Legislature(2009 - 2010)SENATE FINANCE 532
03/18/2010 03:00 PM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB230 || SB253 | |
| SB305 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 230 | TELECONFERENCED | |
| += | SB 253 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 305 | TELECONFERENCED |
SENATE BILL NO. 305
"An Act relating to the tax on oil and gas production;
and providing for an effective date."
Co-Chair Stedman introduced the bill.
Co-Chair Hoffman MOVED to adopt CSSB 305 26-LS1577\S as a
working document. Co-Chair Stedman OBJECTED for the purpose
of discussion.
4:11:35 PM
ROGER MARKS, LB&A CONSULTANT, LOGSDON AND ASSOCIATES, began
the power point presentation, "SB 305: CS Version S &
Amendments" (copy on file). He discussed Slide 2, "Version
S Committee Substitute", which lists the recent changes in
the language of the bill:
· Title has tightened scope further
· Technical changes in Section 5
ƒSome of the proposed changes to AS 43.55.020(a)(1)
did not need to be there- CS reverses those changes.
· Technical change- new Section 8
ƒGives authority to department to adopt regulations
to allocate AS 43.55.170 adjustments to lease
expenditures between oil and gas.
Co-Chair Stedman requested further discussion on Section 8.
Mr. Marks explained that in lease expenditures were
discussed in AS 43.55.170. The accounting could be tricky
and care should be taken that neither costs nor revenue was
double counted. When discussing the split of oil and gas
progressivity, it becomes necessary to define which lease
expenditures apply to oil and which apply to gas. Section 8
gives the administration the authority to adopt regulations
concerning how the lease expenditures should be divided.
4:15:39 PM
Co-Chair Stedman REMOVED his OBJECTION to the CS. There
being NO OBJECTION, the CS 26-LS1577\S was ADOPTED as a
working document.
4:16:14 PM
PAT GALVIN, COMMISSIONER, DEPARTMENT OF REVENUE, discussed
the fiscal note. He stated that the method of acquiring and
managing information from taxpayers would need to be
changed prior to the decoupling of oil and gas, and funding
was necessary in order to implement the changes. Currently,
oil and gas production statewide is combined when
determining the progressive tax rate. The potential change
in state revenue was indeterminate.
4:18:37 PM
Commissioner Galvin continued. The bill would affect
current producers and the department had examined potential
annual financial impact through the tax receipts. Refernced
in the fiscal note was the range of tens of millions to
hundreds of millions in a given year. The number
fluctuates, which has added to uncertainty.
4:20:49 PM
Co-Chair Stedman understood the numbers had been flexible.
Commissioner Galvin agreed. He added that the potential
impact was that more revenue could be expected when the
price of gas and oil were divergent, and less than the
status quo when prices were closer to the 10 to 1 ratio.
Co-Chair Stedman requested that the fiscal note be
rewritten due to changes made by the amendments. He
referenced the language in the fiscal note. Commissioner
Galvin said he would provide as many numbers as possible.
Co-Chair Stedman said the committee would work with the
department to craft a comprehensive fiscal note.
Commissioner Galvin stated that the languase was not in
reference to the expected market price. Co-Chair Stedman
and Commissioner Galvin discussed the semantics of
"normalcy" as it was written in the fiscal note. Co-Chair
Stedman's maintained that the normalcy, under the price
relationship between gas and oil, was a different normalcy
than between the British Thermal Unit (BTU) equivalency.
Co-Chair Stedman MOVED to adopt Amendment 1.
Co-Chair Hoffman OBJECTED for the purpose of discussion.
Mr. Marks continued to Slide 3, "Amendment 1: Tax
Neutrality on Current Activity", which explains the intent
of the amendment:
· Currently some producers produce oil and gas.
· If you separate oil & gas for calculating
progressivity, progressivity on oil will be
undiluted by gas and taxes will increase.
· It is not intent of bill to raise taxes on current
oil and gas activity
· Amendment 1
ƒCredit equal to difference between tax determined
under bill and tax determined now
ƒCredit expires in 2015
4:26:45 PM
Co-Chair Stedman noted that the credit would expire in
2015.
Mr. Marks explained that the 2015 expiration date would
protect the state from a collapse in oil revenue if an AGIA
plan is implemented, without causing taxes on current
activity. Hopefully discussions on a tax regime for gas
will have occurred by the 2015 date.
Senator Thomas inquired about Cook Inlet gas production.
Mr. Marks responded that there were sets of producers that
had North Slope oil and Cook Inlet gas. Those producers,
based on current activity, would see tax increases without
the amendment.
Co-Chair Stedman REMOVED his OBJECTION to Amendment 1.
There being no further OBJECTION the amendment was ADOPTED.
Co-Chair Hoffman MOVED Amendment 2.
Co-Chair Stedman OBJETED for the purpose of discussion.
4:30:52 PM
Mr. Marks continued his presentation. He explained that
Prudhoe Bay was producing 270,000 barrels of oil per day.
