Legislature(2013 - 2014)BARNES 124

04/01/2013 01:00 PM RESOURCES

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01:05:40 PM Start
01:05:59 PM SB21
03:03:58 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to 9:00 am on 4/2/13 --
Heard & Held
<Bill Held Over to 4/2/13>
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
               SB  21-OIL AND GAS PRODUCTION TAX                                                                            
1:05:59 PM                                                                                                                    
CO-CHAIR FEIGE  announced that the  only order of business  is CS                                                               
FOR SENATE BILL  NO. 21(FIN) am(efd fld) "An Act  relating to the                                                               
interest rate applicable to certain  amounts due for fees, taxes,                                                               
and payments  made and  property delivered  to the  Department of                                                               
Revenue; providing  a tax credit  against the  corporation income                                                               
tax  for qualified  oil and  gas  service industry  expenditures;                                                               
relating to the oil and gas  production tax rate; relating to gas                                                               
used in  the state; relating  to monthly installment  payments of                                                               
the  oil  and  gas  production  tax;  relating  to  oil  and  gas                                                               
production  tax  credits  for certain  losses  and  expenditures;                                                               
relating  to  oil and  gas  production  tax credit  certificates;                                                               
relating  to nontransferable  tax  credits  based on  production;                                                               
relating to the  oil and gas tax credit fund;  relating to annual                                                               
statements by  producers and explorers; establishing  the Oil and                                                               
Gas   Competitiveness  Review   Board;   and  making   conforming                                                               
amendments."  [Before  the committee was HCS CSSB  21, Version B,                                                               
labeled  28-GS1647\B,  Nauman/Bullock,  3/29/13, adopted  as  the                                                               
working document on 3/29/13.]                                                                                                   
CO-CHAIR FEIGE opened public testimony  on the proposed committee                                                               
substitute, HCS CSSB 21, Version B.                                                                                             
1:07:10 PM                                                                                                                    
BILL CORBUS noted he served  as commissioner of the Department of                                                               
Revenue  under  Governor  Frank Murkowski  from  2003-2006.    He                                                               
participated in the  decision on the economic  limit factor (ELF)                                                               
aggregation,  formulation of  the production  profits tax  (PPT),                                                               
and  watched with  dismay  in 2007  when  the legislature  passed                                                               
Alaska's  Clear  and Equitable  Share  (ACES).   He  offered  his                                                               
support for  CSSB 21(FIN)  am(efd fld)  that includes  removal of                                                               
the  extreme  progressive  tax increase  at  higher  oil  prices,                                                               
inclusion of  the gross revenue exclusion  (GRE), modification of                                                               
the tax credit  system that will result in  credits being granted                                                               
when oil is produced, and  encouragement of new production in the                                                               
old legacy fields  where a large proportion of  total reserves is                                                               
located.   He  said this  legislation is  needed to  increase the                                                               
investment by  the petroleum industry  to stem the  declining oil                                                               
production.   It is also necessary  if Alaska is to  continue the                                                               
prosperity it has experienced in the past.                                                                                      
1:09:11 PM                                                                                                                    
REPRESENTATIVE  P.   WILSON  inquired  whether  Mr.   Corbus  was                                                               
discussing  CSSB 21(FIN)  am(efd fld)  or the  proposed committee                                                               
substitute, Version B.                                                                                                          
MR.  CORBUS  replied he  is  not  up  to  speed on  the  proposed                                                               
committee substitute, but he is  up to speed through the Senate's                                                               
1:09:55 PM                                                                                                                    
GARY  MILLER  asked  who  would  buy  a  $30,000  car  without  a                                                               
guarantee and  then asked  why the oil  companies would  be given                                                               
billions of  dollars with  no guarantee.   Alaska's  citizens are                                                               
well  aware of  progressivity,  he said,  because  when they  pay                                                               
their federal taxes the more  they earn the higher the percentage                                                               
they pay  in taxes.  The  citizens of Alaska pay  a progressivity                                                               
tax and the  oil companies should also.  The  State of Alaska has                                                               
been given  more income by ACES  to serve its citizens,  while at                                                               
the same  time giving the  oil companies $35 billion  in profits.                                                               
But that is  not enough for them, he charged,  they want more and                                                               
to get it they have to have  the State of Alaska give up services                                                               
to its  citizens, which  would be  shortchanging the  citizens of                                                               
Alaska.  He urged that this not be done.                                                                                        
1:11:08 PM                                                                                                                    
JACKIE STEWART testified she began  working in Alaska in 1975 and                                                               
retired from her  state work in 2008.  She  expressed her concern                                                               
about  the  state's unfunded  liability  for  retirees and  about                                                               
education in  the state.   Her  son is in  the school  system and                                                               
plans  to continue  through the  Alaska university  system.   She                                                               
understood  that   education  is   flat  funded  and   that  pre-                                                               
kindergarten  has  lost about  one-third  of  its funding.    She                                                               
pointed out that these are  usually the at-risk children, not the                                                               
children whose  parents can afford  good pre-schools.   She asked                                                               
whether these children  will be helped to  be productive citizens                                                               
of the state or will the  state scrimp on their education so more                                                               
money can  be put  into the  coffers of the  oil companies.   The                                                               
bill is  ineffective because there  are no guarantees,  she said.                                                               
If legislators  want to reduce oil  taxes it should be  done in a                                                               
way  that  gets some  kind  of  guarantee  of production,  not  a                                                               
promise  or a  hope.    If this  bill  is  passed, the  committee                                                               
members'  constituents   will  be   looking  to  see   how  their                                                               
representative  voted  and  once  they realize  what  a  horrific                                                               
financial mistake  it was,  they will not  vote members  back in.                                                               
The  motives  of  the  governor   and  senators  who  passed  the                                                               
legislation are being  questioned by the people.   She urged that                                                               
the bill not be passed out of committee.                                                                                        
1:14:01 PM                                                                                                                    
DAVID PERRY questioned why state  government would want to reduce                                                               
the taxing  on these large corporations  at a time when  they are                                                               
posting record profits and yet the  state is moving into the area                                                               
of  reduced funding.    He expressed  his  concern about  reduced                                                               
education  and about  unfunded liabilities  since he  is a  state                                                               
employee  working for  the Alaska  Marine Highway  System (AMHS).                                                               
He related  that while  at sea, crew  members are  discussing why                                                               
the state  is doing  this at a  time when the  state has  so many                                                               
needs.  He  is bothered that there is no  commitment from the oil                                                               
companies that  they are indeed  going to increase  production if                                                               
their tax liability  is reduced.  Given the  state's situation he                                                               
would think the state would be  looking for a commitment from the                                                               
oil companies to increase production.                                                                                           
1:16:10 PM                                                                                                                    
BRAD  FAULKNER  said  he  is  an Alaska  resident  of  55  years,                                                               
starting  to work  on construction  of the  Trans-Alaska Pipeline                                                               
System (TAPS) in  1975 and working a number of  jobs on the North                                                               
Slope off  and on since  then.  He  strongly opposes the  bill as                                                               
written because he  fears that excluding new areas  of the legacy                                                               
fields will  have a  fiscal impact  three to  four times  what is                                                               
being predicted.   A reason for  his fear, he explained,  is that                                                               
much four-dimensional  seismic work has been  done throughout the                                                               
legacy fields  in the last few  years.  In Kuparuk  that work has                                                               
been combined  with coiled tube  directional drilling  and Conoco                                                               
has been  able to drill as  many as eight separate  small pockets                                                               
of oil  off the same  hole.  When  ELF was passed  the unintended                                                               
consequence  was that  80 percent  of  the oil  from Kuparuk  and                                                               
Prudhoe was excluded.   This same unintended  consequence will be                                                               
found with  this bill, he  warned, particularly in  Kuparuk where                                                               
the oil is in micro-pools rather  than larger pools.  It is known                                                               
that a  huge pool  of oil  sits just off  the eastern  portion of                                                               
Prudhoe that  has never been tapped  and the "end game"  has been                                                               
to figure  out how to  use this field that  would put as  much as                                                               
165,000 barrels  of oil in  the pipeline  for ten years  from the                                                               
time  it  is  tapped.   Unfortunately,  those  well  logs  remain                                                               
proprietary even  though they  have been  known about  for years.                                                               
These 600 million  barrels of oil have been  warehoused for 35-40                                                               
years and now the  state is going to give a  tax break to develop                                                               
it  while cutting  school funding  and every  other bit  of state                                                               
funding to do it.   As a lifelong Alaskan that  does not set well                                                               
with him.   When tweaking  the bill,  it does not  matter whether                                                               
[the base rate] is  30 or 35 percent because it  is all about new                                                               
areas of  legacy fields  and that  is going to  make the  cost of                                                               
this bill go up three or four times.                                                                                            
1:19:17 PM                                                                                                                    
CO-CHAIR SADDLER  inquired why that  pool of 600  million barrels                                                               
of oil has not been produced  by the industry when prices are now                                                               
so high.  He further asked  where this information about the pool                                                               
of oil comes from.                                                                                                              
MR. FAULKNER  responded it  has not been  drilled at  high prices                                                               
because it is not their first oil  field in the world.  Every oil                                                               
