVAN, PUBLIC  AFFAIRS  DIRECTOR, PIONEER  NATURAL                                                                    
RESOURCES, provided a  PowerPoint presentation titled "House                                                                    
Finance Committee  Testimony re:  HCS CSSB 21(RES)  April 9,                                                                    
2013" (copy  on file). He  spoke to slide 2  titled "Forward                                                                    
Looking Statements."                                                                                                            
     Except  for  historical information  contained  herein,                                                                    
     the statements, charts and  graphs in this presentation                                                                    
     are forward-looking  statements that are  made pursuant                                                                    
     to   the  Safe   Harbor  Provisions   of  the   Private                                                                    
     Securities  Litigation  Reform  Act of  1995.  Forward-                                                                    
     looking  statements  and   the  business  prospects  of                                                                    
     Pioneer  are   subject  to  a   number  of   risks  and                                                                    
     uncertainties that  may cause Pioneer's  actual results                                                                    
     in  future  periods  to   differ  materially  from  the                                                                    
     forward-looking    statements.    These    risks    and                                                                    
     uncertainties include,  among other  things, volatility                                                                    
     of  commodity   prices,  product  supply   and  demand,                                                                    
     competition,  the ability  to obtain  environmental and                                                                    
     other permits and the  timing thereof, other government                                                                    
     regulation or  action, the ability to  obtain approvals                                                                    
     from third parties and  negotiate agreements with third                                                                    
     parties  on  mutually acceptable  terms,  international                                                                    
     operations and  associated international  political and                                                                    
     economic   instability,  litigation,   the  costs   and                                                                    
     results  of drilling  and  operations, availability  of                                                                    
     equipment, services and  personnel required to complete                                                                    
     the  Company's  operating  activities,  access  to  and                                                                    
     availability   of    transportation,   processing   and                                                                    
     refining  facilities,  Pioneer's   ability  to  replace                                                                    
     reserves, implement its business  plans or complete its                                                                    
     development  activities  as  scheduled, access  to  and                                                                    
     cost   of   capital,    the   financial   strength   of                                                                    
     counterparties   to  Pioneer's   credit  facility   and                                                                    
     derivative  contracts and  the purchasers  of Pioneer's                                                                    
     oil,  NGL  and   gas  production,  uncertainties  about                                                                    
     estimates of  reserves and  resource potential  and the                                                                    
     ability  to  add proved  reserves  in  the future,  the                                                                    
     assumptions  underlying  production forecasts,  quality                                                                    
     of  technical data,  environmental  and weather  risks,                                                                    
     including the  possible impacts of climate  change, and                                                                    
     acts of  war or  terrorism. These  and other  risks are                                                                    
     described in Pioneer's 10-K and  10-Q Reports and other                                                                    
     filings  with the  Securities and  Exchange Commission.                                                                    
     In  addition,  Pioneer  may  be  subject  to  currently                                                                    
     unforeseen  risks that  may have  a materially  adverse                                                                    
     impact on  it. Pioneer  undertakes no duty  to publicly                                                                    
    update these statements except as required by law.                                                                          
Mr.  Sullivan  indicated  that  slide  2  represented  legal                                                                    
terminology  that  specified  that anyone  who  invested  in                                                                    
Pioneer  Natural   Resources  based   on  comments   in  the                                                                    
presentation did so at their own risk.                                                                                          
Mr.  Sullivan  discussed  slide 3  titled  "Pioneer  Natural                                                                    
     Corporate overview:                                                                                                        
        · $19 Billion enterprise value                                                                                          
        · Member of the S&P 500                                                                                                 
        · Investment grade rating                                                                                               
        · ~3,500 employees                                                                                                      
        · $3 Billion capital budget                                                                                             
        · $2 Billion cash flow from operations                                                                                  
        · Leading performer in peer group                                                                                       
     Alaska Operations Overview:                                                                                                
        · 1st independent operator on North Slope                                                                               
        · 70+ full-time Alaska employees                                                                                        
        · $14+ million in annual wages (employees)                                                                              
        · 150 - 300 Alaska contract workers                                                                                     
        · ~$180 million 2013 capital budget                                                                                     
        · ~6,000 BOPD gross production                                                                                          
        · Net investor in Alaska                                                                                                
Mr.  Sullivan  addressed slide  3  and  stated that  Pioneer                                                                    
Natural  Resources had  produced  about  12 million  barrels                                                                    
from the  Oooguruk field  to date. He  spoke to  the slide's                                                                    
final  bullet  point and  related  that  a net  investor  in                                                                    