Oil cannot be removed from the earth without the
accompaniment of natural gas. The gas is separated and some
is placed back in the ground to re-pressurize the field for
oil production. If in the future the gas is also marketed,
Prudhoe Bay would become an oil and natural gas field,
which most fields are. The costs to produce oil and gas are
joint, which makes it necessary to allocate costs between
oil and gas in order to tax them separately. Slide 5,
"Amendment 2: Cost Allocation", details the changes made by
amendment 2, and are as follows:
· Retain current agency authority, and
· Consider BOE approach
· Costs to produce oil and gas are truly joint costs:
the same process that produces one produces the other
· Benefit of current approach (AS 43.55.165(h)) that
gives department authority to adopt regulations for
allocation costs between oil and gas:
ƒAs recipient of confidential cost data they are in
the best position to evaluate costs
ƒA regulatory process allows more time
ƒThe regulator process is public
Mr. Marks explained the BTU Equivalent Barrel (BOE)
Approach. He stated that it was the same approach that was
currently embraced in the departmental regulations. The
mechanics (AS 43.55.900(3)) read:
1 barrel of oil= 1 BOE
6 mmbtu's to the barrel
Gas mmbtu's/6= gas BOE's
Mr. Marks said that the rationale for the BOE approach is
that the same costs that produce oil also produce gas. The
BOE method puts oil and gas on an "apples to apples" basis
in terms of relative produced volumes.
4:34:50 PM
Mr. Marks continued. Slide 7, "Problems with other
Methods", which details the different approaches that could
be taken to allocate costs. He discussed the various
approaches and the scenarios that could come into play:
· Item by item attribute
ƒInappropriate where costs are truly joint
· Dominant use (either all oil or all gas)
ƒInappropriate when large volumes of both are
produced
· Deemed approach (deemed one unless item id 100 percent
the other
ƒInappropriate when large volumes of both produced
· Reserves
ƒUncertain numbers/subject to taxpayer control
· Gross value
ƒUpstream costs should not change with downstream
prices
4:36:55 PM
Mr. Marks continued to Slide 8, "A Note on 15 AAC 55.220":
· Department of Revenue's proposed regulation on AGIA
uses the Gross value approach to allocate the total
tax between oil and gas
· Allocation tax is different than allocating costs
· Gross value is a very material determinant of the
differences in tax value between oil and gas
· Allocating tax by gross value for this purpose is
reasonable
Mr. Marks addressed the concern for the treatment of Point
Thomson. Slide 9, "A Note on Allocation of Capital Costs
Associated with Developing Pt. Thomson", reads:
· High development costs will be incurred prior to gas
sales: these costs will allocated against oil
· Pt. Thomson is also an oil (condensate) field (est.300
million barrels)
· Could be developed such that it produces condensate
years before it produces gas
· PPT/ACES were deliberately designed so that cost
deductions and credits would be utilized immediately
4:41:59 PM
Mr. Marks reiterated that the amendment allows the
department to maintain authority for the allocation of
lease expenditures.
Co-Chair Stedman removed his OBJECTION to the amendment.
There being NO OBJECTION, Amendment 2 was ADOPTED.
Commissioner Galvin expressed appreciation for the language
in Amendment 2. The desire of the department would be to
put the language into statute in order to avoid problems in
the regulatory process.
4:45:55 PM
Co-Chair Stedman stated that the committee was determined
to work with the department on the language pertaining to
cost allocation. He asserted that this was not the main
reason that the bill was on the table but hoped that
significant conversation on the issue would be had before
2015. Commissioner Galvin replied that if the allocation
was to be based on current or projected costs, there were
significant costs that would be joint costs in production.
He felt other considerations would need to be examined. He
assured the committee that the department would continue to
work with the committee, but felt that further guidance
would be necessary.
4:48:12 PM
Co-Chair Stedman said that a solution was necessary. He
requested that the department provide records from the last
three years on the impact of the dilution, dealing with
Cook Inlet and the North Slope, to educate the committee on
the numbers. Commissioner Galvin said that Amendment 1
makes the fiscal note moot. Co-Chair Stedman said that a
new fiscal note would be needed to ensure that the public
has the opportunity to see the language and the fiscal
impact.
4:50:09 PM
| Document Name | Date/Time | Subjects |
|---|---|---|
| New CSSB305-REV-TAX-03-16-10 Oil and Gas Decoupling.pdf |
SFIN 3/18/2010 3:00:00 PM |
SB 305 |
| SB 305 031810 Proposed CS SFC Version S.pdf |
SFIN 3/18/2010 3:00:00 PM |
SB 305 |
| SB 305 Amendment 2 031810 SFIN .pdf |
SFIN 3/18/2010 3:00:00 PM |
SB 305 |
| SB 305 031810 Amendment 1 .pdf |
SFIN 3/18/2010 3:00:00 PM |
SB 305 |
| SB 305 2010 04 18 Marks SB305 CS&Amends SFC.pdf |
SFIN 3/18/2010 3:00:00 PM |
SB 305 |
| CSSB 305(FIN) 031910 Version P.pdf |
SFIN 3/18/2010 3:00:00 PM |
SB 305 |