field has a  predictable decline curve and  they built themselves                                                               
a 48-inch pipeline.   So, at some  point, to get the  last bit of                                                               
oil out of  this massive oil field they found  they were going to                                                               
have to put a minimum amount of  oil in order to suck the last of                                                               
the oil  out of  the Prudhoe  field; remember  when they  came up                                                               
with this  plan they  did not  have Kuparuk pegged  out yet.   An                                                               
individual  retirement account  (IRA) is  putting money  aside to                                                               
have money  for living off  during old age -  and this is  an oil                                                               
field IRA.   He said  he cannot tell  the committee how  he knows                                                               
this,  but he  can say  time will  prove him  right.   In further                                                               
response, he  posited there  are many  oil geologists  within the                                                               
state and industry who understand this.                                                                                         
CO-CHAIR  SADDLER  surmised  that  what   is  being  said  is  an                                                               
unsubstantiated allegation.                                                                                                     
MR. FAULKNER  answered, "It is  kind of unsubstantiated  like the                                                               
gains   that   the  oil   companies   plan   to  give   you   are                                                               
unsubstantiated.  So, that is correct."                                                                                         
1:21:12 PM                                                                                                                    
KEVIN WALKER  noted Mr.  Faulkner wrote an  editorial in  a Homer                                                               
newspaper about the  600 million barrels of oil,  which is enough                                                               
oil to  keep the pipeline open  for 10 more years.   The pipeline                                                               
was built for a 30-year life, but  is already 35 years old and in                                                               
need  of  being  fixed  or rebuilt.    Expressing  concern  about                                                               
conflict of  interest, he  said the governor  is an  oil lobbyist                                                               
and [Senator]  Micciche is  a superintendent  for ConocoPhillips.                                                               
Why rush getting oil out of the  ground now at $110 a barrel when                                                               
in 10-30 years it  will be worth $2,000 a barrel,  he asked.  The                                                               
state does  not need  to go  into debt;  the oil  is like  a bank                                                               
account and can  be withdrawn when needed.  The  state is getting                                                               
by  and does  not  need to  give the  oil  companies billions  of                                                               
dollars in tax breaks at this time.                                                                                             
1:23:18 PM                                                                                                                    
JOSEPH  SEBASIAN, a  commercial  fisherman, said  he opposes  the                                                               
bill.  He related that Governor  Parnell is a former oil lobbyist                                                               
who has  said that if this  bill is passed something  will happen                                                               
in three to  five years.  He further related  that Ms. Rehfeld of                                                               
the  Office of  Management &  Budget has  said the  hope is  that                                                               
production will increase.   So, he continued, there  is a "maybe"                                                               
and a  "hope", but  nothing in  black or  white or  legal factual                                                               
response  from the  oil  companies.   He  related that  President                                                               
Calvin  Coolidge said,  "It is  much more  important to  kill bad                                                               
bills than pass good ones."   Inquiring whether committee members                                                               
remember  "Chuck  Hamel  or Wackenhut  Detective  Agency  or  the                                                               
Alyeska Pipeline  Consortium", he charged that  the oil companies                                                               
have a  history of  being notorious liars.   He  reminded members                                                               
that one of Alaska's most  trusted oil advisors, Pedro van Meurs,                                                               
has said  this oil  tax giveaway  is unnecessary  and wrong.   He                                                               
urged the state stay the course  for the next three to five years                                                               
and wait  until there is  a solid, factual, and  legal commitment                                                               
from the oil  companies before Alaskans consider  changes.  There                                                               
is no rush or emergency at this  time; let the bill die the death                                                               
it deserves.   He shared that his family,  children, friends, and                                                               
people he meets on the street are concerned about the bill.                                                                     
1:25:58 PM                                                                                                                    
ROGER BURGGRAF supported CSSB 21(FIN)  am(efd fld), saying Alaska                                                               
is almost totally dependent on  oil reserve revenues to cover the                                                               
costs of  government and capital  improvements that must  be made                                                               
for the  state to  survive.  Failure  to increase  oil production                                                               
will  destroy the  economic viability  of  Alaska's economy,  its                                                               
villages, towns, and cities, and  the opportunity for the state's                                                               
people, both in  government and private industry,  to provide for                                                               
their  families.   The  legislature  in the  past  has failed  to                                                               
address  this   problem,  ignoring  the  signs   of  reduced  oil                                                               
production.   While he is no  expert on oil and  gas taxation, he                                                               
said he knows something must be  done to get the oil companies to                                                               
continue to  invest in Alaska  and find more oil  for production.                                                               
He offered  his hope that  the interests  of those who  feel that                                                               
oil is bad  and who do not want more  production will not prevail                                                               
again  this  year.    Meaningful  oil tax  reform  is  needed  to                                                               
encourage investment in Alaska by  the oil companies.  Alaska, if                                                               
it  is   going  to   grow  and  develop,   must  build   out  its                                                               
infrastructure to gain access to  its resources to allow Alaskans                                                               
to live in  Alaska and industries to provide jobs.   He said ACES                                                               
has not done  its job; he urged  there be a plan  that will allow                                                               
Alaska to survive into the twenty-first century.                                                                                
1:29:05 PM                                                                                                                    
LUKE  HOPKINS, Mayor,  Fairbanks North  Star Borough,  President,                                                               
Alaska  Conference  of  Mayors,  thanked the  committee  for  its                                                               
consideration of community  revenue sharing being tied  back to a                                                               
specific  source of  tax  revenue.   He  urged  the committee  to                                                               
support the governor's language in SB  21 that ties the source of                                                               
community revenue sharing  to the corporate income  tax since the                                                               
revenue sharing  program has  always had  a particular  source of                                                               
funding  called out  in  legislation.   The  Senate removed  that                                                               
language,  which is  of  concern to  many of  the  mayors he  has                                                               
spoken to.   Many of his  fellow mayors are concerned  as to what                                                               
the  local community  will be  experiencing in  terms of  reduced                                                               
fees and state programs that  come to local communities.  Revenue                                                               
sharing is one piece that is  very near and dear to his borough's                                                               
residents because  in his  community the  mayors have  always put                                                               
that back into  reduced property taxes.  He again  urged that the                                                               
language as  written in  the governor's  legislation for  the $60                                                               
million in funding be maintained.                                                                                               
1:31:33 PM                                                                                                                    
REPRESENTATIVE  TARR  asked  whether  the  Alaska  Conference  of                                                               
Mayors  has  sent  anything  to   the  legislature  or  passed  a                                                               
resolution on this.                                                                                                             
MAYOR  HOPKINS  replied the  organization  has  not yet  had  the                                                               
chance to  meet by conference call  or electronic mail to  pass a                                                               
resolution.    The  Alaska  Conference of  Mayors  met  with  the                                                               
governor last  week and the  conference only has a  "white paper"                                                               
on the issue  about its concern for the source  of revenue, which                                                               
he offered to send to the committee.                                                                                            
REPRESENTATIVE TARR requested Mayor Hopkins to do so.                                                                           
1:32:32 PM                                                                                                                    
CO-CHAIR  SADDLER  inquired whether  Mayor  Hopkins  is taking  a                                                               
position  on  the  entire  bill  in  addition  to  a  source  for                                                               
community revenue sharing.                                                                                                      
MAYOR HOPKINS  responded the  bill has  concerns for  the mayors;                                                               
letters have  been sent to the  governor and they were  copied to                                                               
all  legislators.    Of concern  for  near-term  community  level                                                               
planning is  what happens  to those  programs that  receive state                                                               
funding  to assist  community residents  when the  state is  in a                                                               
reduced budget scenario.  Nothing  very definitive has been heard                                                               
and the  mayors are  hoping that as  the conversation  goes along                                                               
there  will be  more definition.   He  would say  the mayors  are                                                               
holding their  breath but will have  to agree at some  point soon                                                               
and  have that  conversation with  the legislature.   He  has had                                                               
conversations with the Interior  Delegation members on what might                                                               
be expected and there is not yet much definition.                                                                               
1:34:06 PM                                                                                                                    
CO-CHAIR SADDLER  concluded Mayor Hopkins is  appreciative of the                                                               
linkage  with revenue  sharing, is  concerned about  the possible                                                               
loss of revenue, but takes no position on the bill.                                                                             
MAYOR HOPKINS  answered he would  say, "at this time,  yes," with                                                               
the understanding  that there is a  need to have oil  flowing and                                                               
all  those  pieces  and  how  to   arrive  at  that.    From  the                                                               
conversations he  has had, he  is unsure there  is going to  be a                                                               
re-direction of this  legislative package and what  may happen to                                                               
education and other programs that get down to the local level.                                                                  
1:34:54 PM                                                                                                                    
REPRESENTATIVE  SEATON appreciated  the  desire  to link  revenue                                                               
sharing and  corporate income  tax.   However, he  noted, another                                                               
section of the  bill gives up to $10 million  in corporate income                                                               
tax credit to  oil service providers.  He asked  if Mayor Hopkins                                                               
has analyzed  whether there is  going to be  a pot of  money with                                                               