Alaska  meant that  all the  revenues  that Pioneer  Natural                                                                    
Resources  generated  currently  went right  back  into  the                                                                    
fields that it was developing and appraising.                                                                                   
Co-Chair Stoltze noted that the  meeting's schedule had been                                                                    
switched and understood  that Mr. Foley was  probably in the                                                                    
queue for a slightly later time.                                                                                                
J.  PATRICK  FOLEY,  LAND   AND  EXTERNAL  AFFAIRS  MANAGER,                                                                    
INCOMING PRESIDENT,  PIONEER NATURAL RESOURCES,  ALASKA (via                                                                    
teleconference), stated that he  would replace Todd Abbot as                                                                    
the president.                                                                                                                  
Mr. Foley discussed slide 4  titled "Pioneer Alaska Profile:                                                                    
        · 11 exploration wells '02 -'05                                                                                         
        · 1 commercial project                                                                                                  
     Oooguruk Quick Facts:                                                                                                      
        · 70% Pioneer (operator) : 30% Eni                                                                                      
        · ~$1 billion capital invested                                                                                          
        · 12+ million barrels produced                                                                                          
        · ~$270 million in credits received                                                                                     
        (~7 % of total credits issued by the state)                                                                             
Mr.  Foley recalled  comments  that  sometimes credits  were                                                                    
granted that  did not result  in new oil, but  asserted that                                                                    
every dollar  that Pioneer Natural  Resources had  spent and                                                                    
accepted  credits  for  had  resulted  in  new  oil  in  the                                                                    
development of  Oooguruk. He  pointed out  that there  was a                                                                    
timeline on  the bottom of  the slide that  depicted Pioneer                                                                    
Natural  Resources  business  in  Alaska.  He  related  that                                                                    
Pioneer Natural Resources had come  to Alaska in 2002 during                                                                    
the ELF  tax regime and  that its production tax  rate under                                                                    
that  system  would  have  been   zero.  He  explained  that                                                                    
immediately after  Pioneer Natural Resources  had sanctioned                                                                    
the Oooguruk project for development,  the PPT tax came into                                                                    
play, which  quickly evolved  to ACES.  He stated  that ACES                                                                    
had added  a very  troubling progressivity component  to the                                                                    
tax system and shared that  SB 21 would represent the fourth                                                                    
fiscal   regime   that   Pioneer   Natural   Resources   had                                                                    
encountered in its 12 years of business in Alaska.                                                                              
10:11:18 AM                                                                                                                   
Mr. Foley discussed slide 5 titled "What's Next?"                                                                               
     Nuna Project:                                                                                                              
        · $100 Million appraisal program                                                                                        
        · ~50 MMBO of resource potential                                                                                        
        · Phase I development overview                                                                                          
             · Q3 2013 sanction decision                                                                                        
             · ~$1 Billion capital required                                                                                     
             · 2015 first oil                                                                                                   
             · 14 MBOPD peak production                                                                                         
             · Jobs and economic impact                                                                                         
        · Potential for 2nd drill site                                                                                          
        · Must compete for limited capital against low-                                                                         
          risk, fast-cycle projects in Lower 48                                                                                 
Mr. Foley spoke to slide 5  and stated that the Nuna Project                                                                    
was  within  the Oooguruk  unit  and  would currently  focus                                                                    
exclusively  on  the  Torok   interval;  the  project  would                                                                    
initially be developed with a  single onshore drill site. He                                                                    
explained  that with  respect to  the Nuna  Project, Pioneer                                                                    
Natural Resources  had drilled  2 grassroots  wells, fracked                                                                    
them, and had tested production.  He stated that in order to                                                                    
stay on  schedule, Pioneer Natural Resources  was queuing up                                                                    
the  Nuna   Project  for  sanction  approval   and  internal                                                                    
financial approval in the third  quarter of 2013. He pointed                                                                    
out that for  a company like Pioneer Natural  Resources on a                                                                    
development   like  Oooguruk,   the  royalties,   production                                                                    
payments,  and  taxes  to  the state  would  not  be  large;                                                                    
however, it would have a  substantial economic impact in the                                                                    
form of jobs.                                                                                                                   
Mr.  Foley discussed  slide  6  titled "Pioneer  Competitive                                                                    
Resource Opportunities."                                                                                                        
     WOLFCAMP / SPRABERRY                                                                                                     
        · $1,650 MM Drilling Program                                                                                            
        · 627 MMBOE Proven                                                                                                      
     2013 Production (Growth):                                                                                                  
