Legislature(2011 - 2012)HOUSE FINANCE 519
02/28/2011 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB110 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 110 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HB 110-PRODUCTION TAX ON OIL AND GAS
1:17:18 PM
CO-CHAIR SEATON announced that the only order of business is
HOUSE BILL NO. 110, "An Act relating to the interest rate
applicable to certain amounts due for fees, taxes, and payments
made and property delivered to the Department of Revenue;
relating to the oil and gas production tax rate; relating to
monthly installment payments of estimated oil and gas production
tax; relating to oil and gas production tax credits for certain
expenditures, including qualified capital credits for
exploration, development, and production; relating to the
limitation on assessment of oil and gas production taxes;
relating to the determination of oil and gas production tax
values; making conforming amendments; and providing for an
effective date."
CO-CHAIR SEATON announced his intention to get through the
amendments to HB 110 and then have a vote on the bill.
1:18:02 PM
CO-CHAIR SEATON moved that the committee adopt Amendment 8,
labeled 27-GH1007\A.17, Mischel/Bullock, 2/23/11, which read:
Page 10, line 31, through page 11, line 21:
Delete all material and insert:
"* Sec. 15. AS 43.55.023(l) is amended to read:
(l) A producer or explorer may apply for a tax
credit for a well lease expenditure incurred in the
state [SOUTH OF 68 DEGREES NORTH LATITUDE] after
December 31, 2011, and before January 1, 2021 [JUNE
30, 2010], as follows:
(1) notwithstanding that a well lease
expenditure incurred in the state [SOUTH OF 68 DEGREES
NORTH LATITUDE] may be a deductible lease expenditure
for purposes of calculating the production tax value
of oil and gas under AS 43.55.160(a), unless a credit
for that expenditure is taken under (a) of this
section, AS 38.05.180(i), AS 41.09.010, AS 43.20.043,
or AS 43.55.025, a producer or explorer that incurs a
well lease expenditure in the state [SOUTH OF 68
DEGREES NORTH LATITUDE] may elect to apply a tax
credit against a tax levied by AS 43.55.011(e) in the
amount of
(A) 40 percent of the expenditures incurred
in the state south of 68 degrees North latitude; and
(B) 30 percent of the expenditures incurred
in the state north of 68 degrees North latitude that
exceed the average annual well lease expenditures for
the second and third calendar years preceding the year
for which the credit is being determined [40 PERCENT
OF THAT EXPENDITURE; A TAX CREDIT UNDER THIS PARAGRAPH
MAY BE APPLIED FOR A SINGLE CALENDAR YEAR];
(2) a producer or explorer may take a
credit for a well lease expenditure incurred in the
state [SOUTH OF 68 DEGREES NORTH LATITUDE] in
connection with geological or geophysical exploration
or in connection with an exploration well only if the
producer or explorer
(A) agrees, in writing, to the applicable
provisions of AS 43.55.025(f)(2); and
(B) submits to the Department of Natural Resources
all data that would be required to be submitted under
AS 43.55.025
REPRESENTATIVE P. WILSON objected for discussion purposes.
1:18:18 PM
CO-CHAIR SEATON explained that Amendment 8 is essentially [House
Bill 337] that the House Resources Standing Committee reported
out of committee last year, which was the change to the
producer/explorer tax on the North Slope. Amendment 8 would
change the capital credit for infield well work from 20 percent
to 30 percent, a 50 percent increase. Amendment 8 further
specifies that the aforementioned will be allowed for additional
work as well. He pointed out that one of the keystones for many
people has been to ensure that increased work is targeted, not
just paying more or giving credits for the same amount of work.
The language on page 1, line 18, of Amendment 8, provides the
aforementioned credit for the second and third calendar years
preceding the year for which the credit is determined. He
reminded members that last year it was determined that the data
of the previous year isn't appropriate enough to analyze, and
therefore the data of the previous year is skipped and the
average of the two years prior is utilized. Amendment 8 calls
for the aforementioned to be performed on a continuous basis,
which means that the third year prior and the second year prior
will be averaged and anything above that will receive a 30
percent tax credit rather than a 20 percent tax credit for the
infield well work. The fiscal note on this language last year
was an estimated $150 million. However, it's dependent upon the
amount of work that's performed.
1:21:58 PM
REPRESENTATIVE HERRON inquired as to whether there was objection
to Amendments 1-7 at the prior hearing.
CO-CHAIR SEATON answered that Amendments 1-7 passed unanimously.
REPRESENTATIVE HERRON inquired as to what Amendment 8 adds to
the other seven amendments or is it a totally different subject.
CO-CHAIR SEATON explained that Friday's amendments were related
to [AS 43.55.024], the small producer tax credit that goes to
explorers, and [AS 43.55.025], the exploration tax credits that
go to explorers. Amendment 8 refers to [AS 43.55.023], the
credit for well work from producing fields, such as Kuparuk,
Alpine, Prudhoe Bay. Friday amendments were pluses for
explorers and new field production, whereas Amendment 8 provides
more credit for well work at existing fields if it's done above
the level of the previous years.
REPRESENTATIVE HERRON surmised these are legacy incentives.
CO-CHAIR SEATON replied yes, but emphasized that it targets
additional work performed above the current level of work [in an
existing field]. Therefore, it's an incentive to do more work
than previously done in order to obtain higher credits for the
additional work.
1:24:44 PM
REPRESENTATIVE MUNOZ asked whether the Department of Revenue
(DOR) supports Amendment 8. She also asked for the department's
fiscal analysis of the impact of Amendment 8.
1:25:13 PM
BRYAN BUTCHER, Acting Commissioner, Department of Revenue,
related that DOR does not support Amendment 8. The department
believes that the current legislation improves the investment
climate much more than Amendment 8 would. By requiring
expenditures to exceed the average lease expenditures of the
previous two years, perpetual growth would be required for a
company to receive credits in the future, and the department
believes this is unrealistic. Furthermore, since companies
wouldn't know whether they would qualify for the credits until
after they spent the money, it would create difficulty for
companies to plan their budgets. Amendment 8 would, he opined,
also increase the possibility of companies working the system
such that they minimize their spending in the first two years in
order to lower the threshold qualifications for drilling in the
third year. The companies could continue the aforementioned to
qualify for increased credits, which would potentially be at the
expenditure of maintenance. With regard to the fiscal impact of
Amendment 8, he said that DOR doesn't have a specific estimate
as to what the amendment would do.
1:27:09 PM
CO-CHAIR SEATON surmised that DOR doesn't disagree with the
fiscal note it drafted for this provision in House Bill 337 in
the Twenty-Sixth Alaska State Legislature.
ACTING COMISSIONER BUTCHER clarified that he wasn't involved in
the preparation of that fiscal note and didn't know how the
department testified on that a year ago. Moreover, Amendment 8
is different in that it deletes language and then adds language
to the legislation.
1:27:53 PM
REPRESENTATIVE P. WILSON commented that not doing maintenance
could have devastating effects.
ACTING COMISSIONER BUTCHER agreed. He said he understands the
intent of Amendment 8, but that a lot of potentially dangerous
issues could arise as a result of it.
1:28:38 PM
CO-CHAIR FEIGE observed that the provisions of Amendment 8 would
be limited to the next 10 years. He inquired as to how this
would impact the willingness of producers and explorers to
invest in Alaska.
ACTING COMISSIONER BUTCHER, recalling testimony and discussions
with various companies, said that anything that has an effect in
the future on their fiscals will be either a positive or
negative. Although he deferred to the industry for comment, he
said he believes the limiting provision would be viewed as a
negative and would be surprised if the industry supported
Amendment 8.
1:29:42 PM
REPRESENTATIVE GARDNER surmised that many Alaskans would object
to giving large credits for maintenance work that is expected to
be performed on legacy fields. Therefore, maybe that is where
the objection to Amendment 8 should focus.
ACTING COMISSIONER BUTCHER clarified that he isn't making an
assumption the aforementioned would happen as one would expect
companies operating in the state would operate at the highest
level. He further clarified that he is pointing out the
potential as it could be a net benefit to the companies.
1:31:14 PM
CO-CHAIR SEATON pointed out that on [2/25/11] the date for the
other two credits was extended from 2016 to January 1, 2021, as
requested by industry. Those were for exploration credits which
require a higher level of forward planning and a longer
development time versus the infield drilling that Amendment 8
addresses, which doesn't require as much lead time. Therefore,
the extension deadline being coincident with exploration tax
incentives and the small producers' tax incentives makes sense.
The result is that everything comes before the legislature at
the same time. "On that point, I just would like to say that
that doesn't ring true to me," he commented.
CO-CHAIR SEATON reminded members that last year there was a
provision to offer a 30 percent tax credit, at a cost of $350
million a year, to all fields for all work, most of which the
companies would've been doing anyway. The purpose of Amendment
8 is to incentivize additional work, not just reducing revenues
for work that is currently being done.
1:33:58 PM
CO-CHAIR FEIGE pointed out that currently HB 110 leaves the tax
credit expenditure open-ended, and therefore any truncation
would be more of a disincentive compared to the original
legislation. He explained that the language on page 1, lines
15-16, of Amendment 8 is essentially existing statute and is
essentially for Cook Inlet. The aforementioned incentive has
been one that many companies have used and it has increased
exploration in Cook Inlet. The effect of Amendment 8 would be
to deny the 40 percent tax credit and reduce it to 30 percent.
Furthermore, by tying it to the previous years' credits,
companies are forced to expend ever more increasing rather than
a steady amount of exploration every year. He pointed out that
a company can only do so much exploration on the North Slope
with environmental laws remaining the same and the three- to
four-month window. This particular part of Amendment 8 tries to
incentivize production and get more oil in the pipeline, which
requires spending money. By including the provision that ties
it to the previous years, it won't be productive for companies
to put a lot of money at the outset. The companies will have to
[expend] a little each year. Although the aforementioned may
lead to more production over a long period of time, the
production is needed in 5-7 years not 15 years. He opined that
the aforementioned provision within Amendment 8 does not
encourage [production in the shorter timeframe]. As written, HB
110 applies the 40 percent tax credit expenditure immediately
and allows the company to right it off in one year. Co-Chair
Feige characterized that as a great financial benefit and
incentive for companies that will potentially put more oil in
the pipeline.
1:37:54 PM
REPRESENTATIVE HERRON inquired as to the result if Amendment 8
was bifurcated.
CO-CHAIR SEATON confirmed that the question could be divided
such that one part would be on page 1, lines 1-6, of Amendment 8
and the other part would be on page 1, line 7 through page 2,
line 6, of Amendment 8.
REPRESENTATIVE HERRON asked if there would be a benefit to
bifurcating Amendment 8.
CO-CHAIR SEATON acknowledged that the two parts of Amendment 8
are somewhat different. The latter part of Amendment 8
addresses a new credit for infield drilling at 30 percent, which
is an increase from the existing 20 percent credit for infield
drilling. He related his personal opinion that it's appropriate
to sunset things on similar dates, and this credit would sunset
on the same date as the exploration tax credit and the small
producers tax credit. Co-Chair Seaton announced that he would
entertain bifurcating Amendment 8 if Representative Herron
wished.
REPRESENTATIVE HERRON clarified that he isn't making such a
request.
1:40:08 PM
REPRESENTATIVE DICK related his understanding that passage of
Amendment 8 would incentivize a minimal increase of production
each year for fear of spoiling the average of the past. For
example, a company would receive credit when it performs a great
deal of production in one year, but it would be difficult to
follow that in the next year.
ACTING COMISSIONER BUTCHER noted his agreement, adding that the
existing language in HB 110 specifies a 40 percent tax credit
that would be replaced by the language in Amendment 8 that
specifies a 30 percent credit. Therefore, [Amendment 8] doesn't
improve the investment climate, it makes it less attractive.
1:41:24 PM
CO-CHAIR SEATON clarified that [Amendment 8] refers to infield
drilling and producing units, not exploration. Current law
provides a 20 percent tax credit for [infield drilling and
producing units]. Amendment 8 would increase that credit to 30
percent if additional work is performed. He questioned why one
wouldn't want the work to escalate rather than stay at a steady
average. According to producers, infield work is from where the
additional volume will come. Without running a large cost of 40
percent tax credit on all current work, Amendment 8 would
increase the tax credit from 20 percent to 30 percent on any
additional work, and it is additional work that the state wants
to incentivize.
1:43:01 PM
CO-CHAIR FEIGE opined that the problem with Co-Chair Seaton's
explanation is in regard to subparagraph (B) of Amendment 8,
which would gut the 40 percent tax credit in the governor's
legislation. He posed a situation in which a company does a
large amount of work in the first year the credit is offered; so
much work is done that the company doesn't need to do as much in
subsequent years. Because the company didn't exceed the average
annual well lease expenditures for the previous years, the
company wouldn't be able to write off any of its expenditures.
Therefore, Amendment 8 really only allows the companies to do a
large amount of work every four years, a boom and bust cycle,
instead of a steady utilization of men and equipment.
1:44:40 PM
CO-CHAIR SEATON explained that under existing statute a company
would receive a 20 percent tax credit for capital expenditures
(capex) and [with the passage of Amendment 8] a company that
exceeds the average amount of work it has been doing would
receive an additional 10 percent tax credit [on that additional
work]. This change is to encourage companies to do more, to
incentivize more development and future work. He further
explained that a company that performs less than its average
work [of the prior year] would continue to receive the 20
percent capex. He opined that the goal is to incentivize
additional work, and thus the [proposed] credits [in Amendment
8] are applied to the additional work. The aforementioned was
why [a similar] measure was passed by the House Resources
Standing Committee last year. He further opined that there
would be no reason to delay any maintenance work and take a huge
financial risk by not taking the 20 percent. Co-Chair Seaton
stated that before the committee is a choice as to whether to
incentivize more work than the companies are currently doing or
paying the companies more for the work they're doing by
increasing the capital credits across the broad spectrum.
1:47:26 PM
REPRESENTATIVE DICK surmised that committee members all have the
intention of trying to incentivize production, but he questioned
the intended and the unintended consequences. He then requested
more discussion before voting.
CO-CHAIR SEATON explained that HB 110 says that a company doing
"X" amount of work these years receives a 20 percent credit.
For work done beyond the "X" work, "Y" work, the company would
receive an extra 30 percent credit for the "Y" work. He
clarified that the 20 percent credit would remain and has been
adequate to stimulate the work. Co-Chair Seaton opined that if
the desire is to have more infield drilling, then the state
should incentivize drilling above the level at which the
companies are currently producing. He further opined that
maintaining the existing level of credits for the current level
of work will not stimulate production. Stimulating additional
work with extra tax credits makes the state's funds targeted and
"go further as well."
1:49:38 PM
CO-CHAIR FEIGE, following Co-Chair Seaton's logic, pointed out
that HB 110 provides a 40 percent tax credit expenditure for the
North Slope. Amendment 8 would reduce that tax credit to 30
percent. The governor's bill also allows that tax credit to be
taken in one year, which business owners would appreciate.
However, Amendment 8 would eliminate the allowance to apply that
tax credit in a single calendar year.
CO-CHAIR SEATON interjected that the producers write off the tax
credits in the month in which the expenditures are made.
Therefore, he said he is unsure why the governor included that
provision given the aforementioned.
1:51:06 PM
REPRESENTATIVE GARDNER recalled hearing explorers say that
Alaska has the best incentive program in the world.
Furthermore, there has been no testimony that more incentives
are needed to encourage infield drilling. Tax credits, tax
incentives, and tax rates are only part of the many factors that
go into decisions to invest. She opined that the big incentive
is the price of oil. She announced that she is supporting
Amendment 8, although she isn't sure it's needed.
1:52:27 PM
CO-CHAIR SEATON, in wrap up, reminded members that Amendment 8
targets the credits at additional work. If no additional work
is done, it doesn't cost the state anything or increase existing
credits. Increasing the credits for [non-additional] work would
cost the state and wouldn't ensure that any higher production
would take place.