these reductions  in corporate income tax  that will sufficiently                                                               
provide for revenue sharing as well as education tax credits.                                                                   
MAYOR HOPKINS  understood the amount  of funding received  by the                                                               
state for its  corporate and oil and gas  taxation, separate from                                                               
progressivity, is  $750 million.   So, with the  other reductions                                                               
that are being  talked about, save major  reductions in corporate                                                               
income taxes, there should be  enough money for $60 million every                                                               
year to be set aside for revenue sharing.                                                                                       
1:36:52 PM                                                                                                                    
REPRESENTATIVE  SEATON  presumed  Mayor  Hopkins  has  looked  at                                                               
Version B, the committee substitute,  that ties [revenue sharing]                                                               
to  AS 43.20.030(c),  which  he believes  is  just the  corporate                                                               
income tax.   He encouraged  Mayor Hopkins to re-analyze  this if                                                               
the mayor is  thinking it is corporate income tax  as well as oil                                                               
and gas production tax.                                                                                                         
MAYOR HOPKINS  responded that is why  he is asking to  go back to                                                               
the governor's language which has  that larger body of annual tax                                                               
revenue for revenue sharing and  other items that may be attached                                                               
in this legislation, so it is that $750 million pot of money.                                                                   
1:37:59 PM                                                                                                                    
KARL GOHLKE,  Frontier Supply  Company, stated  his company  is a                                                               
member of the Resource Development  Council (RDC), Alaska Oil and                                                               
Gas   Association  (AOGC),   Alaska  Miners   Association  (AMA),                                                               
Associated General Contractors of  Alaska (AGC), [Alaska Industry                                                               
Support]  Alliance,   and  the   Greater  Fairbanks   Chamber  of                                                               
Commerce.   He maintained the  production decline is  not because                                                               
Alaska is  running out of  oil, but is in  part due to  Alaska no                                                               
longer being  competitive in  attracting industry  investment for                                                               
oil and gas  production.  High oil prices  have expanded industry                                                               
investment in production, but not  in Alaska.  Alaska has dropped                                                               
behind  North Dakota  in production  and  is at  risk of  falling                                                               
behind California and becoming fourth  in the nation.  Alaska has                                                               
the highest cost  in tax rates in the nation.   Corporate capital                                                               
is limited and  only the most profitable projects  in a company's                                                               
portfolio  will get  funded.   Investors are  taking their  money                                                               
where they get a greater return.   Alaska needs a new policy that                                                               
is  fair to  all Alaskans,  encourages  new production,  restores                                                               
balance  to the  system,  and  is durable  far  into the  future.                                                               
Frontier Supply  Company does not do  a lot of business  with the                                                               
oil companies, he  explained, but it does a lot  of business with                                                               
employees and companies, like  Flowline, ATNS, Universal Welding,                                                               
The  Welding Shop,  Alaska Rubber  &  Rigging, Airport  Equipment                                                               
Rental,  Lynden Transport,  Carlisle Transportation,  Alaska West                                                               
Express,  Sourdough  Express,  CNR  Pipe,  Great  Northwest,  and                                                               
plumbers and pipefitters, all of which  do a lot of business with                                                               
the oil  companies.  New  production would promote growth  in the                                                               
private  sector economy,  leading to  more economic  development,                                                               
job creation,  and long-term  revenue streams.   The  oil decline                                                               
has been discussed  far too long; action is needed  now to reform                                                               
oil  production  taxes,  attract  new  investment,  and  increase                                                               
production.   He  urged that  there be  meaningful reform  of oil                                                               
production taxes to make Alaska a compelling place to invest.                                                                   
1:40:30 PM                                                                                                                    
TIM  TILSWORTH  noted  he  is   a  42-year  resident  of  Alaska,                                                               
professor emeritus of civil and  environmental engineering at the                                                               
University of  Alaska, and a  licensed professional  engineer for                                                               
the State of  Alaska.  He said he has  been analyzing and writing                                                               
about  this topic  since March  2011 and  found no  evidence that                                                               
ACES caused the  reduced flow in the pipeline; it  is a myth that                                                               
someone started and  everyone piled on.  The  oil industry blames                                                               
the rate of  progressivity in ACES for lack  of reinvestment, but                                                               
the  industry  will not  guarantee  any  increased production  in                                                               
exchange for  a tax reduction.   He urged SB  21, as well  as any                                                               
amended  versions,  not   be  passed  until  there   is  a  solid                                                               
commitment  from  the  oil  industry.    If  necessary,  write  a                                                               
contract between  the State of  Alaska and the oil  industry that                                                               
says if  industry produces  new or increased  oil the  state will                                                               
give a specific tax  break.  He urged that ACES  be left in place                                                               
for the  legacy fields.   If industry has  to be given  a carrot,                                                               
then reduce  the rate  of progressivity from  0.4 percent  to 0.3                                                               
percent for oil above the price  of $100 a barrel.  Debate should                                                               
be focused  on new fields  and increased production  with capital                                                               
credits continued for exploration  and development of new fields.                                                               
While SB  21 has some good  parts pertinent to new  fields, it is                                                               
not enough.   He  urged that  discussion of  an oil  industry tax                                                               
break be tabled to force  a special legislative session to ensure                                                               
Alaska  gets the  right tax  break; there  is too  much cash,  $6                                                               
billion,  to pass  across  the table  without  in-depth study  by                                                               
every  member of  the House.   Lastly,  he expressed  his outrage                                                               
that legislative rules allow members  with a conflict of interest                                                               
to be forced to vote on  legislation.  The practice is unethical,                                                               
immoral, and  outrageous behavior of elected  representatives, he                                                               
charged.   Because  Representative Hawker's  wife is  employed by                                                               
ConocoPhillips,  he  urged   that  Representative  Hawker  recuse                                                               
himself from  voting on  this issue  when it  comes to  the House                                                               
floor.   People  receiving  support from  this  industry have  no                                                               
business voting on this issue, he said.                                                                                         
1:45:31 PM                                                                                                                    
RENEE SCHOFIELD, TSS, Inc., stated  TSS does not do business with                                                               
oil  companies, but  does do  business  with local  folks who  do                                                               
business with  the oil companies.   She encouraged  the committee                                                               
to stay  with the  [governor's] four  principles:   fairness, new                                                               
production, keeping  it simple,  and ensuring  it is  durable for                                                               
Alaskans.  She  said her goal in keeping her  company going is so                                                               
her granddaughters  can go to  college in Alaska and  continue to                                                               
work in  Alaska.  She  thanked the  committee for working  on the                                                               
bill.  In  response to Co-Chair Saddler, she confirmed  she is in                                                               
favor of the bill as it is before the committee [Version B].                                                                    
1:46:59 PM                                                                                                                    
OWEN GRAHAM,  Alaska Forest  Association, testified  that revenue                                                               
for the state is important,  but said using the state's resources                                                               
to  incentivize  and  support  economic  activity  is  even  more                                                               
important.  This legislation will  hopefully provide both, but if                                                               
the  state only  gets an  increase in  economic activity  and the                                                               
related employment,  then the  legislation will  be a  success to                                                               
him.   Increasing state revenue  is only worthwhile if  the funds                                                               
are  used effectively.   In  Southeast Alaska,  for example,  the                                                               
federal government  manages over  90 percent of  the timberlands,                                                               
but the  government is currently  seeking to replace  logging and                                                               
manufacturing jobs in the region  with federally funded make-work                                                               
projects that will disappear when  the funding ends.  The federal                                                               
government should instead fund access  to the timber resources so                                                               
a  self-sustaining industry  of manufacturing  wood products  can                                                               
provide  jobs.    Similarly,  the  state  should  be  seeking  to                                                               
stabilize  and  sustain  the oil  business  rather  than  seeking                                                               
higher revenues.   He said  he supports  SB 21 because  a greater                                                               
profit  incentive for  the oil  companies will  help achieve  the                                                               
goal of sustaining the oil industry into the future.                                                                            
1:49:18 PM                                                                                                                    
SONYA  FUNARO  said  she  is   employed  in  project  performance                                                               
management with an  oil services company in Anchorage.   Born and                                                               
raised  in  Juneau,  she  was   active  in  high  school  student                                                               
government and attended college in  Massachusetts.  From a single                                                               
parent  home, she  worked  20-30  hours a  week  to  pay for  her                                                               
clothes and  school supplies, as  well as worked at  fund raising                                                               
activities so  she could participate in  college prep activities,                                                               
such as  attending the Close Up  program in Washington, DC.   She                                                               
looks forward to receiving the  annual permanent fund dividend to                                                               
help achieve her personal education  goals.  Since oil production                                                               
generates  royalties that  go  into the  permanent  fund, she  is                                                               
concerned the  dividend will disappear  due to the  current trend                                                               
of  production decline.   Three  years  ago worked  on the  North                                                               
Slope as part  of an exciting construction  project that included                                                               
new  production, engineering  fabrication, and  construction, but                                                               
that job  ended and many  of the people working  on it had  to go                                                               
out of  state to  find jobs.   Currently, there  is not  the same                                                               
