Legislature(2013 - 2014)BUTROVICH 205
02/25/2013 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB21 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 21 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
SB 21-OIL AND GAS PRODUCTION TAX
3:34:00 PM
CHAIR GIESSEL announced SB 21 to be up for consideration [CSSB
21( ), version 28-GS1647\U, was before the committee]. She noted
that version N had the same text as version U, and that fiscal
notes were still being drafted.
SENATOR DYSON moved to adopt CSSB 21(RES), version 28-GS1647\N,
as the working document. There was no objection, and version N
was before the committee.
3:35:03 PM
JOE BALASH, Deputy Commissioner, Department of Natural Resources
(DNR), Juneau, Alaska, said he was available to answer questions
about the amendments to SB 21.
BILL BARRON, Director, Division of Oil and Gas, Department of
Natural Resources (DNR), Juneau, Alaska, said he was also
available to answer questions on SB 21.
SENATOR FRENCH said he wanted him to speak to the expanded
incentive credit (EIC) for the North Slope that eliminates the
three mile boundary restriction and its fiscal impact to the
state.
3:36:48 PM
SENATOR FAIRCLOUGH joined the committee.
MR. BALASH said the changes to the .025 credit [page 20, lines
16-18] would eliminate the three-mile boundary from the bottom-
hole location of a well to the exploration well in question to
determine whether or not it is available for it. In this case,
the credit is 30 percent and a typical well would cost around
$15 million. There would be additional costs on top of that
depending on how far away from existing infrastructure that is -
so the construction of an ice road and man camp - and then
depending upon how much work you want to do from that well -
multiple side tracks or testing the discovery. So the state's 30
percent share would amount to a hair under $5 million. However,
these provisions require that information from the well be
shared with the state after the well has been completed.
SENATOR FRENCH asked if all those restrictions on line 7 - you
can't get a credit for administration, supervision and
engineering, lease operating, geological and management costs
(page 19, lines 7-11) - would still apply to these more generous
credits.
MR. BALASH answered yes; subsection (b) starting on line 20 on
page 19 refers to those restrictions.
3:39:41 PM
CHAIR GIESSEL said that reducing the barrier around the wells on
page 20, lines 17-24, was brought up by Brooks Range.
SENATOR FRENCH asked Mr. Balash to walk through section 15
starting on page 14.
3:40:21 PM
MR. BALASH said this section would be best addressed by the
Department of Revenue, because it is about credits and he wanted
to respect the relative turf of his "sister department."
3:40:49 PM
MICHAEL PAWLOWSKI, Advisor, Petroleum and Fiscal Systems, Office
of the Commissioner, Department of Revenue (DOR), Anchorage,
Alaska, said this is the loss carry forward provision. It was
not changed from the initial version and that he appreciated
their maintaining that nexus between when the majority of the
credit is given to a company being tied to when the production
actually occurs. That is what this section is intended to do.
Under existing law, when a company accrues a loss carry forward
credit, they can get it redeemed by the state. Section 15
restricts how this credit can be carried forward and applied
against future production taxes. The tax obligation has to exist
for the credit to have any value (page 14, line 17).
SENATOR FRENCH asked how the increase of the base rate from 25
to 35 percent affects the size of these credits.
MR. PAWLOWSKI explained the base rate and the carry forward
credit serve in a similar relationship and in order to retain
the type of parity the governor's bill attempted to do, of
bringing new entrants to a level playing field with existing
incumbents, the loss carry forward credit needed to be increased
to 35 percent, because a person with a tax liability would
essentially get a deduction at the value of the base rate. So if
the base rate is 35 percent, an existing incumbent player would
get a 35 percent benefit. A person without a tax liability, a
new entrant, would not. Now 35 percent loss carry forward credit
must be used only when there is a production tax liability for
it to be used against.
SENATOR FRENCH asked if the increase in the base rate increases
the value of the credit.
MR. PAWLOWSKI answered yes.
3:44:32 PM
DOUG SMITH, President, Alaska Support Industry Alliance,
Anchorage, Alaska, supported SB 21. He said he had pulled
together some information from Mr. Keithley and the McDowell
Group and the most alarming thing that struck a lot Alaskans was
the issue of jobs. In 2000, North Slope production was about
108,000 barrels for every oil and gas industry job and by 2010
that had dropped to 28,000 barrels per job. He said most of
these jobs are not putting significant new quantities, if any,
of oil into the pipeline; most expenditure was going to
maintaining the base and operating facilities and
infrastructure.
3:47:41 PM
He said the $5 credit is valuable, but their only concern is
that it leans towards being progressive in terms of when
companies are evaluating projects. Maybe it is the right
balance, but we don't want to lose our competitive posture at
higher prices.
3:48:29 PM
MR. SMITH said the Alliance supported expanding the gross
revenue exclusion (GRE), because it ensures that the legacy
fields aren't left behind in seeking new production and new oil;
and they are our largest new oil potential. They also supported
expanding the exploration incentive credit (EIC) to help the
current independents and new explorers in finding more oil.
MR. SMITH said they also supported the qualified industry
service (QIS) credit that tries to induce more jobs into the
industry by using legal measures. It would give Alaskans
opportunity to compete where maybe some module fabrication is
being done outside of Alaska or other products where we haven't
used the full capacity of our market here to provide services to
the industry. For instance, their company moved fabrication of
their hot oil units from Canada to a south Anchorage fabrication
facility. As a C corporation, they pay taxes and create tangible
personal property from raw materials that they will pay property
tax on. A single hot oil unit creates eight full time jobs when
it goes to work on the North Slope, and it participates in down-
hole stimulation, well work-overs and intervention activities
that put more oil in the pipeline. He thought this credit would
probably become "self-funding" or more through both job creation
and additional tax base. He didn't see it as a government
subsidy, but rather an opportunity to increase a competitive
posture that could actually generate more jobs and economic
activity for the state.
3:51:52 PM
Over half the value of his members' wages of nearly $2 billion
is related to oil and gas extraction. The trickle down effects
of that payroll is almost incalculable. A lot is at stake
through employment and state economics beyond the treasury, and
a tax policy is needed that will keep that thriving for a long
time to come.
SENATOR MCGUIRE said she agreed with his comments that expansion
of the GRE was a step in the right direction, but the known and
currently producing legacy areas are still the best opportunity
for increased production investment, and the currently producing
areas of the legacy fields will be best stimulated by a
competitive base rate, and that the correct level of base rate
is one that induces significant new investment in the currently
producing legacy areas. She asked him what rate he would set for
the base rate.
MR. SMITH replied he didn't have an answer that was any better
than the ones from their consultants, but the Alliance supported
a competitive legacy field environment and would like to see
government take go closer to 60 percent. He had seen the 55
percent rate in the CS and understood the need to bring in state
revenues and that there are very few options to do that. He
remarked that the Competitive Review Board would be a forward-
looking opportunity that is objective and un-politicized; and it
would be nice to be ahead of that curve.
CHAIR GIESSEL thanked him for calling in and testifying.
3:56:46 PM
KEN THOMPSON, investor and co-owner, Alaska Venture Capital
Group (AVCG), Brooks Range Petroleum, wholly-owned subsidiary of
AVCG, Anchorage, Alaska, said he is a former president of ARCO
Alaska. He gave a little background on why they should consider
his company's perspectives. They have been the most active
explorer accounting for 28 percent of all the exploration wells
on the North Slope state lands in 2007 - 2012. They have drilled
more exploration wells on state lands on the North Slope than
ConocoPhillips, BP, ExxonMobil, Eni, Repsol, and Armstrong
combined during that time period, and have spent a little over
$200 million. They had three discoveries and acquired a
discovery. Their Mustang field development is under way
currently and that start producing 44 million barrels of new oil
in about 18 months with a spend of almost $600 million. AVCG has
three other developments that need further delineation and those
will start and be staged in each of the three years for another
$1.5 billion of capital spend.
MR. THOMPSON said while the state's refunded tax credits,
totaling $69 million for them, had made a big difference, that
the state would receive back much more in just the first year of
Mustang production and about $1.2 billion over the entire field
life. All of their credits had been redeployed on the North
Slope in drilling and seismic. None had been sent outside to
their headquarters and none had been put into dividends.
It has made a big difference, because sometimes they can drill
three exploration wells instead of two or two wells instead of
one and that has accelerated discoveries. They have also
appreciated that it is in cash, because they currently don't
have production.
3:59:52 PM
MR. THOMPSON said he believed strongly that Alaska could level
and turn production up; it would come from a mix of improvements
in the legacy fields and exploration, which could add over
50,000 barrels of oil a day. This was significant because North
Slope oil production year-to-year is declining by about 50,000
barrels per day.
4:00:46 PM
Overall they see the CS as a positive in growing production. It
increased the carry forward loss credit (CFL) from 25 to 35
percent. In the past they had received it in cash and have just
turned around and put it into the drill bit, but now that payout
will be deferred to be applied against new production and it
will again be redeploy into facilities and drilling. They also
appreciated extending the small producer credit from 2016 out to
2022. He said he talks about this credit with companies in the
Lower 48 when he tries to get them to come up here. In his case
it would reduce their tax by $12 million and they just put that
back into the drill bit and facilities.