     75-80 MBOEPD (+14 - 21%)                                                                                                   
     Barnett Shale Combo                                                                                                      
        · $185 MM Drilling Program                                                                                              
        · 33 MMBOE Proved                                                                                                       
     2013 Production (Growth):                                                                                                  
     9-12 MBOEPD (+22 - 41%)                                                                                                    
     Eagle Ford Shale                                                                                                         
        · $575 MM Drilling Program                                                                                              
        · 116 MMBBOE Proved                                                                                                     
     2013 Production (Growth):                                                                                                  
     38-42 MBOEPD (+36% - 50%)                                                                                                  
     > 40 rigs running                                                                                                          
     > 20,000 drilling locations                                                                                                
Mr. Foley spoke to slide  6 and related that Pioneer Natural                                                                    
Resources' focus  was in Texas.[All of  the developments and                                                                    
information on the  slide are depicted overlaid on  a map of                                                                    
Texas.] He  explained that  Pioneer Natural  Resources would                                                                    
have about  a $3  billion total capital  budget for  all the                                                                    
U.S. and  that "90 some percent"  of that would be  spent in                                                                    
Texas.  He  stated  that  the slide  depicted  some  of  the                                                                    
competing projects  that Pioneer Natural Resources  had when                                                                    
it asked for  funding and that the company's  2 big projects                                                                    
were the Eagle Ford  Shale and the Wolfcamp/Spraberry, which                                                                    
were  both   in  Texas.  He  stated   that  Pioneer  Natural                                                                    
Resources had about 3000 employees in Texas.                                                                                    
Mr. Foley  discussed slide 7  titled "Relative  Rankings and                                                                    
Policy  Considerations."  He stated  that  the  slide was  a                                                                    
graphical depiction  of who the  players were in  Alaska and                                                                    
what their sizes  were; it showed "super  giants" like Exxon                                                                    
Mobile all  the way  down to companies  the size  of Pioneer                                                                    
Natural Resources  and smaller.  He recalled  Ms. Moriarty's                                                                    
remarks   that  had   cautioned   the  legislature   against                                                                    
designing a  system that  was helpful  for some  and harmful                                                                    
for others.  He questioned  which players  on the  slide the                                                                    
state wanted to remain in  Alaska and continue to make large                                                                    
investments  and  opined  that   the  state  wanted  all  of                                                                    
players, and several more.                                                                                                      
Mr.  Foley discussed  slide 8  titled "Eagle  Ford Operators                                                                    
and  Companies."  He stated  that  the  slide represented  a                                                                    
picture  of Pioneer  Natural Resources'  competitors in  the                                                                    
Eagle Ford play.  He explained that in the box  on the left,                                                                    
the  companies that  operated in  Alaska were  color-coated;                                                                    
the  major companies  were shown  in blue  and the  smaller,                                                                    
independent companies were shown in  red. He shared that the                                                                    
take away  from the slide's  list of companies was  that not                                                                    
many of them showed up in  color and expounded that not many                                                                    
of the companies  were doing business in  Alaska. He offered                                                                    
that it would be great  if Alaska's fiscal system encouraged                                                                    
all of  the companies on the  slide to come and  do business                                                                    
in  the  state. He  pointed  out  that  one of  the  reasons                                                                    
companies  were not  investing here  was the  fiscal system,                                                                    
but that the costs in Alaska  were greater than they were in                                                                    
some of the other places that they could do business in.                                                                        
Mr. Foley continued  to discuss slide 8 and  stated that the                                                                    
chart on  the right showed  the operating and  capital costs                                                                    
by state or geographic area;  Alaska fell near the bottom of                                                                    
the  chart.   He  stated  that  Pioneer   Natural  Resources                                                                    
typically pursued projects that  had capital requirements of                                                                    
about $20 per  bbl and annual operating expenses  in the $10                                                                    
to $20 per bbl range.                                                                                                           
10:16:23 AM                                                                                                                   
Mr.  Foley discussed  slide 9  titled  "Typical New  Project                                                                    
Spend  Profile."  He related  that  he  wanted to  help  the                                                                    
committee  to   see  the   world  through   Pioneer  Natural                                                                    
Resources' eyes  and show the  committee what  the economics                                                                    
of  a project  like Nuna  would  be. He  explained that  the                                                                    
slide  showed the  capital costs  and  production rate  that                                                                    
would result  from a typical project  that smaller companies                                                                    
considered  for  investment; it  was  a  $1 billion  capital                                                                    
project with  50 million  bbl in total  reserves that  had a                                                                    
peak  production of  about 5  million bbl  of oil  per year,                                                                    
which was  equal to 13,700  bbl of  oil per day.  He relayed                                                                    