REPRESENTATIVE P. WILSON maintained her objection.
1:53:15 PM
A roll call vote was taken. Representatives Kawasaki, Herron,
Gardner, and Seaton voted in favor of adopting Amendment 8.
Representatives P. Wilson, Munoz, Foster, Dick, and Feige voted
against it. Therefore, Amendment 8 failed to be adopted by a
vote of 4-5.
1:54:07 PM
CO-CHAIR SEATON then directed attention to the memorandum from
Legislative Legal Services with the subject "Amendments to HB
110 (Work Order Nos. 27-GH1007\A.39-A.42)." From that
memorandum he paraphrased from the following:
Amendment 27-GH1007\A.39
This amendment removes the sections of the bill that
change the tax rates, installment payments, and
determination of the production tax value of the oil
and gas. The effect of this amendment is to have the
current tax rates, installment payments, and
determination of production tax value continue.
CO-CHAIR SEATON moved that the committee adopt Amendment 9,
labeled 27-GH1007\A.39, Bullock, 2/26/11, which read:
Page 1, lines 2 - 3:
Delete "relating to the oil and gas production
tax rate; relating to monthly installment payments of
estimated oil and gas production tax;"
Page 1, line 7:
Delete "relating to the determination of oil and
gas production tax values;"
Page 3, line 3, through page 8, line 8:
Delete all material.
Renumber the following bill sections accordingly.
Page 13, line 8, through page 15, line 15:
Delete all material.
Renumber the following bill sections accordingly.
Page 16, line 8:
Delete "Sections 11, 12, 15, and 16"
Insert "Sections 7, 8, 11, and 12"
Page 16, lines 10 - 11:
Delete all material.
Reletter the following subsection accordingly.
Page 16, line 12:
Delete "Section 19"
Insert "Section 15"
Page 16, line 20:
Delete "Sections 11, 12, 14 - 18, 24, and 25(a)"
Insert "Sections 7, 8, 10 - 14, 19, and 20(a)"
Page 16, line 21:
Delete all material.
Renumber the following bill sections accordingly.
Page 16, line 22:
Delete "Sections 19 and 25(c)"
Insert "Sections 15 and 20(b)"
Page 16, line 23:
Delete "secs. 27 - 29"
Insert "secs. 22 and 23"
REPRESENTATIVE P. WILSON objected for discussion purposes.
1:55:24 PM
CO-CHAIR SEATON, referring to a PowerPoint handout in the
committee packet, informed the committee that the tax provisions
in HB 110 would cause a $1.7 to $2.2 billion annual reduction in
revenue to Alaska once the legislation is fully implemented.
The basic assumption behind this reduction in revenue is that it
will lead to increased drilling activity to get more oil into
the Trans-Alaska Pipeline System (TAPS). However, much of the
information the committee has received doesn't support that
assumption. Representatives from several companies have said
they must compete in the boardroom. He then directed the
committee's attention to the slide entitled "ConocoPhillips 2011
Corporate Profit Distribution Decision Flow Chart (from News
Reports)." The flow chart illustrates an approximately 50:50
breakdown between shareholder return and exploration and
production. ConocoPhillips, he related, has announced that
approximately 50 percent [of its 2010 profits], $6 billion, will
go toward international while $6 billion will go to North
America of which $3.3 billion will go to the U.S. Of that $3.3
billion going to the U.S., about $900 million will go to Alaska.
Although the $900 million sounds like a lot, it's only a slight
increase from last year's $858 million.
1:58:33 PM
CO-CHAIR FEIGE recalled reading news reports that part of that
$900 million is conditional with regard to what the legislature
does.
CO-CHAIR SEATON acknowledged that may be the case, and clarified
that the $900 million was the best case scenario. Last year,
ConocoPhillips spent almost $858 million in Alaska, but not
quite because $120 million less was actually spent due to
projects that didn't come to fruition. He suggested that
normally, if the projection is for $850 million and there was a
glitch that held back $120 million, that $120 million would roll
forward and thus there would be about $970 million in expenses.
However, ConocoPhillips has announced only $900 million in
expenses.
CO-CHAIR FEIGE interjected that Co-Chair Seaton's scenario seems
like a lot of speculation. Therefore, he expressed interest in
having someone from ConocoPhillips to explain its numbers.
CO-CHAIR SEATON pointed out that the committee packet includes a
news story in which ConocoPhillips projects it will spend $900
million in Alaska and $4.4 billion in the U.S.
2:00:10 PM
CO-CHAIR SEATON, referring to the slide entitled "$1B Decrease
in Alaska's oil tax Where will it go?," said:
Now what we're going to do is look at when our people
from ConocoPhillips Alaska go back to the board room
and have to negotiate for projects; what are we
looking at? If we decrease by a billion dollars what
would go into the corporate board room as a decision.
The question is would it be a billion dollars in one
year? Not quite. If it was a billion-and-a-half each
year over a two-year period, that's $3 billion and we
say each one of those companies represents about a
third that would mean $1 billion could be spread over
two years. But what happens to that $1 billion of our
taxes money that we say we're going to give tax relief
under the provisions of House Bill 110. Thirty-five
percent of it goes directly to the federal government,
IRS tax rate: $350 million goes there. That leaves
Conoco with $650 million. Their boardroom has already
decided about 50 percent goes to stockholder shares,
buy backs, and increased dividends; the other 50
percent exploration, half of that going to
international, half of it going to North America. If
we look at the 15 percent of North America, the $900
million, and relate to the $165 million, that means
there's only $25 million. So for a reduction in taxes
of $1 billion, it comes back to Alaska as $25 million
if the proportions of everything stay the same.
Remember, they've testified repeatedly that they're
having to go to the boardroom and negotiate these
projects; it's not money from Alaska stays in Alaska,
even though we've attempted to do that.
2:02:22 PM
CO-CHAIR SEATON then turned to the desire to stimulate
exploration, which leads to reviewing what corporate decisions
are being made by the producers. He reminded the committee that
well over 90 percent of all of the taxes will be returned to the
[top] three producers. He related that approximately 2 million
of the 5 million acres released on the North Slope since 2007
was released by ConocoPhillips. Therefore, the discussion is
about the producers not the explorers. He noted that Alaska has
been compared most directly to North Dakota, which results in
the question of where a company would place its assets.
However, neither BP nor ConocoPhillips is investing in North
Dakota and thus the comparison isn't applicable if the companies
aren't investing there.
CO-CHAIR SEATON noted that [the state] has been told that Canada
has a tax system with particular fields. However, when
reviewing the applicable part in the Canadian Arctic, it's
apparent that the Canadian Arctic has suffered much more than
Alaska. Therefore, tax rate between Alaska and Canada doesn't
seem to be the driver of the downward exploration in both Alaska
and Arctic Canada.
2:05:28 PM
CO-CHAIR SEATON acknowledged that there has been argument that
the upside projections are causing companies not to invest in
Alaska. The slide entitled "Single well flow rate over time"
relates Whiting Petroleum's, the fourth largest investor and
producer in North Dakota's Bakken Formation, targeted price of
oil when making its decisions. He recalled that when the
legislature was addressing Alaska's Clear and Equitable Share
(ACES), the state was looking at about $42.50 [per barrel],
which was rounded off to $45 as the mid-point target. The
information on the aforementioned slide illustrates that current
petroleum companies are making their decisions on $60, $70, and
$80 per barrel, not the stress price.
2:07:58 PM
CO-CHAIR SEATON directed attention to the chart entitled
"Exploration Well Permits (1996-2010)" on slide 8. He
highlighted the permit designation for ConocoPhillips that
illustrated the decrease in that company's activity. He said
the chart illustrates that even before ACES the number of
exploratory wells was decreasing as ConocoPhillips transitioned
from the exploration business to the production business. He
then pointed out the designation for BP which illustrated that
BP had essentially stopped exploration after 2002. He said the
discussion of exploration therefore doesn't include
ConocoPhillips or BP and thus those companies had no
relationship when ACES and the petroleum production profits tax
(PPT) were enacted.
2:09:17 PM
CO-CHAIR SEATON, in response to Co-Chair Feige, confirmed that
the aforementioned chart is from the Alaska Oil and Gas
Conservation Commission (AOGCC), dated February 22, 2011.
CO-CHAIR FEIGE directed attention to the bar specifying the five
companies with exploratory well permits in 2010, the top of
which is Cook Inlet Region, Incorporated (CIRI). He recalled
that CIRI is drilling an underground coal gasification project
in Cook Inlet, which has nothing to do with oil. The next
company is ORMAT Nevada, which he recalled was core drilling for
test holes on the side of Mt. Spur for a geothermal project.
The next down from that is the City of Akutan, which was a
geothermal project in the Aleutians. The next down is Linc
Energy that drilled off one well off the Knik-Goose Bay Road in
the Matanuska-Susitna Borough. The final well permit was from
Armstrong. He pointed out that none of the exploratory well
permits in 2010 resulted in wells on the North Slope.
CO-CHAIR SEATON clarified that is exactly what he was saying
when he pointed out that ConocoPhillips and BP are producers,
not explorers. He reminded members that ConocoPhillips released
2 million of the 5 million acres and BP stopped exploration in
2002.
2:11:31 PM
CO-CHAIR FEIGE recalled that in the 2003-2005 timeframe, BP had
to take rigs off exploratory wells and deploy them to perform
field maintenance. Therefore, it's somewhat misleading to say
that BP stopped exploration.
CO-CHAIR SEATON reiterated that BP didn't apply for any
exploration well permits in the 2003-2005 timeframe, which is
well before PPT or ACES. With regard to whether that relates to
tax, Co-Chair Seaton said it doesn't relate to tax or the price
of oil.
2:12:27 PM
CO-CHAIR SEATON moved on to the chart entitled "Development and
Service Wells/Laterals Completed (1996-2010)" on slide 10.
Although the bar from ConocoPhillips illustrates that it is
about at the highest level in 2010, the chart overall
illustrates a steady state. Furthermore, the chart shows that
the corporate decision isn't based on taxes as there weren't
changes after PPT, ACES, or with aggregation. The chart
illustrates that the producer has a constant field from which it
moves forward. Therefore, if there is a change in taxes and a
company is given $1 billion, there shouldn't be any expectation
of a change in their long-term strategy. He reiterated that the
chart illustrates that the tax regime wasn't a consideration for
ConocoPhillips. He noted that unlike most joint operating
agreements, the joint operating agreement for the North Slope,
Prudhoe, and Kuparuk is that any one of the three can veto the
project. Generally, if a partner does not wish to participate,
it just loses a percentage of the extra that is produced.
Therefore, the [actions of ConocoPhillips] could be the result
of one of the other partners saying it won't invest and thus
[exploration/development] stops.
2:15:20 PM
CO-CHAIR FEIGE opined that Co-Chair Seaton's arguments don't
take into consideration that drill rigs are necessary to drill
wells and that companies have limited equipment available to
them on the North Slope. He further opined that there isn't a
surplus of drill rigs. In fact, during "that time period" most
of the drill rigs on the North Slope were contracted.
Therefore, even if the companies wanted to drill more, unless
drill rigs were imported at great expense from other locations
in the Lower 48 there would not have been any to contract to
drill more wells. With regard to the years in which BP didn't
explore, Co-Chair Feige opined that BP's drill activity was
constrained by the number of rigs that it had and these rigs had
to be taken off of exploration and put into development and
service wells to correct some down hole issues.
CO-CHAIR SEATON remarked that these are companies that can
decide on their capital investment; however, these slides depict
what the companies actually did. Furthermore, during the years
2003-2006 BP was on a general downward trend that has
stabilized. The low amount of production/development wells for
BP isn't related to the enactment of PPT or ACES because
decisions were made before PPT or ACES were enacted.
2:17:59 PM
CO-CHAIR SEATON, referring to the slide entitled "State Of
Alaska If We Have A Surplus What Do We Do With It?", pointed out
that if the state has a surplus it places some funds in savings.
The state uses funds for things such as revenue sharing, power
cost equalization (PCE), and the capital budget. The capital
budget from 2006-2010 averaged $983 million in general funds
(GF). That GF is used for things such as the renewable energy
fund and transportation, safety, medical, and education
infrastructure, all of which yield Alaska jobs. Referring to
the slide "State Of Alaska If We Have a Deficit What Do We Do?",
explained that when the state has a deficit, money is taken from
the savings to run government. During the deficit years of
2001-2005, the capital budget was small at $239 million in GF
and there was no renewable energy fund and there was less
infrastructure and jobs. He pointed out that in those deficit
years the capital budget averaged $274 million less. That
capital budget is spread across the state and funds various
things in the different communities. He opined that the reason
Alaska didn't have a construction job crash like the rest of the
Lower 48 is because Alaska saved an average of $744 million from
the surplus in order to create jobs to keep the state going.
With regard to the difference between surplus and deficit, Co-
Chair Seaton opined that enactment of HB 110 will place Alaska
in deficit for years to come.
2:20:28 PM
CO-CHAIR SEATON turned to another aspect of the situation, the
Public Employees Retirement System (PERS) and Teachers'
Retirement System (TRS) liability as illustrated on the chart
entitled "State Assistance to Retirement ($ billions).
Currently, the PERS and TRS liability amounts to $350 million
while in five years the liability will reach $850 million per
year. Four years later, the liability will rise to $1 billion.
That hit on the budget is not included in any of these figures.
He reiterated that the state will be in deficit if these
provisions of HB 110 are enacted. Amendment 9 says that there
hasn't been any indication that more wells will be drilled or
more production will occur if [HB 110 is passed].
2:21:31 PM
CO-CHAIR SEATON then directed attention to the Department of
Revenue's revenue forecast, Figure 4-2, which relates that the
2010 production tax was 2.8 and is projected to be 2.6 in 2011
and 2.7 in 2012. When HB 110 is implemented the production tax
would decrease by $1.7 to $2.2 billion. He opined that it's
fairly obvious the situation in which that leaves the state.
Co-Chair Seaton said he believes the committee is attempting to
increase oil production in Alaska, but there has been no
commitment that lowering progressivity or taxes will directly
result in more oil in the pipe. However, it is known that the
impact of the tax on progressivity will be an enormous reduction
in the state's capital budget, revenue sharing, and savings.
The resource consequences of not adopting Amendment 9 are
significant because placing the state in a deficit by not
adopting Amendment 9 will result in the state missing the
resource implications, roads to resources, which is the top
issue of the smaller explorers. If the state is in deficit, it
will not be building those roads to the resources. Furthermore,
projects will only be done if the state has funds. Co-Chair
Seaton reiterated that there have been no commitments for work
nor more wells drilled when there was a lower tax rate.
Therefore, Amendment 9 addresses [the aforementioned] concerns.
If the producers want to come forward at subsequent hearings in
other committees and offer work commitments, those committees
can reinstitute provisions based on those. However, the
industry has related that the $1.7-$2.2 billion in taxes would
be a good start. Co-Chair Seaton pointed out that it's obvious
when one reviews what the state did when it had a surplus versus
a deficit that when there's a surplus the state funds its
resource issues. There's no assurance that if these changes are
made that Alaska will have any surpluses in the future based on
the actual well data, the industry's responses, and the history
of what the industry did under lower taxes. He reminded members
that ACES was predicated on making more money and that Alaska
needed to give people an incentive to leave their money in
Alaska. Lowering the taxes makes it cheaper for industry to
take their money from Alaska rather than investing in it.
2:26:00 PM
CO-CHAIR FEIGE referenced the slide entitled "Arctic Canada-
exploration wells completed 2000 to 2010." He asked if the
decrease in exploration wells shown in the slide has to do with
the high tax rate that Alberta imposed in about 2006.
CO-CHAIR SEATON acknowledged that statements have been made that
Canada is booming because of changes to their tax rates.
However, the number of exploration wells decreased to zero by
2010. Therefore, it would seem that Canada experienced even
more of a downturn than in Alaska.
CO-CHAIR FEIGE related his understanding that Alberta imposed
its tax increase after Alaska did. He then inquired as to when
Alberta repealed its tax increase.