He said the CS also specifies a 20 percent QCE tax credit
payment in a single year, but eliminates it at 2013; the
positive is they like the more immediate cash in one year versus
two, because again that is incorporated into their capital needs
especially on their Mustang development. The negative is that
they won't have the cash payment in 2015 for the year 2014; and
while it would have been nice to get, it is a wish list item.
They understand the situation and will try to find additional
capital to offset it.
4:03:02 PM
MR. THOMPSON said eliminating the progressivity simplifies the
tax calculation, which is the largest negative public relations
issue Alaska faces. He had talked with over 200 potential
investors in the last 18 months and only 19 were interested in
Alaska, and now they have narrowed it down to only 2 potential
partners to make their half billion investment at Mustang. Of
the ones that fell out, the progressivity was a big negative.
Maybe he could go back to them and tell them it has been
removed.
A negative is increasing the base rate from 25 to 35 percent,
but that is partially offset by the positive of the $5/bbl
produced credit. It better balances the relative state/producer
takes at low oil prices and that is well appreciated when prices
cycle low.
For new oil, it increases the 20 percent GRE to 30 percent and
importantly amends the definition of the leases that can be
included in the GRE. The positive here is that it should
incentivize new oil production in terms of qualifying a few more
leases with existing producers.
Removing the old distance limitations and having a 30 percent
exploration incentive credit (EIC) is a huge plus and means that
he will be able to reach more companies and bring in more
partners to help explore.
Overall, Mr. Thompson thanked them for the changes in the CS
saying they should help AVCG attract new capital, which is his
full time job now. And that has been difficult for the last year
and a half. He will be meeting with two companies in Dallas this
week that could be huge funders and he was optimistic about
that.
4:06:46 PM
CHAIR GIESSEL said she was reading the Petroleum News February
24 issue and the headline was "AIDEA Eyeing Oil Production
Facility." They were talking about investing $45 million in a
facility in the Mustang field. She asked him to talk a little
about that and the road funding.
MR. THOMPSON said AIDEA [Alaska Industrial Development and
Export Authority] is great to work with; they understood their
business and want to help companies get a leg up. Once they get
a cash flow that can be directed into more activity.
He said the road funding had been finalized when Brooks Range
Petroleum entered into a partnership with AIDEA that will
provide 80 percent of the funding for road pad, developing a
gravel mine and an ice road to get out to the mine; it will cost
$25 million, so AIDEA will provide $20 million in a loan and
AVCG, Brooks Range and Ramshorn will provide the other $5
million. Once P & I is paid, the road reverts to ownership by
Brooks Range Petroleum. In the meantime it is owned by Mustang
Road LLC that AIDEA controls.
4:09:14 PM
MR. THOMPSON said that in February AIDEA approved $100,000 for
studies that are under way to consider additionally funding
Mustang oil production processing facilities costing a little
over $200 million. AIDEA would only fund a loan for $45 million
and had talked with a Singapore firm, Ixion Holdings, to
contribute $95-125 million. (Ixion helped fund the jack up in
Cook Inlet.) Forty or fifty million more could be funded by
Alaska banks and two or three had voiced interest in the
production facility. It would be a creative LLC structure like
the road; full development funding would be $333 million and
that would be provided by ABCG, the parent company of Brooks
Range and by Ramshorn Exploration. He would be in discussions
later this week with other companies on perhaps partnering with
them on that piece, as well.
4:10:56 PM
CHAIR GIESSEL commented that funded by Alaskan banks was an
exciting concept in terms of getting our own fiscal entities
engaged on the North Slope. They would only take that risk if
they viewed it as a solid investment.
MR. THOMPSON said they like the hard assets - the production
facilities and equipment that can be used on other fields -
after Mustang field depletes for example. So, it is a good
investment and it is known oil, which also reduces the risk.
SENATOR MICCICHE said he was happy that Mr. Thompson was
relatively supportive of the changes. He was glad of a little
bit of resistance and would have been suspicious without it. But
the legislature's job was to get competitive with other OECD
producing areas while reducing the state's tax rate as little as
possible. They felt that increasing the base rate to 35 percent
with $5/bbl credit and increasing the GREs to 30 percent puts up
Alaska in that competitive range. And Little Red Services and
Alliance supported the Competitive Review Board that would keep
us in that ballpark.
MR. THOMPSON said he understood the state need to balance its
needs with those of the explorers.
4:13:43 PM
BOB HEINRICH, Vice President, Finance and Administration,
ConocoPhillips, said he appreciated the committee's efforts to
incorporate their suggestions into the governor's principles in
SB 21. They have advocated changes to ACES that eliminates
progressivity and creates a flat tax rate over a broad price
range and that provides a business climate to attract investment
and overcome Alaska's inherent cost disadvantages. The CS moves
toward achieving several of those goals. In particular it has
resulted in a relatively flat tax rate with only a slightly
progressive nature over a broad range of prices, a real positive
step. Expanding the GRE and the ability to apply it to
production from expansion of PAs within existing units is also
positive, however, they had not had the time to fully evaluate
that impact on potential projects.
4:15:53 PM
ConocoPhillips was concerned that the CS remains a tax increase
relative to ACES at lower prices levels and that could be fixed
by decreasing the base rate. Also, even though the overall level
of government take as estimated by Econ One appears to be in the
ballpark with the average government take of other
jurisdictions, the question remains as to whether it will be
enough to compensate for the high costs of exploration and
development in Alaska. They hadn't done enough analysis to
answer that question from ConocoPhillips' point of view, but the
answer is likely to be different for every company.
4:16:57 PM
SENATOR FRENCH said he sent Mr. Jepsen a slide and a question
last week and asked if Mr. Jepson had a chance to formulate a
response about declining rates and what is achievable at certain
investment levels.
4:17:15 PM
SCOTT JEPSEN, Vice President, External Affairs, ConocoPhillips,
said it is difficult to say what the decline rate will be, but
with more investment the decline rate will be less.
4:19:15 PM
SENATOR FRENCH moved Amendment 1.
28-GS1647\N.3
Nauman/Bullock
AMENDMENT 1
OFFERED IN THE SENATE BY SENATOR FRENCH
TO: CSSB 21(RES), Draft Version "N"
Page 1, lines 1 - 2:
Delete "relating to appropriations from taxes
paid under the Alaska Net Income Tax Act; providing a
tax credit against the corporation income tax for
qualified oil and gas service industry expenditures;"
Page 1, lines 3 - 4:
Delete "relating to gas used in the state;"
Page 1, lines 5 - 8:
Delete "for certain losses and expenditures;
relating to oil and gas production tax credit
certificates; relating to nontransferable tax credits
based on production; relating to the oil and gas tax
credit fund; relating to annual statements by
producers and explorers"
Insert "; amending the minimum tax on oil and gas
production; relating to oil and gas leases"
Page 1, lines 11 - 12:
Delete "establishing the Oil and Gas Competitive
Review Board; making conforming amendments"
Insert "; relating to the financing of the
development of oil and gas resources by the Alaska
Industrial Development and Export Authority"
Page 2, line 2, through page 31, line 1:
Delete all material and insert:
"* Section 1. AS 38.05.180(h) is amended to read:
(h) The commissioner shall [MAY] include terms
in a [ANY] lease that impose [IMPOSING] a minimum work
commitment on the lessee to implement the plan of
development submitted by the lessee with a bid for an
oil and gas or gas only lease. The terms of the
minimum work commitment must [. THESE TERMS SHALL BE
MADE PUBLIC BEFORE THE SALE, AND MAY] include
appropriate penalty provisions to take effect in the
event the lessee does not fulfill the minimum work
commitment. If it is demonstrated that a lease has
been proven unproductive by actions of adjacent lease
holders, the commissioner may set aside a work
commitment. The commissioner may waive for a period
not to exceed one two-year period any term of a
minimum work commitment if the commissioner makes a
written finding either that conditions preventing
drilling or exploration were beyond the lessee's
reasonable ability to foresee or control or that the
lessee has demonstrated through good faith efforts an
intent and ability to drill or develop the lease
during the term of the waiver.
* Sec. 2. AS 38.05.180(x) is amended to read:
(x) A lessee conducting or permitting any
exploration for, or development or production of, oil
or gas on state land shall provide the commissioner
access to all noninterpretive data obtained from that
lease; shall provide the commissioner access to all
information necessary to perform an economic analysis
under (ii)(2) of this section, including the capital,
operating, production, and development costs and an
estimate of total reserves; and shall provide copies
of that data and information, as the commissioner may
request. The confidentiality provisions of
AS 38.05.035 apply to the information obtained under
this subsection.
* Sec. 3. AS 38.05.180 is amended by adding new
subsections to read:
(hh) The commissioner shall require each bidder
for an oil and gas lease or gas only lease and each
lessee applying for an extension or renewal of an oil
and gas lease or gas only lease to submit a plan of
development for exploring, developing, and producing
from the lease within the period of the lease or the
extension or renewal of the lease. The commissioner
shall review each plan of development and determine
whether the proposed plan of development is reasonably
expected to develop the lease in the best interest of
the state. The plan of development shall be included
in a lease along with penalties for failing to comply
with the plan of development and other terms of the
lease. A bidder may not be a qualified bidder for the
purposes of (f)(1) of this section if the commissioner
finds that the bidder has not submitted a proposed
plan of development that is in the best interest of
the state or that the person that submitted the plan
of development is not reasonably capable of
implementing the plan.
