03/16/1993 08:05 AM Senate O&G

  SENATOR LEMAN closed the hearing on  SB 150 and announced SB
 OIL &  GAS EXPLORATION  INCENTIVE CREDITS to  be up  for                 
  consideration.                                                               
                                                                               
  MR. EASON explained SB 151 is not related to SB 150,  but it                 
  is  intended to  have many of  the same  goals as  the large                 
  block licensing proposal.  That is, to encourage the earlier                 
  exploration and evaluation of lands throughout the state, so                 
  the state will be in a  better position of understanding the                 
  oil  and   gas  potential  of  its  lands  and  have  better                 
  information from which to manage those lands.                                
                                                                               
  It is intended primarily for application where the  Title 38                 
  exploration  incentive  credit  is not  available.    In the                 
  current legislation, in  addition to the state  owned lands,                 
  credits  would be  available  for  operations  conducted  on                 
  private lands.  Under  Title 38 there are no  limitations on                 
  the maximum amount of  credits that could be offered  by the                 
  state over the  years.  Under the  proposed bill there  is a                 
  $50 million cap, the state's share  for one project being no                 
  more  than  $5  million.    One  major  difference  for  the                 
  geophysical exploration is that there  is no requirement for                 
  the  exploration to be  conducted on land  that is scheduled                 
  for sale.   That gives  them the flexibility  to review  any                 
  project that is proposed in advance.                                         
                                                                               
  Number 534                                                                   
                                                                               
  SENATOR SHARP asked  if this was  an increase from 25%  from                 
  eligible  costs  that was  offered in  previous years?   MR.                 
  EASON  said  that was  correct.    The bill  that  was under                 
  consideration last year  treated all lands equally  and this                 
  bill treats private  lands with more a more allowable credit                 
  which  was  a  decision predicated  on  the  likelihood that                 
  although those lands will  have some value to the  state, it                 
  is  likely  to be  a  reduced  value simply  because  of the                 
  remoteness of those lands.                                                   
                                                                               
  Number 550                                                                   
                                                                               
  SENATOR HALFORD  asked  if the  $50  million limit  was  the                 
                                                                               
                                                                               
  combined limit for  the entire term of the legislation which                 
  goes until 2003.  MR. EASON said the $50 million limit would                 
  apply to  geophysical surveys  or wells  drilled under  this                 
  proposal.  This is a cost sharing arrangement that is not to                 
  pay for their entire program, but it is to encourage them to                 
  cross that hurdle in those situations  where they are at, or                 
  very  near,  the point  of making  a  decision, but  for the                 
  participation of the state.                                                  
                                                                               
  SENATOR HALFORD did  not disagree with it being cost sharing                 
  and not cost shifting,  but he thought the limitation  to be                 
  unrealistic if it  was to  be any real  incentive for  major                 
  exploration.                                                                 
                                                                               
  SENATOR  LEMAN  asked  what  the  impact  would  be  if  the                 
  limitation were lifted.   MR. EASON  said it would  increase                 
  the  state's exposure  in  an undefined  way.   He explained                 
  there is similar exposure under Title 38.                                    
                                                                               
  TAPE 93-5, SIDE B                                                            
  Number 580                                                                   
                                                                               
  SENATOR HALFORD asked if the 10-year term  was too long.  He                 
  suggested using  the $50  million allowance  in the  first 2                 
  years and saying  if you don't do  it in the first  2 years,                 
  you don't get it.                                                            
                                                                               
  MR. EASON said  there are some  strong arguments to be  made                 
  for that suggestion.                                                         
                                                                               
  SENATOR  HALFORD commented  that if you  know the  credit is                 
  going  to  continue,   you  don't  have  the   incentive  to                 
  accelerate your program.                                                     
                                                                               
  MR.  EASON said  his  view was  entirely correct.   However,                 
  there have been a  number of good developments on  the North                 
  Slope and in  Cook Inlet that  have created a euphoria  that                 
  has translated  to several  different companies  outside the                 
  state who haven't been participants here.   That, in itself,                 
  provides the biggest  incentive.  The  time to look is  now.                 
  In  his  opinion, people  will  be  inclined, for  a  lot of                 
  different reasons,  to pick  projects that  may be  eligible                 
  early on.                                                                    
                                                                               
  REPRESENTATIVE   GREEN  asked   if   the  anticipated   work                 
  commitment  is  time  related  or  just within  the  10-year                 
  period.  MR. EASON explained once the state has committed to                 
  being a participant, they  would put some time limit  on the                 
  performance so they could keep the money available for other                 
  worthwhile projects.                                                         
                                                                               
  Number 519                                                                   
                                                                               
  SENATOR  HALFORD asked if  the credits could  be assigned by                 
                                                                               
                                                                               
  the qualified applicant to any other person, meaning another                 
  tax payer, or if the credit  could be sold.  MR. EASON  said                 
  that  was  the  intent in  recognition  that,  for instance,                 
  geophysical companies operating in Alaska have no royalty or                 
  severance tax obligations.  It gives them the opportunity of                 
  using the credit by selling or  trading it to others who can                 
  use it.                                                                      
                                                                               
  SENATOR  HALFORD asked how  long they could  hold the credit                 
  before they start to  do the work.  MR. EASON  said there is                 
  no set limit in the statute,  and that would be addressed in                 
  regulations.  In general terms, they would  try to establish                 
  a balance that allows for sufficient time.