that  the  take-away  from  the slide's  chart  was  that  a                                                                    
typical project  would have substantial  facility investment                                                                    
for  almost 4  years, would  have  about a  5 year  drilling                                                                    
program, and  would not  reach peak  oil production  until 8                                                                    
years after the investment began.                                                                                               
Mr.  Foley   discussed  slide   10  titled   "Fostering  New                                                                    
Production: Why Credits Matter."                                                                                                
     · Benefits to State                                                                                                        
        · Credits directly encourage activity in Alaska                                                                         
               ƒJobs, direct and indirect (9x multiplier)                                                                      
               ƒMore wells                                                                                                     
               ƒMore oil                                                                                                       
               ƒMore royalties, taxes and throughput                                                                           
     · Benefits to Developer                                                                                                    
        · Reduces investor risk                                                                                                 
        · Improves small project economics                                                                                      
        · Improves financial performance                                                                                        
             ƒDoesn't increase debt                                                                                            
        · Builds healthy industry                                                                                               
        · Strengthens competitiveness                                                                                           
     · Loss Carry Forward Credit                                                                                                
        · Redeemable / transferable                                                                                             
        · Reduces upfront risk                                                                                                  
        · Assists new investment                                                                                                
     · Small Producer Credit                                                                                                    
        · Simple                                                                                                                
        · Predictable                                                                                                           
        · Improves project economics                                                                                            
        · Low financial impact to State                                                                                         
        · Included in original SB 21                                                                                            
     · $5 / bbl Credit                                                                                                          
        · Rewards production                                                                                                    
        · Levels government take                                                                                                
Mr. Foley  discussed slide 10  and encouraged  the committee                                                                    
to keep the  loss carry forward credit in  HCS CSSB21 (RES);                                                                    
under this  version of the  legislation, the  credit allowed                                                                    
companies  to take  a loss  and monetize  it and  go to  the                                                                    
state  to  be  reimbursed  for the  loss.  He  reminded  the                                                                    
committee that Pioneer Natural  Resources Alaska had started                                                                    
in 2002  and that 10 or  11 years into the  business, it had                                                                    
yet to  generate a  profit. He spoke  to the  small producer                                                                    
credit and explained  that it had been designed in  PPT as a                                                                    
way to  level the playing  field. The small  producer credit                                                                    
was a tax-avoidance  credit that did not  pay money directly                                                                    
to  companies; if  a tax  liability was  not generated,  the                                                                    
credit had no value or cost  to the state. He explained that                                                                    
a  company like  Pioneer Natural  Resources Alaska  would be                                                                    
paying the minimum gross tax,  but because the minimum gross                                                                    
tax was less than $12 million,  the company paid no tax; HCS                                                                    
CSSB21 (RES) had  an extension of the  small producer credit                                                                    
through  2022,  which  Pioneer  Natural  Resources  strongly                                                                    
Mr. Foley  continued to address  slide 10. He  discussed the                                                                    
$5 per bbl credit and stated  that it was very helpful for a                                                                    
small  company because  it would  be  building its  business                                                                    
once it had production.                                                                                                         
10:20:51 AM                                                                                                                   
Mr.  Foley discussed  slide 11  titled  "Mid Sized  Producer                                                                    
Adding New Field."                                                                                                              
     New Field Assumptions:                                                                                                     
          •50 MMBO field                                                                                                        
          •~$1 Billion CapEx                                                                                                    
          •$10-$20/bbl variable OpEx                                                                                            
          •$100 ANS West Coast (nominal)                                                                                        
Mr. Foley  spoke to slide  11 and  related that it  used the                                                                    
profile of the hypothetical project  that he had depicted on                                                                    
slide  9.  He  remarked  that the  profile  of  the  slide's                                                                    
project was  very similar  to that of  the Nuna  Project and                                                                    
added that the  slide was from the perspective  of a company                                                                    
like Pioneer  Natural Resources; in other  words, because it                                                                    
was a  net tax system,  all of  the other attributes  of the                                                                    
business  as  far  as  cost  and  production  needed  to  be                                                                    