(ii) The commissioner shall
(1) review each oil and gas lease or gas
only lease each year for the purpose of determining
whether a lease is being developed in the best
interest of the state, whether the lessee is complying
with the plan of development applicable to the lease,
and whether revision of a plan of development,
including the planned rate of development, would
provide the maximum benefit to the people of the
state;
(2) every five years, perform an economic
analysis on each participating area and determine
whether the participating area is capable of increased
production in paying quantities over the current rate
of production or plan of development;
(3) enforce the terms of each oil and gas
lease or gas only lease, including imposing any
applicable penalty or other remedy for noncompliance,
within a reasonable time after finding that a lessee
is out of compliance with the terms of the lease;
(4) submit a report to the legislature
before the first day of each regular session that
lists each oil and gas or gas only lessee that is
found to be out of compliance and the action by the
commissioner to bring the lessee back into compliance
or to terminate the lease.
(jj) For the purposes of (hh) and (ii) of this
section, a plan of development for a cooperative or
unit under (p) of this section is the plan of
development for a lease within the cooperative or
unit, except where a different plan of development is
established for a lease within the cooperative or
unit.
(kk) For purposes of (ii) of this section,
(1) "participating area" means that part of
an oil and gas lease unit area to which production is
allocated in the manner described in a unit agreement;
(2) "production in paying quantities" means
production in quantities sufficient to yield a return
in excess of drilling, development, and operating
costs.
* Sec. 4. AS 43.55.011(e) is amended to read:
(e) There is levied on the producer of oil or
gas a tax for all oil and gas produced each calendar
year from each lease or property in the state, less
any oil and gas the ownership or right to which is
exempt from taxation or constitutes a landowner's
royalty interest. Except as otherwise provided under
(f), (j), (k), (o), and (p) of this section, the tax
is equal to the sum of
(1) the annual production tax value of the
taxable oil and gas as calculated under
AS 43.55.160(a)(1), as adjusted by AS 43.55.162,
multiplied by 25 percent; and
(2) the sum, over all months of the
calendar year, of the tax amounts determined under (g)
of this section.
* Sec. 5. AS 43.55.011(f) is repealed and reenacted
to read:
(f) Except for oil and gas subject to (i) of
this section and gas subject to (o) of this section,
the provisions of this subsection apply to oil and gas
produced from each lease or property within a unit or
nonunitized reservoir that has cumulatively produced
1,000,000,000 BTU equivalent barrels of oil or gas by
the close of the most recent calendar year and from
which the average daily oil and gas production from
the unit or nonunitized reservoir during the most
recent calendar year exceeded 100,000 BTU equivalent
barrels. Notwithstanding any contrary provision of
law, a producer may not apply tax credits to reduce
its total tax liability under (e) and (g) of this
section for oil and gas produced from all leases or
properties within the unit or nonunitized reservoir
below 10 percent of the total gross value at the point
of production of that oil and gas. If the amount of
tax calculated by multiplying the tax rates in (e) and
(g) of this section by the total production tax value
of the oil and gas taxable under (e) and (g) of this
section produced from all of the producer's leases or
properties within the unit or nonunitized reservoir is
less than 10 percent of the total gross value at the
point of production of that oil and gas, the tax
levied by (e) and (g) of this section for that oil and
gas is equal to 10 percent of the total gross value at
the point of production of that oil and gas.
* Sec. 6. AS 43.55.011(g) is amended to read:
(g) For each month of the calendar year for
which the producer's average monthly production tax
value under AS 43.55.160(a)(2) of a [PER] BTU
equivalent barrel of the taxable oil and gas is more
than $30, the amount of tax for purposes of (e)(2) of
this section is determined by multiplying the monthly
production tax value of the taxable oil and gas
produced during the month, as adjusted by
AS 43.55.162, by the tax rate calculated as follows:
(1) if the producer's average monthly
production tax value of a [PER] BTU equivalent barrel
of the taxable oil and gas for the month is not more
than $92.50, the tax rate is 0.4 percent multiplied by
the number that represents the difference between that
average monthly production tax value of a [PER] BTU
equivalent barrel and $30; or
(2) if the producer's average monthly
production tax value of a [PER] BTU equivalent barrel
of the taxable oil and gas for the month is more than
$92.50, the tax rate is the sum of 25 percent and the
product of 0.1 percent multiplied by the number that
represents the difference between the average monthly
production tax value of a [PER] BTU equivalent barrel
and $92.50, except that the sum determined under this
paragraph may not exceed 30 [50] percent.
* Sec. 7. AS 43.55.020(a) is amended to read:
(a) For a calendar year, a producer subject to
tax under AS 43.55.011(e) - (i) or (p) shall pay the
tax as follows:
(1) an installment payment of the estimated
tax levied by AS 43.55.011(e), net of any tax credits
applied as allowed by law, is due for each month of
the calendar year on the last day of the following
month; except as otherwise provided under (2) of this
subsection, the amount of the installment payment is
the sum of the following amounts, less 1/12 of the tax
credits that are allowed by law to be applied against
the tax levied by AS 43.55.011(e) for the calendar
year, but the amount of the installment payment may
not be less than zero:
(A) for oil and gas produced from leases or
properties in the state outside the Cook Inlet
sedimentary basin but not subject to AS 43.55.011(o)
or (p), other than leases or properties subject to
AS 43.55.011(f), the greater of
(i) zero; or
(ii) the sum of 25 percent and the tax rate
calculated for the month under AS 43.55.011(g)
multiplied by the remainder obtained by subtracting
1/12 of the producer's adjusted lease expenditures for
the calendar year of production under AS 43.55.165 and
43.55.170 that are deductible for the leases or
properties under AS 43.55.160 and 1/12 of the
adjustment to production tax value for the calendar
year under AS 43.55.162 from the gross value at the
point of production of the oil and gas produced from
the leases or properties during the month for which
the installment payment is calculated;
(B) for oil and gas produced from leases or
properties subject to AS 43.55.011(f), 10 percent of
the gross value at the point of production of that oil
and gas [THE GREATEST OF
(i) ZERO;
(ii) ZERO PERCENT, ONE PERCENT, TWO
PERCENT, THREE PERCENT, OR FOUR PERCENT, AS
APPLICABLE, OF THE GROSS VALUE AT THE POINT OF
PRODUCTION OF THE OIL AND GAS PRODUCED FROM ALL LEASES
OR PROPERTIES DURING THE MONTH FOR WHICH THE
INSTALLMENT PAYMENT IS CALCULATED; OR
(iii) THE SUM OF 25 PERCENT AND THE TAX
RATE CALCULATED FOR THE MONTH UNDER AS 43.55.011(g)
MULTIPLIED BY THE REMAINDER OBTAINED BY SUBTRACTING
1/12 OF THE PRODUCER'S ADJUSTED LEASE EXPENDITURES FOR
THE CALENDAR YEAR OF PRODUCTION UNDER AS 43.55.165 AND
43.55.170 THAT ARE DEDUCTIBLE FOR THOSE LEASES OR
PROPERTIES UNDER AS 43.55.160 FROM THE GROSS VALUE AT
THE POINT OF PRODUCTION OF THE OIL AND GAS PRODUCED
FROM THOSE LEASES OR PROPERTIES DURING THE MONTH FOR
WHICH THE INSTALLMENT PAYMENT IS CALCULATED];
(C) for oil and gas produced from each
lease or property subject to AS 43.55.011(j), (k),
(o), or (p), the greater of
(i) zero; or
(ii) the sum of 25 percent and the tax rate
calculated for the month under AS 43.55.011(g)
multiplied by the remainder obtained by subtracting
1/12 of the producer's adjusted lease expenditures for
the calendar year of production under AS 43.55.165 and
43.55.170 that are deductible under AS 43.55.160 and
1/12 of the adjustment to production tax value for the
calendar year under AS 43.55.162 for oil or gas, as
applicable [RESPECTIVELY], produced from the lease or
property from the gross value at the point of
production of the oil or gas, as applicable
[RESPECTIVELY], produced from the lease or property
during the month for which the installment payment is
calculated;
(2) an amount calculated under (1)(C) of
this subsection for oil or gas produced from a lease
or property
(A) subject to AS 43.55.011(j), (k), or (o)
may not exceed the product obtained by carrying out
the calculation set out in AS 43.55.011(j)(1) or (2)
or 43.55.011(o), as applicable, for gas or set out in
AS 43.55.011(k)(1) or (2), as applicable, for oil, but
substituting in AS 43.55.011(j)(1)(A) or (2)(A) or
43.55.011(o), as applicable, the amount of taxable gas
produced during the month for the amount of taxable
gas produced during the calendar year and substituting
in AS 43.55.011(k)(1)(A) or (2)(A), as applicable, the
amount of taxable oil produced during the month for
the amount of taxable oil produced during the calendar
year;
(B) subject to AS 43.55.011(p) may not
exceed four percent of the gross value at the point of
production of the oil or gas;
(3) an installment payment of the estimated
tax levied by AS 43.55.011(i) for each lease or
property is due for each month of the calendar year on
the last day of the following month; the amount of the
installment payment is the sum of
(A) the applicable tax rate for oil
provided under AS 43.55.011(i), multiplied by the
gross value at the point of production of the oil
taxable under AS 43.55.011(i) and produced from the
lease or property during the month; and
(B) the applicable tax rate for gas
provided under AS 43.55.011(i), multiplied by the
gross value at the point of production of the gas
taxable under AS 43.55.011(i) and produced from the
lease or property during the month;
(4) any amount of tax levied by
AS 43.55.011(e) or (i), net of any credits applied as
allowed by law, that exceeds the total of the amounts
due as installment payments of estimated tax is due on
March 31 of the year following the calendar year of
production.
