Legislature(1993 - 1994)
03/04/1994 08:15 AM House RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 151 - OIL & GAS EXPLORATION INCENTIVE CREDITS REPRESENTATIVE BUNDE made a MOTION to ADOPT HCS SB 151(RES). CHAIRMAN WILLIAMS asked if there were any objections to the motion. Hearing none, the MOTION PASSED. Number 098 JIM HAYNES, DIVISION OF OIL AND GAS, DEPARTMENT OF NATURAL RESOURCES (DNR), testified via teleconference, and gave an overview of SB 151. He said the objective of the bill is to provide an incentive for oil and gas exploration by extending credits for certain activities. Subsection 100 clarifies that the incentive program is separate and distinct from the existing exploration incentive credits. He stated that particular statute applies to lessees on state-owned land and SB 151 applies to all land within the state for the purposes of geophysical work, stratigraphic test wells and exploration wells. MR. HAYNES said the primary thrust of SB 151 is to extend existing incentive credits to lands other than state leased lands; credits will go to private and federal lands as well. In subsection (b), the credits can currently be applied against oil and gas bonus payments, royalty and rental payments and a change with the existing statute (indiscernible) applied against income taxes as well as severance taxes. He explained there are conditions on the (indiscernible) credit in subsection (c), where a credit must be preapproved by the commissioner. It is not automatic but has to be of some benefit to the state. All of the work must be completed within a ten year period and within 30 days of the completion of the work, all raw data must be submitted to the commissioner for broad review. Number 125 MR. HAYNES said subsection (d) addresses the confidentiality provisions. Data from any wells is kept confidential for 24 months which conforms to current statute. A change in the geophysical data is that the data may be shown, but not distributed to interested third parties if the commissioner determines it to be in the best interest of the state. He explained there are limiting factors which are covered under (e), (f), (g), and (h) which states allowable credits can be based on eligible costs, which may not exceed 50 percent of those costs on state land or 25 percent of the costs on land not owned by the state. The incentive credit may not exceed $5 million per any one project and there is an additional cap in that the entire program may not exceed a cost of $50 million. MR. HAYNES continued that any credits received must be used within five years and credits may be assigned to a third party. The amounts due the permanent fund must be calculated before the application of any credit. He stated subsection 170 is the normal language authorizing the commissioner to adopt regulations enabling the implementation of the act. Subsection 180 clarifies the intent of the act be distinct and separate from the exploration incentive credits in AS 38.05.180(i). Subsection 190 provides definitions to conform this particular act with other existing (indiscernible) in other regulations. MR. HAYNES said Section 2 contains technical language which authorizes the commissioner to adopt regulations that will take effect under the Administrative Procedure Act. Section 3 contains language which allows Section 2 to take effect immediately so the commissioner can proceed. Number 168 REPRESENTATIVE BUNDE asked someone to speak on the fiscal note. He said if there is a decreased flow of money into the general fund, there should be a negative impact to the state. He felt there should be an acknowledgement that the general fund is going to receive less money. REPRESENTATIVE DAVIES clarified that the intent of SB 151 is to induce additional exploration and the rational is the benefit accrued to the state if that exploration goes on. He asked for comments on the distinction between state land, federal land and private land regarding benefits to the state. MR. HAYNES replied on state owned land, the state receives 100 percent of the royalties and 100 percent of the severance taxes. A good portion of federal lands is in conservation units of which the state receives royalties of 90 percent and 100 percent of the severance taxes. On other private lands in the state, the majority of which are Native owned, the state receives 100 percent of the severance taxes and a royalty on all lands under navigable waters. He stressed in all three situations, the state receives the benefit of employment as well as the value added infrastructure. He continued with examples. Number 214 REPRESENTATIVE DAVIES asked what the advantage is under section (g) which allows the assignment of the credit to a third person. MR. HAYNES responded that a (indiscernible) conforms to the existing language in the (inaudible) current credit, but if it were to move to private lands, the intent was to allow a geophysical company to come into the state, do work on speculation and not have a severance tax or an income tax (inaudible). They then could assign or sell that credit to someone who has a direct use for it. REPRESENTATIVE FINKELSTEIN asked what the current exploration incentive credit system is under AS 38.05.180(i) and how it differs from SB 151. MR. HAYNES stated under 180(i), the credit is limited to state land under lease and credits may be given up to 50 percent of the cost of the project itself. There is a difference in that the existing law has (inaudible) either in a cap on dollars or on years of work. The credits can be applied against royalty and (indiscernible) payments as contained in SB 151, but taxes are limited to AS 43.55, which limits severance taxes and excludes income taxes. REPRESENTATIVE FINKELSTEIN asked why that program is not being eliminated and replaced by SB 151. MR. HAYNES responded he did not know. REPRESENTATIVE FINKELSTEIN felt it is confusing to have programs covering the same area. MR. HAYNES said another change under 180(i) is that geophysical work must be done a minimum of two seasons preceding any lease sale and the data must be made public following a lease sale. That differs from SB 151. He explained the