integrated. The slide  depicted adding a new  field that was                                                                    
similar to  Nuna on top of  a base production that  was what                                                                    
Oooguruk was to  Pioneer Natural Resources. The  slide ran 3                                                                    
different cases that showed  what the investment opportunity                                                                    
would look like  under original SB 21, under  the version of                                                                    
SB 21  that was  passed by  the Senate,  and what  it looked                                                                    
like under  HCS CSSB21 (RES).  He related that the  red bars                                                                    
represented  the  decreasing   value  because  credits  were                                                                    
eliminated, as well as other attributes.                                                                                        
Co-Chair   Stoltze  surmised   that  from   Pioneer  Natural                                                                    
Resources'  perspective, the  bill  had  improved with  each                                                                    
version that was depicted on  the slide and inquired if that                                                                    
was  correct. Mr.  Foley responded  in  the affirmative  and                                                                    
expounded  that from  his company's  perspective, for  a new                                                                    
project like Nuna,  the bill had gotten better  each step of                                                                    
the way.                                                                                                                        
Mr.  Foley continued  to discuss  slide 11.  He shared  that                                                                    
when  the administration  had first  introduced  the SB  21,                                                                    
Pioneer Natural  Resources had believed  that for  a company                                                                    
like itself, a  project like Nuna was $52  million worse off                                                                    
than it was  under ACES; however, every version  of the bill                                                                    
had  improved. He  explained that  a project  like Nuna  was                                                                    
only $8 million worse of  under the Senate passed version of                                                                    
SB  21 than  it was  under ACES;  finally, under  HCS CSSB21                                                                    
(RES), the bill  had evolved to the point  where the project                                                                    
would be $27  million better off than it was  under ACES. He                                                                    
pointed out that original version of  SB 21 had a 25 percent                                                                    
base tax,  a small producer  credit extension, a  20 percent                                                                    
GRE and that as  it evolved, the tax rate had  gone up to 35                                                                    
percent  and the  $5 per  barrel credit  and the  ability to                                                                    
monetize the loss carry-forward  credit had been introduced.                                                                    
He  furthered  that  in  CSSB21  (RES),  the  tax  rate  had                                                                    
hopefully  been  lowered  to  33.5  percent  and  the  small                                                                    
producer  credit had  been reintroduced.  He explained  that                                                                    
the  value   of  the   small  producer   credit  represented                                                                    
approximately  one-third of  the  difference between  CSSB21                                                                    
(RES) and  the Senate  passed version of  the bill  and that                                                                    
the  change in  the  base tax  from 35  percent  down to  33                                                                    
percent  represented  about   two-thirds  of  the  increased                                                                    
value; the take-away  was that the type of  project that was                                                                    
on the  slide was  very sensitive to  even small  changes to                                                                    
the tax rate.                                                                                                                   
10:24:51 AM                                                                                                                   
Mr.  Foley  discussed  slide 12  titled  "HCS  CSSB  21(RES)                                                                    
Closing Thoughts."                                                                                                              
   · Pros                                                                                                                       
        · 33% Base / $5 bbl credit                                                                                              
             · Keeps tax rate flat across price ranges                                                                          
        · GRE                                                                                                                   
             · Rewards new oil production                                                                                       
        · Small producer credit extension                                                                                       
             · Levels playing field                                                                                             
        · Loss carry-forward credit monetization                                                                                
             · Rewards investment in Alaska                                                                                     
   · Cons / 'Wish List'                                                                                                         
        · Elimination of capital credits                                                                                        
        · Increase GRE for challenged leases to 30%                                                                             
        · Add targeted credits for facilities/well related                                                                      
   · HCS CSSB 21(RES)                                                                                                           
Mr. Foley discussed  slide 12 and stated  that the extension                                                                    
of  the  small producer  credit  was  important for  Pioneer                                                                    
Natural  Resources  Alaska  to  incubate  its  business.  He                                                                    
related that  when the small producer  credit had originally                                                                    
been created  under ACES, the  intent had been to  level the                                                                    
playing  field  and  explained   that  all  of  the  current                                                                    
producers at the time had  a large amount of lease holdings,                                                                    
infrastructure, employees,  and data. He furthered  that one                                                                    
of the small  attributes of the original PPT  program was to                                                                    
encourage new investors to come  to Alaska with a little bit                                                                    
of a leg-up  and strongly urged the committee  to extend the                                                                    
small  producer   credit  to   continue  to   encourage  new                                                                    
companies to invest in Alaska.                                                                                                  