* Sec. 8. AS 43.55.024(d) is amended to read:
(d) A producer may not take a tax credit under
(c) of this section for any calendar year after the
later of
(1) 2022 [2016]; or
(2) if the producer did not have commercial
oil or gas production from a lease or property in the
state before April 1, 2006, the ninth calendar year
after the calendar year during which the producer
first has commercial oil or gas production before
May 1, 2022 [2016], from at least one lease or
property in the state.
* Sec. 9. AS 43.55 is amended by adding a new
section to read:
Sec. 43.55.026. Heavy oil research and
development tax credit. (a) A taxpayer may apply 20
percent of the taxpayer's expenditure attributable to
this state for research and development related to
improving methods of producing heavy oil in the state
for the taxable year that exceeds the base amount, but
not to exceed $10,000,000, as a credit against the
state tax liability imposed on the taxpayer under this
chapter.
(b) Research and development expenditures in
this section are attributable to this state if the
research and development is being conducted in this
state or the payroll of employees conducting the
research and development is in this state. In this
subsection, payroll of an employee is in this state if
compensation is paid to an employee in this state and
reported as paid in this state in the quarterly
contribution report under AS 23.20 to the Department
of Labor and Workforce Development.
(c) If the tax credit under this section exceeds
the taxpayer's tax liability after other tax credits
are taken under this chapter for the year in which the
expenditure is incurred, the excess of the tax credit
over the liability may be carried forward for up to
seven years. If an unused credit is carried forward to
a tax year from an earlier year, the credit arising in
the earliest year is applied first against the tax
liability for the year.
(d) A person may not claim a credit under this
section for research and development expenditures that
were deducted in the calculation of tax liability
under AS 43.55.011(e).
(e) Each year, if three or more taxpayers claim
the credit authorized under this section during the
immediately preceding year, the department shall
report to the legislature the number of taxpayers who
claimed credits under this section in the prior year,
the total cumulative amount of credits granted to all
taxpayers under this section for the prior tax year, a
description of the research and development projects
for which the credit was granted, and the total
cumulative number of employees conducting the research
and development for which all taxpayers claim the
credit.
(f) The commissioner shall establish in
regulation a method for apportioning research
expenditures of a producer related to heavy oil
production in and outside of the state. When
developing the regulations, the commissioner may
consider the relative amounts of heavy oil the
producer is seeking to produce in areas in and outside
of the state or consider another reasonable basis on
which fairly to apportion costs for research related
to in-state oil production and oil produced outside of
the state.
(g) In this section, "base amount" means the
average of research and development expenditures
related to improving methods of producing heavy oil
and attributable to this state for the three tax years
immediately preceding the taxable year for which the
credit is being claimed.
* Sec. 10. AS 43.55.030(a) is amended to read:
(a) A producer that produces oil or gas from a
lease or property in the state during a calendar year,
whether or not any tax payment is due under
AS 43.55.020(a) for that oil or gas, shall file with
the department on March 31 of the following year a
statement, under oath, in a form prescribed by the
department, giving, with other information required by
the department under a regulation adopted by the
department, the following:
(1) a description of each lease or property
from which oil or gas was produced, by name, legal
description, lease number, or accounting codes
assigned by the department;
(2) the names of the producer and, if
different, the person paying the tax, if any;
(3) the gross amount of oil and the gross
amount of gas produced from each lease or property,
and the percentage of the gross amount of oil and gas
owned by the producer;
(4) the gross value at the point of
production of the oil and of the gas produced from
each lease or property owned by the producer and the
costs of transportation of the oil and gas;
(5) the name of the first purchaser and the
price received for the oil and for the gas, unless
relieved from this requirement in whole or in part by
the department;
(6) the producer's qualified capital
expenditures, as defined in AS 43.55.023, other lease
expenditures under AS 43.55.165, and adjustments or
other payments or credits under AS 43.55.170;
(7) the production tax values of the oil
and gas under AS 43.55.160;
(8) any claims for tax credits to be
applied; [AND]
(9) calculations showing the amounts, if
any, that were or are due under AS 43.55.020(a) and
interest on any underpayment or overpayment; and
(10) for each expenditure that is the basis
for a credit claimed under AS 43.55.023 or 43.55.025,
a description of the expenditure, a detailed
description of the purpose of the expenditure, and a
description of the lease or property for which the
expenditure was incurred; notwithstanding
AS 40.25.100(a) and AS 43.05.230(a), information
submitted under this paragraph may be disclosed to the
public and shall be disclosed to the legislature in a
report submitted within 10 days after the convening of
the next regular legislative session following the
date a statement is filed under this section.
* Sec. 11. AS 43.55.030(e) is amended to read:
(e) An explorer or producer that incurs a lease
expenditure under AS 43.55.165 or receives a payment
or credit under AS 43.55.170 during a calendar year
but does not produce oil or gas from a lease or
property in the state during the calendar year shall
file with the department on March 31 of the following
year a statement, under oath, in a form prescribed by
the department, giving, with other information
required by the department under a regulation adopted
by the department, the following:
(1) the producer's qualified capital
expenditures, as defined in AS 43.55.023, other lease
expenditures under AS 43.55.165, and adjustments or
other payments or credits under AS 43.55.170; [AND]
(2) if the explorer or producer receives a
payment or credit under AS 43.55.170, calculations
showing whether the explorer or producer is liable for
a tax under AS 43.55.160(d) or 43.55.170(b) and, if
so, the amount; and
(3) for each expenditure that is the basis
for a credit claimed under this chapter, a description
of the expenditure, a detailed description of the
purpose of the expenditure, and a description of the
lease or property for which the expenditure was
incurred; notwithstanding AS 40.25.100(a) and
AS 43.05.230(a), information submitted under this
paragraph may be disclosed to the public and shall be
disclosed to the legislature in a report submitted
within 10 days after the convening of the next regular
legislative session following the date a statement is
filed under this section.
* Sec. 12. AS 43.55.160(a) is amended to read:
(a) Except as provided in (b) of this section,
and subject to adjustment under AS 43.55.162, for the
purposes of
(1) AS 43.55.011(e), the annual production
tax value of the taxable oil, gas, or oil and gas
subject to this paragraph produced during a calendar
year is the gross value at the point of production of
the oil, gas, or oil and gas taxable under
AS 43.55.011(e), less the producer's lease
expenditures under AS 43.55.165 for the calendar year
applicable to the oil, gas, or oil and gas, as
applicable, produced by the producer from leases or
properties, as adjusted under AS 43.55.170; this
paragraph applies to
(A) oil and gas produced from leases or
properties in the state that include land north of 68
degrees North latitude, other than gas produced before
2022 and used in the state;
(B) oil and gas produced from leases or
properties in the state outside the Cook Inlet
sedimentary basin, no part of which is north of 68
degrees North latitude; this subparagraph does not
apply to gas
(i) produced before 2022 and used in the
state; or
(ii) oil and gas subject to
AS 43.55.011(p);
(C) oil produced before 2022 from a lease
or property in the Cook Inlet sedimentary basin;
(D) gas produced before 2022 from a lease
or property in the Cook Inlet sedimentary basin;
(E) gas produced before 2022 from a lease
or property in the state outside the Cook Inlet
sedimentary basin and used in the state;
(F) oil and gas subject to AS 43.55.011(p)
produced from leases or properties in the state;
(G) oil and gas produced from a lease or
property no part of which is north of 68 degrees North
latitude, other than oil or gas described in (B), (C),
(D), (E), or (F) of this paragraph;
(2) AS 43.55.011(g), the monthly production
tax value of the taxable
(A) oil and gas produced during a month
from leases or properties in the state that include
land north of 68 degrees North latitude is the gross
value at the point of production of the oil and gas
taxable under AS 43.55.011(e) and produced by the
producer from those leases or properties, less 1/12 of
the producer's lease expenditures under AS 43.55.165
for the calendar year applicable to the oil and gas
produced by the producer from those leases or
properties, as adjusted under AS 43.55.170; this
subparagraph does not apply to gas subject to
AS 43.55.011(o);
(B) oil and gas produced during a month
from leases or properties in the state outside the
Cook Inlet sedimentary basin, no part of which is
north of 68 degrees North latitude, is the gross value
at the point of production of the oil and gas taxable
under AS 43.55.011(e) and produced by the producer
from those leases or properties, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil and gas
produced by the producer from those leases or
properties, as adjusted under AS 43.55.170; this
subparagraph does not apply to gas subject to
AS 43.55.011(o);
(C) oil produced during a month from a
lease or property in the Cook Inlet sedimentary basin
is the gross value at the point of production of the
oil taxable under AS 43.55.011(e) and produced by the
producer from that lease or property, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(D) gas produced during a month from a
lease or property in the Cook Inlet sedimentary basin
is the gross value at the point of production of the
gas taxable under AS 43.55.011(e) and produced by the
producer from that lease or property, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the gas produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(E) gas produced during a month from a
lease or property outside the Cook Inlet sedimentary
basin and used in the state is the gross value at the
point of production of that gas taxable under
AS 43.55.011(e) and produced by the producer from that
lease or property, less 1/12 of the producer's lease
expenditures under AS 43.55.165 for the calendar year
applicable to that gas produced by the producer from
that lease or property, as adjusted under
AS 43.55.170.
