Legislature(2009 - 2010)BUTROVICH 205
04/10/2010 12:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB309 | |
| HB280 | |
| HJR40 | |
| HB306 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 309 | TELECONFERENCED | |
| += | HB 306 | TELECONFERENCED | |
| += | HJR 40 | TELECONFERENCED | |
| + | HJR 49 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| = | HB 280 | ||
SB 309-GAS EXPLORATION\DEVELOPMENT TAX CREDIT
12:39:40 PM
CO-CHAIR MCGUIRE announced SB 309 to be up for consideration.
12:40:09 PM
MIKE PAWLOWSKI, aide to Senator McGuire, noted that the members
should have a committee substitute in their packets.
12:40:17 PM
CO-CHAIR WIELECHOWSKI moved to adopt the proposed committee
substitute to SB 309, labeled 26-LS1629\R, as the working
document of the committee.
CO-CHAIR WIELECHOWSKI objected for discussion purposes.
12:40:55 PM
At ease 12:40 - 12:41
12:41:37 PM
MR. PAWLOWSKI presented a sectional analysis of version R and
said that SB 290, sponsored by Senator Wagoner, had been
integrated into CSSB 309(RES) version R. The first change
expanded the title due to that integration (a credit against the
tax on the production of oil and gas for a qualified capital
expenditure and for certain losses and expenditures, providing a
credit against the tax on the production of oil and gas for
drilling certain exploration wells in the Cook Inlet sedimentary
basin). Sections 1-3 had no changes; this was the change to AS
43.20.043, the corporate income tax credit, which increased the
credit from 10 percent to 25 percent. Section 4 added a new
subsection, AS 43.20.043(e), specifically on page 4, lines 2-5.
He explained that some did not want tax credits for qualified
investments in the Cook Inlet to be rolled into a rate base for
regulated facilities.
12:43:25 PM
CO-CHAIR WIELECHOWSKI asked him to explain "may not include in
any rate base for a regulated facility submitted to a regulatory
agency charged with determining an appropriate tariff the cost
of any qualified capital investment or qualified service that
has been offset..." again.
MR. PAWLOWSKI answered his understanding is that goal of this
section is to deal with the application of the credit.
CO-CHAIR MCGUIRE asked Kevin Banks to answer that question.
12:44:12 PM
KEVIN BANKS, Director, Division of Oil and Gas, Department of
Natural Resources (DNR), said this is an amendment that was
embedded in the language of HB 229. It was offered by
Representative Seaton with the intention that should there be a
credit on a facility that is regulated and providing some kind
of service to the public, that the public would see the benefit
of the credit.
12:45:37 PM
CO-CHAIR MCGUIRE explained that several pieces of legislation
have been merged into CSSB 309(RES) version R; Speaker
Chenault's changes that were made on the House side to HB 229,
as well as Senator Wagner's SB 290. She asked Ms. Davis to
comment.
MARCIA DAVIS, Deputy Commissioner, Department of Revenue (DOR),
said this means when a party goes to the Regulatory Commission
of Alaska (RCA) to establish a rate to charge for use of their
facility, they describe and calculate all the costs of that
facility and determine their recovery of those costs over the
life of the facility plus a return. Doing that, you derive the
rate that can be charged. This is saying when a party who has
received a credit that offsets some of their costs goes before
the RCA and says they want to charge a rate to recover their
costs, that the costs they are recovering are not the costs that
have been offset by the credit.
12:46:51 PM
MR. PAWLOWSKI said section 5 was previously section 4 in the
original bill. Section 6 adds new language clarifying the
original intent that a taxpayer who claims a credit may not
claim any other credit. Section 7 adds new language to tighten
up the definition of "property" for what is eligible for these
tax credits; it excludes LNG manufacturing facilities, topping
plants or processing units - the goal being to stick to the
exploration and development of the resource itself and not give
them to ancillary investments that might be used. Section 8 has
no changes.
Section 9 adds a new section allowing the capital investment
credits under the ACES program to be taken in one year as
opposed to two years.
12:48:26 PM
SENATOR FRENCH asked if this is identical to provisions in a
bill from the governor.
MS. DAVIS answered yes.
SENATOR WIELECHOWSKI asked about the fiscal impact.
MS. DAVIS said the fiscal note is indeterminate, but they would
assume $50 - $60 million. Changing the two years to one should
essentially be a wash.
12:50:31 PM
SENATOR FRENCH asked if it is a one-time charge.
MS. DAVIS answered that is correct.
MR. PAWLOWSKI continued his analysis: Section 10 is conforming
language to section 9. Previously you had to be issued
certificates plural, because you got one for each year. Now,
since credits can be given in one year it is just one
certificate.