Co-Chair Stoltze thanked Mr. Foley  for the succinct closing                                                                    
on letting the committee know  what targets of the bill were                                                                    
important to  Pioneer Natural Resources; knowing  the impact                                                                    
points  was  helpful because  certain  aspects  of the  bill                                                                    
would impact different people in different ways.                                                                                
Representative  Gara noted  that people  were still  waiting                                                                    
for modeling  that would assist with  formulating amendments                                                                    
and inquired  if the  amendment process  could be  delayed a                                                                    
day in order to allow time to get the needed modeling.                                                                          
Co-Chair  Stoltze  noted  that  he  was  still  waiting  for                                                                    
information  as   well  and  that   the  schedule   for  the                                                                    
amendments would be a moving target.                                                                                            
Representative Gara noted that  amendments could feasibly be                                                                    
done  on  Thursday.  Co-Chair  Stoltze  indicated  that  his                                                                    
office would set  the schedule, but that  he appreciated the                                                                    
Co-Chair  Stoltze   requested  Mr.  Thompson  to   keep  his                                                                    
comments  brief. He  apologized for  the rush  and explained                                                                    
that the committee was being summoned to the House Floor.                                                                       
10:28:45 AM                                                                                                                   
KEN  THOMPSON,   BROOKS  RANGE  PETROLEUM,   ANCHORAGE  (via                                                                    
teleconference), began  to speak to the  presentation titled                                                                    
"House Finance Committee  Comments on SB 21"  (copy on file)                                                                    
and stated  that he would  provide the perspectives  from an                                                                    
exploration company's approach.                                                                                                 
Mr. Thomson discussed slide 2 titled "Why Consider Our                                                                          
Company's Perspectives?"                                                                                                        
     1)  Most  active   exploration  company  exploring  and                                                                    
     developing solely on North Slope state lands                                                                               
          a)  Drilled 10  of 36  exploration wells  on state                                                                    
          lands in  2007--12(more  than  COP, BP, XOM,  ENI,                                                                    
          Repsol, Armstrong combined)                                                                                           
          b) 105,000 leased acres in 3 core areas in JV                                                                         
          partnership  with Ramshorn  Exploration (affiliate                                                                    
          of large Nabors Industries)                                                                                           
     2)  ~$200 MM  invested to  date in  Alaska North  Slope                                                                    
     projects…3 discoveries, acquired discovery                                                                                 
     3) Mustang development  project under construction…$577                                                                    
     MM  capital,  44  MMBO,  15,000  BOPD…future  level  of                                                                    
     capital spending/yr  same as Pioneer  Natural Resources                                                                    
     and one--third the level of COP capital spending                                                                           
     4)  Three  other  development  projects  in  permitting                                                                    
     /conceptual engineering stages…>$1.5B capital                                                                              
     5)  First production  and cash  flow to  state and  our                                                                    
     companies…start-up of Mustang in 3Q 2014                                                                                   
     6)  On investment  of $200  MM,  received refunded  tax                                                                    
     credits  totaling $69MM  but  State  will receive  back                                                                    
     this   amount+   in   the   first   year   of   Mustang                                                                    
     production…and $1.2 billion over field life                                                                                
          a) All  credits have been redeployed  on the North                                                                    
          Slope  for  new  drilling   or  seismic  to  find,                                                                    
          develop oil…none sent Outside                                                                                         
          b) Credits  redeployed has  allowed in  some years                                                                    
          the  drilling of  3 exploration  wells instead  of                                                                    
          2…or 2 wells instead of only 1                                                                                        
          c)  Payment  of credits  in  cash  versus just  an                                                                    
          allowance  against taxes  critical  to AVCG  which                                                                    
          has no current production                                                                                             
     7) Experience in bringing other independents to Alaska                                                                     
     and in raising capital for Alaska                                                                                          
          a) Seeking additional capital  for Mustang and 3--                                                                    
           5 year exploration program…started fundraising 18                                                                    
          months ago, Sept 2011                                                                                                 
          b)  Sent  materials  to 210  firms,  but  only  19                                                                    
          wanted  to   consider  Alaska…and   after  further                                                                    
          review, only 2 firms remain interested                                                                                
          c) Biggest  hurdles we heard: 1)  complex and high                                                                    
          gov't  take  of  AK  fiscal  regime,  2)  flow  of                                                                    
          capital to Lower 48 source rocks                                                                                      
          d)  Two  firm  remain  and  we  hope  to  finalize                                                                    
          deal…belief  in  our confidence  that  Legislature                                                                    
          will make positive change in 2013                                                                                     