* Sec. 13. AS 43.55 is amended by adding a new
section to read:
Sec. 43.55.162. Adjustments to production tax
value. (a) The annual production tax value of oil
produced from a lease or property north of 68 degrees
North latitude by the producer is reduced, during the
first seven consecutive years after the start of
commercial production by 20 percent of the gross value
at the point of production of oil produced during the
calendar year. This subsection does not apply to a
lease or property that
(1) was in commercial production before
January 1, 2007;
(2) is located within a unit area that has
never had commercial production; or
(3) is located within a unit for more than
20 years before the first commercial production on the
lease or property.
(b) The annual production tax value of oil or
gas produced by a producer is reduced during the first
five consecutive years after the start of commercial
production by 10 percent if the oil or gas is produced
from a participating area established after
December 31, 2012, that is within a unit formed under
AS 38.05.180(p) before January 1, 2003, if the
participating area does not contain a reservoir that
had previously been in a participating area
established before January 1, 2012. This subsection
does not apply to production from a lease or property
located within a unit for more than 20 years before
the first commercial production on the lease or
property.
(c) The annual production tax value of heavy oil
produced by a producer is reduced by 10 percent of the
gross value at the point of production of heavy oil
produced, for the calendar year, from a lease or
property that is located within a unit area existing
on January 1, 2014.
(d) For a calendar year after 2012, the annual
production tax value of oil produced by a producer
that produced oil in 2012 is reduced by 10 percent of
the gross value at the point of production of the
volume of oil produced during the calendar year in
excess of the total volume produced by the producer in
2012. The volume of oil produced by a producer in 2012
is the average daily statewide production of the
producer, excluding from the calculation the days on
which production is significantly reduced, multiplied
by the number of days in the calendar year. For the
purposes of this subsection, production is
significantly reduced when the production volume of
oil for the day is less than one-half of the quotient
of the total volume of oil production that is produced
by the producer for the year and the number of days in
the calendar year. A producer that increases its
volume of production through the purchase, merger, or
other acquisition of another producer is the sum of
the producer's total target volume and the total
target volume for the producer that is purchased,
merged with, or otherwise acquired; however, if the
producer that is purchased, merged with, or otherwise
acquired did not have a target volume determined under
this section, the volume of the increased production
that is attributable to the purchase, merger, or other
acquisition may not be considered for the purpose of
determining whether the producer that acquired the
additional production has increased the volume of
production above its target volume.
(e) A reduction in production tax value provided
by this section may not be combined with any other
reduction in production tax value provided by this
section in the same year. Oil or gas from a lease or
property that produces oil or gas that results in a
production tax reduction under (a) of this section is
ineligible for a production tax reduction under (b)
and (c) of this section and may not be used in the
calculation of production volume under (d) of this
section.
(f) A reduction in production tax value provided
by this section may not reduce the production tax
value of a producer below zero.
(g) The rate of tax under AS 43.55.011(g) shall
be determined before the application of the adjustment
provided by this section.
(h) In this section,
(1) "commercial production" means the
production of oil for the purpose of sale or other
beneficial use, except when the sale or beneficial use
is incidental to the testing of an unproved well or
unproved completion interval;
(2) "participating area" means that part of
an oil and gas lease unit to which production is
allocated in the manner described in a unit agreement.
* Sec. 14. AS 43.55.990 is amended by adding a new
paragraph to read:
(14) "heavy oil" means oil with an American
Petroleum Institute gravity of less than 18 degrees.
* Sec. 15. AS 44.88.080 is amended by adding a new
paragraph to read:
(32) to acquire an interest in a project as
necessary or appropriate to provide working or venture
capital for an oil or natural gas development project
under AS 44.88.800 and 44.88.810, whether by purchase,
gift, or lease.
* Sec. 16. AS 44.88 is amended by adding new
sections to read:
Article 9A. Interest in Oil and Gas Resources.
Sec. 44.88.800. Acquisition of interest in
businesses. (a) The authority may acquire, through
purchase or other means, an interest in a lease held
by a corporation or other business entity in an oil or
natural gas field in the state that has been explored,
but only if the authority determines the leaseholder
has made reasonable efforts to obtain financing from
the private sector to develop the lease and those
efforts have, in whole or part, been unsuccessful. The
authority shall exercise due diligence in acquiring a
leasehold interest under this section.
(b) If the authority acquires a leasehold
interest under this section, the authority may use the
authority's assets, as appropriate, to aid in the
development of the oil or natural gas field in which
the business entity has a leasehold interest.
Sec. 44.88.810. Alaska resource development fund.
(a) The Alaska resource development fund is
established in the authority for the purpose of
developing oil and gas resources, and consists of
appropriations to the fund. The authority shall manage
the fund and may create separate accounts within it.
Income of the fund or of enterprises of the authority
shall be separately accounted for and may be
appropriated to the fund.
(b) The authority may use money from the fund to
carry out the purpose of the fund set out in (a) of
this section.
* Sec. 17. AS 44.88.900(10) is amended to read:
(10) "project" means
(A) a plant or facility used or intended
for use in connection with making, processing,
preparing, transporting, or producing in any manner,
goods, products, or substances of any kind or nature
or in connection with developing or utilizing a
natural resource, or extracting, smelting,
transporting, converting, assembling, or producing in
any manner, minerals, raw materials, chemicals,
compounds, alloys, fibers, commodities and materials,
products, or substances of any kind or nature;
(B) a plant or facility used or intended
for use in connection with a business enterprise;
(C) commercial activity by a business
enterprise;
(D) a plant or facility demonstrating
technological advances of new methods and procedures
and prototype commercial applications for the
exploration, development, production, transportation,
conversion, and use of energy resources;
(E) infrastructure for a new tourism
destination facility or for the expansion of a tourism
destination facility; in this subparagraph, "tourism
destination facility" does not include a hotel or
other overnight lodging facility;
(F) a plant or facility, other than a plant
or facility described in (D) of this paragraph, for
the generation, transmission, development,
transportation, conversion, or use of energy
resources;
(G) a plant or facility that enhances,
provides for, or promotes economic development with
respect to transportation, communications, community
public purposes, technical innovations, prototype
commercial applications of intellectual property, or
research;
(H) a plant or facility used or intended
for use as a federal facility, including a United
States military, national guard, or coast guard
facility;
(I) infrastructure for an area that is
designated as a military facility zone under AS 26.30;
(J) development of an oil and gas field by
providing working or venture capital in exchange for
an equity interest;
* Sec. 18. The uncodified law of the State of
Alaska is amended by adding a new section to read:
APPLICABILITY. (a) Section 1 of this Act and
AS 38.05.180(hh), enacted by sec. 3 of this Act, apply
to a proposed lease sale and the renewal or extension
of a lease on or after the effective date of this Act.
(b) The reduction in production tax value under
AS 43.55.162, enacted by sec. 13 of this Act, applies
to oil or gas produced after December 31, 2013.
* Sec. 19. The uncodified law of the State of
Alaska is amended by adding a new section to read:
LEGISLATIVE APPROVAL; NORTH SLOPE OIL PROCESSING
FACILITY. (a) The Alaska Industrial Development and
Export Authority may issue a loan to a producer of oil
or gas to finance the construction and improvement of
an oil processing facility on the Alaska North Slope
and flow lines and other surface infrastructure for
the facility. A loan under this section shall
(1) be issued to a producer that produces
less than 100,000 barrels of oil a day;
(2) be issued for the purpose of financing
a facility to facilitate production from a unit
established after January 1, 2014; and
(3) have an interest rate that does not
exceed the prime rate of interest plus one percent.
(b) In this section, "prime rate" means the
lowest United States money center prime rate of
interest that is published in the Wall Street Journal.
* Sec. 20. Section 19 of this Act is repealed
June 30, 2017. Repeal of sec. 19 of this Act does not
affect loans issued by the Alaska Industrial
Development and Export Authority under sec. 19 of this
Act before June 30, 2017.
* Sec. 21. This Act takes effect January 1, 2014."
CHAIR GIESSEL objected for discussion purposes.
SENATOR FRENCH explained that Legislative Legal said this is not
stripping the bill, but it essentially replaces the provisions
of SB 21 with those of SB 50 where they differ. The amendment is
designed to keep ACES in place and make a good system better,
because he believes that the governor's approach and the
committee modifications so far are the wrong policy. He said as
Mr. Jepsen had noted in previous testimony that for FY14, 15,
and 16 there would be a 3.3 percent decline rate, five and a
half years after ACES passed, and that is about as good as one
could realistically expect until the heavy oil puzzle or the
shale oil puzzle gets cracked or until OCS oil comes to us from
offshore.
