Legislature(2011 - 2012)BUTROVICH 205
03/07/2011 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HJR11 | |
| SB85 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 85 | TELECONFERENCED | |
| + | HJR 11 | TELECONFERENCED | |
SB 85-TAX CREDIT FOR NEW OIL & GAS DEVELOPMENT
3:41:32 PM
CO-CHAIR WAGONER announced SB 85 to be up for consideration. He
open public testimony and said invited testimony would happen on
Wednesday.
3:42:00 PM
MIKE MILLIGAN, representing himself, said he had been an Alaska
resident since 1974 and had raised a bunch of kids here and
worked on the pipeline; he had also held elected office. One
issue that unites all Alaskans regardless of their political
persuasion is that they all want to build a gas line, he said.
But, due to a movie and New York Times articles he saw last
week, he said he is greatly concerned that the hydraulic fracing
occurring in New York, Pennsylvania, Colorado and Wyoming is
going to make Alaska's gas less economically viable; they are
also convincing the public that natural gas is not a clean
energy source. Pennsylvania is using radioactive road salts.
He was concerned, particularly, that the producers would take
those tax credits and go to the Lower 48 to develop "this
fracing." He wanted some language - maybe in section 1 that
would recognize those oil developers that are not involved in
fracing. He related how using road salts on Pennsylvania roads
contributes radioactive substances to the groundwater there.
3:45:04 PM
CO-CHAIR WAGONER thanked him for testifying, and finding no
further comments, closed public testimony. He asked if anyone
from DNR could answer committee questions at this time.
3:46:37 PM
At ease 3:46 to 3:48 p.m.
3:48:52 PM
CO-CHAIR WAGONER called the meeting back to order at 3:48 p.m..
BRUCE TANGEMAN, Deputy Commissioner, Department of Revenue
(DOR), said he had been asked to be available for any
questions." In general, he said the department feels that any
bill that will increase production and create jobs or attract
investment in Alaska is certainly worth looking at. They have
done some research and found some technical issues that need to
be addressed, but in general they feel they can work with the
bill.
SENATOR WIELECHOWSKI asked if this bill has a fiscal note.
CO-CHAIR PASKVAN replied that the fiscal note is indeterminate.
SENATOR WIELECHOWSKI asked if he could come up with a five-year
projection on what the fiscal impact might be.
MR. TANGEMAN replied that it is an indeterminate fiscal note,
and it would depend on the type and size of investment and size
of field, and those cannot be determined at this point.
SENATOR WIELECHOWSKI asked him to talk about some fields that
might be incentivized by this tax credit that might therefore
provide an estimate.
MR. TANGEMAN replied that this bill looks at fields that are not
unitized at this point and it would be more appropriate to ask a
producer that question.
SENATOR WIELECHOWSKI asked if he had any sense of leases in
fields that are not yet unitized. For instance, Great Bear just
purchased 500,000 acres that he assumed hadn't been unitized
yet. Any estimates of what this would cost if it were developed
the way Great Bear presented to the committee last week?
MR. TANGEMAN replied that would be a DNR question.
3:52:47 PM
SENATOR WIELECHOWSKI said he thought there would have to be some
collaboration between the two departments on anything that would
happen.
MR. TANGEMAN replied there would be some coordination between
the two departments, but he is not in a position to forecast for
development of fields that are not unitized and only unitized
fields are addressed in the department's production forecast.
SENATOR WIELECHOWSKI asked if he supports the bill.
MR. TANGEMAN replied that it needs some work in its current
form. Their biggest concern is that the sponsor's intent was
that the explorer/producer would either use this or the existing
structure as a tax credit vehicle - either one or the other.
Their biggest concern is that it may not be exactly clear that
that is the way forward.
SENATOR WIELECHOWSKI asked if he would support this bill even if
he had no idea what it would cost the state.
MR. TANGEMAN replied, revenue aside, that the department would
support a bill that would increase production and get more oil
in the pipeline. A tax credit structure already exists, and this
is a totally different type of tax credit structure that would
need a "little work" and would certainly need regulations put in
place to implement.