REPRESENTATIVE P. WILSON recalled that within the next year or
so after Alaska increased its tax rate, Canada increased its tax
rate but then quickly changed it back.
CO-CHAIR SEATON added that the point of these slides is that
comparing wells that are close to the Lower 48 is a different
story than comparing to Arctic Canada. The pattern of
exploration wells in Arctic Canada looks the same as in Alaska.
The response, he opined, is to something other than tax rates.
2:28:43 PM
REPRESENTATIVE MUNOZ surmised that Amendment 9 preserves the 25
and 15 percent production tax rates by deleting the materials
and retaining the progressivity focus of ACES.
CO-CHAIR SEATON explained that Amendment 9 leaves ACES
predominantly intact. With regard to the 15 percent tax rate,
none of the explorers approached him regarding the need to have
half the tax rate of the producers. However, there was
testimony from Brooks Range Petroleum that the progressivity,
the tax rate, and another portion of the tax weren't needed.
Brooks Range said that it needed the exploration tax credits to
be issued in one year. Brooks Range also testified that it
wanted an extension of the tax credits, which "we did" as well
as increasing the small producer tax credits.
2:30:04 PM
REPRESENTATIVE MUNOZ surmised then that Amendment 9 deletes the
bulk of HB 110 and retains the ACES structure.
CO-CHAIR SEATON responded yes, adding that Amendment 9 retains
the ACES structure, the interest rate changes, and the
exploration changes. However, Amendment 9 does not maintain the
language that would give away all the money for the things for
which no commitment from industry has been received. He
clarified that Amendment 9 addresses the taxes that would all go
to the producers. He then directed the committee's attention to
slide 10 with the chart entitled "Development and Service
Wells/Laterals," which he interpreted as illustrating that
corporate decisions are long-term decisions that haven't been
changed by tax rates and prices. Therefore, he questioned why
one would expect a change in tax rates to make a change when it
didn't do so in the past. Furthermore, the reduction BP
experienced occurred prior to enactment of ACES, although after
ACES was enacted BP experienced a rise [in development and
service wells]. There have been no indication or work
commitments from BP or from ConocoPhillips, the operators of the
fields that reducing the state's surplus to a deficit will place
more oil into the pipe.
2:32:50 PM
REPRESENTATIVE HERRON related his understanding from Co-Chair
Seaton's explanation to Representative Munoz that Amendment 9
does one thing and that any debate on rates would be relevant to
the following amendment.
CO-CHAIR SEATON replied no, and clarified that Amendment 9 takes
into account all of the big ticket items for which the committee
has received no information that it would increase production or
drilling. Drawing attention to the chart he presented earlier,
he said drilling is independent of the tax rate and of the
price. He opined that these companies have a corporate model
that they're following to develop these fields and it hasn't
changed since ACES was enacted. He reiterated that there is no
correlation that can be shown between the tax rate or price and
the development of these fields. He explained that he's using
ConocoPhillips as an example because it's required to file with
the Securities Exchange Commission (SEC) and thus more is known
about ConocoPhillips from those filings as well as publications
in various distributions regarding their decisions related to
distribution of their income. ConocoPhillips' corporate
decisions of how their income is distributed were then applied
to a situation in which Alaska gives them $1 billion over two
years. On the other hand, BP is selling assets worldwide to
accumulate about $40 billion for the liability in the Gulf of
Mexico. Therefore, it seems that one could assume that BP's
corporate board has decided where its assets will go for some
time to come because BP has only raised a little over half of
the amount it wants to raise.
2:36:12 PM
REPRESENTATIVE HERRON related his understanding then that
members are allowed to introduce amendments that change the
rate.
CO-CHAIR SEATON responded yes, adding that amendments to
amendments will be allowed. However, he maintained that at this
point in the discussion the committee won't receive any work
commitments from the industry. As the legislation proceeds to
other committees, Co-Chair Seaton expressed the hope that the
industry would offer work commitments in order to have the tax
concessions included in the legislation. At this point, the
committee has been unable to leverage any work commitments,
which are made all the time when a company leases acreage, makes
a plan of development, or when companies unitize. There just
hasn't been an incentive for work commitments to be made in
Alaska because the legislation already includes language
providing free money.
2:37:44 PM
CO-CHAIR FEIGE, referring to Co-Chair Seaton's chart, pointed
out that in 2002 the price of oil dipped below $20 per barrel.
He submitted that perhaps that had more to do with the deficit
Governor Murkowski faced in the first two years of his term. He
then asked if Whiting Petroleum has any leases in Alaska.
CO-CHAIR SEATON informed the committee that Whiting Petroleum is
the fourth largest investor in the Bakken Play, which has been
said to be Alaska's "big competition." He further informed the
committee that BP and ConocoPhillips aren't even listed in the
top 10 companies in the Bakken. Therefore, he suggested that
[BP and ConocoPhillips] aren't putting their money [in places
such as the Bakken] rather than Alaska, but 50 percent of their
funds are going overseas. The testimony of Great Bear
Petroleum, the Department of Natural Resources (DNR), and the
U.S. Geologic Services has said that Alaska has a great resource
coming on line, maybe 200 wells per year starting in 2010.
Under ACES there has been no indication that the aforementioned
resource can't go forward. The biggest concern of those who
want to drill wells is that the state does roads to resources
such that [these companies] can develop. However, if Alaska
runs itself into a deficit, it will be very difficult to invest
into roads to resources or transportation funds. He said the
aforementioned is why he discussed the surplus and deficit
situations of the state. That information, he opined,
illustrates that it didn't matter whether the deficit was from
$20 oil, it was what Alaska did when it was in a deficit
situation. When the state was in a deficit it didn't spend much
capital funds, which impacts the economy and the resource plays
in which the state can participate.
CO-CHAIR FEIGE submitted that Whiting Petroleum, if it has money
to invest, could invest in Alaska if the tax regime were better.
He suggested that perhaps DOR should comment on Amendment 9.
2:41:40 PM
REPRESENTATIVE GARDNER related her belief that the slide with
the chart entitled "Development and Service Wells/Laterals" is
the single most important visual the committee has been given
since the start of this discussion. She surmised that the chart
illustrates that regardless of taxes or the price of oil, there
are clearly other factors that are the large determinants in
investment decisions.
CO-CHAIR SEATON interjected that the slide Representative
Gardner referenced is a slide from AOGCC that relates the number
of actual wells completed from 1996-2010. He offered that the
slide illustrates that corporations have their own timetables,
developmental schedules, and corporate mix that are not based on
the relationship with Alaska's taxes. "Everything we see is
that the production is not related to our tax system," he
emphasized. He clarified, however, that he wasn't saying that
2010 is responsible because of ACES, but rather that the
companies have a separate corporate strategy and a development
plan for the fields on the North Slope and that hasn't been
influenced when Alaska had zero production tax. The
aforementioned is why the tax was changed to a percent of
profits; the companies were investing in foreign lands since
there was no difference in the price of investing in Alaska.
Whether the larger [development] by ConocoPhillips in 2010 is in
relation to [the change in tax in Alaska], Co-Chair Seaton
opined that it's a development strategy that Alaska isn't going
to influence. Those who can be influenced, he further opined,
are the explorers, which were addressed with the amendments the
committee dealt with last Friday.
2:44:25 PM
REPRESENTATIVE DICK requested comments from DOR regarding slides
2 and 3.
ACTING COMISSIONER BUTCHER first directed attention to the
[analysis] that accompanies DOR's fiscal note, which projects a
total revenue impact from HB 110 of $1.6-$1.8 billion in 2017.
He pointed out that it's only half of the equation because the
other half of the equation is possible production that hasn't
been forecast coming on line. The expectation is for the [total
revenue impact] to be smaller.
2:45:31 PM
ACTING COMISSIONER BUTCHER, regarding slides 2 and 3, began by
relating that ConocoPhillips or another company could speak to
those slides in more detail than he could. However, he related
his understanding from the conversations he has had with
industry that companies don't make their investment decisions
based on percentages, rather they make those decisions based on
where the companies see the opportunity at a particular point in
time. The aforementioned is the point of HB 110: to create a
better investment climate in Alaska so that the companies do
decide to make a large investment in the state. With regard to
the slide that addresses the acreage in North Dakota, he
reminded the committee that when DOR spoke to HB 110 it said
Alaska competes nationally as well as globally. Certainly,
that's the case with the multinational companies. Many of the
companies that have been in or are in Alaska are listed on the
slide. In fact, some of the smaller producers consider
[opportunities] on a more national basis. "So, we compete with
those companies, but we also compete on a more global scale with
the multinationals," he said. Acting Commissioner Butcher said
that from the comparison with North Dakota he derived that North
Dakota is looking at a few years of out-producing Alaska.
Therefore, North Dakota would be producing more oil on a daily
basis than the State of Alaska, which would've been unheard of
five years ago.
2:47:53 PM
ACTING COMISSIONER BUTCHER, referring to slide 6 which compares
Arctic Canada with Alaska, said the point of Alberta's increased
royalty percentages to government plays a role. Another
important role is that many of these are gas wells and
exploration will drop in the years that the price of natural gas
drops. Furthermore, many of these gas wells are stranded gas
wells, which resulted in an increase in the pull back in terms
of the number of exploration wells drilled in the McKenzie
Delta. It appears that the jam in the regulations for wells has
been broken, and thus he expects an increase in those numbers in
2011 and 2012. He acknowledged that there are a lot of reasons
that play into the aforementioned, including the low price of
gas and that the wells were stranded.
2:48:55 PM
ACTING COMISSIONER BUTCHER, returning to the comparison of a
North Dakota well and an Alaska well, pointed out that the cost
of doing business in Alaska is extremely high. Alaska is
competing for business with other companies, but it's not an
even playing field as prospects in Texas and North Dakota are
often located on flat areas and on private land with plenty of
available manpower versus the geography of Alaska with its state
and federal land ownership and limited manpower. Therefore,
Alaska has to do more than North Dakota or Texas and as a result
the amount of money that needs to be made is more because of the
increased cost of business in Alaska. The cost of business in
Alaska will only increase as infrastructure will be an issue
because the [development] is further away from TAPS.
2:49:56 PM
CO-CHAIR SEATON asked if North Dakota gives a tax credit similar
to what Alaska gives.
ACTING COMISSIONER BUTCHER answered that he isn't aware that
North Dakota offers such.
CO-CHAIR SEATON surmised then that Alaska's tax credit
significantly reduces the capital costs of the industry.
Furthermore, the industry has to depreciate its expenses over
time and hold them on the books. He asked if Alaska depreciates
the industry's expenses over time.
ACTING COMISSIONER BUTCHER, in further response to Co-Chair
Seaton, explained that Alaska depreciates the industry's
expenses immediately, but not over a long number of years as do
many other states.
CO-CHAIR SEATON clarified that Alaska gives an immediate write
off as well as a capital credit back.
2:51:05 PM
ACTING COMISSIONER BUTCHER highlighted that when one reviews
where companies put their money, the two biggest ticket items
are the price of oil and the tax they must pay. He further
highlighted that during the years of the economic limit factor
(ELF) industry experienced low taxes and an extremely low price
of oil, while the passage of PPT and ACES has corresponded with
extremely high oil prices. In other states, high oil prices
corresponded with a tremendous increase in exploration and
ultimately an increase in the amount of production as well.
However, that is not happening in Alaska. The aforementioned
arrives at the discussion of the capital budget and where the
money is going. He opined that no one in the capitol building
understands what it's like to fund a state budget with the
extremely limited number of funds the state had when Governor
Parnell was the co-chair of the Finance Committee when the price
of oil was $9 per barrel. The aforementioned is why HB 110 is
the governor's priority. "He sees the dollar amounts that we've
been spending and the dollar amounts that are of benefit to this
state to ... grow the private sector economy and he can see out
not that many years and see the amount of oil going down the
pipeline is going to be diminishing," he opined. Therefore,
Governor Parnell would say these slides are the reasons why he
is bringing HB 110 forward.
2:53:17 PM
REPRESENTATIVE DICK observed that according to slide 3 if Alaska
gives up $1 billion, it receives $25 million in terms of
development. "Something has to be wrong here," he remarked.
ACTING COMISSIONER BUTCHER explained that the flow chart on
slide 3 is trying to isolate what potential amount of money,
based on a reduction in oil taxes, would go to ConocoPhillips.
He noted that there is much more that plays into that amount,
including the price of oil, the amount of money ConocoPhillips
makes in that particular year, and each year is different in and
of itself based on the environment, and the percentage of funds
that should go into exploration and production or be returned to
the shareholders. When [ConocoPhillips] determines the amount
of exploration production dollars, it reviews the situation at a
global scale. In conversations with the department, industry
has said that HB 110 makes a material change in how the
boardrooms would view Alaska in terms of development and
exploration funds. He acknowledged that the industry hasn't
related a quid pro quo scenario, but that never was expected.
Great Bear and Armstrong have given specific testimony about
where they think it would go if HB 110 passes, while the bigger
industry guys have said they believe HB 110 is a material change
that will make a difference. He allowed that such testimony
isn't a promise of a specific amount of dollars, but they are
saying there will be an effect from HB 110. Acting Commissioner
Butcher stressed that Governor Parnell wouldn't introduce
legislation that he would expect to cost the state billions.
Governor Parnell views HB 110 as a short-term investment for
long-term gain for the state.
2:57:06 PM
REPRESENTATIVE GARDNER recalled that Acing Commissioner Butcher
said that the two critical factors in investment decisions for
the industry are the price of oil and the amount of taxes.
However, she said that in the six years she's been following
this issue, she's never heard anyone else cite the amount of
taxes as a critical factor. Therefore, she questioned where the
data is regarding the impacts of the tax rate.
ACTING COMISSIONER BUTCHER pointed out that he isn't speaking as
an employee of an oil company, something that he has never been,
but rather as a [state employee] who reviews where the largest
chunks of money are going. The largest chunks of money come in
based on the price of oil and the biggest chunk going out is
production tax, which is more than credits, more than property
tax, more than anything.
REPRESENTATIVE GARDNER agreed that's the case for the state
perspective, but these are mostly multinational companies with
larger volumes than the State of Alaska. She said that she
hasn't seen the data [to support Acting Commissioner Butcher's
statements]. However, she said she has seen data that under ELF
when there was virtually zero severance tax, there was no
investment. Therefore, she questioned drawing the conclusion
that an increase in severance tax has caused the slowing of
investment.
ACTING COMISSIONER BUTCHER noted that the point at which the
state's taxes increased is the point at which oil prices
increased. Of course, one won't know what the state would look
like had that not occurred. He said [the administration]
doesn't view HB 110 as completely changing ACES but rather
making changes to ACES that are in the best long-term interest
of the state.
2:59:47 PM
REPRESENTATIVE P. WILSON observed that the summary of Amendment
9 from Legislative Legal and Research Services mentions revenue
sharing, an issue that hasn't been mentioned during previous
deliberations of HB 110. She requested clarification on the
[impact] to revenue sharing under HB 110 versus Amendment 9.
ACTING COMISSIONER BUTCHER estimated that an oil price of $59 or
more per barrel would be necessary to maintain the revenue
sharing fund at full level. The DOR's long-term forecast for
oil price is far in excess of $59 per barrel; thus, DOR doesn't
expect it to be an issue. In further response to Representative
P. Wilson, he clarified that the price of oil would need to be
$59 per barrel to fully fund the revenue sharing fund. He
further clarified that the revenue sharing fund isn't a
dedicated fund but rather a designated fund from which the
legislature appropriates funds. Therefore, if the price of oil
dropped to $20 per barrel, the fund's balance would decrease.
Still the legislature could appropriate money from the GF.
REPRESENTATIVE P. WILSON then inquired as to how Amendment 9
would affect the revenue sharing fund.
ACTING COMISSIONER BUTCHER answered that in real terms Amendment
9 wouldn't affect the revenue sharing fund at all. Although
Amendment 9 would eliminate the 15 percent interest rate for
outside exploration, the brackets, and the cap, it wouldn't
impact revenue sharing.
