01/31/2006 06:00 PM House OIL & GAS

HB 294-GAS EXPLORATION\DEVELOPMENT TAX CREDIT                                                                                 
                                                                                                                                
6:03:49 PM                                                                                                                    
                                                                                                                                
CHAIR KOHRING  announced that the  first order of  business would                                                               
be  HOUSE  BILL NO.  294,  "An  Act  amending and  extending  the                                                               
exploration  and  development  incentive  tax  credit  under  the                                                               
Alaska  Net Income  Tax Act  for operators  and working  interest                                                               
owners directly  engaged in the  exploration for  and development                                                               
of gas  for delivery  and sale  from a lease  or property  in the                                                               
state; providing for an effective  date by amending the effective                                                               
date  for  sec.  2,  ch.  61, SLA  2003;  and  providing  for  an                                                               
effective date."                                                                                                                
                                                                                                                                
6:04:52 PM                                                                                                                    
                                                                                                                                
CHAIR KOHRING inquired  as to how the changed  percentages [in HB
] were derived.  He asked,  "Was there a reason that justified                                                               
those  particular  numbers,  or  were  they  just  hypothetically                                                               
chosen?"                                                                                                                        
                                                                                                                                
6:05:29 PM                                                                                                                    
                                                                                                                                
JOHN  BARNES, Manager,  Alaska  Production  Region, Marathon  Oil                                                               
Company, informed  the committee  that [the  changed percentages]                                                               
were  designed  to  be  a  starting point  for  discussion.    He                                                               
recognized  that the  Department of  Revenue (DOR)  will need  to                                                               
complete  [economic]  modeling in  order  to  provide the  Alaska                                                               
State  Legislature  with information  which  would  assist it  in                                                               
adjusting the percentages fittingly.                                                                                            
                                                                                                                                
6:06:02 PM                                                                                                                    
                                                                                                                                
CHAIR  KOHRING commented  that even  though the  State of  Alaska                                                               
would  be giving  up  a "pretty  good chunk  of  money," the  net                                                               
return over  time would be  "pretty substantial."  He  added that                                                               
at  a 4:1  ratio, for  $1  that [the  State of  Alaska] would  be                                                               
giving up  in extra taxes, granted  in the form of  credits, [the                                                               
State of Alaska] would be generating $3 in revenue.                                                                             
                                                                                                                                
6:07:01 PM                                                                                                                    
                                                                                                                                
CHAIR KOHRING reminded  the committee that [HB  294] was referred                                                               
to additional  committees, which  allows for  time to  adjust the                                                               
[percentages], if necessary.   He expressed his  comfort with the                                                               
[percentages].                                                                                                                  
                                                                                                                                
6:07:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG,  in regard  to the applicability  of the                                                               
credit to projects south of  68 degrees north latitude, announced                                                               
his  conceptual  amendment  prohibiting the  delivery  of  Alaska                                                               
North Slope (ANS) gas south of 68 degrees North latitude.                                                                       
                                                                                                                                
CHAIR  KOHRING noted  that  he  shared Representative  Rokeberg's                                                               
concern.                                                                                                                        
                                                                                                                                
REPRESENTATIVE  ROKEBERG  opined  that in  light  of  "everything                                                               
else"  that's going  on in  [the 2006]  legislative session,  his                                                               
conceptual  amendment would  help expedite  [HB 294]  as well  as                                                               
prevent it from becoming "co-mingled" with other legislation.                                                                   
                                                                                                                                
6:09:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROKEBERG asked  Mr. Barnes  if he  would have  an                                                               
objection to  an amendment  [to HB 294]  that would  prohibit the                                                               
use of  the credit [south of  68 degrees North latitude]  for ANS                                                               
gas.                                                                                                                            
                                                                                                                                
MR. BARNES  responded that he  believed that the  amendment would                                                               
be consistent with the original intent of [HB 294].                                                                             
                                                                                                                                
6:09:46 PM                                                                                                                    
                                                                                                                                
CHAIR  KOHRING  clarified  that with  the  amendment,  everything                                                               
south of  the Brooks Range would  be included in [HB  294], while                                                               
everything north of the Brooks Range would not be included.                                                                     
                                                                                                                                
MR. BARNES confirmed that Chair Kohring was correct.                                                                            
                                                                                                                                
CHAIR KOHRING surmised that  Representative Rokeberg's concern is                                                               
in regard to what  will happen if a gas line  is built because he                                                               
wants to ensure that [HB 294] doesn't apply [to a new gas line].                                                                
                                                                                                                                
6:10:10 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   ROKEBERG  [moved   that  the   committee  adopt]                                                               
Conceptual Amendment  1, which would insert  AS 43.20.043(f) with                                                               
the  underlined  and bolded  text  such  that  it would  read  as                                                               
follows:                                                                                                                        
                                                                                                                                
     A  taxpayer is  not  entitled to  a  credit under  this                                                                    
     section for expenditures that are  made or incurred for                                                                    
     the  qualified  capital  investment  or  for  qualified                                                                    
     services made  for exploration  and development  of gas                                                                    
     that  occur in  the area  of Alaska  lying north  of 68                                                                    
     degrees North latitude or that  are made or incurred to                                                                    
     transport  gas from  reserves located  in  the area  of                                                                    
     Alaska lying north of 68  degrees North latitude or for                                                                
     the  delivery  of Alaska  North  Slope  natural gas  to                                                                
     tidewater below 68 degrees North latitude.                                                                             
                                                                                                                                
6:11:10 PM                                                                                                                    
                                                                                                                                
There being no objection, Conceptual Amendment 1 was adopted.                                                                   
                                                                                                                                
6:11:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG moved to report  HB 294 as amended out of                                                               
committee  with individual  recommendations and  the accompanying                                                               
fiscal  notes.   There  being  no  objection, CSHB  294(O&G)  was                                                               
reported out of the House Special Committee on Oil and Gas.