Mr. Thompson  spoke to  slide 2.  He addressed  bullet point                                                                    
number  6  and  related  that over  $100  million  would  be                                                                    
returned to the  state in the first year  of production from                                                                    
the Mustang  development; the state would  fully recover the                                                                    
credits that it  had paid out to Brooks  Range Petroleum. He                                                                    
discussed the  Mustang development and shared  that it would                                                                    
represent 7 million bbl of  royalty oil to Alaska that would                                                                    
reflect  about  $700  million  in   revenue  to  the  state;                                                                    
furthermore,  that  revenue  would  be about  10  times  the                                                                    
amount of  the credits that  the state had issued  to Brooks                                                                    
Range Petroleum.                                                                                                                
Mr.  Thomson  continued to  address  slide  2. He  spoke  to                                                                    
bullet point number  7 and related that he  had been working                                                                    
over the last  several months to try and  bring more capital                                                                    
and independents  to Alaska.  He stated  that ACES  was more                                                                    
complex, burdensome,  and had a  higher government  than any                                                                    
other state's  tax regime in  the U.S. and pointed  out that                                                                    
many  companies  had not  wanted  to  talk to  Brooks  Range                                                                    
Petroleum regarding investing in  Alaska. He discussed table                                                                    
11 of an Econ One analysis  that showed that under ACES, the                                                                    
rates of  return and cash  margins were far superior  in the                                                                    
Bakken shale play  than they were in  Alaska; however, under                                                                    
SB 21  the rates of return  and cash margins were  better in                                                                    
Alaska than in the Bakken.                                                                                                      
Mr. Thomson  addressed slide 4  titled "What  Difference Can                                                                    
Our Company Make" and stated  that the graph was significant                                                                    
because  it showed  just the  discoveries that  Brooks Range                                                                    
Petroleum had made  as a small start-up  company. He pointed                                                                    
out that the Mustang  development was producing about 15,000                                                                    
bbl  per day  and that  Brooks Range  Petroleum would  be at                                                                    
about 50,000  bbl of oil  per day from all  its developments                                                                    
if its  reserves were confirmed.  He referenced table  20 of                                                                    
an Econ  One report that stated  that 40,000 bbl of  new oil                                                                    
would   be  needed   to  fully   cover  the   state  revenue                                                                    
differences  that may  result  between SB  21  and ACES.  He                                                                    
shared that slide 4's graph  showed that one new exploration                                                                    
company that produced  50,000 bbl per day would  make up for                                                                    
the  differences between  SB 21  and ACES.  He thought  that                                                                    
independents would  come to Alaska  as a result of  the bill                                                                    
and  that  the  state's  oil production  could  be  leveled;                                                                    
additionally, if the majors increased  their spending in the                                                                    
legacy  fields, Alaska's  oil production  could turn  upward                                                                    
like it had in other states.                                                                                                    
10:34:50 AM                                                                                                                   
Mr. Thompson discussed  slide 4 titled "We  See positives In                                                                    
SB 21 To Make Alaska More Competitive."                                                                                         
     1) Eliminates progressivity factor, increases base tax                                                                     
     rate from 25% to 33% but provides $5/bbl produced bbl                                                                      
          · POSITIVE: Eliminating progressivity simplifies                                                                      
             tax calculation and will be a public relations                                                                     
             plus for AK                                                                                                        
          · NEGATIVE to POSITIVE: Base tax rate went from                                                                       
             25% to 35% not expected…a balance at 33% now in                                                                    
             bill is reasonable                                                                                                 
          · POSITIVE: $5 produced bbl credit better                                                                             
             balances relative state/producer takes at low                                                                      
             oil prices and flat take at higher prices                                                                          
     2) Increases "Carry Forward Loss Credit(CFL)" from 25%                                                                     
     to 33% and is monetizable and transferrable                                                                                
          ·  POSITIVE: incrementally  more future  cash flow                                                                    
             to re--deploy into facilities & drilling                                                                           
     3) SB 21 originally  extended "Small Producers Credits"                                                                    
     from 2016 to 2022…reduces  small producers' tax bill by                                                                    
     $12 MM/yr…and  latest version  keeps the  SPC extension                                                                    
     to 2022 which is very positive for new players                                                                             
          ·  NEGATIVE  TO   POSITIVE:   SPC  REINSTATED   TO                                                                    
             2022…more cash flow for small producers to re--                                                                    
             deploy into facilities & drilling                                                                                  
     4) Specifies 20% QCE tax  credit certificate payment in                                                                    
     1 year vs.  2 but does eliminate QCE on  12/31/13 on NS                                                                    
          ·  NEGATIVE: goes away 12/31/13 on North Slope…for                                                                    
             BRPC, no QCE thru 2015 to redeploy into Mustang                                                                    