SENATOR WIELECHOWSKI asked him to coordinate with DNR and get
some sort of projections together on what impacts they are
looking at based on the developments with Repsol, Great Bear and
some of the other groups coming into Alaska.
MR. TANGEMAN replied, "Absolutely, Senator Wielechowski."
3:55:59 PM
SENATOR FRENCH said maybe they could use Nakiachuk and Oooguruk
numbers for walking them through how the bill would work, and
said that Oooguruk cost $500 million to develop and under this
bill they would be getting a dollar-for-dollar credit.
MR. TANGEMAN replied that the amount of the credit would depend
on the tax liability for the first five years of production.
CO-CHAIR PASKVAN said following that line of questioning under
the definition of "qualified development expenditure" starting
on the bottom of page 3 is an expenditure for activities other
than exploring for new oil or gas. So for example, if Great Bear
had a $2 billion annual drilling expenditure, would that be a
"qualified development expenditure?"
MR. TANGEMAN replied it is a qualified expenditure based on when
the pool of oil is certified and the expenses that are incurred
up to production. So, it would depend on the acreage that that
pool covered and the amount of expenses that went into
developing them.
CO-CHAIR PASKVAN put forth a scenario where a pool isn't in a
unit and a producer is spending $2 billion a year in a drilling
program there, and asked if that would be a qualified
development expenditure?
MR. TANGEMAN answered that he thought it would be a qualified
expenditure depending on when the pool was certified as a
producing pool or a pool that could be commercially productive.
He added that the current tax credit structure is ongoing year
to year. This bill is "the clock starts and then once you start
producing the clock stops - and the expenditures in between
those time are covered at 100 percent - against the first five
years of production...." The difference in tax credits is more
of a cash flow issue.
CO-CHAIR PASKVAN asked if the credits are for expenditures
during production that are offset against production or are they
solely for exploration until the pool is identified.
MR. TANGEMAN replied the credits are for expenditures incurred
once the pool has been discovered but has not yet started being
producing - expenditures that get the company to the producing
stage. Those would be applied against the tax liability in the
first five years of production.
4:00:51 PM
CO-CHAIR PASKVAN said if, for example, the producer was in a $2
billion annual drilling budget that would not be a qualified
development expenditure.
MR. TANGEMAN replied that he may not understand it exactly, but
if once a producer has discovered the pool and they are
incurring $2 billion a year but has not produced yet, those
expenses would be covered under this bill. But if they have
started producing, the clock stops. Only the expenditures in
between those times are the expenditures that would be covered
under this bill.
CO-CHAIR WAGONER remarked, "It's a kick start."
CO-CHAIR PASKVAN said he was struggling to put it into the
context of a choice between this tax credit bill and the
existing tax credit and asked how they can analyze what the cost
to the state will be with either scheme.
MR. TANGEMAN said he would have to talk to department folks.
CO-CHAIR WAGONER said it might be better to graph out a string
of exploration defining a pool and beginning production that
this bill would cover.
CO-CHAIR PASKVAN agreed. They need to understand best and worst
case scenarios of what is or is not going to be the cost to the
State of Alaska under existing law and this potential law.
MR. TANGEMAN agreed, but explained the difficulty in comparing
the two will be the fiscal note for the Governor's bill (SB 49)
shows the reduction through the first five years against the
production tax (from their production forecast). This looks at
how the tax credits would impact the "tax credit pool," a
slightly different scenario.
4:04:38 PM
SENATOR WIELECHOWSKI asked if he had any idea of how much more
development this would incentivize.
MR. TANGEMAN answered no.
SENATOR WIELECHOWSKI asked if he would support a lower credit of
90, 80 or 50 percent. Would a lower credit spur development just
as well?
MR. TANGEMAN answered that the department would support anything
that would increase production that would get more oil into the
pipeline whether it's 100 percent or 90.
SENATOR WIELECHOWSKI asked if he had any idea how much more oil
this would put into the pipeline.
MR. TANGEMAN answered no; he was not prepared "to go down that
road with this particular bill." His projections go with SB 49.