Section 11 is actually the provisions from SB 290; the changes
are on page 7, lines 23-26. It is a new section creating basic
credit rates for the first three wells that will be drilled
under the provisions found in Section 12, on page 7, line 27
through page 9, line 3.
CO-CHAIR MCGUIRE clarified that this is the "Cook Inlet
Stampede" provision.
12:52:05 PM
MS. DAVIS interjected that the fiscal note was revised from $70
million to $120 million spread over a two-year period.
MR. PAWLOWSKI continued that Section 13 was previously Section 7
in the original bill and there are no changes to it; it is the
transition uncodified section as you move from the previous 10
percent to the new 25 percent in the corporate income tax. There
needs to be regulation about how the two effective dates are
navigated. Section 14 is new, and repeals AS 43.55.028(e)(2) and
(3); the first is the requirement that when a producer receives
a capital credit that they had to make an expenditure within 24
months of receiving it. The (e)(3) section required the
expenditures to be equal to the credits.
MS. DAVIS clarified that it isn't the receipt of credits that's
conditioned on the reinvestment; it's the ability to cash
credits in out of the "028 fund" that would require the
reinvestment. This element would affect producers that have
50,000 barrels of production per day or less.
12:53:43 PM
SENATOR FRENCH asked the fiscal impact of Section 14.
MS. DAVIS answered that the impact is indeterminate again, in
the sense that what they don't is what people would or would not
be able to spend, because the small producers have the
alternative of being able to sell those credits in lieu of
reinvesting. Reinvesting has not been factored in into their
revenue forecast; so they wouldn't see a change in it.
12:54:32 PM
MR. PAWLOWSKI said Section 15 was in the original bill that
extends the sunset of the original corporate income tax credit
out to 2020 as opposed to 2013. Section 16 had no change.
CO-CHAIR MCGUIRE said that concluded presentation of version R
and she asked Senator Wielechowski if he wanted to remove his
objection.
12:55:13 PM
CO-CHAIR WIELECHOWSKI said he still had some questions and
remarked that Section 1 gives the producer a 25 percent credit
on their income taxes but the state currently has a 25 percent
exploration tax credit in Cook Inlet.
MS. DAVIS said that would be 30 and 40 percent.
CO-CHAIR WIELECHOWSKI asked if a company has to share its data
with the state if they receive exploration tax credits.
MS. DAVIS answered yes under AS 43.55.025(f)
CO-CHAIR WIELECHOWSKI asked if a company has to share that data
with the state for the income tax credit.
MS. DAVIS answered under the current income tax and as would be
revised by this bill it would not require the sharing of data
with DNR.
CO-CHAIR WIELECHOWSKI remembered that they fought pretty hard to
get data sharing under ACES and he asked if that was helpful for
the administration to have. He said the legislative consultants
were "just floored" by the idea that the department didn't have
data for the state's oil and gas fields.
MS. DAVIS deferred to Director Banks.
12:57:16 PM
MR. BANKS responded that under ACES AS 43.55.023 and .025
credits, what is different from what would normally be the case
is that the state receives all of the exploration well data and
seismic information on projects covered by the credit no matter
who owns the land where the exploration occurs. The second
difference is that under ACES the seismic information can be
made public after 10 years. Without the ACES credit, some data
provisions are required: the Alaska Oil and Gas Conservation
Commission (AOGCC) gets all of the exploration well data no
matter where the exploration well is drilled. Without ACES, DNR
gets the exploration well data for the wells that are drilled on
its own land. And after two years that information is made
public by the AOGCC unless extended confidentiality is granted
by the DNR. So, there are certain limitations, but DNR can
acquire quite a bit of well information after a period of time
without any kind of credit under existing law. Under ACES, the
state gets data for wells drilled no matter where they are
drilled immediately and it would get the seismic information
which they would not be entitled to on land that doesn't belong
to the state. The big difference and "the scratch that needs to
be itched" by the company that is most interested in this bill
is that seismic information at some point would be available to
the public after 10 years.
12:59:40 PM
CO-CHAIR WIELECHOWSKI moved to adopt Amendment 1, 26-LS1629\R.1.
AMENDMENT 1
OFFERED IN THE SENATE BY SENATOR WIELECHOWSKI
TO: CSSB 309(RES)
Page 4, line 5, following "chapter":
Insert ";
(4) shall agree, in writing, to the
applicable provisions of AS 43.55.025(f)(2) and shall
submit to the Department of Natural Resources all data
that would be required to be submitted under
AS 43.55.025(f)(2) for a credit under AS 43.55.025"
CO-CHAIR MCGUIRE objected for discussion purposes.
