02/21/2001 03:35 PM Senate RES

            SB  77-NET PROFIT SHARE UNDER/OVERPAYMENTS                                                                      
                                                                                                                              
CHAIRMAN JOHN TORGERSON called the Senate Resources Committee                                                                 
meeting to order at 3:35 p.m. and announced SB 77 to be up for                                                                  
consideration.                                                                                                                  
                                                                                                                                
MR. DARWIN PETERSON, Staff to Senator Torgerson, sponsor, said,                                                                 
                                                                                                                                
     In  1998,   the  Legislature   enacted  AS  38.05/135(g),                                                                  
     exempting   the  Department  of  Natural  Resources   from                                                                 
     calculating  interest  on small over  or underpayments  of                                                                 
     royalty  if the  interest  is $150  or less.  The cost  of                                                                 
     calculating  these small over/underpayments was  more than                                                                 
     the interest  received or credit  applied. Prior to  1998,                                                                 
     DNR  was calculating  these small payments  manually.  For                                                                 
     the  12  months  prior  to October  31m  2000,  the  state                                                                 
     processed  1716  royalty filings  where  interest amounts                                                                  
     were between a negative  $150 and a positive $150. The net                                                                 
     amount of these under/overpayments  was a positive $4,096.                                                                 
                                                                                                                                
     The  effort  of  calculating,   processing  and  tracking                                                                  
     interest   for  small  under/overpayments  was   not  cost                                                                 
     effective for either oil  companies or the state. With the                                                                 
     advent of  the state's new Oil and Gas Royalty  Accounting                                                                 
     system, all  interest is calculated electronically.  Also,                                                                 
     most royalty  payers are using mainframe computer  systems                                                                 
     and  sending their  royalty  reports  electronically.  The                                                                 
     failure  to  repeal  AS  38.05.135(g)  would  require  the                                                                 
     Department and royalty payers  to reprogram their computer                                                                 
     systems to  not compute under or overpayments  of interest                                                                 
     less than $150.                                                                                                            
                                                                                                                                
     The  sophisticated computer  systems used  by the royalty                                                                  
     payers and  the state are now able to quickly  compute the                                                                 
     interest owed  on even the smallest under or overpayment.                                                                  
     All  the   royalty  payments   are  automatically  summed                                                                  
     together  and one wire transfer  is used for payment.  The                                                                 
     repeal  of AS 38.05.135(g) will  solve the problem of  the                                                                 
     administrative  burden on the  part of the royalty payers                                                                  
     and  the state  to manually  track very  small amounts  of                                                                 
     interest.  It  is  an  unnecessary  expense  to reprogram                                                                  
     computer systems to handle  separate interest calculations                                                                 
     for  these small amounts  of interest,  especially when  a                                                                 
     much easier option is available.                                                                                           
                                                                                                                                
MR. MARK MEYERS, Director,  Division of Oil and Gas, supported SB 77                                                            
because it provides a more  complete and accurate answer and involve                                                            
less  work and  it  will be  revenue  neutral in  the  long run.  He                                                            
thought the lessees would support the bill as well.                                                                             
                                                                                                                                
CHAIRMAN TORGERSON noted the committee had a letter of support from                                                             
Mr. Geoffrey Stein, Associate General Tax Counsel, BP.                                                                          
                                                                                                                                
SENATOR PEARCE moved to pass SB 77 from committee with the                                                                      
accompanying fiscal note and individual recommendations. There were                                                             
no objections and it was so ordered.