3:02:24 PM
CO-CHAIR SEATON interjected that HB 110 dedicates all the tax,
the base and the progressivity, to community revenue sharing.
Therefore, under HB 110 the price per barrel of oil has to be
$59 and 20 percent of the entire amount of the base tax and
progressivity has to be taken just to fund revenue sharing.
However, ACES funds revenue sharing with progressivity only. He
maintained that there is quite a difference between [Amendment
9] and HB 110.
ACTING COMISSIONER BUTCHER stated that HB 110 includes a cap of
$60 million for the revenue sharing fund. Therefore, once the
revenue sharing fund reaches $60 million that's all the funds
that are placed in the fund.
CO-CHAIR SEATON disagreed, adding that the structure of HB 110
requires that 20 percent of all oil taxes, whether base or
progressivity, be placed into the revenue sharing fund.
However, ACES is structured such that 20 percent of the
progressivity, and none of the base, is used to fund revenue
sharing.
3:04:18 PM
CO-CHAIR SEATON [recessed] the meeting until 3:30 p.m.
3:51:40 PM
CO-CHAIR SEATON called the House Resources Standing Committee
meeting back to order. Representatives Seaton, Feige, Herron,
P. Wilson, Dick, Kawasaki, Gardner, Foster, and Munoz were
present at the call back to order.
3:51:59 PM
CO-CHAIR SEATON continued with addressing Amendment 9. He drew
attention to the Department of Revenue's 2/28/11 response to the
committee's question on the oil price that would be needed to
generate $60 million for community revenue sharing under HB 110.
He read the last two paragraphs of page 1 which state:
Under current law, AS 43.55.011(g) contains the
progressivity surcharge for the production tax, so a
progressivity surcharge of at least $300,000,000 after
application of credits would be required to fully fund
community revenue sharing with the maximum of $60
million ($300,000,000 x 20% = $60,000,000).
Under HB 110, the "base tax" and "progressivity
surcharge" are replaced with a series of bracket which
are all contained in AS 43.55.011(g). Since all tax
revenue under HB 110 is included in .011(g), a total
tax liability of at least $300,000,000 after
application of credits would be required to fully fund
community revenue sharing with the maximum of $60
million.
CO-CHAIR SEATON said the aforementioned means it would take $300
million of all of the state's taxes to generate this $60 million
under HB 110. However, the information he has indicates that
under HB 110 an oil price of $89 a barrel would be required to
generate the $60 million from only the progressivity.
3:54:11 PM
CO-CHAIR SEATON directed attention to page 1 of an article in
Petroleum News provided by Representative Hawker [week of
2/27/11, Vol. 16, No. 9] which reports that ConocoPhillips is
proposing to increase its capital budget to $900 million for
Alaska this year, up from the $854 million that it budgeted for
2010. He further noted that page 2 of the article states that
ConocoPhillips is increasing its spending for the Lower 48 from
$1.8 billion spent in 2010 to a budget of $3.3 billion. For
overseas exploration and projects, ConocoPhillips is budgeting
$7.1 billion, up from $5.9 billion spent in 2010.
3:55:39 PM
REPRESENTATIVE P. WILSON requested the Department of Revenue to
explain the three bulleted items on page 2 of the department's
aforementioned 2/28/11 response.
ACTING COMISSIONER BUTCHER explained that these items are the
assumptions the department made to answer the committee's
revenue sharing question. One assumption was a total cost of
$30 per barrel for transportation, operating, and capital costs,
which is the cost that it has been for the last year or so. A
second assumption was that 100 percent of the capital
[expenditures] are eligible for the 20 percent capital credit.
A third assumption was that 50 percent of the [total] capital
expenditures are eligible for an additional 20 percent well
credit. When looking at these assumptions based on today, about
$57 per barrel would be needed to fill the fund to a maximum of
$60 million. Anything above $60 million would not go into the
fund because it is capped at $60 million.
3:57:27 PM
REPRESENTATIVE P. WILSON asked how that compares to what it
takes right now.
ACTING COMISSIONER BUTCHER replied that the aforementioned
assumptions were provided by the chairmen. Under current law,
the funding comes only from the progressivity piece of the tax
as opposed to the entire tax, but it is capped at $60 million.
Whether under HB 110 or current law, the revenue has been far in
excess of the money needed to fill the fund to its maximum.
3:58:15 PM
REPRESENTATIVE P. WILSON surmised it is Acting Commissioner
Butcher's opinion that HB 110 would not affect community revenue
sharing.
ACTING COMISSIONER BUTCHER responded that, based upon its future
forecasts, the department foresees no effect.
CO-CHAIR FEIGE said it is apparent to him that there would be
$60 million in revenue sharing either way.
ACTING COMISSIONER BUTCHER concurred.
CO-CHAIR SEATON agreed that is correct, but pointed out that
when the revenue sharing formula was established the legislature
specified that it be from progressivity, not all of the oil tax,
and if the progressivity did not fill up the fund then it would
need to come as an allocation from the general fund. Under HB
110 the progressivity and the base oil tax would be put together
to fund the revenue sharing.
3:59:55 PM
CO-CHAIR FEIGE drew attention to the bottom of page 2 and top of
page 3 of the aforementioned Petroleum News article in which
ConocoPhillips spokeswoman Natalie Lowman stated that her
company's actual 2010 spending was the lowest since 2007. He
read a further statement by Ms. Lowman: "The 2011 capital budget
includes contingency funding if we are successful in getting
improvements in State fiscal terms, and resolving permitting
issues with Alpine satellites." He interpreted this to mean
that if ConocoPhillips gets better fiscal terms it will spend
all of that $900 million, but if it does not then it will be
more like last year's number of $730 million.
CO-CHAIR SEATON agreed that Co-Chair Feige is correct, and that
the budgeted amount of $854 million was probably not spent last
year because of permitting issues with the Alpine satellites.
CO-CHAIR FEIGE noted that ConocoPhillips also said state fiscal
terms.
4:01:38 PM
REPRESENTATIVE KAWASAKI remarked that Ms. Lowman's statement
sounds more like extortion to him. He related that according to
the Fraser [Institute's "Global Petroleum Survey 2010"] the
jurisdiction of Libya has corruption, hostile environment, very
high taxation, employment laws, unfavorable profit sharing
agreement terms and conditions, no stability, and much political
interference. The survey puts Libya in the 4th quintile, which
is worse than Alaska, yet between 2008 and 2010 BP spent a
billion dollars in Libya; additionally, ConocoPhillips also has
significant investment in that area. He therefore requested
that the acting commissioner explain what he meant when he
stated that the price of oil and taxes are the primary things
that a company looks at when investing in a jurisdiction.
ACTING COMISSIONER BUTCHER reiterated that he has never worked
for an oil company and said his statement was his opinion based
on his view from a State of Alaska perspective. He agreed there
are numerous things that are major factors at play. However, he
was making the point that in his opinion the two biggest pieces
are the cost of oil and the cost of production tax in the state
of Alaska, which is a cost far higher than any of the other
taxes that are levied on the industry.
4:04:24 PM
REPRESENTATIVE KAWASAKI said he would like to have more than a
personal opinion, given that the state would be taking a $2
[billion] hit. He further related that according to the Fraser
survey, Alaska's quality of infrastructure is better than that
of Libya and only nominally less than Egypt's infrastructure.
ACTING COMISSIONER BUTCHER allowed that Alaska is in a good
position in terms of infrastructure. However, he pointed out
that much of the oil yet to be discovered and developed is
farther and farther away from infrastructure, so Alaska is
becoming more challenged in its infrastructure as time goes
along. He deferred to industry to answer this question from a
global perspective.
REPRESENTATIVE KAWASAKI contended that using the $2 billion to
instead build roads across the NPR-A and ports in northern and
southwest Alaska would be a more sound investment and make the
state more competitive with the rest of the world.
ACTING COMISSIONER BUTCHER agreed those would be wise
investments and said that is the main reason the governor is
pursuing this legislation. It is unknown what specific amount
of oil will shut down the Trans-Alaska Pipeline System (TAPS)
and when that will be, but the entire focus of HB 110 is to
increase investment, increase production, and get to a point in
the long term where everything discussed can be funded. He said
the fear is that the state may not have the funds to take care
of these needs in 10-15 years.
4:07:01 PM
CO-CHAIR FEIGE related that he was told the state would lose a
little over $600 million the first year because the proposed tax
change would go into effect halfway through a fiscal year and in
the second year it would be a little over $1 billion. He asked
for an explanation of the figure of $1.7-$2.2 billion in loss
and why it is different than what was presented in the original
briefing.
ACTING COMISSIONER BUTCHER answered that the figures are in the
department's fiscal note, but they are not added together as a
total in the fiscal note. However, the committee was provided
with a spreadsheet last week that does add them together. He
said the department estimates [a loss of] $100-$200 million in
FY 2012, which would be from shifting the credits from two years
to one year, and while this would be a hit in FY 2013 it would
be that much less of a hit in FY 2013. The reductions seen by
the department are: $500-$782 million in FY 2013, $1.16-$1.36
billion in FY 2014, $1.32-$1.52 billion in FY 2015, $1.54-$1.74
billion in FY 2016, and $1.62-$1.8 billion in 2017. He said
this is half of the equation because it does not factor in the
amount of new production that the department believes would be
coming on in the latter half of those fiscal years as a result
of increased investment and increased production.
CO-CHAIR FEIGE inquired whether those numbers are high.
ACTING COMISSIONER BUTCHER said those are numbers higher than
the Department of Revenue computed for its fiscal note.
4:09:48 PM
CO-CHAIR SEATON asked whether the fiscal note includes the
difference that would be seen in the windfall profit volatility
given that HB 110 would be annual and current law under ACES is
monthly.
BRUCE TANGEMAN, Deputy Commissioner, Office of the Commissioner,
Department of Revenue, responded that the department uses an
annual oil price projection in its Revenue Sources Book, rather
than taking into account a month-to-month volatility in oil
price. In 2008, oil prices varied from high to low in price,
but that volatility was not there in 2009 and 2010. He allowed
the co-chair is correct that there can be huge swings in a year,
but said the department does not forecast or project that.
CO-CHAIR SEATON inquired whether the acting commissioner's
statement was accurate that the monthly calculation of windfall
profits under ACES ranged from $100-$400 million.
MR. TANGEMAN answered he thinks that was a snapshot and could be
a possibility, just like those swings would not be seen in 2009
and 2010 because the price of oil was steady from month to month
throughout the year.
4:12:32 PM
CO-CHAIR SEATON said that if the $100 million is added to the
$1.6 billion and the $400 million is added to the $1.8 billion,
the range would be $1.7-$2.2 billion, which encompasses the
range being talked about when comparing the proposed annual
calculation of progressivity under HB 110 to the current monthly
calculation of progressivity under ACES which captures windfall
profits.
MR. TANGEMAN replied the co-chair is correct. He said he
believes that the year for which the $400 million was calculated
had a price per barrel of $140 at the high end and a price of
$40 at the low end five months later.
CO-CHAIR SEATON added that he does not think anyone can
speculate whether the price of oil is going to surge to $200 a
barrel or dive to $70; therefore, a range must be looked at and
this is where the aforementioned numbers come from.
CO-CHAIR FEIGE said he thinks it unusual to use the year that
had probably the greatest fluctuation of oil price in history as
a basis for adding to what the Department of Revenue has already
considered to be a much lower reduction in revenue to the state.
CO-CHAIR SEATON related that the Department of Revenue said it
was going to leave the volatility of oil out of the calculation.
However, price volatility is what is seen in the state's history
and is why calculation of windfall profit over the range of
volatility should be included. The aforementioned numbers are
based on the ranges from past history.
4:15:47 PM
CO-CHAIR SEATON, wrapping up the discussion on Amendment 9,
submitted that the reality of past history is the most important
thing to look at. In the past the companies have never taken
the expected responses to oil price or to the three different
tax regimes, so it cannot be expected that they would have a
different response to HB 110. He said it appears to him that
there was a corporate model for development of these fields and
the data [on AOGCC slide 10] show that this corporate model was
being followed regardless of price or tax. The resource risk
must be looked at. The resource issues that will be addressed
if the state has surpluses are roads to resources, bullet lines,
community revenue sharing, and the transportation fund. Past
history shows that these things will not be done if there is no
surplus and that is where the state will be if HB 110 is
enacted.
4:18:15 PM
A roll call vote was taken. Representatives Gardner, Kawasaki,
and Seaton voted in favor of Amendment 9. Representatives
Herron, Munoz, Foster, Wilson, Dick, and Feige voted against it.
Therefore, Amendment 9 failed by a vote of 3-6.
4:19:19 PM
REPRESENTATIVE HERRON noted that he likes the idea of putting
incentives into the portion of the bill related to small
exploration companies. Of course, he allowed, the production
side of the bill is where the debate is. He said his concerns
with HB 110 are that the [15 percent tax rate] is too low to
give his constituents a fair share of the income and the 25
percent tax rate is too high to encourage production. He urged
that at some point the committee instead consider a base tax
rate of 20 percent.
4:20:58 PM
The committee took an at-ease from 4:20 p.m. to 4:25 p.m.
4:25:45 PM
CO-CHAIR SEATON moved that the committee adopt Amendment 10,
labeled 27-GH1007\A.45, Bullock, 2/28/11, which read:
Page 1, lines 3 - 4:
Delete "relating to monthly installment payments
of estimated oil and gas production tax;"
Page 1, line 7:
Delete "relating to the determination of oil and
gas production tax values;"
Page 3, lines 3 - 19:
Delete all material and insert:
"* Sec. 6. AS 43.55.011(e) is amended to read:
(e) There is levied on the producer of oil or
gas a tax for all oil and gas produced each calendar
year from each lease or property in the state, less
any oil and gas the ownership or right to which is
exempt from taxation or constitutes a landowner's
royalty interest. Except as otherwise provided under
(f), (j), (k), and (o) of this section, the tax is
equal to the sum of
[(1)] the annual production tax value of
the taxable oil and gas produced from
(1) a lease or property containing land
that, as of December 31, 2010, was or had previously
been within a unit or in commercial production as
calculated under AS 43.55.160(a)(1) multiplied by 25
percent, and the sum, over all months of the calendar
year, of the tax amounts determined under (g) of this
section; and
(2) a lease or property not described in
(1) of this subsection, as calculated under
AS 43.55.160(a)(1) multiplied by 15 percent, and the
sum, over all months of the calendar year, of the tax
amounts determined under (g) of this section."
Page 4, line 11, through page 8, line 8:
Delete all material.
Renumber the following bill sections accordingly.
Page 13, line 8, through page 15, line 15:
Delete all material.
Renumber the following bill sections accordingly.
Page 16, line 8:
Delete "Sections 11, 12, 15, and 16"
Insert "Sections 9, 10, 13, and 14"
Page 16, line 10:
Delete "Sections 6 - 9 and 20"
Insert "Sections 6 and 7"
Page 16, line 12:
Delete "Section 19"
Insert "Section 17"
Page 16, line 20:
Delete "Sections 11, 12, 14 - 18, 24, and 25(a)"
Insert "Sections 9, 10, 12 - 16, 21, and 22(a)"
Page 16, line 21:
Delete "Sections 6 - 9, 20, and 25(b)"
Insert "Sections 6, 7, and 22(b)"
Page 16, line 22:
Delete "Sections 19 and 25(c)"
Insert "Sections 17 and 22(c)"
Page 16, line 23:
Delete "secs. 27 - 29"
Insert "secs. 24 - 26"
REPRESENTATIVE P. WILSON objected for discussion purposes.