CO-CHAIR WIELECHOWSKI explained that this amendment basically
says if a producer receives an income tax credit under Section
1, then the administration is entitled to the same data they
would get under other provisions of ACES. He said both state and
legislative consultants were appalled at how little information
the state was receiving on its own oil fields. If the state is
giving massive tax credits it should at least be entitle to get
the data so that it can be analyzed. He said he understood the
concern that "corner shooters" could get access to that
information, but he believed they could find a solution to that
problem.
CO-CHAIR MCGUIRE stopped for a moment to note that Senator
Wielechowski had not removed his objection to adopting the CS.
1:02:09 PM
CO-CHAIR WIELECHOWSKI withdrew Amendment 1.
CO-CHAIR MCGUIRE said that his objection to adopting the CS was
before the committee.
CO-CHAIR WIELECHOWSKI said he assume Co-chair McGuire would give
him latitude to discuss his questions and withdrew his objection
to the adoption of version R. Therefore, CSSB 309(RES), 26-
LS1629\R was before committee.
CO-CHAIR WIELECHOWSKI again moved to adopt Amendment 1, 26-
LS1629\R.1.
AMENDMENT 1
OFFERED IN THE SENATE BY SENATOR WIELECHOWSKI
TO: CSSB 309(RES)
Page 4, line 5, following "chapter":
Insert ";
(4) shall agree, in writing, to the
applicable provisions of AS 43.55.025(f)(2) and shall
submit to the Department of Natural Resources all data
that would be required to be submitted under
AS 43.55.025(f)(2) for a credit under AS 43.55.025"
CO-CHAIR MCGUIRE objected for discussion.
CO-CHAIR WIELECHOWSKI asked for the administration's position on
the amendment. Did they think it was useful, if it has merit and
if there are ways the concerns that some producers have about
sharing this data can be alleviated.
1:02:52 PM
MR. BANKS said a couple of years ago DNR prepared an oil and gas
compilation and provided their version of public info with as
much raw data as they could compile; put it on website;
distributed it at professional meetings etc as way of marketing
resource to potential investors. Another use of info was in the
supply study last September; they provided estimate of future
gas potential supply. They looked at four of the five largest
gas deals in terms of their interpretation because field is on
federal land and they don't have good info on that field. Had
there been a policy in state to acquire that, they could have
provided more complete analysis.
1:05:54 PM
CO-CHAIR WIELECHOWSKI asked if he supports the amendment and if
he can think of any ways to address producers' concerns.
MR. BANKS said he would provide a couple of examples of how the
administration uses information. A couple of years ago the DNR
prepared an oil and gas resource data compilation for the
central North Slope and provided their own interpretation of
public information with maps and as much raw data as they could
compile. They put it into a CD and made it widely available on
their website and distributed it at professional meetings and
meetings like the North American Petroleum Exploration Expo as a
way of marketing the resource potential they think Alaska has to
potential new investors.
A second use of information was in the gas supply study that
most are now familiar with that they just published last
December. Again, it used information the state had and provided
an estimate of future gas potential supply. That required a
considerable amount of their own interpretation of information
that was made available to them. They looked at four of the five
largest gas field in terms of their own geological
interpretation; one of them was not included because the field
is on land owned by the federal government and they don't have
good data for that particular field. Had there been a long
standing policy in the state where they could acquire
information from their lessees or from the producers when they
are working on somebody else's land, they would have been able
to provide a more complete analysis for the gas supply study.
CO-CHAIR WIELECHOWSKI asked him if he supported the amendment
and if he felt there were ways to address the producers' concern
over sharing this data.
MR. BANKS answered that he couldn't support or object to these
tax credit bills. His staff can go to jail if they release tax
information that comes to the DNR. As for the corner shooters,
maybe they could change what has been kind of a laissez faire
attitude on the part of the leasing programs they have advocated
over the years and require that instead of just offering up a
tract of land for a minimum bonus bid of say $5 or $10 and acre,
that maybe they should use the tools at hand under existing
statute to require some kind of work commitment backed up by
performance bonds so that the cost of entry into a new lease in
the Cook Inlet is a little bit higher and also would generate
more benefits to state in the form of real live work. He thought
that would take care of the "corner shooters" who are the
lessees that acquire land that is geographically near a unit or
field that is already in production with the intention of
promoting their land position to investors; and then the
strategy is to try to make their way into the producing unit by
virtue of putting pressure on either the DNR or the AOGCC to
unitize or expand units to include their acreage. If the state
has an opportunity to move forward on leasing so that people
actually have to do some work, have to show some financial
capability to operate a lease, it might reduce the number of
corner shooters that is a concern.