4:06:17 PM
CO-CHAIR WAGONER said this bill doesn't put a dime into the
state treasury nor does it cost the state treasury. The only
time it costs anything is when the company goes into production
and the five years of production tax. The state still gets its
royalty, its corporate and property tax.
4:07:27 PM
CO-CHAIR PASKVAN followed up saying that he understands the
over-arching principal is to increase production, but the
analysis needs to include some understanding of what it would
cost the state over 10 years even if for the first five years it
may consume the entire production tax that would be applied.
MR. TANGEMAN responded that the biggest difference between this
bill and the current tax credit system that is in place is that
this bill intends it to be a choice - either this credit
structure or the existing one. If a producer chose to use the
current system, they would carry the costs incurred to
production and be reimbursed for the exploration costs that are
currently in statute on an annual basis. In they chose this bill
they would have to carry all those costs up until the point of
production and then start getting relief from those expenses
against their tax liability starting after production. It's more
a matter of a cash-flow, carrying-cost type of discussion.
4:10:21 PM
CO-CHAIR PASKVAN asked for some 10-year hypotheticals for both
tax credit structures.
MR. TANGEMAN replied that he would work on that.
CO-CHAIR PASKVAN said that Mr. Tangeman appears to be struggling
with the difference between a conventional resource play and an
unconventional resource play and asked if this credit would
apply to both.
MR. TANGEMAN replied yes; it's available to whoever wants to use
it. Then it's up to the explorers and producers to make a
choice.
CO-CHAIR WAGONER said they are looking at existing units but
this credit could be applied to some areas in those units. They
may have some pools of oil that haven't been economic to develop
at this time and this might get those a development schedule.
CO-CHAIR PASKVAN said this is where he gets confused and asked
if this credit would apply to the development of heavy oil if
it's in an existing unit.
CO-CHAIR WAGONER said it wouldn't apply at this time, but the
bill could be rewritten so it would apply to some of those areas
- as an incentive to get more oil into the pipeline. This bill
wasn't designed as a "give-away;" it is designed to put more oil
in the pipe.
4:13:03 PM
SENATOR WIELECHOWSKI asked Mr. Tangeman to address the "gold
plating" issue with the 100 percent tax credit.
MR. TANGEMAN answered that he didn't see it as a concern because
the developer only has five years to recover his capital
expenditures. So, if they are producing a lot, they could
recover it quickly; if they are not producing a lot they still
have only five years to recover their capex.
SENATOR WIELECHOWSKI asked the "standard amount of time it takes
for a producer to recover its capital costs" for drilling a
well.
MR. TANGEMAN replied that he didn't know, but would find the
answer for him.
CO-CHAIR WAGONER added that it depends on how much the well is
producing, because it's based on a curve of production.
SENATOR WIELECHOWSKI said a chart showing how quickly that costs
are recovered would be informative.
MR. TANGEMAN replied okay.
4:15:34 PM
CO-CHAIR WAGONER thanked him and adjourned the meeting at 4:15
p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HJR 11_Hearing Request Memo S RES.pdf |
SRES 3/7/2011 3:30:00 PM |
HJR 11 |
| HRJ 11_Bill Version M.pdf |
SRES 3/7/2011 3:30:00 PM |
HJR 11 |
| HJR 11_Fiscal Note -LAA 2-03-11.pdf |
SRES 3/7/2011 3:30:00 PM |
HJR 11 |
| HJR 11_Back-Up_ CACFA Letter 6-07-10.pdf |
SRES 3/7/2011 3:30:00 PM |
HJR 11 |
| HJR 11_Back-Up_Central Arctic Caribou Herd.pdf |
SRES 3/7/2011 3:30:00 PM |
HJR 11 |
| HJR 11_Sponsor Statement.pdf |
SRES 3/7/2011 3:30:00 PM |
HJR 11 |
| HJR 11_Letter of Support _Alliance.pdf |
SRES 3/7/2011 3:30:00 PM |
HJR 11 |
| HJR 11_Letter of Support_AOGA.pdf |
SRES 3/7/2011 3:30:00 PM |
HJR 11 |
| HJR11_Letter of Support_Arctic Power.pdf |
SRES 3/7/2011 3:30:00 PM |
HJR 11 |