4:25:59 PM
CO-CHAIR SEATON stated that the conceptual amendment for
Amendment 10 in the committee packet is replaced by this formal
amendment from Legislative Legal and Research Services. He
explained that Amendment 10 would leave the base rates of 25
percent for old oil and 15 percent for new oil, but would delete
the bracketed progressivity so that it remains as in current
statute. Amendment 10 would also delete the annual payment of
progressivity so that it remains as in current statute, which is
a monthly calculation. The purpose of keeping the monthly
calculation is to capture windfall profits. A few years ago the
state captured a lot of windfall profits when the price of oil
went to $144 a barrel, but Alaska's economy was severely
affected by the huge escalation in fuel prices. If oil prices
peak again, Alaska's economy will be affected again, too. The
windfall profit tax would cushion the Alaska economy and
preclude the state from having to dip into its savings to
address rural and urban problems arising from that price spike.
4:28:20 PM
REPRESENTATIVE P. WILSON requested that Amendment 10 be divided
so that the provision for deleting the annual average payment of
progressivity could be a separate question.
CO-CHAIR SEATON agreed this could be done but said it may not be
beneficial because if the committee were to leave the bracketed
progressivity there would be very little difference between a
monthly and annual calculation of the progressivity. This is
because bracketed progressivity would generate much less money
than does the [current] method of calculation which is based on
the entire price of a barrel of oil.
REPRESENTATIVE P. WILSON withdrew her request and inquired
whether the co-chair is saying that the tax would be the same
all the way along rather than bracketed.
CO-CHAIR SEATON responded that it is not all the way along. It
is not like income tax where there are different rates, it is a
sales tax based on the price of a barrel of oil. So, if the
price per barrel is $60, one rate is paid, if the barrel is $90,
another rate is paid; thus it is a single rate throughout the
barrel. Amendment 10 would keep the current progressivity
system so that it would not be changed to the proposed bracketed
system.
REPRESENTATIVE P. WILSON concluded that the answer to her
question was yes.
CO-CHAIR SEATON agreed.
4:32:01 PM
REPRESENTATIVE KAWASAKI, in regard to the debate on annual
versus monthly calculation, asked how other taxing regimes and
countries capture windfall profits.
ACTING COMISSIONER BUTCHER answered that he is not aware of any
countries and states that have anything that approximates
Alaska's progressivity windfall tax. Many have a gross tax; for
example, North Dakota has a 10 percent gross tax, which factors
lower in effective tax.
REPRESENTATIVE KAWASAKI inquired which countries use a month-to-
month payment versus an annualized payment.
ACTING COMISSIONER BUTCHER replied that Alaska is the only one
he knows of.
CO-CHAIR SEATON interjected that many of the other jurisdictions
have a profit sharing type of arrangement. For example,
Indonesia receives 85 percent of each barrel of oil, Libya
receives 88 percent from Petro-Canada, and Norway receives 78
percent regardless of the price per barrel. So, in those cases
it is a gross tax rather than a tax on the profit. All of these
tax regimes have very different structures, so it is extremely
difficult to compare just one item between them. He presumed
that all of the countries with profit sharing do not wait until
the end of the year to receive the taxes and that they are
probably paid on a daily basis since a share of the oil stays
with the company and a share with the country.
4:35:12 PM
REPRESENTATIVE KAWASAKI said he wants more information to know
why a change in Alaska's current law is necessary and what the
comparisons are to other countries. He inquired why the change
is being proposed if there is uncertainty about what other
countries do.
ACTING COMISSIONER BUTCHER responded that in discussions with
the larger producers in Alaska as well as the companies that
were once in Alaska, essentially every one complained about the
high marginal tax rate - the high progressivity rate - that
exists in Alaska. Those discussions indicated no other
jurisdictions, but since he does not know if that is really the
case he will not say it. There is a tremendous cost in the
number of dry wells. For example, Shell is approaching $4
billion of investment into the outer continental shelf (OCS),
which it hopes will become something. Industry looks at the
high end as an opportunity to recoup some of what is lost in a
very speculative business and that is one of the main pieces
industry points to when saying that it is difficult to get
partners and exploration dollars for Alaska.
4:36:39 PM
REPRESENTATIVE KAWASAKI proffered then that the source for
making this significant change to Alaska's tax code is that the
industry has said so.
ACTING COMISSIONER BUTCHER said that is not true. [The
department] has looked across many jurisdictions and each one is
different and everything involved must be weighed. For example,
Alberta has only a royalty and no production tax, and has been
going through something similar to Alaska. It becomes a
recurring theme when more than just one company is letting its
leases go. With these high oil prices, look at what is going on
with exploration almost everywhere but in Alaska.
REPRESENTATIVE KAWASAKI understood that it is unknown whether
any other jurisdiction has monthly payment that would capture
windfall profit.
ACTING COMISSIONER BUTCHER answered correct.
4:37:54 PM
REPRESENTATIVE HERRON asked whether 20 percent would work on
[page 1] line 20, of Amendment 10. In response to Co-Chair
Seaton, he confirmed that this suggestion would lower the base
tax rate from 25 percent to 20 percent.
ACTING COMISSIONER BUTCHER responded that the administration
likes this particular aspect of the bill as currently written.
4:38:59 PM
CO-CHAIR FEIGE understood that Amendment 10 would remove the
proposed bracketed progressive tax so that the tax would be the
base rate plus progressivity in a straight line.
CO-CHAIR SEATON replied that the progressivity would be exactly
as it is currently calculated, except there would be a new base
rate of 15 percent for new oil. In further response, he
confirmed that the progressivity under Amendment 10 would be a
smooth line instead of a bracketed amount.
CO-CHAIR FEIGE asked whether the proposed cap on progressivity
would remain under Amendment 10. He reminded members that
several companies and the Department of Revenue testified that
the current increase in progressivity as the price of oil goes
higher severely limits Alaska's competitiveness because it makes
for no profit at higher oil prices.
CO-CHAIR SEATON answered he does not think anyone has testified
that there is no profit in it, but rather that there is less
profit than can be made in certain other jurisdictions. He said
there may be a declining profit margin, but that there is
increasing amount of profit throughout the entire range, as he
understands it.
4:40:20 PM
CO-CHAIR FEIGE maintained that the current smooth progressivity
curve has essentially no cap on it, so at higher oil prices
there is far less profit to be made in Alaska than in other
places. The proposed cap under the governor's bill would
provide more profit at higher oil prices, which would make
Alaska more competitive.
CO-CHAIR SEATON responded that there is a cap at 75 percent.
ACTING COMISSIONER BUTCHER explained that the 75 percent cap
kicks in at $342. He said he believes that Amendment 10 would
keep progressivity exactly as it exists under current law, but
the 15 percent [tax rate for new oil] would remain in the bill.
The administration opposes Amendment 10 because it would remove
the bracketing, which is a central piece of HB 110.
4:41:49 PM
CO-CHAIR FEIGE noted that Amendment 1, passed by the committee
on 2/25/11, amended the date and changed some of the language in
the current version of the bill. He offered his belief that
Amendment 10 would remove those changes as well, thus taking
away some of the exploration incentives for lands that were
unitized on 12/31/08 but did not have any production.
CO-CHAIR SEATON said that was not what was directed of
Legislative Legal and Research Services.
CO-CHAIR FEIGE observed that [line 8 of Amendment 10] directs
that all material on page 3, lines 3-19, of the bill be deleted
and that the section [beginning on line 10 of Amendment 10] be
inserted. Thus, he believes it would delete an amendment that
the committee has already put in.
CO-CHAIR SEATON replied that Amendment 10 would delete a section
in the original version of the bill, not the original bill as
amended.
CO-CHAIR SEATON, concluding the discussion on Amendment 10,
reiterated that the effect of Amendment 10 would be to leave
progressivity as it is under the current law of Alaska's Clear
and Equitable Share (ACES), and the base rates would remain at
25 percent and 15 percent.
4:43:52 PM
A roll call vote was taken. Representatives Gardner, Kawasaki,
and Seaton voted in favor of Amendment 10. Representatives
Foster, Dick, P. Wilson, Herron, Munoz, and Feige voted against
it. Therefore, Amendment 10 failed by a vote of 3-6.
4:44:36 PM
CO-CHAIR SEATON withdrew Amendment 11.
CO-CHAIR SEATON moved that the committee adopt Amendment 12,
labeled 27-GH1007\A.40, Bullock, 2/26/11, which read:
Page 3, lines 3 - 19:
Delete all material and insert:
"* Sec. 6. AS 43.55.011(e) is amended to read:
(e) There is levied on the producer of oil or
gas a tax for all oil and gas produced each calendar
year from each lease or property in the state, less
any oil and gas the ownership or right to which is
exempt from taxation or constitutes a landowner's
royalty interest. Except as otherwise provided under
(f), (j), (k), and (o) of this section, the tax is
equal to the sum of
(1) the annual production tax value of the
taxable oil and gas as calculated under
AS 43.55.160(a)(1) multiplied by 25 percent; and
(2) the annual production tax value of the
taxable oil and gas as calculated under
AS 43.55.160(a)(1) multiplied by the tax rate
calculated [THE SUM, OVER ALL MONTHS OF THE CALENDAR
YEAR, OF THE TAX AMOUNTS DETERMINED] under (g) of this
section."
Page 4, line 13:
Delete "(1) purposes of (e)(1)"
Insert "purposes of (e)(2)"
Page 4, line 15:
Delete "(A)"
Insert "(1)"
Page 4, line 17:
Delete "subject to (e)(1) of this section"
Page 4, line 18:
Delete "(B)"
Insert "(2)"
Page 4, line 21:
Delete "(D) of this paragraph"
Insert "(4) of this subsection"
Page 4, line 22:
Delete "(C)"
Insert "(3)"
Page 4, line 23:
Delete "(D) of this paragraph"
Insert "(4) of this subsection"
Page 4, line 24:
Delete "(D)"
Insert "(4)"
Delete "(C) of this paragraph"
Insert "(3) of this subsection"
Page 4, line 28:
Delete all material.
Page 5, lines 4 - 25:
Delete all material.
Page 6, line 2:
Delete "(A) - (D)"
Insert "(A) - (C)"
Page 6, line 6:
Delete "sum"
Insert "total"
Page 6, line 8, following "by":
Insert "the sum of 25 percent and"
Page 6, line 9:
Delete "AS 43.55.011(g)(1)"
Insert "AS 43.55.011(g)"
Page 6, line 13, following "by":
Insert "the sum of 25 percent and"
Page 6, lines 15 - 19:
Delete all material.
Insert "AS 43.55.011(g); or"
Page 6, line 28, following "due";":
Insert "and"
Page 7, lines 5 - 14:
Delete all material.
Insert "the sum of 25 percent and the tax rate
calculated for the calendar year of production under
AS 43.55.011(g);"
Page 13, lines 21 - 22:
Delete "and are subject to AS 43.55.011(e)(1)"
Page 13, line 25:
Delete "subject to AS 43.55.011(e)(1) and are"
Page 14, line 5:
Delete "and are subject to AS 43.55.011(e)(1)"
Page 14, line 15, through page 15, line 5:
Delete all material.
REPRESENTATIVE P. WILSON objected for discussion purposes.
4:45:22 PM
CO-CHAIR SEATON explained that Amendment 12 would remove the 15
percent base tax rate for new oil, but would leave the 25
percent rate and the bracketed progressivity as proposed in HB
110. He said the reason for Amendment 12 is that over time the
state's production tax would decrease very significantly because
HB 110 has no sunset for the 15 percent provision. For example,
Great Bear Petroleum is projecting that it will be producing
300,000 barrels, over half of the state's oil, by 2017. He said
the committee has not heard testimony from new explorers that
the 15 percent provision is essential.
REPRESENTATIVE HERRON asked what Amendment 12 would do to the
Department of Revenue's fiscal note.
CO-CHAIR SEATON answered that he believes it would have very
little impact on the fiscal note because the department did not
analyze much new oil coming on by 2017.
ACTING COMISSIONER BUTCHER said Co-Chair Seaton is correct; the
department's fiscal note looks only at revenue reduction in the
short term, not further out. However, the department is unsure
whether Amendment 12, as worded, would do as intended. He
deferred to the Department of Law for further comment.
4:49:06 PM
The committee took an at-ease from 4:49 p.m. to 4:59 p.m.
4:59:04 PM
ACTING COMISSIONER BUTCHER, in response to Co-Chair Seaton,
related that the Department of Law is suggesting the committee
hear from the drafter of the amendment to determine where the
disagreement may be.
4:59:59 PM
The committee took an at-ease from 4:59 p.m. to 5:02 p.m.
5:02:03 PM
CO-CHAIR SEATON put Amendment 12 aside until the drafter of the
amendment could be present to answer questions.
REPRESENTATIVE KAWASAKI moved that the committee adopt Amendment
13, labeled 27-GH1007\A.30, Mischel/Bullock, 2/24/11, which
read:
Page 1, lines 3 - 4:
Delete "relating to monthly installment payments
of estimated oil and gas production tax;"
Page 5, line 26, through page 8, line 8:
Delete all material.
Renumber the following bill sections accordingly.
Page 15, line 10:
Delete "1/12 of"
Page 15, line 11:
Delete "year"
Insert "month"
Page 15, line 13:
Delete "year"
Insert "month"
Page 16, line 8:
Delete "Sections 11, 12, 15, and 16"
Insert "Sections 10, 11, 14, and 15"
Page 16, line 10:
Delete "Sections 6 - 9 and 20"
Insert "Sections 6 - 8 and 19"
Page 16, line 12:
Delete "Section 19"
Insert "Section 18"
Page 16, line 20:
Delete "Sections 11, 12, 14 - 18, 24, and 25(a)"
Insert "Sections 10, 11, 13 - 17, 23, and 24(a)"
Page 16, line 21:
Delete "Sections 6 - 9, 20, and 25(b)"
Insert "Sections 6 - 8, 19, and 24(b)"
Page 16, line 22:
Delete "Sections 19 and 25(c)"
Insert "Sections 18 and 24(c)"
Page 16, line 23:
Delete "secs. 27 - 29"
Insert "secs. 26 - 28"
REPRESENTATIVE P. WILSON objected for discussion purposes.
5:02:27 PM
REPRESENTATIVE KAWASAKI explained that Amendment 13 would delete
the language in HB 110 dealing with annualized payment of
progressivity, thus keeping the current monthly payment of
progressivity. Given the uncertainty about whether other
jurisdictions use [annualized or monthly payment], he said he is
unsure why this particular provision of the bill is so
important. Additionally, the annualized provision could cost
the state between $150 million and $450 million based on the
2009 returns of ACES. That is too much volatility, and the half
billion dollars under windfall profits could better be used
within the state.
REPRESENTATIVE HERRON inquired whether this could be done any
other way besides monthly or yearly.
REPRESENTATIVE KAWASAKI motioned that he did not know.
ACTING COMISSIONER BUTCHER suggested that it could be done
quarterly, but related that the department's auditors do not see
where there would be a direct benefit to this because it is
trued up at the end of the year and the auditors think that
ultimately it would be the same number. He further related that
the auditors said it would be much more difficult for them to
administer and it could potentially start statute of limitation
clocks every month as opposed to every year.
5:04:34 PM
ACTING COMISSIONER BUTCHER, in response to Co-Chair Seaton,
confirmed that the companies are required to pay monthly. He
further confirmed that the companies make the calculations of
their oil taxes on a monthly basis.
CO-CHAIR SEATON maintained that if the companies pay the
progressivity on the month they know what it is because they
made the calculations. He asked how paying the known amount is
more complicated than estimating the volatility twelve months
ahead of time.
ACTING COMISSIONER BUTCHER replied he believes it is difficult
to estimate what actual lease expenditures will be when
determining on a month-to-month basis.
CO-CHAIR SEATON said he thinks it is payments of progressivity
that are being talked about, not lease expenditures.
ACTING COMISSIONER BUTCHER responded that the Department of
Revenue reads Amendment 13 as requiring monthly deduction of
expenses to actuals. In further response to Co-Chair Seaton, he
concurred that Amendment 13 is expenses to actuals, not
progressivity.
5:06:41 PM
ACTING COMISSIONER BUTCHER, in response to Representative P.