opportunity for  oil and gas  jobs in  Alaska, she said,  a great                                                               
problem considering  that so many  of Alaska's  industries depend                                                               
on the  stability of oil and  gas production.  She  plans to live                                                               
in  Alaska for  the  rest of  her  life and  would  like for  her                                                               
children to  have the same  benefits and financial  security that                                                               
she had growing up  here.  A stable economy for  years to come is                                                               
important, so for  this reason she supports  any legislation that                                                               
encourages increased oil production in a declining industry.                                                                    
1:51:38 PM                                                                                                                    
TARA  SWEENEY, Senior  Vice President,  External Affairs,  Arctic                                                               
Slope Regional  Corporation (ASRC), stated her  comments are from                                                               
the perspective of  an employer and a company  with an enterprise                                                               
involved in  the value chain  of oil development in  Alaska, from                                                               
exploration  through   refining  product  and  all   services  in                                                               
between.  She  said ASRC is generally in support  of CSSB 21(FIN)                                                               
am(efd  fld),  is  currently reviewing  the  committee's  working                                                               
draft [Version B], and will  continue participating in the public                                                               
process.  On March 27, 2013,  ASRC sent a letter to the committee                                                               
and still stands  by the points raised in that  letter about what                                                               
it  supports in  the  bill  and what  needs  strengthening.   For                                                               
today's purposes, she said she will  focus on the general area of                                                               
gross  revenue exclusions  (GRE)  [called  gross value  reduction                                                               
(GVR) in  the current bill version].   While ASRC feels  that the                                                               
base rate of 35 percent is too  high, ASRC could support it if it                                                               
were coupled with the following  changes.  First, remove language                                                               
contained in Section  29 that requires the well  to be accurately                                                               
metered and measured  to the satisfaction of  the commissioner of                                                               
the  Department  of  Revenue.     It  is  unclear  what  "to  the                                                               
satisfaction of the commissioner"  means and it creates ambiguity                                                               
at a time when certainty is  needed.  This language implies there                                                               
is  an absence  of this  practice and  as a  small producer  ASRC                                                               
stands  by  its  metering  and  measuring  practices,  which  are                                                               
currently  monitored  by  the Alaska  Oil  and  Gas  Conservation                                                               
Commission (AOGCC).   In [the  GVR's] current form,  producers do                                                               
not have  certainty that a new  well will be eligible  for the 20                                                               
percent [GVR].   If the  state wants new  oil, then any  new well                                                               
should  count for  that  exclusion.   Layering  on an  additional                                                               
approval  process  between  the  Department of  Revenue  and  the                                                               
Department of Natural Resources for  new oil would be onerous and                                                               
inefficient.   The ASRC  supports having  new wells  eligible for                                                               
the  [GVR].    Second,  remove the  language  also  contained  in                                                               
Section 29 that would require  the producer to demonstrate to the                                                               
Department  of Revenue  the volume  of oil  or gas  produced from                                                               
that well.   This requirement  would be burdensome,  expand state                                                               
bureaucracy,  and would  inhibit oil  and gas  investment.   If a                                                               
well is  drilled and produces  oil or  gas, simply put  it should                                                               
qualify.    As an  employer,  service  provider, resource  owner,                                                               
explorer, producer, and  developer, ASRC is in  a unique position                                                               
to provide  comments, she opined.   While some may be  looking at                                                               
this issue  through a narrow lens,  ASRC can see this  issue from                                                               
several important  viewpoints.  The ASRC  strategically plans for                                                               
a sustainable future in Alaska  and supports a healthy and robust                                                               
oil industry  in the state.   She  thanked the committee  for its                                                               
work and encouraged that there  be continued progress on the bill                                                               
as it moves through the House.                                                                                                  
1:55:20 PM                                                                                                                    
REPRESENTATIVE  TARR asked  when  the committee  might hear  from                                                               
ASRC about the changes made in Version B.                                                                                       
MS.  SWEENEY replied  ASRC will  provide additional  insight from                                                               
its perspective  by the  end of  this week.   She pointed  out it                                                               
takes ASRC a  little longer to analyze what  the legislature puts                                                               
forward due to ASRC's different  facets of involvement in the oil                                                               
industry  as resource  owner, producer,  explorer,  and owner  of                                                               
companies  that  are  involved  in supporting  the  oil  and  gas                                                               
industry and employing nearly 5,000 Alaskans.                                                                                   
1:56:39 PM                                                                                                                    
GRAHAM GREEN,  a lifelong  Alaskan, said  anyone wanting  to know                                                               
what the State of Alaska's policy  on oil production has been can                                                               
go  to  the  website  of the  Department  of  Natural  Resources,                                                               
Division of Oil & Gas,  where the Alaska oil/gas production graph                                                               
shows it all.   Total production in 2002 was  388 million barrels                                                               
and  10 years  later in  2012  total production  was 211  million                                                               
barrels,  a 45  percent decline.    Since 2007,  when the  failed                                                               
policy  of ACES  was  enacted, production  has  declined over  26                                                               
percent.   He  asked  how this  can  be when  oil  prices are  at                                                               
historically  high prices  and production  has  increased in  all                                                               
other oil producing states.   According to the "economic research                                                               
group",  all   other  oil  producing  states   had  increases  in                                                               
production in 2012,  with the exception of Alaska  which was down                                                               
over 7  percent.   After numerous  seasons of  production decline                                                               
since ACES was  enacted, a change has  to be made.   He urged the                                                               
committee's  support  of SB  21.    Responding to  Representative                                                               
Tarr, he confirmed he works in the oil industry.                                                                                
1:59:31 PM                                                                                                                    
MARY BARR  declared it is  a fact  that oil production  in Alaska                                                               
has  steadily  been  declining  since  1989,  while  the  state's                                                               
spending  has increased.   To  encourage additional  oil and  gas                                                               
production, the  state's spending must be  brought under control,                                                               
she  said, and  the state's  oil and  gas tax  structure must  be                                                               
reformed.   Changes to  the tax  structure should  encourage both                                                               
additional exploration  and additional  production.   She related                                                               
the saying that  if less of something is wanted  just raise taxes                                                               
on  it.   Saying  taxes  are negative  incentive,  she urged  the                                                               
committee to pass CSSB 21(FIN) am(efd fld).                                                                                     
2:01:04 PM                                                                                                                    
TOM   MALONEY,  a   long-term   resident   of  south   Anchorage,                                                               
complimented  the  governor,   administration,  consultants,  and                                                               
legislature  for an  outstanding job  examining Alaska's  current                                                               
production and  tax system.   He recalled  a recent graph  by the                                                               
Department of  Revenue (DOR)  for crude  oil production  by state                                                               
for 2011-2012.   Of the 15  locations, the top two  oil producing                                                               
states were  North Dakota and Texas,  up over 55 and  34 percent,                                                               
respectively, for  the year.   Every other  state was up  for the                                                               
year  as  well, except  one  -  Alaska,  which  was down  by  7.1                                                               
percent.  In fall 2007,  the revenue resource review published by                                                               
the Resource  Development Council  contained the  following quote                                                               
from then  commissioner [of DOR]  Pat Galvin - "Frankly,  we have                                                               
not  said that  ACES improves  the investment  climate.   Clearly                                                               
there is  going to be a  larger state share and  that isn't going                                                               
to make  economics of  projects better."   Mr. Maloney  said this                                                               
was a very  astute observation that has been proven  correct.  In                                                               
calendar year  2007, North Slope oil  production averaged 739,000                                                               
barrels  a day,  but in  calendar year  2012 production  averaged                                                               
just 548,000 barrel a day.   Five years ago production was nearly                                                               
35 percent  higher.  Production ranged  from a low of  399,000 in                                                               
August to a high of 624,000 in  January 2012.  Thus, in 2012, the                                                               
highest  producing  month was  lower  than  the lowest  producing                                                               
month in  2007.  This  is unsustainable for a  positive long-term                                                               
economy  for Alaska.   He  urged the  committee to  focus on  the                                                               
governor's  guiding   principles  and   "to  not  be   fine  with                                                               
production decline."  The reduction  of 191,000 barrels a day for                                                               
a  year,   at  $100   a  barrel,  results   in  a   reduction  of                                                               
approximately $7 billion  in Alaska's economy in  one year alone.                                                               
He encouraged the committee to change the course.                                                                               
2:03:53 PM                                                                                                                    
RACHAEL  PETRO,  President  and  CEO,  Alaska  State  Chamber  of                                                               
Commerce, noted  the Alaska Chamber is  a statewide, pro-business                                                               
organization comprised of businesses of  all types and sizes from                                                               
across  Alaska.   For  the  third  year running,  Alaska  Chamber                                                               
members have selected  reform of oil tax policy  to encourage new                                                               
production as its top legislative  priority.  This is in addition                                                               
to the  13 local chambers of  commerce that also support  oil tax                                                               
reforms:   Anchorage,  Bethel, Chugach,  Eagle River,  Fairbanks,                                                               
Haines, Juneau, Kenai, Ketchikan,  Kodiak, Palmer, Seward, Sitka,                                                               
and Wasilla.  The Alaska  Chamber supports the guiding principles                                                               
the governor has  outlined for an oil tax bill  and believes that                                                               