He was also concerned that an Econ One slide, number 11, from
February 13, entitled "Capital Spending" made it look like
capital spending had leveled off on the North Slope, but he had
updated the slide, because it stopped in 2012, with projected
capital spending in the Revenue Sources Book. And for 2013 and
2014 it showed substantial jumps in capital spending in each of
those years from $2.4 billion in 2012 to $3.3 billion in 2013
and to $3.8 billion 2014.
Senator French said he was actually chagrined that they were
shown a slide that didn't accurately depict what was happening
on the North Slope both now and in the near future. He said that
the DOR goes to great lengths to formulate the estimates and
they are fairly accurate, being based on real interviews with
the industry. It took him back to first causes and the fact
that the people who are saying ACES is broken are the taxpayers
and that is more or less what you would expect them to say. Even
when the ExxonMobil tax attorney was asked by the committee what
an appropriate tax level would be, he couldn't or wouldn't say,
Senator French said he thought the answer would have been zero
from Exxon's perspective, but the legislature has to set a fair
tax policy from the perspective of the whole state.
4:24:00 PM
That is what this amendment is meant to do: it offers a fuller
spectrum of ways to incentivize oil on the North Slope without
just touching the tax dial. It does that by looking at
incentivizing heavy oil research and development, by making
state loans available for production facilities in new oil
fields that require development plans with initial leases on
state land. It maintains a reasonable share of windfall profits
for the producers and caps progressivity at about 55 percent; it
allows for the gross revenue exclusions they had talked about
today and ends them in seven years, extends the small producer
tax credit out to 2022, and provides a tax credit for research
and development for heavy oil. It touches on the things that are
needed but still keeps the basic system of ACES in place.
SENATOR FRENCH said that a presentation given last year in this
committee by Shelby Gerking, an Economics Professor who had been
working on this issue for close to 35 years, who had done more
than 20 peer reviewed economic studies of production taxes and
the relationship between production taxes and spending and
production going back for 35 years, said that even a substantial
tax increase from zero to 25 percent doesn't affect production
very much.
A new report said that Gerking analyzed a 28-year 7-state data
set compiled by the American Petroleum Institute and found that
taxes have some impact; for example cutting severance taxes from
25 percent of well head value to zero increased long term
production by 13 percent, but in most cases the changes were
very small. That comported with his experience in Alaska when
the ELF (economic limit factor) tax rates on the North Slope
started in 1996 at about 12 percent and went down to below 1
percent in 2006. That was a real time experiment in dropping the
production taxes, but unfortunately the decline curve continued
going down at 7 percent a year. His concern was that the
approach being offered by the governor and by the CS was still
the same idea - lower taxes and hope for the best - but with
this evidence and Alaska's experience he didn't think that was
the way to go.
SENATOR FRENCH, in closing, reminded them of the Constitution
they had all sworn to uphold and Article 8, Section 2, says we
have to get the maximum benefit out of our natural resources. If
they do something less than that, they are not serving the state
well.
SENATOR FAIRCLOUGH said she wanted to speak to the issue of
fairness first and as far as Alaska's share goes, fair is one-
third, one-third, one-third. When she listened to Vic Fisher
talk about that particular clause in the Constitution, he said
government take should be somewhere around two-thirds.
4:28:40 PM
At ease from 4:28 to 4:30
4:30:19 PM
CHAIR GIESSEL called the meeting back to order and asked for
further comments from committee members.
SENATOR MICCICHE commented that a constituent called, because he
made a comment about what the state spent on Dr. Gerking last
year. For the record, he wanted to correct himself that Dr.
Gerking was not compensated and had volunteered that
information. He was happy to hear that and still disagreed with
his concepts on tax law incentives.
He said the increased spending not being directed to new
production was the key to this proposal. It exposes the state to
significant payouts that didn't lead to additional production,
and that is one of the issues that SB 21 tried to address.
Another issue was that the oil decline experienced by Alaska
when there was almost no taxes with ELF was one similar to those
experienced in other oil producing states. And when the price of
oil did pick up recently so did their production -
significantly; yet Alaska's has remained in decline. So clearly
there is a competitive issue with the ACES structure.
SENATOR MICCICHE said it was also somewhat interesting that ACES
was just fine a couple of weeks back and they had finally gotten
to the point where they agree that it's not fine and needs
significant adjustment and the vehicle for that is SB 21. He had
heard the maximum benefit comment often, but getting the maximum
benefit for the people of Alaska means not leaving oil in the
ground and being competitive in producing what resources God has
blessed Alaska with.
4:33:29 PM
SENATOR MCGUIRE echoed those comments, particularly about
progressivity and said she opposed the amendment. They want a
system that reflects some progressivity or one that at least has
a predictable tax rate. But they have heard over and over again
that is the place where ACES was really broken. It was broken in
the credits in the sense that the state was handing out credits
in areas that were not necessarily inducing the kind of
investment that leads to production. It was broken in the sense
that it put the state coffers at an exposure rate that it can't
necessarily meet. Just today they heard Ken Thompson, a life-
long Alaskan, say the one most important thing to investors was
fixing progressivity; Cambridge Energy Research's binders that
are send to global investors showed absurd tax calculations of
anywhere from 25 to 75 percent. So lawmakers are putting a
predictable competitive tax system in place for the State of
Alaska.
4:36:22 PM
SENATOR FAIRCLOUGH said when they look at maximum benefit for
the people of Alaska they look at what is going to be there for
future generations.
CHAIR GIESSEL commented that they looked at UK's brown field
(legacy fields) credits when they significantly changed their
tax structure last year and have seen the resulting significant
investments and expect more production by 2017 or earlier.
Investment takes time to increase production and that will be
seen in the UK. This emphasizes the many examples around the
world, Alberta being another one, where the tax structure makes
a difference in terms of investment.
CHAIR GIESSEL asked for a roll call vote on Amendment 1.
A roll call vote was taken: Senator French voted yea; Senators
Dyson, Micciche, McGuire, Fairclough, and Giessel voted nay.
Therefore, Amendment 1 failed on a 1:5 vote.
4:39:53 PM
SENATOR FRENCH moved Amendment 2.
28-GS1647\N.2
Bullock
AMENDMENT 2
OFFERED IN THE SENATE BY SENATOR FRENCH
TO: CSSB 21(RES), Draft Version "N"
Page 1, line 3:
Delete "rate"
Insert "rates"
Page 2, following line 9:
Insert a new bill section to read:
"* Sec. 2. AS 29.60.850(b), as amended by sec. 1
of this Act, is amended to read:
(b) Each fiscal year, the legislature may
appropriate to the community revenue sharing fund an
amount equal to 20 percent of the money received by
the state during the previous calendar year under
AS 43.55.011(q) [AS 43.20.030(c)]. The amount may not
exceed
(1) $60,000,000; or
(2) the amount that, when added to the fund
balance on June 30 of the previous fiscal year, equals
$180,000,000."
Renumber the following bill sections accordingly.
Page 4, following line 4:
Insert a new bill section to read:
"* Sec. 5. AS 43.55.011(e), as amended by sec. 4 of
this Act, is amended to read:
(e) There is levied on the producer of oil or
gas a tax for all oil and gas produced each calendar
year from each lease or property in the state, less
any oil and gas the ownership or right to which is
exempt from taxation or constitutes a landowner's
royalty interest. Except as otherwise provided under
(f), (j), (k), (o), and (p) of this section, the tax
is equal to the sum of
(1) the annual production tax value of the
taxable oil and gas as calculated under
AS 43.55.160(a)(1) [AS 43.55.160(a)] multiplied by 25
[35] percent; and
(2) the sum, over all months of the
calendar year, of the tax amounts determined under (q)
of this section."
Renumber the following bill sections accordingly.
Page 4, following line 10:
Insert new bill sections to read:
"* Sec. 7. AS 43.55.011(o), as amended by sec. 6 of
this Act, is amended to read:
(o) Notwithstanding other provisions of this
section, for a calendar year before 2022, the tax
levied under (e) of this section for each 1,000 cubic
feet of gas for gas produced from a lease or property
outside the Cook Inlet sedimentary basin and used in
the state [, OTHER THAN GAS SUBJECT TO (p) OF THIS
SECTION,] may not exceed the amount of tax for each
1,000 cubic feet of gas that is determined under
(j)(2) of this section.
* Sec. 8. AS 43.55.011 is amended by adding a new
subsection to read:
(q) For each month of the calendar year for
which the producer's average monthly production tax
value under AS 43.55.160(a)(2) of a BTU equivalent
barrel of the taxable oil and gas is more than $30,
the amount of tax for purposes of (e)(2) of this
section is determined by multiplying the monthly
production tax value of the taxable oil and gas
produced during the month by the tax rate calculated
as follows:
(1) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is not more than
$92.50, the tax rate is 0.4 percent multiplied by the
number that represents the difference between that
average monthly production tax value of a BTU
equivalent barrel and $30; or
(2) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $92.50,
the tax rate is the sum of 25 percent and the product
of 0.1 percent multiplied by the number that
represents the difference between the average monthly
production tax value of a BTU equivalent barrel and
$92.50, except that the sum determined under this
paragraph may not exceed 50 percent."
Renumber the following bill sections accordingly.