Wilson, agreed that Amendment 13 does not have anything to do
with the windfall profits. That is why the department's
auditors do not see how there would be any difference other than
the negative of administering it and the difficulty of starting
multiple statutes of limitations.
REPRESENTATIVE GARDNER contended that Amendment 13 deals only
with the monthly fluctuations, not with the cost of lease
expenditures, and that it does address the windfall profits.
5:08:35 PM
CO-CHAIR SEATON requested the drafter of the amendment to
clarify what it does.
DONALD BULLOCK JR., Attorney, Legislative Legal Counsel,
Legislative Legal and Research Services, Legislative Affairs
Agency, noted that line 10 of Amendment 13 would amend page 15,
line 10, of HB 110, which is a section in the bill that
describes how the production tax value is determined for each of
the months that installment payment is due. The effect of the
amendment is to compartmentalize the lease expenditures for the
month, month by month, rather than saying one-twelfth of the
producer's lease expenditures over the year.
5:10:36 PM
REPRESENTATIVE GARDNER inquired whether it has the effect of
retaining the windfall profits, which allow the state to receive
benefit participation in severe price spikes and profits that
are the result of things happening around the world rather than
of effort and investment.
MR. BULLOCK read from page 15, lines 6-10, of HB 110, which
state: "... the monthly production tax value of taxable oil,
gas, or oil and gas produced by a producer during a month ... is
equal to the gross value at the point of production of that oil,
gas, or oil and gas, respectively...." He explained that that
would be the gross value starting out for that month. So, if
prices are high during that month that gross value is going to
be high; if production is high during that month at a lower
price, there may still be a higher gross value at the point of
production. Once the gross value at the point of production is
determined for that month, Amendment 13 would - instead of using
one-twelfth of the lease expenditures for the year - allow a
deduction for the lease expenditures for that month. The
production tax value is the gross value minus authorized lease
expenditures, and that is the value that the tax rate is applied
to, both on the progressive rate and the base rate.
5:12:34 PM
REPRESENTATIVE GARDNER asked whether implementation of Amendment
13 would start the clock on a statute of limitations on a
monthly basis.
MR. BULLOCK replied he does not believe that it would make it
any more the start of the statute of limitations than any
installment payment because there is still the true-up that is
required the year following the calendar year in which these
installment payments are made. One of the purposes of going to
the system in ACES was to make a final report for the year that
included all the expenditures and all the gross values. He said
he has always looked at that as having a single point for
starting the statute of limitations for making the assessments,
rather than twelve monthly returns like the state had under the
Economic Limit Factor (ELF) law. These are installment
payments, not a monthly return.
5:13:47 PM
REPRESENTATIVE P. WILSON surmised that Amendment 13 would remove
Section 9 of HB 110.
MR. BULLOCK responded that the effect of Amendment 13 is "to
continue to do the installment payments as they are determined
now, with the addition that the lease expenditures will be
determined on a monthly basis rather than one-twelfth of the
annual lease expenditures."
5:14:32 PM
REPRESENTATIVE P. WILSON surmised that Amendment 13 would, in
essence, allow the state to pick up the windfall profits.
MR. BULLOCK answered he does not know because he has not run the
numbers. At the end, the following year, everything is trued
up, so ultimately what is looked at is the gross value at the
point of production for the year minus the lease expenditures
for the year. He deferred to the Department of Revenue to
discuss the actual effect of the month-to-month calculation.
REPRESENTATIVE P. WILSON asked which part of HB 110 would get
rid of the state being able to pick up windfall profits.
MR. BULLOCK replied that under current law the levy of the 25
percent tax and the progressive rate on a monthly basis are
located in [AS 43.55.011](e). The governor's bill would move
all of the rates into [AS 43.55.011](g) and (e) would only say
that for one set of fields it is (g)(1) and for the other set it
is (g)(2). He deferred to the acting commissioner for further
explanation.
ACTING COMISSIONER BUTCHER said Mr. Bullock explained it well.
The moving of progressivity to brackets under HB 110 narrows to
a very small number any sort of windfall that would occur
between a high month and a low month over the course of an
annual calculation. This provision would enable industry to
recoup a lot of its expenses on the high end as opposed to the
state taking a majority of the funds like it does now, which
would make the state more attractive investment-wise. The
department's reading of Amendment 13 is that the actual
deduction of expenses would be taken monthly. The department
believes that over the course of a year there would be a
negligible difference in tax between the two, so Amendment 13
would be particularly burdensome to both industry and the state
given the state would really not get anything out of it.
REPRESENTATIVE P. WILSON surmised the brackets in ACES are what
give [the state] the windfall profits.
ACTING COMISSIONER BUTCHER nodded yes.
5:17:44 PM
REPRESENTATIVE HERRON inquired whether the governor and the
producers prefer to sweep the money monthly. He understood the
acting commissioner to be saying that in the end it will all
wash out.
ACTING COMISSIONER BUTCHER responded that he does not think a
lot is accomplished by Amendment 13 and it would create a lot of
additional work that does not ultimately benefit the state or
industry.
REPRESENTATIVE HERRON said he thinks removing it does get rid of
a lot of work.
5:19:14 PM
REPRESENTATIVE GARDNER asked how often the leaseholders true up
with each other and how often do they do their reports and their
payments when they are partners in a lease.
ACTING COMISSIONER BUTCHER answered that it is done at the end
of March for the state. He deferred to Mr. Dees for addressing
the question about partners inside a lease.
REPRESENTATIVE GARDNER, in response to Co-Chair Seaton, said her
question is applicable to Amendment 13 because testimony has
said it would be a lot of work. She presumed that like most
business owners, the industry keeps meticulous records and knows
exactly where it is at any given time; thus, the data is there
and it is just a matter of running the reports.
REPRESENTATIVE KAWASAKI withdrew Amendment 13.
5:20:51 PM
CO-CHAIR SEATON returned to Amendment 12 and asked Mr. Bullock
to review what the amendment would do. He understood that the
amendment would remove the 15 percent base rate, leaving the 25
percent base rate and leaving the bracketed progressivity.
MR. BULLOCK said he believes Amendment 12 would bring HB 110
closer to current law, which is the 25 percent tax rate in [AS
43.55.011](e) plus the progressive rate that is determined
monthly under [AS 43.55.011](g). The effect is that it would
not duplicate the tax. The initial 25 percent would be pulled
out where the changes have been made in the brackets, so the
effect would be that the remaining part of [AS 43.55.011](g) is
the new progressive rate that would replace the current
progressivity rate. Thus, the 25 percent would remain the same,
but there would be a new table to determine the monthly tax.
5:23:12 PM
CO-CHAIR SEATON inquired whether the bracketed rate would be the
same as calculated when they were both together.
MR. BULLOCK replied that the 25 percent base rate would be
brought back into [AS 43.55.011](e) just like it is in current
law, and [AS 43.55.011](e) is reworded similarly to the current
law to say that the additional tax is determined under [AS
43.55.011](g). On page 8 of the bill, starting on line 28, the
25 percent would be deleted by Amendment 12, so what would be
left is the amount above $30 to which these different rates are
applied under the table. Instead of the ranges under current
law, which are $30-$92.50 and $92.50 and above, there would be
these stair-stepped rates. The next part of Amendment 12 would
delete lines 4-25 on page 5 of the bill since the amendment
would go back to only a 25 percent rate and the 15 percent rate
would not continue. Thus, [AS 43.55.011](e)(1) would be the 25
percent plus the stair-step rates on page 4 that are determined
on a monthly basis; the stair-steps would start with what is on
line 29 because line 28 would be deleted.
5:25:35 PM
CO-CHAIR SEATON requested the Department of Law to address the
issue.
SUSAN POLLARD, Assistant Attorney General, Oil, Gas & Mining
Section, Civil Division (Juneau), Department of Law, stated that
the Department of Law had had some question about how Amendment
12 would work to assure that the 25 percent rate was separate
and the bracketed incremental progressivity was kept for that
part of the annual production tax value that did not get taxed
under the 25 percent rate. She said the technical issue that
she was concerned about was the doubling up of the 25 percent
rate. However, this concern was addressed when Mr. Bullock
explained that line 28 on page 4 of the bill would be deleted.
5:27:02 PM
CO-CHAIR SEATON reiterated that the purpose of Amendment 12 is
removal of the 15 percent base rate, leaving the 25 percent base
rate and the bracketed progressivity proposed by the governor.
REPRESENTATIVE MUNOZ understood the change proposed by Amendment
12 would apply to new fields, which in the governor's bill would
be taxed at 15 percent plus the bracketed progressivity; under
Amendment 12 new fields would have the same 25 percent rate as
existing fields.
CO-CHAIR SEATON responded correct, all fields would have a 25
percent base tax rate and would have the same bracketed
progressivity as proposed by HB 110.
MR. BULLOCK interjected that Amendment 12 basically removes the
distinction between fields.
ACTING COMISSIONER BUTCHER said Amendment 12 would take out the
15 percent tax rate for fields that are outside and currently
not being explored, which is a key provision of HB 110. The
administration feels this provision is important to motivate the
small explorers to explore and develop areas of the state that
are not currently being developed, and therefore the
administration opposes Amendment 12.
5:28:46 PM
REPRESENTATIVE HERRON suggested that the 25 percent be changed
to 20 percent, knowing that adjustments would also be made to
the brackets. He asked whether 20 percent would work in
Amendment 12.
CO-CHAIR SEATON answered that Amendment 12 is offered to remove
the new fields. He said he is unsure whether changing the tax
rate from 25 percent to 20 percent would accomplish what
Representative Herron is proposing or whether it would take a
different amendment. He requested Mr. Bullock to address this.
MR. BULLOCK said there are several places throughout AS 43.55
where this base rate is located; for example, the rate for loss
carry forward provisions in AS 43.55.023(b) has always
paralleled this rate. An amendment could be offered to replace
the 25 percent with 20 percent on page 1, line 10, of Amendment
12, but there would be other sections of law where that 25
percent would need to be changed to 20 percent, so conforming
amendments would also be needed.
REPRESENTATIVE HERRON said he understands but will keep pitching
20 percent.
5:30:47 PM
CO-CHAIR FEIGE recalled that during previous hearings on HB 110,
the committee heard from several explorers. For example, page 6
of Great Bear Petroleum's [2/13/11] presentation states,
"Reduction of production tax burden improves our commercial
model reducing the risk to critically needed capital investment
for full development." He reminded members that Great Bear
Petroleum's leases are essentially south of currently existing
units and represent a region of great potential for a shale oil
play. He related that Great Bear is optimistic about its
ability to develop that location and if the 15 percent base rate
is eliminated on those places outside of unitized areas, it
would remove what he considers a critical incentive to get new
explorers out in the field to put more oil in the pipeline.
5:32:10 PM
CO-CHAIR SEATON, wrapping up the discussion on Amendment 12,
again reiterated that the purpose of Amendment 12 is to remove
the 15 percent base rate, leaving the 25 percent base rate
applying across all oil fields and leaving the governor's
bracketed progressivity.
CO-CHAIR FEIGE objected to Amendment 12.
5:32:37 PM
A roll call vote was taken. Representatives Gardner, Kawasaki,
and Seaton voted in favor of Amendment 12. Representatives
Herron, Munoz, Foster, Dick, Wilson, and Feige voted against it.
Therefore, Amendment 12 failed by a vote of 3-6.
5:33:27 PM
REPRESENTATIVE GARDNER withdrew Amendment 14.
REPRESENTATIVE GARDNER moved that the committee adopt Amendment
15, labeled 27-GH1007\A.14, Bullock, 2/23/11, which read:
Page 1, line 6:
Delete "relating to the limitation on assessment
of oil and gas production taxes;"
Page 13, lines 5 - 7:
Delete all material.
Renumber the following bill sections accordingly.
Page 16, line 10:
Delete "Sections 6 - 9 and 20"
Insert "Sections 6 - 9 and 19"
Page 16, lines 12 - 13:
Delete all material.
Page 16, line 20:
Delete "Sections 11, 12, 14 - 18, 24, and 25(a)"
Insert "Sections 11, 12, 14 - 18, 23, and 24(a)"
Page 16, line 21:
Delete "Sections 6 - 9, 20, and 25(b)"
Insert "Sections 6 - 9, 19, and 24(b)"
Page 16, line 22:
Delete all material.
Renumber the following bill section accordingly.
Page 16, line 23:
Delete "secs. 27 - 29"
Insert "secs. 26 and 27"
CO-CHAIR FEIGE objected.
5:33:59 PM
REPRESENTATIVE GARDNER said Amendment 15 relates to an element
of HB 110 that she does not disagree with, which is having a
more reasonable timeline than six years. However, moving the
timeline to four years is premature because the regulations have
yet to be completed, let alone a single audit of a full year of
ACES taxes. This should be looked at in a year or two, but it
is premature because right now the potential impact on the state
is unknown.
REPRESENTATIVE P. WILSON observed that Amendment 15 would delete
and insert several sections and requested further explanation.
REPRESENTATIVE GARDNER said the intent of Amendment 15 is to
keep the tax look-back period at six years rather than changing
it to four years as proposed by HB 110. She said her
understanding is that if the state does not complete the audit
within four years and the audit finds that the state is owed
more money, the state would lose that money. Thus, she wants to
ensure that the state does not lose anything it is due.
MR. BULLOCK addressed Representative P. Wilson's question by
drawing attention to page 16, line 8, of HB 110 where reference
begins to a number of sections, those sections being about
applicability and different effective dates. By deleting a
section of the bill, and in other amendments adding sections,
these section numbers at the end of the bill need to be changed
to conform to the new numbering in the bill.
5:36:05 PM
MR. BULLOCK, in response to more questions from Representative
P. Wilson, explained that HB 110 proposes to shorten the period
for auditing the production tax returns from six years to four
years. Amendment 15 would leave in place the current six year
period.
ACTING COMISSIONER BUTCHER added that the Department of Revenue
used to have three years to audit production taxes. Passage of
ACES extended this time period to six years to give the
department the time to deal with going from a gross tax to a net
tax and to deal with the two different changes in law [ACES and
PPT] that occurred within a very short time period. The
department is now at about three years and improving and
therefore feels comfortable with moving from six years to four
years. However, to be on the safe side, the effective date
proposed in HB 110 for this provision is not until 2014, which
would give the department another three years to make sure a
four year time period will work. The department would not have
proposed four years if it did not think it could be done.
5:37:29 PM
REPRESENTATIVE KAWASAKI read from item six [of the executive
summary] in the Department of Revenue's 1/18/11 Oil and Gas
Production Tax Status Report to the Legislature which states:
Tax Administration and Compliance - The department
continues to write regulations for the new tax system,
and the first audits under the net profits tax have
been completed. The department has, however, been
hampered in its tax reporting and compliance efforts
by the lack of a centralized database to house and
manage the large volumes of oil and gas data it
receives.
REPRESENTATIVE KAWASAKI interpreted the aforementioned to mean
that the Department of Revenue is having difficulty as things
stand now. He recollected that under the Economic Limit Factor
(ELF) the state had a much simpler standard deduction system,
yet the department was unable to meet the three year timeline.
He asked why the department thinks this can be done now.
ACTING COMISSIONER BUTCHER allowed the department clearly still
has challenges and is playing catch-up; however, a couple of
master auditors have been hired since that time. The
department's auditors believe that the most difficult audit year
was 2006 when the state moved from gross to net. It is believed
that with each increasing year it will get simpler and simpler,
and that is where the comfort with four years, not three years,
comes in.
REPRESENTATIVE KAWASAKI noted that the look-back period for most
businesses is six years and asked why the oil industry should be
treated differently.
ACTING COMISSIONER BUTCHER replied that the department works on
the information as it comes in and the audit is for putting the
final numbers to rest. He said the department believes that
four years is reasonable, given that it is 33 percent more time
than what was in place prior to five years ago.
5:39:52 PM
REPRESENTATIVE GARDNER said it can be agreed that the department
is four years behind on the audits right now, and she therefore
thinks it prudent for the legislature to wait until one full
year is completed before changing the look-back period.