SB 21 is an excellent start  at reaching those goals.  The Alaska                                                               
Chamber looks  forward to hearing  expert analysis on  Version B,                                                               
but remains concerned that SB  21 truly makes Alaska competitive.                                                               
A  competitive  oil  tax  regime  will  incent  new  exploration,                                                               
development, and  production.   To that  end, the  Alaska Chamber                                                               
believes  SB  21  should  address  as  many  different  types  of                                                               
projects as  possible.  Ending  the onerous  progressivity within                                                               
ACES  benefits  legacy  producers  and  extension  of  the  small                                                               
producer credit  until 2022 would benefit  newer market entrants.                                                               
The Alaska  Chamber believes that being  competitive means making                                                               
Alaska's resource stand  out from what is  available elsewhere in                                                               
the market.   Being  middle of  the pack when  it comes  to total                                                               
government take  improves Alaska's  competitive position,  but is                                                               
that enough to  move capital investment from  another region into                                                               
Alaska?   Alaska's  remoteness from  the market,  arctic climate,                                                               
and high labor  and logistical costs cannot be changed  by SB 21,                                                               
but those  factors can and  should be  considered as the  bill is                                                               
crafted because Alaska's economic future depends on it.                                                                         
2:06:56 PM                                                                                                                    
MAYNARD TAPP offered  his appreciation for what has  been done by                                                               
the Senate and the committee,  noting that limiting progressivity                                                               
is what is trying to be  accomplished.  He suggested limiting the                                                               
government  take  to 50  percent  and  50 percent  for  producers                                                               
because a  fair deal with a  friend is 50:50.   He urged leveling                                                               
of production to  600,000 barrels a day and determining  a way to                                                               
get to  the governor's  goal of  1 million  barrels per  day; for                                                               
example,  maybe  the  right  number for  government  take  is  50                                                               
percent rather than 62 percent.   Alaska wants to be first on the                                                               
list for  investment, not in  the middle of  the pack.   After 40                                                               
international years in  the oil and gas industry,  he has learned                                                               
that not everything works out the way  it was planned.  It may be                                                               
mechanically possible to transport oil  at 300,000 barrels a day,                                                               
but it  does not allow  for upsets in  flow and breakdown  in the                                                               
facility  that is  36  years  old.   The  governor's  goal is  to                                                               
produce 1  million barrels a  day from state lands.   Determining                                                               
the selection of  paths to producing the 1 million  barrels a day                                                               
may not be  an easy thing for legislators to  do, but getting rid                                                               
of progressivity  and leveling the production  to 600,000 barrels                                                               
of  day will  provide  a scenario  where it  may  be possible  to                                                               
increase  oil  investment  by  the   producers.    Responding  to                                                               
Representative Tarr,  he said  his 40  years of  work in  the oil                                                               
industry was mostly in project and project control.                                                                             
2:09:44 PM                                                                                                                    
LYNN JOHNSON supported SB 21, saying  he is a 40-year resident of                                                               
Alaska,  a  businessman  with Dowland-Bach  Corporation,  and  is                                                               
involved with  many entities  throughout town.   Alaska  needs to                                                               
become more competitive  with other oil producing  basins.  North                                                               
Dakota and  Texas are kicking  Alaska's tail in  production rate.                                                               
Investment flows  to regions and  projects with the  best overall                                                               
rate of return,  he opined.  Alaska is already  a high cost basin                                                               
due to  geography and climate.   Alaska is  soon to be  fourth in                                                               
domestic  production, behind  even California.   As  said by  the                                                               
governor, meaningful reform  is needed that is  fair to Alaskans,                                                               
encourages new production,  is simple, and is  durable.  Alaska's                                                               
economic  future  is  at  stake,   oil  production  needs  to  be                                                               
increased  now.   This  is  the  third legislative  session  that                                                               
testimony has  been taken on  ACES reform and during  this period                                                               
of study and  debate TAPS throughput has  declined almost 100,000                                                               
barrels  a day.   Saying  Alaska  cannot afford  the decline,  he                                                               
urged SB 21 be the vehicle for making Alaska competitive again.                                                                 
2:11:30 PM                                                                                                                    
REPRESENTATIVE  TARR recounted  that legislators  have repeatedly                                                               
asked industry whether it will  invest more in Alaska should this                                                               
measure pass,  but at no  point has industry  said it will.   She                                                               
asked whether this gives Mr. Johnson cause for concern.                                                                         
MR.  JOHNSON  answered no,  industry  should  be given  a  chance                                                               
because  there will  be tremendous  backlash  if that  investment                                                               
does not come.                                                                                                                  
2:12:39 PM                                                                                                                    
JOHN DICKENS,  a resident of  Bethel, said he is  taking vacation                                                               
time from his job to testify  because he believes the very future                                                               
of Alaska  is at  stake.  Alaska  is on the  very of  a financial                                                               
catastrophe and  apocalypse that nobody  seems to get  their mind                                                               
around.   Fifty percent of  Alaska's projected future  revenue in                                                               
2020 is  based on  other people's money  or oil  companies' money                                                               
that has yet  to be invested.  Capital is  invested to get return                                                               
on investment.   The committee  still has not addressed  that the                                                               
only  place worse  than Alaska  to  invest for  oil companies  is                                                               
North  Korea and  Venezuela.   As  a child  he had  a dream  that                                                               
someday the oil from the north  would be brought to market; every                                                               
step of  the way was a  tough fight.   It is ironic that  many of                                                               
the people  whining today  about how  much money  is going  to be                                                               
given away did not want the pipeline  at all.  It was a 50-50 tie                                                               
in  the U.S.  Senate and  Vice President  Spiro Agnew  broke that                                                               
tie.   From 1973  to 1975  the gross  domestic product  of Alaska                                                               
doubled because of  oil company investment; it  was $7-$8 billion                                                               
in 1970  dollars, in  today's dollars that  would be  about $143-                                                               
$146 billion.   He asked why industry would drill  in Alaska with                                                               
the way it is  treated.  He urged the bill  be passed right away.                                                               
Rather  than  asking  for  the   oil  company's  commitment,  the                                                               
legislature's  commitment to  quit changing  the rules  should be                                                               
asked  for.   Regarding  testimony that  Governor  Parnell has  a                                                               
conflict  of interest,  he argued  that anyone  who has  cashed a                                                               
permanent fund dividend has a conflict of interest.                                                                             
2:17:51 PM                                                                                                                    
DEANTHA CROCKETT,  Executive Director, Alaska  Miners Association                                                               
(AMA),  noted  AMA  is  a  statewide  umbrella  association  that                                                               
represents  the six  large metal  mines in  Alaska, the  one coal                                                               
mine, large  exploration projects,  and hundreds of  small placer                                                               
miners, contractors, and  vendors.  She explained  this issue has                                                               
been one  of AMA's  top priorities  for the third  year in  a row                                                               
because a healthy  oil industry is good for  the mining industry.                                                               
Companies  are looking  at mineral  deposits in  Alaska that  are                                                               
incredible, but  a number  of things  are stacked  against mining                                                               
companies:    a huge  lack  of  infrastructure, very  challenging                                                               
geography,  challenging  geology,  challenging climate,  and  the                                                               
state's political  structure that  is not all  that stable.   How                                                               
the state  taxes industry  is something  that can  be controlled.                                                               
Mining  companies   looking  at  coming  into   Alaska  are  very                                                               
uncertain  and are  watching this  legislation because  they know                                                               
they  could be  in this  same boat.   When  constant changes  are                                                               
being made to  a tax structure on a single  industry, it does not                                                               
matter whether  or not they are  an oil business.   She urged the                                                               
committee to exercise  this control by passing SB  21 and sending                                                               
a better message to anyone wanting to invest in Alaska.                                                                         
2:20:13 PM                                                                                                                    
CINDY ROBERTS  said she and  her husband  came to Alaska  in 1971                                                               
with former Alaska governor and  Secretary of the Interior, Wally                                                               
Hickel.   Legislators swear  in their oath  of office  to support                                                               
and  defend Article  VIII, Section  2 -  to act  for the  maximum                                                               
benefit of the  people of Alaska - and this  ethical pledge looms                                                               
over committee  members at this moment.   Whether the goal  of SB
21 is  for Alaska to  become competitive or  attractive, industry                                                               
is asking legislators to believe  they will respond by increasing                                                               
the  throughput of  North Slope  crude oil  and also  raise state                                                               
revenues.  She urged members to  not forget that in 2006 Alaska's                                                               
tax system  changed from the  economic limit factor (ELF)  to the                                                               
production profits  tax (PPT).   Compromised ethics were  part of                                                               
that deal and  the Federal Bureau of  Investigation (FBI) stepped                                                               
in to  help Alaska  clean up.   In 2007 the  ACES tax  system was                                                               
established,  an  action  of  pride to  Governor  Palin  and  her                                                               
lieutenant governor, Shawn Parnell.   At this moment, she opined,                                                               
challenges  to legislators'  ethics and  honest pursuit  of solid                                                               
information  are  again  endangering  Alaska's  future  as  owner                                                               
state.   The committee's  colleagues in  the Senate  have already                                                               
been   compromised.     Two   long-term,   valued  employees   of                                                               
ConocoPhillips,  now  serving  as  Senate members,  asked  to  be                                                               