Page 7, line 13:
Delete "sec. 5"
Insert "sec. 9"
Page 10, following line 10:
Insert a new bill section to read:
"* Sec. 11. AS 43.55.020(a), as amended by secs. 9
and 10 of this Act, is repealed and reenacted to read:
(a) For a calendar year, a producer subject to
tax under AS 43.55.011(e), (f), (h), (i), (p), or (q)
shall pay the tax as follows:
(1) an installment payment of the estimated
tax levied by AS 43.55.011(e), net of any tax credits
applied as allowed by law, is due for each month of
the calendar year on the last day of the following
month; except as otherwise provided under (2) of this
subsection, the amount of the installment payment is
the sum of the following amounts, less 1/12 of the tax
credits that are allowed by law to be applied against
the tax levied by AS 43.55.011(e) for the calendar
year, but the amount of the installment payment may
not be less than zero:
(A) for oil and gas produced from leases or
properties in the state outside the Cook Inlet
sedimentary basin but not subject to AS 43.55.011(o)
or (p), other than leases or properties subject to
AS 43.55.011(f), the greater of
(i) zero; or
(ii) the sum of 25 percent and the tax rate
calculated for the month under AS 43.55.011(q)
multiplied by the remainder obtained by subtracting
1/12 of the producer's adjusted lease expenditures for
the calendar year of production under AS 43.55.165 and
43.55.170 that are deductible for the leases or
properties under AS 43.55.160 from the gross value at
the point of production of the oil and gas produced
from the leases or properties during the month for
which the installment payment is calculated;
(B) for oil and gas produced from leases or
properties subject to AS 43.55.011(f), the greatest of
(i) zero;
(ii) zero percent, one percent, two
percent, three percent, or four percent, as
applicable, of the gross value at the point of
production of the oil and gas produced from all leases
or properties during the month for which the
installment payment is calculated; or
(iii) the sum of 25 percent and the tax
rate calculated for the month under AS 43.55.011(q)
multiplied by the remainder obtained by subtracting
1/12 of the producer's adjusted lease expenditures for
the calendar year of production under AS 43.55.165 and
43.55.170 that are deductible for those leases or
properties under AS 43.55.160 from the gross value at
the point of production of the oil and gas produced
from those leases or properties during the month for
which the installment payment is calculated;
(C) for oil and gas produced from each
lease or property subject to AS 43.55.011(j), (k),
(o), or (p), the greater of
(i) zero; or
(ii) the sum of 25 percent and the tax rate
calculated for the month under AS 43.55.011(q)
multiplied by the remainder obtained by subtracting
1/12 of the producer's adjusted lease expenditures for
the calendar year of production under AS 43.55.165 and
43.55.170 that are deductible under AS 43.55.160 for
oil or gas, respectively, produced from the lease or
property from the gross value at the point of
production of the oil or gas, respectively, produced
from the lease or property during the month for which
the installment payment is calculated;
(2) an amount calculated under (1)(C) of
this subsection for oil or gas produced from a lease
or property
(A) subject to AS 43.55.011(j), (k), or (o)
may not exceed the product obtained by carrying out
the calculation set out in AS 43.55.011(j)(1) or (2)
or 43.55.011(o), as applicable, for gas or set out in
AS 43.55.011(k)(1) or (2), as applicable, for oil, but
substituting in AS 43.55.011(j)(1)(A) or (2)(A) or
43.55.011(o), as applicable, the amount of taxable gas
produced during the month for the amount of taxable
gas produced during the calendar year and substituting
in AS 43.55.011(k)(1)(A) or (2)(A), as applicable, the
amount of taxable oil produced during the month for
the amount of taxable oil produced during the calendar
year;
(B) subject to AS 43.55.011(p) may not
exceed four percent of the gross value at the point of
production of the oil or gas;
(3) an installment payment of the estimated
tax levied by AS 43.55.011(i) for each lease or
property is due for each month of the calendar year on
the last day of the following month; the amount of the
installment payment is the sum of
(A) the applicable tax rate for oil
provided under AS 43.55.011(i), multiplied by the
gross value at the point of production of the oil
taxable under AS 43.55.011(i) and produced from the
lease or property during the month; and
(B) the applicable tax rate for gas
provided under AS 43.55.011(i), multiplied by the
gross value at the point of production of the gas
taxable under AS 43.55.011(i) and produced from the
lease or property during the month;
(4) any amount of tax levied by
AS 43.55.011(e) or (i), net of any credits applied as
allowed by law, that exceeds the total of the amounts
due as installment payments of estimated tax is due on
March 31 of the year following the calendar year of
production."
Renumber the following bill sections accordingly.
Page 10, following line 28:
Insert a new bill section to read:
"* Sec. 13. AS 43.55.020(d), as amended by sec. 12
of this Act, is amended to read:
(d) In making settlement with the royalty owner
for oil and gas that is taxable under AS 43.55.011,
the producer may deduct the amount of the tax paid on
taxable royalty oil and gas, or may deduct taxable
royalty oil or gas equivalent in value at the time the
tax becomes due to the amount of the tax paid. If the
total deductions of installment payments of estimated
tax for a calendar year exceed the actual tax for that
calendar year, the producer shall, before April 1 of
the following year, refund the excess to the royalty
owner. Unless otherwise agreed between the producer
and the royalty owner, the amount of the tax paid
under AS 43.55.011(e), (f), and (q) [AS 43.55.011(e)]
on taxable royalty oil and gas for a calendar year,
other than oil and gas the ownership or right to which
constitutes a landowner's royalty interest, is
considered to be the gross value at the point of
production of the taxable royalty oil and gas produced
during the calendar year multiplied by a figure that
is a quotient, in which
(1) the numerator is the producer's total
tax liability under AS 43.55.011(e), (f), and (q)
[AS 43.55.011(e)] for the calendar year of production;
and
(2) the denominator is the total gross
value at the point of production of the oil and gas
taxable under AS 43.55.011(e), (f), and (q)
[AS 43.55.011(e)] produced by the producer from all
leases and properties in the state during the calendar
year."
Renumber the following bill sections accordingly.
Page 11, following line 18:
Insert a new bill section to read:
"* Sec. 15. AS 43.55.023(a), as amended by sec. 14
of this Act, is amended to read:
(a) A producer or explorer may take a tax credit
for a qualified capital expenditure as follows:
(1) notwithstanding that a qualified
capital expenditure may be a deductible lease
expenditure for purposes of calculating the production
tax value of oil and gas under AS 43.55.160(a), unless
a credit for that expenditure is taken under
AS 38.05.180(i), AS 41.09.010, AS 43.20.043, or
AS 43.55.025, a producer or explorer that incurs a
qualified capital expenditure may also elect to apply
a tax credit against a tax levied by AS 43.55.011(e)
in the amount of 20 percent of that expenditure;
however, not more than half of the tax credit may be
applied for a single calendar year;
(2) a producer or explorer may take a
credit for a qualified capital expenditure incurred in
connection with geological or geophysical exploration
or in connection with an exploration well only if the
producer or explorer
(A) agrees, in writing, to the applicable
provisions of AS 43.55.025(f)(2); and
(B) submits to the Department of Natural
Resources all data that would be required to be
submitted under AS 43.55.025(f)(2) [;
(3) A CREDIT FOR A QUALIFIED CAPITAL
EXPENDITURE INCURRED TO EXPLORE FOR, DEVELOP, OR
PRODUCE OIL OR GAS DEPOSITS LOCATED NORTH OF 68
DEGREES NORTH LATITUDE MAY BE TAKEN ONLY IF THE
EXPENDITURE IS INCURRED BEFORE JANUARY 1, 2014]."
Renumber the following bill sections accordingly.
Page 11, following line 29:
Insert a new bill section to read:
"* Sec. 17. AS 43.55.023(b), as amended by sec. 16
of this Act, is amended to read:
(b) A [EXCEPT AS PROVIDED IN (p) - (u) OF THIS
SECTION FOR A TAX CREDIT BASED ON LEASE EXPENDITURES
INCURRED AFTER DECEMBER 31, 2013, TO EXPLORE FOR,
DEVELOP, OR PRODUCE OIL OR GAS DEPOSITS LOCATED NORTH
OF 68 DEGREES NORTH LATITUDE, A] producer or explorer
may elect to take a tax credit in the amount of 25
[35] percent of a carried-forward annual loss. A
credit under this subsection may be applied against a
tax levied by AS 43.55.011(e). For purposes of this
subsection, a carried-forward annual loss is the
amount of a producer's or explorer's adjusted lease
expenditures under AS 43.55.165 and 43.55.170 for a
previous calendar year that was not deductible in
calculating production tax values for that calendar
year under AS 43.55.160."
Renumber the following bill sections accordingly.
Page 12, following line 4:
Insert a new bill section to read:
"* Sec. 19. AS 43.55.023(c), as amended by sec. 18
of this Act, is amended to read:
(c) A credit or portion of a credit under this
section may not be used to reduce a person's tax
liability under AS 43.55.011(e) for any calendar year
below zero, and [. EXCEPT AS OTHERWISE PROVIDED UNDER
(p) - (u) OF THIS SECTION,] any unused credit or
portion of a credit not used under this subsection may
be applied in a later calendar year.
Renumber the following bill sections accordingly.