REPRESENTATIVE HERRON inquired about putting a sunset on the
four years such that it would go back to six years if in a
couple of years it is found that four years is not a long enough
time period.
ACTING COMISSIONER BUTCHER responded that the proposed effective
date of three years from now provides the department with enough
time to determine whether this length of time is adequate and,
if it is not, the department would have enough time to bring it
back to the legislature.
REPRESENTATIVE GARDNER agreed that an effective date of three
years out would provide the department the time to come back to
the legislature. By the same token, however, she argued that
the effective date of three years out allows the legislature to
wait until at least one is done and see how close it is at true
up, at which point a decision can be made on whether a change to
existing statute is needed.
CO-CHAIR FEIGE maintained his objection to Amendment 15.
5:41:29 PM
A roll call vote was taken. Representatives Herron, Munoz,
Foster, Dick, Gardner, Kawasaki, and Seaton voted in favor of
Amendment 15. Representatives P. Wilson and Feige voted against
it. Therefore, Amendment 15 passed by a vote of 7-2.
5:42:21 PM
REPRESENTATIVE GARDNER withdrew Amendments 16 and 17.
REPRESENTATIVE GARDNER moved that the committee adopt Amendment
18, labeled 27-GH1007\A.35, Kirsch/Bullock, 2/24/11, which read:
Page 1, line 7, following "values;":
Insert "relating to oil and gas or gas only
leasing and the shared use of a production facility;"
Page 2, following line 5:
Insert a new bill section to read:
"* Sec. 3. AS 38.05.180 is amended by adding a new
subsection to read:
(hh) The commissioner shall include a provision
in a lease or the renewal of a lease under this
section to require the shared use of a production
facility owned or operated by the lessee by a producer
of oil or gas from land outside of the lease or
outside of a unit that includes the lease. The lease
must describe the circumstances under which the
production facility shall be shared and the means for
determining the extent of the shared use, the
reasonable compensation to be paid to the lessee, and
other terms and conditions the commissioner finds are
in the best interests of the state. In this
subsection, "production facility" means a flow
station, a gathering center, a pump station, a storage
tank, and related appurtenances, and other facilities
that gather, clean, dehydrate, condition, or store
crude oil, natural gas, or associated hydrocarbons and
are located on a lease or property leased from the
state."
Renumber the following bill sections accordingly.
Page 16, line 8, following "APPLICABILITY.":
Insert "(a) AS 38.05.180(hh), enacted by sec. 3
of this Act, applies to a lease or the renewal of a
lease entered into on or after the effective date of
sec. 3 of this Act."
Reletter the following subsections accordingly.
Page 16, line 8:
Delete "Sections 11, 12, 15, and 16"
Insert "Sections 12, 13, 16, and 17"
Page 16, line 10:
Delete "Sections 6 - 9 and 20"
Insert "Sections 7 - 10 and 21"
Page 16, line 12:
Delete "Section 19"
Insert "Section 20"
Page 16, line 20:
Delete "Sections 11, 12, 14 - 18, 24, and 25(a)"
Insert "Sections 12, 13, 15 - 19, 25, and 26(b)"
Page 16, line 21:
Delete "Sections 6 - 9, 20, and 25(b)"
Insert "Sections 7 - 10, 21, and 26(c)"
Page 16, line 22:
Delete "Sections 19 and 25(c)"
Insert "Sections 20 and 26(d)"
Page 16, line 23:
Delete "secs. 27 - 29"
Insert "secs. 28 - 30"
REPRESENTATIVE P. WILSON objected for discussion purposes.
5:43:12 PM
REPRESENTATIVE GARDNER related that a concern heard over the
years from new explorers is that they have trouble getting into
the facilities. She noted that this is a controversial issue so
people are reluctant to speak on the record when they are also
in the midst of negotiating. While that bottleneck may now be
shifting a bit, Amendment 18 would provide ways to have shared
facilities. She noted that Mr. Ken Alper is available for
questions.
ACTING COMMISSIONER BUTCHER, in response to Co-Chair Seaton,
deferred comment on Amendment 18 to Mr. Joe Balash given that it
relates to Department of Natural Resources statutes.
5:45:21 PM
JOE BALASH, Deputy Commissioner, Office of the Commissioner,
Department of Natural Resources, cautioned that "the issues
surrounding facilities access, facility sharing, are complicated
and very important to the state's future, and require a great
deal of thought and precision in language if [the state is]
going to venture down the road of using the force of law to tip
the scales in the balance of one party or another when it comes
to these commercial transactions." He said the Department of
Natural Resources is concerned that Amendment 18 could broaden
the subject of HB 110, which is currently oil and gas taxes, and
potentially violate the single subject rule. The amendment
purports to amend AS 38.05.180, which is the section of statute
that deals with oil and gas leases and has to do with the
management and rights for a party to the subsurface of the
state's mineral wealth.
5:47:04 PM
The committee took an at-ease from 5:47 p.m. to 5:49 p.m.
5:49:25 PM
REPRESENTATIVE GARDNER specified that Amendment 18 is not part
of another bill that has been introduced. She said she is a co-
sponsor of a bill that deals with facilities sharing, but that
bill is completely different.
MR. BALASH said other concerns that the Department of Natural
Resources has with Amendment 18 relate to the roles and
responsibilities of the three parties in question: the original
lessee, the new lessee seeking to gain capacity, and the
commissioner. The amendment does not answer who carries what
burden in this set of circumstances. The one area that does
appear to be clear and sets at least one standard is that
reasonable compensation shall be paid to the lessee. However,
there are certain questions surrounding whether or not there is
a burden on the new entrant to identify how much capacity it is
seeking, whether or not the incumbent has to meet that demand or
whether [the incumbent] can only make available what is
available within the facility. Another question is whether the
list here is of "related facilities, other facilities," and
whether this list is inclusive, illustrative, or exhaustive.
5:51:22 PM
REPRESENTATIVE GARDNER stated that this critically important
issue has never really been addressed by the legislature and
looms in the future if the state does not get a handle on what
needs to be done to ensure that new explorers are not
disadvantaged by the bigger companies that own the facilities.
She offered her appreciation of Mr. Balash's comments and said
they illustrate how important this issue is and how complex it
is. She withdrew Amendment 18 and urged members to keep the
issue in mind.
5:52:16 PM
REPRESENTATIVE GARDNER moved that the committee adopt Amendment
19, labeled 27-GH1007\A.37, Bullock, 2/25/11, which read:
Page 13, following line 4:
Insert new bill sections to read:
"* Sec. 19. AS 43.55.030(a) is amended to read:
(a) A producer that produces oil or gas from a
lease or property in the state during a calendar year,
whether or not any tax payment is due under
AS 43.55.020(a) for that oil or gas, shall file with
the department on March 31 of the following year a
statement, under oath, in a form prescribed by the
department, giving, with other information required by
the department under a regulation adopted by the
department, the following:
(1) a description of each lease or property
from which oil or gas was produced, by name, legal
description, lease number, or accounting codes
assigned by the department;
(2) the names of the producer and, if
different, the person paying the tax, if any;
(3) the gross amount of oil and the gross
amount of gas produced from each lease or property,
and the percentage of the gross amount of oil and gas
owned by the producer;
(4) the gross value at the point of
production of the oil and of the gas produced from
each lease or property owned by the producer and the
costs of transportation of the oil and gas;
(5) the name of the first purchaser and the
price received for the oil and for the gas, unless
relieved from this requirement in whole or in part by
the department;
(6) the producer's qualified capital
expenditures, as defined in AS 43.55.023, other lease
expenditures under AS 43.55.165, and adjustments or
other payments or credits under AS 43.55.170;
(7) the production tax values of the oil
and gas under AS 43.55.160;
(8) any claims for tax credits to be
applied; [AND]
(9) calculations showing the amounts, if
any, that were or are due under AS 43.55.020(a) and
interest on any underpayment or overpayment; and
(10) for each expenditure that is the basis
for a credit claimed under AS 43.55.023 or 43.55.025,
a description of the expenditure, a detailed
description of the purpose of the expenditure, and a
description of the lease or property for which the
expenditure was incurred; notwithstanding
AS 43.05.230(a), information submitted under this
paragraph may be disclosed to the public and shall be
disclosed to the legislature in a report submitted
within 10 days after the convening of the next regular
legislative session following the date a statement is
filed under this section.
* Sec. 20. AS 43.55.030(e) is amended to read:
(e) An explorer or producer that incurs a lease
expenditure under AS 43.55.165 or receives a payment
or credit under AS 43.55.170 during a calendar year
but does not produce oil or gas from a lease or
property in the state during the calendar year shall
file with the department on March 31 of the following
year a statement, under oath, in a form prescribed by
the department, giving, with other information
required by the department under a regulation adopted
by the department, the following:
(1) the producer's qualified capital
expenditures, as defined in AS 43.55.023, other lease
expenditures under AS 43.55.165, and adjustments or
other payments or credits under AS 43.55.170; [AND]
(2) if the explorer or producer receives a
payment or credit under AS 43.55.170, calculations
showing whether the explorer or producer is liable for
a tax under AS 43.55.160(d) or 43.55.170(b) and, if
so, the amount; and
(3) for each expenditure that is the basis
for a credit claimed under this chapter, a description
of the expenditure, a detailed description of the
purpose of the expenditure, and a description of the
lease or property for which the expenditure was
incurred; notwithstanding AS 43.05.230(a), information
submitted under this paragraph may be disclosed to the
public and shall be disclosed to the legislature in a
report submitted within 10 days after the convening of
the next regular legislative session following the
date a statement is filed under this section."
Renumber the following bill sections accordingly.
Page 16, line 10:
Delete "Sections 6 - 9 and 20"
Insert "Sections 6 - 9 and 22"
Page 16, line 12:
Delete "Section 19"
Insert "Section 21"
Page 16, line 20:
Delete "Sections 11, 12, 14 - 18, 24, and 25(a)"
Insert "Sections 11, 12, 14 - 20, 26, and 27(a)"
Page 16, line 21:
Delete "Sections 6 - 9, 20, and 25(b)"
Insert "Sections 6 - 9, 22, and 27(b)"
Page 16, line 22:
Delete "Sections 19 and 25(c)"
Insert "Sections 21 and 27(c)"
Page 16, line 23:
Delete "secs. 27 - 29"
Insert "secs. 29 - 31"
CO-CHAIR FEIGE objected for discussion purposes.
5:52:36 PM
REPRESENTATIVE GARDNER noted that testimony from the Department
of Revenue indicates that it does not always have a good handle
on what the state's generous credits and incentives are used for
and what the companies did to receive them. Amendment 19 would
attempt to let Alaskans know who is getting the credits, how
much, and why. Data submitted with a request for capital
credits would be collected and a report would be provided to the
legislature, but the data would not include test results. She
reminded members that the committee had previously debated
whether collecting this information would require a statutory or
regulatory change.
5:53:57 PM
The committee took an at-ease from 5:53 p.m. to 5.55 p.m.
5:55:38 PM
CO-CHAIR SEATON asked how Amendment 19 and Representative P.
Wilson's amendment [Amendment 7, labeled 27-GH1007\A.38,
Bullock, 2/25/11, adopted as amended on 2/25/11] would relate to
each other.
ACTING COMISSIONER BUTCHER replied that [Amendment 7], along
with what can be done by regulation, provide the department with
all of the tools necessary to collect the information it needs
as well as the information requested by the legislature. Over
the past five years the department has developed its regulations
by holding workshops that include industry and the public. The
department would enjoy the participation of legislators or
legislative staff at the workshops that will be held for
development of the regulation on this particular issue. He
offered to keep members updated on when those will occur.
5:56:34 PM
CO-CHAIR SEATON offered his belief that Amendment 19 has a lot
of overlap with [Amendment 7]; however, Amendment 19 would
require an annual report to the legislature.
REPRESENTATIVE GARDNER said it would be good enough if Acting
Commissioner Butcher could confirm that the Department of
Revenue intends to collect and release the name of the taxpayer,
a description of what the taxpayer did to get the credit, and
how much credit so that the public and the legislature can
easily access that information.
ACTING COMISSIONER BUTCHER responded that the department
absolutely wants to include all of the information possible that
it collects. However, that information would have to be
aggregated because it would be confidential to "isolated by
taxpayer."
REPRESENTATIVE GARDNER said this is exactly her point. She
maintained that while a taxpayer's taxes are confidential, the
State of Alaska's contribution in the form of credits is not
confidential. She said she wants Alaskans to know which
taxpayers by name have how much credit and what it is for, which
is the intent of Amendment 19.
5:58:10 PM
ACTING COMISSIONER BUTCHER offered his belief that legally the
Department of Revenue is not allowed to do that. However, he
said he believes the department could provide a good aggregated
view of whether the credits are doing what was intended without
isolating specific companies.
REPRESENTATIVE GARDNER argued that there can be regulations that
the taxpayers waive their right for confidentiality in return
for receiving these very significant tax credits from the State
of Alaska. The only thing that would be disclosed is the
credits being claimed and received, not the taxes.
5:59:50 PM
REPRESENTATIVE P. WILSON inquired whether the State of Alaska
can legally give out the information that would be required
under Amendment 19.
MS. POLLARD answered that Amendment 19 would make a change to AS
43.05.230. This cannot be done because disclosure of what is
considered taxpayer information, which would include something
that would be on a return or a report, such as tax credit, is
not currently allowed under Alaska law. Willful disclosure of
taxpayer information can be punished by a fine of not more than
$5,000 and imprisonment of not more than two years.
6:01:06 PM
REPRESENTATIVE GARDNER asked whether it is possible to have
statute that requires regulations be drafted in which the
taxpayer applying for a credit agrees to release of the
information about the application, the amount, the reason, and
the taxpayer's name.
MS. POLLARD replied, "No, not without amendments to the
statutes."
REPRESENTATIVE GARDNER said Amendment 19 is an effort to amend
the statute, but perhaps the right statute to amend is not
before the committee. However, the request for drafting this
amendment was to get the statutory change needed for making this
information available to legislators and the public, given it is
the state's money that is being applied for. She reiterated
that in exchange for this money the taxpayer would agree to
release of its name and the information about its application.
6:02:10 PM
CO-CHAIR SEATON requested that Amendment 19 be withdrawn given
the complications and its overlap with [Amendment 7]. He
suggested it be redrafted and offered through the House Finance
Committee or on the House floor.
REPRESENTATIVE GARDNER stated that Amendment 19 is the single
most important amendment she wants to see passed, aside from
some of the amendments offered by Co-Chair Seaton. She agreed
to withdraw the amendment as a courtesy to the co-chair, but
said that when the amendment is offered on the House floor she
does not want to hear that it should have been offered in the
House Resources Standing Committee.
6:04:01 PM
REPRESENTATIVE MUNOZ recollected that the purpose of Amendment 7
was to allow the Department of Revenue to aggregate the
information of the three top taxpayers so the legislature would
have that information in one form, but it would not be
designated by company.
CO-CHAIR SEATON replied correct.
REPRESENTATIVE GARDNER, in response to Co-Chair Seaton,
confirmed that she had withdrawn Amendment 19.
REPRESENTATIVE GARDNER withdrew Amendment 20.
REPRESENTATIVE KAWASAKI elected not to offer Amendments 21, 22,
23, and 24.
6:05:48 PM
REPRESENTATIVE KAWASAKI moved that the committee adopt Amendment
25, labeled 27-GH1007\A.25, Bullock, 2/24/11, which read:
Page 12, following line 5:
Insert a new bill section to read:
"* Sec. 17. AS 43.55.023 is amended by adding a new
subsection to read:
(p) A producer that incurs more than 80 percent
of its wage and compensation expenditures for wages
and compensation paid to Alaska residents may take a
tax credit against the tax levied under
AS 43.55.011(e) equal to the percentage by which the
wages and compensation paid to Alaska residents
exceeds 80 percent of all wages and compensation paid
by the producer in the state. The department, in
consultation with the Department of Labor and
Workforce Development, shall adopt regulations
necessary to administer the credit authorized by this
subsection. Notwithstanding (c) of this section, the
unused amount of credit under this subsection may not
be carried forward for more than two years, and,
notwithstanding (d), (e), and (g) of this section, a
producer may not transfer a tax credit or obtain a
transferable tax credit certificate for a credit
authorized under this subsection. In this subsection,
"Alaska resident" has the meaning given in
AS 43.82.230."