recused from  voting on SB  21 due  to an undeniable  conflict of                                                               
interest.  Their vote will go  down in history as Alaska's "9/11"                                                               
- the  moment the owner state  became tagged as owned  by the oil                                                               
industry.   In  two  minutes  of testimony  it  is impossible  to                                                               
discuss the billions  of dollars that SB 21 will  send across the                                                               
table to an industry that has  given no commitment to improve the                                                               
flow in  TAPS or to  raise state  revenues.  She  urged committee                                                               
members,  before it  becomes  a  vote of  record,  to give  their                                                               
actions meticulous rather than partisan  analysis, to be ethical,                                                               
and to not  ignore the conflicts of interest  among the committee                                                               
members'  own colleagues.   She  further urged  the committee  to                                                               
take its  time to  evaluate and  audit the  ACES system  and then                                                               
decide.   If members must vote  on SB 21 now,  she advocated they                                                               
vote against it.                                                                                                                
2:23:18 PM                                                                                                                    
CO-CHAIR  SADDLER  asked  whether  Ms. Roberts  is  accusing  the                                                               
legislature of being corrupt and unethical.                                                                                     
MS. ROBERTS replied no, she was  pointing out the exact time that                                                               
the Senate ignored an ethical request  from two of its members to                                                               
recuse themselves  from voting where  there was a  clear conflict                                                               
of  interest  that could  be  taken  from  the public's  side  as                                                               
something  against all  legislators.   She added  she was  urging                                                               
committee members  to make that  same consideration  when casting                                                               
votes on  this very  critical issue.   A case  has not  been made                                                               
with audits as to what the  exact implications have been on ACES.                                                               
She has not seen any evaluation  of the actual impact in negative                                                               
revenue of  SB 21  and it was  only at 1:00  p.m. today  that she                                                               
received  a copy  of the  proposed committee  substitute [Version                                                               
B], which has  no fiscal note.  She said  she is urging committee                                                               
members to  get all  the facts  that are  pending to  ensure that                                                               
their honor is not questioned.                                                                                                  
CO-CHAIR SADDLER  inquired whether  Ms. Roberts  understands that                                                               
the  senators in  question did  declare a  potential conflict  of                                                               
interest and followed the established Senate rules.                                                                             
MS.  ROBERTS responded  she understands  that, but  asked whether                                                               
that changed their conflict of interest.                                                                                        
2:25:22 PM                                                                                                                    
JOHN "JACK" RODERICK, responding  to Co-Chair Feige, confirmed he                                                               
is the  author of the  book, Crude Dreams:   Oil and  Politics in                                                             
Alaska.  Moving to  his testimony, he said he used  to be a small                                                             
oil  explorer in  Alaska  and taxes  was  never a  consideration;                                                               
companies come  to Alaska or  anywhere to  find oil and  taxes is                                                               
not  a big  problem for  them.   He  noted he  was the  Anchorage                                                               
borough  mayor in  the early  1970s, deputy  commissioner of  the                                                               
Department of Natural Resources in  the late 1970s, and wrote the                                                               
oil and  gas leasing  law for Alaska.   He said  the bill  is bad                                                               
legislation.   It  is complex  and everybody  is concerned  about                                                               
putting more oil  in the pipeline, but giving a  tax break is not                                                               
the  answer, particularly  when there  is no  guarantee from  the                                                               
companies that  they will  spend the money  being given  them, or                                                               
even  some  of  the  money,  in  Alaska.    There  must  be  some                                                               
guarantee, preferably  in writing,  that that  will happen.   The                                                               
largest and  most powerful  corporations in  the world  are being                                                               
dealt with and legislators cannot  take it simply on a handshake.                                                               
He  recommended  the  bill  be  put aside  until  there  is  more                                                               
information,  particularly a  guarantee from  the companies  that                                                               
they  will do  what is  wanted.   While he  does not  want to  be                                                               
personal, the question  has been raised - if this  bill passes in                                                               
almost  any form,  the  result  in the  national  media could  be                                                               
another "Bill Allen, VECO, corruption  tale" in Alaska, something                                                               
he would  take personal  offense at.   He has  been in  Alaska 60                                                               
years, involved in public affairs and  the oil business.  This is                                                               
the most  important decision legislators will  probably ever make                                                               
and it  should not be  made this way.   Not enough is  known, the                                                               
answers are  unknown, and the  companies will not  guarantee that                                                               
they will do what they say.   This legislation is not the answer.                                                               
He  has  worked  with  every  governor  since  statehood,  except                                                               
Governor  Palin, and  he  does not  think any  of  them would  go                                                               
forward  under  these conditions  without  a  guarantee from  the                                                               
other side.   If legislators want to work with  the industry then                                                               
work with the  industry, have them provide  more information, and                                                               
enter into some sort of a partnership arrangement.                                                                              
2:30:30 PM                                                                                                                    
REPRESENTATIVE TARR  noted some of  the concerns are  about audit                                                               
information that has yet to be  teased out.  She inquired whether                                                               
Mr. Roderick's statement about  "more information" is referencing                                                               
specific information.                                                                                                           
MR. RODERICK qualified  he does not know if it  is true, but said                                                               
he has  read that the  governor has  experts who have  not shared                                                               
information with the legislation; if true,  that is not good.  He                                                               
said he is  targeting the big three oil  companies and production                                                               
from the  legacy fields in  particular.   He would ask  them what                                                               
their targets are for profits and  while they may not share that,                                                               
legislators need to  get into the "guts of the  economics of this                                                               
thing"  and  get  a  lot   more  information.    Legislators  are                                                               
representing the state and the  people, and they are dealing with                                                               
the most  sophisticated, smartest  people in  the world  who know                                                               
what  their interests  are.   What  bothers him  is the  attitude                                                               
often seen now that legislators  are trying to help the industry.                                                               
However,  he declared,  be realistic,  industry can  help itself.                                                               
While filling the  pipeline is a concern, the  oil companies know                                                               
where  their  oil  is and  will  produce  it  so  long as  it  is                                                               
economic.   He  disagreed that  [change] needs  to be  done right                                                               
away, saying companies  have had that oil for 30  years and a lot                                                               
more is  going to  be discovered  on the North  Slope.   The U.S.                                                               
Geological Survey's numbers are very conservative, he added.                                                                    
2:33:28 PM                                                                                                                    
REPRESENTATIVE  P. WILSON,  referencing Mr.  Roderick's statement                                                               
that oil  companies will make  sure they make a  profit, inquired                                                               
whether  the oil  companies will  go somewhere  else if  they can                                                               
make a better profit there, or will just stay in Alaska.                                                                        
MR.  RODERICK  answered  the  companies  will  probably  do  what                                                               
Chevron did  in the Cook Inlet  - sell to a  smaller company that                                                               
does not  need that  much profit.   There is  no question  in his                                                               
mind that the  oil is going to  be taken out of  the North Slope.                                                               
Not talked  about are the  tens of  billions of barrels  of heavy                                                               
oil on the  North Slope, which will  be taken out if  and when it                                                               
is  economic and  which  BP  in particular  is  working  on.   He                                                               
sympathized  with  legislators about  having  to  deal with  this                                                               
long-term problem, but said it is  not good business and not good                                                               
public policy  when there are  no guarantees that the  other side                                                               
is going to perform.                                                                                                            
2:34:54 PM                                                                                                                    
REPRESENTATIVE P.  WILSON asked what  the state should do  in the                                                               
meantime, if  it waits, when there  is not enough revenue  to run                                                               
the state.                                                                                                                      
MR. RODERICK  replied there  is $14 billion  in the  state's cash                                                               
account  that will  last  a while.   He  concurred  the state  is                                                               
looking at  a fiscal  problem down  the line,  but said  there is                                                               
cash for  the next few  years so there is  time to sort  out this                                                               
long-term problem  of what the  state's relationship is  with the                                                               
oil industry.   He  recalled two of  the major  companies stating                                                               
that they  are going to  be in Alaska for  the next 50  years; he                                                               
maintained that  that is  because the companies  want to  get the                                                               
heavy oil.   Additionally, he  said, they are  watching offshore,                                                               
which has  tremendous potential  and that oil  will have  to come                                                               
onto land and the state will get a share through the pipeline.                                                                  
2:36:49 PM                                                                                                                    
RICK  ROGERS, Executive  Director,  Resource Development  Council                                                               
for  Alaska,  Inc.  (RDC), encouraged  the  committee  to  remain                                                               
focused  on  the  ultimate  goal of  the  legislation,  which  is                                                               
increased production  from both  legacy and new  oil fields.   He                                                               
said  RDC understands  the tension  between balancing  the short-                                                               
term impacts to the treasury  with the long-term benefits to both                                                               
the  treasury and  the  economy  as a  whole.   His  organization                                                               
remains  concerned  that too  much  of  a short-term  focus  will                                                               