             development project                                                                                                
          ·  POSITIVE: IF EXTENDED to 12/31/15  for at least                                                                    
             small producers…Mustang project  was sanctioned                                                                    
             assuming QCE…but  OK to  limit QCE  per company                                                                    
             per year to $50MM in order to control impact on                                                                    
             state  treasury.  Been  helpful   to  CI  small                                                                    
     5) For  new oil, introduces "20%  Gross Value Reduction                                                                    
     (GVR)"  and amends  definition of  leases  that can  be                                                                    
     included for this GVR 43.55.160…                                                                                           
          ·  POSITIVE: Should  incentivize  and rewards  new                                                                    
             oil  production  on  more  leases,  also  helps                                                                    
             during low oil price cycles                                                                                        
     6) SB  21 originally  had a 30%  "Exploration Incentive                                                                    
     Credit" for  NS exploration  wells drilled  that target                                                                    
     new oil  discoveries regardless of  location…similar to                                                                    
     Cook  Inlet…please re--instate   this through  12/31/18                                                                    
     but OK to cap                                                                                                              
          ·  HUGE NEGATIVE: Doesn't  matter to  legacy field                                                                    
             owners,  but   a   huge   negative  for   small                                                                    
             exploration companies like ours                                                                                    
          ·  HUGE POTENTIAL POSITIVE: REINSTATE THIS CREDIT,                                                                    
             but to minimize impact on state treasury, limit                                                                    
             to $25 MM credit per year per company…and limit                                                                    
             the time  for  five  years  through  2018  then                                                                    
             "retest"  if   incentive  has   generated  more                                                                    
Mr.  Thomson discussed  slide 4.  He spoke  to bullet  point                                                                    
number 3 and related that  the biggest thing to Brooks Range                                                                    
Petroleum as a  small company was probably  the extension of                                                                    
the  small  producer  credits to  2022.  He  explained  that                                                                    
Brooks  Range Petroleum  did  not have  cash  flow like  the                                                                    
majors and  would have  its first  production in  the fourth                                                                    
quarter  of 2014;  extending the  credit  would help  Brooks                                                                    
Range Petroleum  get established  and started in  Alaska. He                                                                    
discussed bullet  point number  4 and  related that  most of                                                                    
the work  for the Mustang  project would take place  in 2014                                                                    
after  the QCE  had expired;  the extension  of this  credit                                                                    
through the end of 2015 would help small companies.                                                                             
Mr. Thomason continued to speak  to slide 4 and bullet point                                                                    
number 6.  He related  that Brooks  Range Petroleum  had not                                                                    
received one  dollar in  exploration credits  in its  6 year                                                                    
drilling  history and  stated that  currently  on the  North                                                                    
Slope,  an exploration  had  to be  22  miles from  existing                                                                    
units in order to qualify for exploration credits.                                                                              
Co-Chair Stoltze stated that the  84 hours he had previously                                                                    
referenced  was the  time that  the House  Finance Committee                                                                    
had left  and that  the remaining  46 to  48 hours  would be                                                                    
spent on  the House  Floor for advancement  requirements and                                                                    
transferring bills  to the  other body.  He related  that he                                                                    
wanted to give  the other body a chance to  look at the bill                                                                    
as well  and that  the committee  would do  its best  in its                                                                    
CSSB 21  (FIN) was HEARD  and HELD in committee  for further                                                                    
10:40:39 AM                                                                                                                   
1:34:55 PM                                                                                                                    
1:35:11 PM                                                                                                                    
4:31:53 PM                                                                                                                    
Co-Chair Stoltze discussed the bills before the committee.                                                                      

Document Name Date/Time Subjects
AVCG BRPC House Finance Hearing SB 21 Thompson 040813 FINAL SLIDES.pdf HFIN 4/9/2013 9:00:00 AM
SB 21
Donkels Oil and Gas Testimony SB 21.docx HFIN 4/9/2013 9:00:00 AM
SB 21
SB 7 - Backup Doc DOR 2012 Annual Report - Figure 1.pdf HFIN 4/8/2013 1:30:00 PM
HFIN 4/9/2013 9:00:00 AM
SB 7
SB 7 - Sponsor Statement H FIN.pdf HFIN 4/9/2013 9:00:00 AM
SB 7
SB 7 - Press Related to SB 7 H FIN.pdf HFIN 4/9/2013 9:00:00 AM
SB 7
SB 7 - Letters of Support H FIN.pdf HFIN 4/8/2013 1:30:00 PM
HFIN 4/9/2013 9:00:00 AM
SB 7
HR8 Sponsor Statement.pdf HFIN 4/9/2013 9:00:00 AM
HR 8
SB 7 - Explanation of change between Vs U and U.pdf HFIN 4/9/2013 9:00:00 AM
SB 7
SB 7 - Backup Doc Range of St Corp Income Tax Rates 2013.pdf HFIN 4/9/2013 9:00:00 AM
SB 7
SB 7 - Backup Doc LRS Report Ak Corp Income Tax Revenues.pdf HFIN 4/8/2013 1:30:00 PM
HFIN 4/9/2013 9:00:00 AM
SB 7
03122013_SB57_SampleParentInvolvement_Pamphlet_Idaho.pdf HFIN 4/9/2013 9:00:00 AM
SB 57
03132013_SB57_SupportLetters.pdf HFIN 4/9/2013 9:00:00 AM
SB 57
03122013_SB57_Third Grade Reading Policies.pdf HFIN 4/9/2013 9:00:00 AM
SB 57
03132013_SB57_ECS_Third Grade Literacy Policies.pdf HFIN 4/9/2013 9:00:00 AM
SB 57
04082013_SB57_SponsorStatement_VersionR.pdf HFIN 4/9/2013 9:00:00 AM
SB 57
04082013_SB57_Sectional_VersionR.pdf HFIN 4/9/2013 9:00:00 AM
SB 57
03182013_SB57_Letter_NEA.pdf HFIN 4/9/2013 9:00:00 AM
SB 57
2013-04-09 FINAL AOGA Testimony to H Finance re SB 21.docx HFIN 4/9/2013 9:00:00 AM
SB 21
04 09 13 SB 21AOGA House Finance KM.pdf HFIN 4/9/2013 9:00:00 AM
SB 21
Pioneer Testimony HCS SB 21 (RES) FINAL.pdf HFIN 4/9/2013 9:00:00 AM
SB 21
SB 21 ASRC HFIN 04 09 13.ASRC.doc HFIN 4/9/2013 9:00:00 AM
SB 21
CS for HR8 Changes.docx HFIN 4/9/2013 9:00:00 AM
HR 8
HR8 Sponsor Statement.pdf HFIN 4/9/2013 9:00:00 AM
HR 8
HB 76 Additional Information 4-9-2013.pdf HFIN 4/9/2013 9:00:00 AM
HB 76
SB 21 BP Response to Questions.pdf HFIN 4/9/2013 9:00:00 AM
SB 21
HB 76 Updated NFIB Support.pdf HFIN 4/9/2013 9:00:00 AM
HB 76