1:09:35 PM
CARRI LOCKHEART, Production Manager, Marathon Oil Alaska, said
she found the amendment very problematic for multiple reasons.
She clearly understood the desire of the state and the DNR to
have access to data so they could do their own geologic
assessments, but there is a big difference between the North
Slope and Cook Inlet as defined under ACES. Cook Inlet is
heavily regulated, a very small area and it's very competitive.
Corner shooters are a problem there. This data set as defined by
the state is very comprehensive; it includes data gathered
during the investment process that they will receive a tax
credit on, it includes data that was gathered years ago that go
into the process of their defining where the well should be and
an analysis of the result of the wells. Further, it isn't
limited to the raw data; but it provides access to data that has
been interpreted and analyzed by scientists within the company.
"This is like giving up a trade secret for a company."
So, unless there is a way to protect confidential data, she
said, it would be hard to consider taking this credit. That
means her projects may not be competitive at the corporate
level, therefore they won't be moving forward with feature
projects.
MS. LOCKHEART said the big issue is not necessarily with this
data going to the DNR, but being released into the public
domain. It's essentially handing over millions of dollars that
they have spent years and years to develop to anyone in the
public domain to use for free. If you think about the 10-year
clause of the seismic data, that is very short compared to the
life-cycle of a field. For instance, the Kenai gas field has
been producing for over 50 years and their Ninilchik field is
about 10 years old and it's very young. And then the well data
is released over 24 months; again she said she did not support
this amendment.
1:12:42 PM
CO-CHAIR WIELECHOWSKI asked if they have an exploration tax
credit under ACES they have to share their data with the state.
MS. LOCKHEART answered under ACES that is correct, but they
hadn't been taking tax credits under ACES.
CO-CHAIR MCGUIRE commented that is true under current law the
30-40 percent exploration credit does require that, but
companies have expressed concern about it. The goal was to
incentivize exploration, so she maintained her objection.
A roll call vote was taken. Senators French and Wielechowski
voted yea; Senators Stevens, Huggins, Wagoner, and McGuire voted
nay; therefore Amendment 1 failed.
1:14:50 PM
CO-CHAIR WIELECHOWSKI asked Ms. Davis to address Section 5 of
the bill.
1:15:06 PM
MS. DAVIS explained that this provision was in the original HB
229 and was removed because it was not necessary. This provision
without that language is current law and it excludes the
qualified capital investments or services that are made for
exploring or development of North Slope gas. It excluded
anything associated with North Slope gas. When "or for the
delivery of Alaska North Slope gas to tidewater below 68 degrees
North latitude," was added, presumably they were trying to
"bullet-proof" it and make sure that a pipeline coming from the
North Slope wouldn't somehow fall within this tax credit. The
qualified capital investment would only include gathering lines,
and a North Slope gas line certainly never could be a gathering
line. It is also incomplete as far as reference, because it
would leave open a gas line that went to Canada and not to
tidewater. The whole section was deemed unnecessary.
CO-CHAIR MCGUIRE asked if she would like to remove Section 5.
MS. DAVIS answered yes.
1:16:39 PM
CO-CHAIR WIELECHOWSKI moved conceptual Amendment 2 to remove
section 5 and renumber all remaining sections. There being no
objection, the motion carried.
CO-CHAIR WIELECHOWSKI asked about section 10.
1:17:19 PM
MS. DAVIS said this section under AS 43.55.023 essentially
implements the credit portion of (a) and (b). It directs the
department to issues credits in one years instead of two.
Current law requires two certificates; one for one half of the
expenses for the current year and one that is good for the
following year.
CO-CHAIR WIELECHOWSKI asked if that has a fiscal impact.
MS. DAVIS explained the estimate is $70 million to $120 spread
over two years.
1:18:08 PM
CO-CHAIR WIELECHOWSKI asked if the administration had a position
on the bill as a whole.
MS. DAVIS answered that they have worked hard to assure that
they can administer the provisions in it. As far as credits that
induce activity in Cook Inlet, the governor's bill is directed
at more of a broad credit for statewide and infield drilling.
This does a piece of that by targeting gas exploration for Cook
Inlet in the context of corporate income tax.
CO-CHAIR WIELECHOWSKI asked for the administration's concerns
that haven't been addressed.
1:19:00 PM
MS. DAVIS replied that the administration was comfortable with
the provisions it addressed.
CO-CHAIR MCGUIRE said she had opened the door for a potential
merger of provisions in the Governor's larger bill, but they are
not ready today and this bill needs to get moving.
1:19:35 PM
SENATOR WAGONER moved to report CSSB 309(RES) version as amended
from committee with individual recommendations and attached
fiscal note(s). There being no objection, the motion carried and
CSSB 309(RES) moved from the committee.
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