reason for the change is that DNR has never had a geophysical application for exploration incentive credits under 180(i). REPRESENTATIVE GREEN stated another benefit not mentioned is when a well is drilled and a $5 million tax incentive is given, if the information is there and no discovery is made, that information is still beneficial to the state because it is a data point which is certain, as opposed to geophysics which is more speculative. Number 295 REPRESENTATIVE DAVIES disagreed in that in SB 151, the data does not become available. MR. HAYNES stated the well data is the same; it becomes public information after two years unless there are extenuating circumstances which need to be scrutinized by the commissioner. REPRESENTATIVE DAVIES asked about the geophysical data. MR. HAYNES stated the desire is to have the geophysical company do work, which they often do on speculation, and then become a salesman. REPRESENTATIVE DAVIES asked if there is a difference between the 180(i) program and the SB 151 program with respect to geophysical data. MR. HAYNES said under 180(i) the information must be made public following a lease sale. Under SB 151, geophysical work may be selectively shown to interested third parties who the commissioner feels could use the data. REPRESENTATIVE HUDSON said current law provides a lot of discretion on the part of the commissioner in a normal sense. MR. HAYNES said that is correct. REPRESENTATIVE HUDSON clarified that SB 151 will identify on state and other lands, a percentage not to exceed $50 million and has to be used in five years. He asked if the applications of the five years and the $50 million are after the discovery comes into production. MR. HAYNES stated not after a discovery but after the work commitment is completed. REPRESENTATIVE HUDSON asked if the credit is against the royalty or the severance tax or both. MR. HAYNES replied either/or and income taxes, as well. Number 352 KEN FREEMAN, PROJECT COORDINATOR, RESOURCE DEVELOPMENT COUNCIL, (RDC) testified via teleconference, and expressed support of SB 151. He said SB 151 will encourage exploration, broaden the scope of the present leasing program, encourage initial prospecting and give a true incentive to explore Alaska, including nonstate lands. Most people think of oil and gas from a production or development standpoint, but exploration is the lifeblood of the oil and gas industry. He stressed exploration is the basis for development, with huge up front costs, many unknowns and a high risk of failure. Alaska, although considered a premier oil and gas region, is still largely unexplored. He stated acreage is increasingly off limits and not offered for exploration. MR. FREEMAN said RDC believes SB 151 encourages new players in exploring for Alaska's oil and gas resources, encourages prospecting for small, local targets such as natural gas, enhances the value of nearby or adjacent state lands, maximizes the odds of discovery, encourages exploration on the best geological targets regardless of land ownership, and provides a long-term economic strategy for more stable resource development climate, making the state less dependent on mega projects which is (indiscernible) policy. He mentioned it should be noted the state will receive severance taxes on developed (indiscernible), so the state will benefit regardless of the location of any find. MR. FREEMAN stated SB 151 sends a clear signal that oil and gas is still viewed by many, including the legislature and the Administration, as a key component to Alaska's long-term future. Number 397 WALT FURNACE, GENERAL MANAGER, ALASKA SUPPORT INDUSTRY ALLIANCE, testified via teleconference, and stated although the Alliance has not had the opportunity to review SB 151, he did a cursory review and found it to be in consort with the overall support factors of the Alliance. In reviewing SB 151, he found the bill to be another tool to the legislative process to encourage additional oil and gas development within the state. He said the Alliance applauds the legislature's efforts on SB 151 and recognizes it as a valuable incentive. Hopefully, those companies requiring leases on state land are those companies who may have ownership in lands outside state ownership, and will take advantage of SB 151 resulting in additional oil and gas development. He said SB 151, coupled with the exploration licensing bill, and the retooling of the 470 fund is a good package coming out of the 18th Legislative Session. REPRESENTATIVE FINKELSTEIN commented that Mr. Haynes had stated under AS 38.05 there had never been an application for an exploration incentive credit. He said if that is true, thought should be given to eliminating the old provision. If it has been used or has the potential to be used, the two provisions should be combined. MR. HAYNES stated the department has had approximately $41 million in exploration incentive credits applied for under the old law. He said the credits were all for stratigraphic test wells or exploration wells, never for the geophysical program. He pointed out that even though the department can go up to 50 percent, the commissioner has never allowed more than 30 percent and in most cases, 20 percent is an average. REPRESENTATIVE FINKELSTEIN felt there could be value in looking at combining the two provisions and it would make sense to have one provision in law which applies to exploration incentive credits to stratigraphic wells. REPRESENTATIVE HUDSON made a MOTION to ADOPT HCS SB 151(RES), the previous zero fiscal note from DNR and the new zero fiscal note from the Department of Revenue and MOVE HCS SB 151(RES) with fiscal notes out of committee with INDIVIDUAL RECOMMENDATIONS. CHAIRMAN WILLIAMS asked if there were any objections. Hearing none, the MOTION PASSED. ANNOUNCEMENTS CHAIRMAN WILLIAMS announced the committee will meet Monday, March 7, at 8:15 a.m. to hear SB 77, HB 448, HJR 17, and HB 404. On Wednesday, March 9, the committee will hear HB 238. ADJOURNMENT There being no further business to come before the House Resources Committee, Chairman Williams adjourned the meeting at 9:45 a.m.
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