undermine  the overall  purpose of  this legislation  to increase                                                               
production  activity  and  stem   the  TAPS  throughput  decline.                                                               
Competitiveness is  not a single  point, but rather  a continuum;                                                               
SB 21  is far more  competitive than ACES.   The degree  to which                                                               
Alaska's  tax  policy  is  modified   should  keep  in  mind  the                                                               
challenges of operating  in Alaska - the  short operating season,                                                               
high  cost,   lack  of  infrastructure,   and  the   delay  risks                                                               
associated with  the plethora of  federal permits that  are often                                                               
appealed  in  the  courts.    To  attract  sufficient  investment                                                               
capital  to  overcome  the state's  specific  challenges,  Alaska                                                               
needs  to be  sufficiently  aggressive in  its  tax reduction  to                                                               
stand  ahead of  the competition.   Smaller  producers have  less                                                               
resiliency to  overcome these challenges  and RDC  encourages the                                                               
committee to consider extending the  small producer tax credit to                                                               
2022  or beyond,  again with  the  goal of  helping existing  and                                                               
future  small  producers  compete  in obtaining  the  capital  to                                                               
increase production.   This is  not about worrying about  what is                                                               
good for  the industry; it is  about worrying about what  is best                                                               
for  Alaska  in  the  long   term.    Regarding  the  talk  about                                                               
guarantees, he said the status  quo is the guarantee of continued                                                               
plus  or minus  7 percent  decline rates.   If  that is  done for                                                               
another  five  years while  trying  to  obtain more  information,                                                               
where  will Alaska's  budget be  when  it is  35-40 percent  less                                                               
annual revenue than  today?  He said RDC has  not done a detailed                                                               
analysis  of the  proposed committee  substitute [Version  B] and                                                               
looks  forward   to  hearing   from  the   explorers,  producers,                                                               
consultants,  and administration  to get  a better  sense of  the                                                               
fiscal  impact and  how  it will  lead to  more  production.   In                                                               
general,  RDC  is supportive  of  changes  to this  evolving  tax                                                               
policy  as  it  moves  through  the House  with  an  emphasis  on                                                               
increased   production  from   both   legacy   and  new   fields.                                                               
Commending committee  members for its  diligence, he said  RDC is                                                               
encouraged that  this legislature will  establish an oil  and gas                                                               
policy this session that leads to a bright future for Alaska.                                                                   
2:40:01 PM                                                                                                                    
REPRESENTATIVE SEATON noted an impetus  behind the bill is to get                                                               
increased  volume from  the  legacy fields,  yet  a major  legacy                                                               
producer has testified  in the past that to do  heavy oil it must                                                               
be mixed  with light  oil to  be able to  be run  down TAPS.   He                                                               
requested  Mr. Rogers'  thoughts about  how to  maximize Alaska's                                                               
heavy oil resources if there is a spurt in light oil production.                                                                
MR. ROGERS responded he is  not qualified to answer and suggested                                                               
the question be asked of a petroleum engineer.                                                                                  
REPRESENTATIVE  SEATON surmised  RDC  would not  be  in favor  of                                                               
doing  something  that would  make  Alaska  unable to  adequately                                                               
develop its heavy oil resources in the future.                                                                                  
MR. ROGERS  answered RDC's  interest is  in maximizing  the long-                                                               
term  production from  Prudhoe Bay,  both the  known reserves  of                                                               
challenged oil as well as yet to be discovered resources.                                                                       
2:41:59 PM                                                                                                                    
CARL  PORTMAN offered  his support  of meaningful  oil production                                                               
tax reform  this session.   The  legislature has  been addressing                                                               
this issue  for years,  but has yet  to pass  significant reforms                                                               
that will move the needle  in attracting the investment needed to                                                               
reverse the production decline.   Given the strong competition in                                                               
the Lower 48  and abroad for investment capital,  Alaska needs to                                                               
be among  the very best  places for  investment.  He  argued that                                                               
taxes  do  matter  and  said   lower  taxes  will  generate  more                                                               
investment, which in turn will  boost production and lead to more                                                               
state revenue over  the long term.  New  investment in production                                                               
will stimulate  the private  sector, create  more jobs,  grow the                                                               
economy,  and  boost  royalty  income to  the  state.    Alaska's                                                               
current oil  production tax structure  has generated  billions of                                                               
dollars  in  short-term revenues,  but  he  fears  it is  at  the                                                               
expense  of   long-term  investment,  production,  jobs,   and  a                                                               
sustainable economy.   "Taxing ourselves to prosperity  is a poor                                                               
strategy and  will undermine  our future  in the  private sector,                                                               
the foundation of Alaska's economy,"  he said.  Under the current                                                               
tax  structure   the  state   is  guaranteed   lower  production,                                                               
guaranteed lower  revenue, and guaranteed higher  budget deficits                                                               
over the  long term, resulting  in a  weaker economy and  a lower                                                               
standard of living for Alaskans.   Under ACES the state will face                                                               
leaner  budgets  and challenges  to  funding  state services  and                                                               
education as  production continues in  unchecked decline.   It is                                                               
time for major  oil production tax reform because  the status quo                                                               
of declining  production is  unacceptable.   He said  SB 21  is a                                                               
step in  the right  direction and urged  committee members  to do                                                               
sufficient due diligence  and to ensure the goals set  out in the                                                               
legislation are achieved.                                                                                                       
2:44:18 PM                                                                                                                    
KEITH SILVER noted he does not work  for an oil company or an oil                                                               
service company,  but said many  of his clients  do.  No  type of                                                               
guarantee to the  people or to the oil companies  was provided in                                                               
ACES when  it was rushed through  in a special session  of two to                                                               
three weeks,  he pointed out.   To ask for a  guarantee now would                                                               
be  inappropriate.   "To do  nothing now  would be  tantamount to                                                               
sticking  our  collective heads  back  in  the ground  while  the                                                               
pipeline dries  up," he said.   Any reduction in taxes  now would                                                               
not be a giveaway, but rather  a correction of a taking via ACES.                                                               
He  urged  that meaningful  reform  in  oil production  taxes  be                                                               
achieved to make  Alaska a compelling place to invest.   Doing so                                                               
will prevent a  steepening in the decline curve and  put more oil                                                               
in the pipeline.                                                                                                                
2:45:44 PM                                                                                                                    
SCOTT  HAWKINS,   President  and   CEO,  Advanced   Supply  Chain                                                               
International,  noted  his  company  is  a  materials  management                                                               
company  that  employs over  200  Alaskans  in  the oil  and  gas                                                               
industry in Alaska.  Both he  and his company are concerned about                                                               
the health  of the industry  currently and the  relentless annual                                                               
production declines.  Even though  employment levels have held up                                                               
fairly well in the last few  years since ACES, it has mainly been                                                               
around  maintenance  and  retrofitting  of  existing  facilities.                                                               
There has not been adequate  new investment in new production, as                                                               
the slope of  the production decline curve  illustrates.  Because                                                               
of those concerns, he is encouraged to  see SB 21 move out of the                                                               
Senate and  now be before this  committee.  While he  has not yet                                                               
reviewed the  proposed committee substitute [Version  B], he said                                                               
CSSB 21(FIN) am(efd fld) is a  major step in the right direction.                                                               
He  encouraged   that  the   proposed  committee   substitute  be                                                               
strengthened  further, specifically  to make  sure it  adequately                                                               
incentivizes production, both from legacy  and new fields.  It is                                                               
also  important the  bill  make  Alaska sufficiently  competitive                                                               
this time  around.  Regarding  statements about a  giveaway, that                                                               
mitigating  the  overreach  of  ACES is  somehow  a  giveaway  to                                                               
industry,  he  would  submit  that taxation  is  a  takeaway  and                                                               
mitigating a takeaway is not a  giveaway.  Failing to institute a                                                               
balanced, responsible  oil taxation policy that  incentivizes new                                                               
production,  thereby bending  the production  curve in  the right                                                               
direction of  upwards, is what  would be  a giveaway.   The state                                                               
would  be giving  away future  investment  capital, future  jobs,                                                               
future production, as well as the fiscal future of the state.                                                                   
2:49:25 PM                                                                                                                    
REPRESENTATIVE  TARR  stated  that according  to  the  employment                                                               
charts  she has  seen,  2012  had the  highest  number of  people                                                               
working on  the North Slope  since 1990.   She asked  whether Mr.                                                               
Hawkins has  information to substantiate his  statement that many                                                               
of those jobs are maintenance  jobs because that is something she                                                               
has never seen.                                                                                                                 
MR.  HAWKINS replied  he does  not have  data that  he can  share                                                               
today, but imagines it is  available from some sources.  However,                                                               
he knows from  having hundreds of people in the  industry.  Since                                                               
his  company  does materials  management  for  several major  oil                                                               
fields  in Alaska,  his company  knows what  kinds of  things are                                                               
being ordered  and what  kinds of projects  are being  worked on.                                                               
Further,  his company  has a  pretty good  handle on  new project                                                               
development  and  has seen  new  project  activity decline  while                                                               