Renumber the following bill sections accordingly.
Page 16, line 8:
Delete "Sections 11, 12, 15, and 16"
Insert "Sections 11, 12, and 15 - 17"
Page 16, line 10:
Delete "Sections 6 - 9 and 20"
Insert "Sections 6 - 9 and 21"
Page 16, line 12:
Delete "Section 19"
Insert "Section 20"
Page 16, line 20:
Delete "Sections 11, 12, 14 - 18, 24, and 25(a)"
Insert "Sections 11, 12, 14 - 19, 25, and 26(a)"
Page 16, line 21:
Delete "Sections 6 - 9, 20, and 25(b)"
Insert "Sections 6 - 9, 21, and 26(b)"
Page 16, line 22:
Delete "Sections 19 and 25(c)"
Insert "Sections 20 and 26(c)"
Page 16, line 23:
Delete "secs. 27 - 29"
Insert "secs. 28 - 30"
CO-CHAIR FEIGE objected for discussion purposes.
6:06:03 PM
REPRESENTATIVE KAWASAKI explained that Amendment 25 would offer
a tax credit for local hire and was similar to provisions
included in a portion of [House Bill 308] that was heard last
year by the House Resources Standing Committee. Amendment 25
would guarantee jobs for Alaskans through a "carrot approach" to
investing in Alaska. Without Amendment 25 companies will
continue to hire non-resident workers. At a level of 80 percent
[Alaska resident hire] a company would be rewarded with a tax
credit. He allowed that regulations would need to be drafted to
implement the provisions.
6:07:35 PM
CO-CHAIR FEIGE requested the Department of Law to address
whether the provision in Amendment 25 is constitutional.
MS. POLLARD responded that there are definitely issues when
trying to incentivize one thing that is potentially
disincentivizing to something else. There have been successful
cases under the "privileges and immunities clause" where
somebody claims that a credit designed to increase local hire
disincentivizes the ability to cross state lines. For example,
Alaska had the 1978 Hicklin v. Orbeck case [437 U.S. 518, United
States Supreme Court]. There can be some benefit to local
residents, such as tuition for local residents, if a certain
kind of problem is perceived and some incentive is very
carefully drafted.
6:09:05 PM
CO-CHAIR FEIGE inquired whether the adoption of Amendment 25
could potentially be used by other industries to require more
Alaska hire in those other industries, such as fishing.
MS. POLLARD asked whether the co-chair is meaning that other
industries would want a credit similar to this or that other
industries would be concerned about it.
CO-CHAIR FEIGE said it seems that this proposed provision would
be difficult to enforce and to define. He asked whether it
would force people who are currently nonresidents to become
residents.
MS. POLLARD concurred that quite a few details would have to be
worked out. She said she thinks of the 80 percent in terms of
lease expenditures because that is where most deductible wages
are taken; however, she presumed that Amendment 25 would
actually be a broader determination of wages and compensation,
such as office workers.
6:11:10 PM
CO-CHAIR SEATON understood that the statute cited on line 15 of
Amendment 25, AS 43.82.230, defines a resident as someone who
either qualifies for the permanent fund dividend (PFD) or has
lived in the state continuously for an entire year. He inquired
whether this definition would be problematic for use in job
status.
MS. POLLARD replied that she is unsure.
CO-CHAIR SEATON understood that the statute cited on line 6 of
Amendment 25, AS 43.55.011(e), relates to lease expenditures.
MS. POLLARD clarified that AS 43.55.011(e) is where the tax is
levied; lease expenditures is in AS 43.55.165.
CO-CHAIR SEATON noted that when the committee considered this
provision previously [in House Bill 308] there was the problem
of deciding who determined whether a company had to declare an
employee as a lease expense. He asked whether Amendment 25
includes a requirement that every employee must be declared as a
lease expense or is this tied to lease expenses. For example,
during consideration [of House Bill 308] it was pointed out that
a company could simply not declare its nonresident employees as
a lease expense as a means to qualify.
MS. POLLARD replied she thinks it is more the latter because
Amendment 25 just looks at 80 percent of wages and compensation.
CO-CHAIR SEATON understood that Amendment 25 is not tied to
lease expenditures.
MS. POLLARD answered, "No; wages and compensation to Alaska
residents."
6:14:31 PM
REPRESENTATIVE P. WILSON inquired whether the Department of Law
would be able to write regulations that would prevent a lawsuit
if Amendment 25 was passed.
MS. POLLARD responded she cannot answer one way or another
because the potential issue is constitutional and the regulation
process cannot fix constitutional concerns.
REPRESENTATIVE DICK commented that if the committee was going to
error, it could error on the side of bringing the proposed
provision into the bill because it could be cut out later if
necessary.
CO-CHAIR SEATON said people can vote however they want for
whatever reasons.
REPRESENTATIVE HERRON surmised that if Amendment 25 became law
and a problem was found, this part of the law could be struck
and the rest of the legislation would be fine.
MS. POLLARD replied correct, there is generally a severability
in statute.
6:16:58 PM
CO-CHAIR SEATON asked whether the administration has a position
on Amendment 25.
ACTING COMISSIONER BUTCHER said the concerns mentioned by Ms.
Pollard make the administration uncomfortable with the language
from a constitutional standpoint.
CO-CHAIR FEIGE recalled that years ago BP had an Alaska hire
requirement, but he believes it was overturned in a court case
on the basis that the requirement for Alaska hire was
unconstitutional. He suggested that the case law in this regard
be investigated.
ACTING COMISSIONER BUTCHER allowed that a higher percentage of
Alaskans being hired in all areas of the state's economy would
be appreciated, but the issue is how to do so in a way that is
constitutional.
6:18:48 PM
CO-CHAIR FEIGE inquired whether adopting Amendment 25 would
result in a fiscal issue.
ACTING COMISSIONER BUTCHER responded there may be some
difficulties in verifying credit and companies. It is hard to
say what the Department of Revenue and the Department of Labor &
Workforce Development would have to do to police these credits.
CO-CHAIR FEIGE surmised that the acting commissioner believes
this type of rule would be problematic to enforce.
ACTING COMISSIONER BUTCHER answered that it would require some
additional work but he cannot say how much.
6:19:40 PM
REPRESENTATIVE MUNOZ understood the credit would apply to the
percent of the company's workforce that is over 80 percent; for
example, a workforce of 90 percent residents would receive a 10
percent credit.
MR. BULLOCK agreed the intent of Amendment 25 is to do as stated
by Representative Munoz. The credit would be anywhere from no
credit to up to a maximum of 20 percent. The 80 percent
establishes a threshold for triggering the eligibility, then
once eligible it would be 1 percent credit for each percent
above 80.
MR. BULLOCK, in response to Co-Chair Seaton, explained that the
credit would be a percentage of the tax because the statute
referred to in Amendment 25 is AS 43.55.011(e), which is the
statute that levies the production tax.
6:21:21 PM
REPRESENTATIVE MUNOZ asked whether Amendment 25 would result in
a double deduction since employee expenses can already be
deducted from state and federal taxes.
MR. BULLOCK replied that, as an example, there are capital lease
expenditures under AS 43.55.023 that would already be eligible
for a credit. This would be similar in that the employee
compensation may be a lease expenditure that is a deduction to
determine the production tax value, which is the number that the
tax is based on, and then this is a credit in addition for those
same wages, provided the threshold is met.
CO-CHAIR SEATON presumed Amendment 25 would be a good incentive
because a company could reduce its tax from 25 percent to 5
percent.
MR. BULLOCK allowed it has the potential to reduce the tax
significantly, but clarified that it would be 20 percent of the
tax due that is reduced, not the tax rate that is reduced.
6:22:49 PM
CO-CHAIR FEIGE related that a recent document by the Department
of Labor & Workforce Development reports that 26 percent of the
people currently employed in the oil and gas industry are
nonresidents, but of the new hires into that industry only 11
percent [are nonresident]. He used his experience on the North
Slope to surmise what happens with the other 15 percent: the
work schedule of two weeks on and two weeks off, along with the
excellent salary, allows slope workers and their families to
live in the Lower 48 where it is warmer, cheaper, and closer to
other family members. Thus, an Alaska resident working on the
slope can become a nonresident while still keeping the same job.
He said he therefore sees Amendment 25 as a problem.
6:25:30 PM
REPRESENTATIVE KAWASAKI, concluding the discussion on Amendment
25, opined that the amendment would provide a credit to
companies that hire Alaskans and would therefore be a carrot
approach, not a punitive approach. Regulations would be
promulgated and, if found unconstitutional, the severability
clause would disconnect the provision from the rest of HB 110.
A roll call vote was taken. Representatives Kawasaki, Herron,
Foster, Dick, and Gardner voted in favor of Amendment 25.
Representatives Wilson, Munoz, Feige, and Seaton voted against
it. Therefore, Amendment 25 was adopted by a vote of 5-4.
6:27:19 PM
CO-CHAIR SEATON stated that Amendment 26 would not be offered.
CO-CHAIR SEATON explained that Amendment 27 relates to the 40
percent tax credit. It would roll in the second and third year
prior year average and if that value is exceeded the company
would receive the 40 percent enhanced credit on the enhanced
work, rather than basing the 40 percent tax credit on the
average amount of infield drilling that the company did over the
past several years. He said Amendment 27 would incentivize new
and higher amounts of expenditures instead of just doubling the
tax credit for the current amount of infield drilling.
CO-CHAIR SEATON moved that the committee adopt Amendment 27,
labeled 27-GH1007\A.44, Bullock, 2/24/11, which read:
Page 11, line 11:
Delete "that expenditure; [A"
Insert "a well lease expenditure incurred in the
state north of 68 degrees North latitude that exceeds
the average annual well lease expenditures for the
second and third calendar years preceding the year for
which the credit is being determined and 40 percent of
a well lease expenditure incurred in the state south
of 68 degrees North latitude [THAT EXPENDITURE; A"
Page 11, line 13:
Delete ";]"
Insert "];"
6:30:08 PM
REPRESENTATIVE P. WILSON objected for discussion purposes and
requested the Department of Revenue to address the Amendment 27.
ACTING COMISSIONER BUTCHER responded that the Department of
Revenue has the same concerns with Amendment 27 as it did with
Amendment 8, which is that it could result in a company spending
less over a couple-of-year period to qualify in that preceding
year for the 40 percent and potentially be detrimental to
maintenance. Additionally, Amendment 27 would require perpetual
growth that might not be sustainable when a company is looking
long term at qualifying for the credit. The department believes
that the amendment would make Alaska's investment climate less
attractive rather than more attractive. In further response, he
elaborated that if the expenditures have to exceed those of the
preceding years, then every year the expenditures would have to
be more than the previous year to qualify for the credit. Thus,
over the long term a company would be required to spend more and
more money on a year-by-year basis to qualify for the credit.
CO-CHAIR SEATON pointed out that this would not detract from a
company receiving the 20 percent capital credits that it gets
currently.
ACTING COMISSIONER BUTCHER answered correct.
6:32:23 PM
A roll call vote was taken. Representatives Gardner, Kawasaki,
and Seaton voted in favor of Amendment 27. Representatives
Wilson, Herron, Munoz, Foster, Dick, and Feige voted against it.
Therefore, Amendment 27 failed by a vote of 3-6.
6:33:16 PM
REPRESENTATIVE HERRON reiterated his earlier testimony that the
25 percent provision in HB 110 is too high. He suggested that
the next committee consider a change to 20 percent as well as a
change to the progressive brackets. However, he stated that he
won't offer an amendment to change the provision and will
support moving HB 110 from the House Resources Standing
Committee.
6:34:07 PM
REPRESENTATIVE KAWASAKI related that he spent four years
studying this bill, but charged that the committee has not done
its due diligence on HB 110. He characterized HB 110 as a $2
billion gamble, a leap of faith that doesn't necessarily get the
state what it wants. Furthermore, HB 110 places the state in
fiscal risk in the future. With regard to his earlier statement
that he doesn't trust Exxon Mobil, he clarified that he means he
doesn't trust it to do what is good for the state. However, he
expected the legislature to do what is good for the state and to
have the state's fiscal house in order. This legislation gives
away $2 billion on the offset and only opinion, anecdotal
evidence, and industry testimony has been heard. Although he
said he had full faith in the Department of Law and [DOR] staff,
he opined that they are outnumbered and outgunned. Moreover,
there have been many questions that have not been answered. In
conclusion, Representative Kawasaki opined that moving HB 110 is
premature and until the answers are received he said he will
oppose HB 110.
6:36:53 PM
REPRESENTATIVE GARDNER agreed with Representative Kawasaki that
the committee hasn't seen data to support the premise that the
tax deductions and credits of up to $2 billion a year will
result in a change in the investment decisions of the majors who
stand to benefit by 90 percent or more of these funds. She
said that to the extent HB 110 encourages small companies it is
good, but that is only a small portion. She questioned what
would happen if one year's fiscal impact from HB 110 was offered
to whoever was able to get new wells on line the fastest or used
those funds to build roads to wells or prospects.
Representative Gardner opined that HB 110 isn't a good or well
constructed gamble with Alaska's future. She related she'll be
voting against HB 110.
6:38:18 PM
CO-CHAIR SEATON opined that the adopted amendments for the
explorers, producers, and increasing the exploration tax credits
will be valuable because they are targeted. Unfortunately, the
majority of the [tax credit funds] will detract from the state's
budget and prevent development of the state's resources because
there are other schedules at work that are not related to
Alaska's tax scheme. Therefore, the wrong lever is being pulled
and it will be very costly for the state and the development of
the state's resources.
6:39:30 PM
REPRESENTATIVE DICK remarked that if he thought HB 110 was
leaving the House Resources Standing Committee and going to
reality, he wouldn't move to forward it from committee.
However, he said that since he has confidence that the
legislation will be worked on in the next committee of referral,
and in the Senate, and possibly in the interim, he will vote to
forward it from committee today.
6:40:04 PM
CO-CHAIR FEIGE told the committee that when he ran for this
position, the top priority he had was the reform of ACES. The
work on HB 110 will go far to put more oil in the pipeline. He
characterized the legislation as a good start, particularly with
the amendments that will add incentives to the original
legislation. He opined that the House Resources Standing
Committee has done its job. Co-Chair Feige then reminded the
committee of the testimony it heard regarding that if nothing
was done the flow of oil in TAPS would stop, which has to be
balanced with the hit on the revenue side. This process of
determining what to cut, he said, is all part of being fiscally
responsible.
6:41:51 PM
CO-CHAIR FEIGE moved to report HB 110, as amended, out of
committee with individual recommendations and the forthcoming
fiscal notes.
REPRESENTATIVE KAWASAKI objected.
6:42:23 PM
A roll call vote was taken. Representatives Dick, P. Wilson,
Herron, Munoz, Foster, Feige, and Seaton voted in favor of
reporting HB 110, as amended, from committee. Representatives
Gardner and Kawasaki voted against it. Therefore, CSHB 110(RES)
was reported out of the House Resources Standing Committee by a
vote of 7-2.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 110 Amendments.PDF |
HRES 2/28/2011 1:00:00 PM |
|
| HRES HB 110 Amendments adopted 2.25.11.PDF |
HRES 2/28/2011 1:00:00 PM |
HB 110 |
| House Resources Amendment.pptx |
HRES 2/28/2011 1:00:00 PM |
|
| Public Testimony on HB 110 through 3.7.11.PDF |
HRES 2/28/2011 1:00:00 PM |
HB 110 |