maintenance and upgrade activity has  remained strong.  His other                                                               
answer to the  question, he added, is to be  wary in interpreting                                                               
that  an increase  in  employment in  the  context of  production                                                               
decline is  a good thing.   All that means  is that the  cost per                                                               
barrel of producing  is going up while production  is going down.                                                               
If  new production  is not  being  seen in  the pipeline,  rising                                                               
employment is not necessarily a long-term sustainable trend.                                                                    
2:51:33 PM                                                                                                                    
GAIL PHILLIPS, noting she is  a former member of the legislature,                                                               
offered  her  support   for  the  committee's  work   to  find  a                                                               
reasonable  and  long-term  solution to  Alaska's  tax  conflict.                                                               
When she  served in the  legislature, the state was  fortunate in                                                               
that it had a stable tax regime  and did not have the grave issue                                                               
of seriously  declining oil production  that is faced today.   At                                                               
that  time  legislators did  not  have  to worry  about  Alaska's                                                               
competitive  stature  in the  world  market;  Alaska was  strong,                                                               
productive, and competitive.  Alaska's  standing today is totally                                                               
different and  it is up to  committee members to set  policy that                                                               
will ensure  a competitive  regime that  will turn  things around                                                               
and make Alaska  once again a leader in oil  production.  Finding                                                               
a long-term solution to an  economically beneficial tax policy is                                                               
critically  important  to  Alaskans,  especially  to  those  with                                                               
children and  grandchildren.   She urged  the committee  stay the                                                               
course  and  find a  workable  solution  this session  that  will                                                               
change the current ACES law.   Offering her support for the bill,                                                               
she said not  much time left is  left before it will  be too late                                                               
to  turn around  the decline  curve and  make Alaska  competitive                                                               
once again.                                                                                                                     
2:53:40 PM                                                                                                                    
JEANINE ST.  JOHN thanked  members for their  hard work  and said                                                               
ACES is flawed.   She is glad that there  has been recognition of                                                               
the  problem regarding  investments  and  the difference  between                                                               
spending  and production.    The  right thing  for  Alaska is  to                                                               
incentivize  that  production.   She  said  she supports  SB  21,                                                               
subject  to  the  fiscal  note   information  and  testimony  and                                                               
information  from the  experts.   To  be sure,  she supports  the                                                               
governor's  principles,  although  the  ability  to  achieve  the                                                               
simplicity  principle may  be questionable  at this  point.   She                                                               
said she hopes  Representative Hawker is not  recused from voting                                                               
on the  bill because he is  her representative and she  wants his                                                               
expert opinion and values his judgment on this bill.                                                                            
2:56:06 PM                                                                                                                    
JOE   MATHIS,  Vice   President   for   External  Affairs,   NANA                                                               
Development Corporation,  noted he was the  founding president of                                                               
the Alaska Support Industry Alliance in  1979.  On behalf of NANA                                                               
Development  Corporation  and  as  board member  emeriti  of  the                                                               
alliance, he  offered support for passing  SB 21 as it  is before                                                               
the committee today.  He  said NANA's companies have been meeting                                                               
the needs  of the oil and  gas sector for close  to four decades.                                                               
In 2012 NANA  employed nearly 5,000 Alaskans, of  which 1,600 are                                                               
NANA  shareholders.    Through   its  business  operations,  NANA                                                               
generates  income  and  delivers benefits  to  its  shareholders.                                                               
NANA shareholders  have made significant  investments in  the oil                                                               
industry  over  the  past  40  years.   NANA  has  held  a  small                                                               
ownership in  the Endicott  Oil Field for  over two  decades, has                                                               
invested in  new facilities and  equipment at Deadhorse  for NANA                                                               
Oil  Field   Services,  and  has   invested  heavily  in   a  new                                                               
fabrication    facility   in    the   Matanuska-Susitna    Valley                                                               
specifically  designed for  oil field  modules and  construction.                                                               
These business  activities have afforded NANA's  shareholders and                                                               
other Alaskans the  opportunity to hold good paying  jobs as well                                                               
as  receive extensive  job training.    Oil industry  investments                                                               
fuel the  contracts for  NANA companies and  the jobs  that those                                                               
contracts contract, but NANA is  seeing these opportunities go to                                                               
the  Lower 48,  such as  North Dakota  and Texas,  where the  oil                                                               
industry  is booming.    A  NANA company  has  opened a  Houston,                                                               
Texas, office to pursue  work in Texas.  NANA has  had to look at                                                               
places outside of Alaska for  investment and opportunities in oil                                                               
and gas, such as Australia.   Alaska's current investment climate                                                               
is driving  business away.  Alaska  does not have a  lack of oil;                                                               
rather it  has a  lack of  investment.  NANA  has heard  that the                                                               
industry has billions  of dollars in projects that  could be done                                                               
if Alaska's tax  structure was more competitive.   Projects would                                                               
increase  oil production  and,  more  importantly, projects  that                                                               
NANA's companies  have the skills,  experience, and  expertise to                                                               
carry out.  NANA has a  homegrown workforce from all parts of the                                                               
state, urban and  rural.  People need to pull  together to ensure                                                               
Alaska has a stable economic  climate to serve its citizens today                                                               
and into  the future and SB  21 will set the  stage for continued                                                               
development of Alaska's economy.   NANA believes the work done by                                                               
the Senate and this committee will  produce a viable and fair tax                                                               
policy  for the  state,  Alaskans, and  producers.   However,  he                                                               
would be remiss  as the founding president of the  alliance if he                                                               
did not  address one thing  he thinks needs emphasis  in language                                                               
in  the bill,  which is  ensuring that  the producers  are hiring                                                               
competitive  Alaska  contractors  for needed  infrastructure  and                                                               
production  and to  bring more  oil into  production.   Homegrown                                                               
contractors will ensure  Alaska content.  Alaska  has hidden gems                                                               
in its vast great land that  are waiting to reveal themselves and                                                               
their benefits to  Alaska's future.  Significant oil  and gas tax                                                               
reform will make that revelation.                                                                                               
3:00:45 PM                                                                                                                    
MARY ANN PEASE,  Owner, MAP Consulting, testified she  is a board                                                               
member for Commonwealth North, is  on the executive committee for                                                               
the Alaska  State Chamber of  Commerce, is past president  of the                                                               
Anchorage Chamber of Commerce, and  is a board member of Consumer                                                               
Energy Alliance.  She expressed  her concern about the staggering                                                               
decline in oil  production, noting Alaska is down from  a peak of                                                               
over 2 million barrels a day  to just over 500,000 barrels today.                                                               
This decline continues at an annual  rate of 5-7 percent during a                                                               
time  of increasing  oil  prices.   While  attending a  [Consumer                                                               
Energy]  Alliance  meeting  last   week  she  learned  about  the                                                               
incredibly  rapid  growth of  production  from  the Bakken,  that                                                               
North Dakota has  the fourth lowest tax rate at  9.8 percent, and                                                               
is on  the path of  unprecedented prosperity and  economic growth                                                               
and development.   Alaska needs  to once again become  number one                                                               
in  oil production.    Today,  North Dakota  is  first, Texas  is                                                               
second,  California is  third,  and Alaska  is  fourth, which  is                                                               
unacceptable.   The  legislature  has the  opportunity to  reform                                                               
taxes  and  enable Alaska's  economy  to  have a  prosperous  and                                                               
sustainable  future, and  she believes  the committee  will reach                                                               
that conclusion.   High  oil prices  coupled with  new technology                                                               
have  created a  boom  in the  oil and  gas  industry across  the                                                               
country and the  world.  Alaska, however, is missing  out on this                                                               
boom and it  is no secret why  - Alaska's taxes are  too high and                                                               
companies are  taking their investment  dollars elsewhere.   More                                                               
oil is  needed in the pipeline  to maintain jobs and  that action                                                               
must be taken today; there is  no time to continue studying this.                                                               
The  rates and  progressivity structure  of Alaska's  current tax                                                               
regime provide a  disincentive to attracting risk  capital to the                                                               
state, as  evidenced by a declining  production during increasing                                                               
oil  prices.    Increased  investment  through  increased  global                                                               
competitiveness  will enhance  Alaska's  ability  to fulfill  its                                                               
constitutional  mandate  to  develop natural  resources  for  the                                                               
maximum benefit of the people.   When over 90 percent of Alaska's                                                               
budget is  truly funded by  oil revenues,  the state does  have a                                                               
mandate to ensure that it has  a sustainable future.  The oil and                                                               
gas industry needs  to be shown that Alaska is  open for business                                                               
and  is  serious  about  keeping,  growing,  and  expanding  that                                                               
business by making meaningful tax reform happen now.                                                                            
3:03:58 PM                                                                                                                    
CO-CHAIR FEIGE  recessed the  meeting until  9:00 a.m.,  April 2,                                                               
2013, saying public testimony will be continued at that time.                                                                   

Document Name Date/Time Subjects
HRES SB 21 MaryAnn Pease Testimony 4.1.13.pdf HRES 4/1/2013 1:00:00 PM
SB 21
HRES SB 21 NANA Dev. Testimony 4.1.13.pdf HRES 4/1/2013 1:00:00 PM
SB 21
HRES SB21 Brad Keithley Comments.pdf HRES 4/1/2013 1:00:00 PM
SB 21
HRES SB 21 City of Barrow Resolution 4.1.13.pdf HRES 4/1/2013 1:00:00 PM
SB 21
HRES HCS CSSB21 Sykes 4.1.13.pdf HRES 4/1/2013 1:00:00 PM
SB 21