Page 12, line 30:
Delete "sec. 11"
Insert "sec. 20"
Page 13, following line 18:
Insert a new bill section to read:
"* Sec. 22. AS 43.55.023(d), as amended by secs. 20
and 21 of this Act, is amended to read:
(d) A [EXCEPT FOR A TAX CREDIT BASED ON A LEASE
EXPENDITURE INCURRED AFTER DECEMBER 31, 2013, TO
EXPLORE FOR, DEVELOP, OR PRODUCE OIL OR GAS DEPOSITS
LOCATED NORTH OF 68 DEGREES NORTH LATITUDE, A] person
that is entitled to take a tax credit under this
section that wishes to transfer the unused credit to
another person or obtain a cash payment under
AS 43.55.028 may apply to the department for [A]
transferable tax credit certificates [CERTIFICATE]. An
application under this subsection must be in a form
prescribed by the department and must include
supporting information and documentation that the
department reasonably requires. The department shall
grant or deny an application, or grant an application
as to a lesser amount than that claimed and deny it as
to the excess, not later than 120 days after the
latest of (1) March 31 of the year following the
calendar year in which the qualified capital
expenditure or carried-forward annual loss for which
the credit is claimed was incurred; (2) the date the
statement required under AS 43.55.030(a) or (e) was
filed for the calendar year in which the qualified
capital expenditure or carried-forward annual loss for
which the credit is claimed was incurred; or (3) the
date the application was received by the department.
If, based on the information then available to it, the
department is reasonably satisfied that the applicant
is entitled to a credit, the department shall issue
the applicant two [A] transferable tax credit
certificates, each for half of [CERTIFICATE FOR] the
amount of the credit. The credit shown on one of the
two certificates is available for immediate use. The
credit shown on the second of the two certificates may
not be applied against a tax for a calendar year
earlier than the calendar year following the calendar
year in which the certificate is issued, and the
certificate must contain a conspicuous statement to
that effect. A certificate issued under this
subsection does not expire."
Renumber the following bill sections accordingly.
Page 14, following line 1:
Insert a new bill section to read:
"* Sec. 24. AS 43.55.023(g), as amended by sec. 23
of this Act, is amended to read:
(g) The issuance of a transferable tax credit
certificate under (d), (v), of this section or former
(m) of this section or the purchase of a certificate
under AS 43.55.028 does not limit the department's
ability to later audit a tax credit claim to which the
certificate relates or to adjust the claim if the
department determines, as a result of the audit, that
the applicant was not entitled to the amount of the
credit for which the certificate was issued. The tax
liability of the applicant under AS 43.55.011(e) and
43.55.017 - 43.55.180 is increased by the amount of
the credit that exceeds that to which the applicant
was entitled, or the applicant's available valid
outstanding credits applicable against the tax levied
by AS 43.55.011(e) are reduced by that amount. If the
applicant's tax liability is increased under this
subsection, the increase bears interest under
AS 43.05.225 from the date the transferable tax credit
certificate was issued. For purposes of this
subsection, an applicant that is an explorer is
considered a producer subject to the tax levied by
AS 43.55.011(e)."
Renumber the following bill sections accordingly.
Page 14, following line 15:
Insert a new bill section to read:
"* Sec. 26. AS 43.55.023(n), as amended by sec. 25
of this Act, is amended to read:
(n) For the purposes of (l) and (v) of this
section, a well lease expenditure incurred in the
state south of 68 degrees North latitude is a lease
expenditure that is
(1) directly related to an exploration
well, a stratigraphic test well, a producing well, or
an injection well other than a disposal well, located
in the state south of 68 degrees North latitude, if
the expenditure is a qualified capital expenditure and
an intangible drilling and development cost authorized
under 26 U.S.C. (Internal Revenue Code), as amended,
and 26 C.F.R. 1.612-4, regardless of the elections
made under 26 U.S.C. 263(c); in this paragraph, an
expenditure directly related to a well includes an
expenditure for well sidetracking, well deepening,
well completion or recompletion, or well workover,
regardless of whether the well is or has been a
producing well; or
(2) an expense for seismic work conducted
within the boundaries of a production or exploration
unit."
Renumber the following bill sections accordingly.
Page 17, following line 27:
Insert a new subsection to read:
"(v) For a lease expenditure incurred in the
state south of 68 degrees North latitude after
December 31, 2017, that qualifies for tax credits
under (a) and (b) of this section, and for a well
lease expenditure incurred in the state south of 68
degrees North latitude that qualifies for a tax credit
under (l) of this section, the department shall issue
transferable tax credit certificates to the person
entitled to the credit for the full amount of the
credit. The transferable tax credit certificates do
not expire."
Page 20, following line 28:
Insert a new bill section to read:
"* Sec. 33. AS 43.55.025(c), as amended by sec. 32
of this Act, is amended to read:
(c) To be eligible for a production tax credit
authorized by (a)(1), (3), or (6) of this section,
exploration expenditures must
(1) qualify under (b) of this section; and
(2) be for an exploration well, subject to
the following:
(A) before the well is spudded,
(i) the explorer shall submit to the
commissioner of natural resources the information
necessary to determine whether the geological
objective of the well is a potential oil or gas trap
that is distinctly separate from any trap that has
been tested by a preexisting well;
(ii) at the time of the submittal of
information under (i) of this subparagraph, the
commissioner of natural resources may request from the
explorer that specific data sets, ancillary data, and
reports including all results, and copies of well data
collected and data analyses for the well be provided
to the Department of Natural Resources upon completion
of the drilling; in this sub-subparagraph, well data
include all analyses conducted on physical material,
and well logs collected from the well and sample
analyses; testing geophysical and velocity data
including vertical seismic profiles and check shot
surveys; testing data and analyses; age data;
geochemical analyses; and access to tangible material;
and
(iii) the commissioner of natural resources
must make an affirmative determination as to whether
the geological objective of the well is a potential
oil or gas trap that is distinctly separate from any
trap that has been tested by a preexisting well and
what information under (ii) of this subparagraph must
be submitted by the explorer after completion,
abandonment, or suspension under AS 31.05.030; the
commissioner of natural resources shall make that
determination within 60 days after receiving all the
necessary information from the explorer based on the
information received and on other information the
commissioner of natural resources considers relevant;
(B) for an exploration well other than a
well to explore a Cook Inlet prospect, the well must
be located and drilled in such a manner that the
bottom hole is located not less than three miles away
from the bottom hole of a preexisting well drilled for
oil or gas, irrespective of whether the preexisting
well has been completed, suspended, or abandoned;
(C) after completion, suspension, or
abandonment under AS 31.05.030 of the exploration
well, the commissioner of natural resources must
determine that the well was consistent with achieving
the explorer's stated geological objective."
Page 21, following line 16:
Insert a new bill section to read:
"* Sec. 35. AS 43.55.028(e), as amended by sec. 34
of this Act, is amended to read:
(e) The department, on the written application
of a person to whom a transferable tax credit
certificate has been issued under AS 43.55.023(d) or
(v) or former AS 43.55.023(m) or to whom a production
tax credit certificate has been issued under
AS 43.55.025(f), may use available money in the oil
and gas tax credit fund to purchase, in whole or in
part, the certificate if the department finds that
(1) the calendar year of the purchase is
not earlier than the first calendar year for which the
credit shown on the certificate would otherwise be
allowed to be applied against a tax;
(2) the applicant does not have an
outstanding liability to the state for unpaid
delinquent taxes under this title;
(3) the applicant's total tax liability
under AS 43.55.011(e), after application of all
available tax credits, for the calendar year in which
the application is made is zero;
(4) the applicant's average daily
production of oil and gas taxable under
AS 43.55.011(e) during the calendar year preceding the
calendar year in which the application is made was not
more than 50,000 BTU equivalent barrels; and
(5) the purchase is consistent with this
section and regulations adopted under this section."
Renumber the following bill sections accordingly.
Page 21, following line 26:
Insert a new bill section to read:
"* Sec. 37. AS 43.55.028(g), as amended by sec. 36
of this Act, is amended to read:
(g) The department may adopt regulations to
carry out the purposes of this section, including
standards and procedures to allocate available money
among applications for purchases under this chapter
and claims for refunds and payments under AS 43.20.046
or 43.20.047 when the total amount of the applications
for purchase and claims for refund exceed the amount
of available money in the fund. The regulations
adopted by the department may not, when allocating
available money in the fund under this section,
distinguish an application for the purchase of a
credit certificate issued under AS 43.55.023(v) or
former AS 43.55.023(m), or a claim for a refund or
payment under AS 43.20.046 or 43.20.047."
Renumber the following bill sections accordingly.
Page 22, following line 8:
Insert a new bill section to read:
"* Sec. 39. AS 43.55.030(e), as amended by sec. 38
of this Act, is amended to read:
(e) An explorer or producer that incurs a lease
expenditure under AS 43.55.165 or receives a payment
or credit under AS 43.55.170 during a calendar year
but does not produce oil or gas from a lease or
property in the state during the calendar year shall
file with the department on March 31 of the following
year a statement, under oath, in a form prescribed by
the department, giving, with other information
required, the following:
(1) the [EXPLORER'S OR] producer's
qualified capital expenditures, as defined in
AS 43.55.023, other lease expenditures under
AS 43.55.165, and adjustments or other payments or
credits under AS 43.55.170; and
(2) if the explorer or producer receives a
payment or credit under AS 43.55.170, calculations
showing whether the explorer or producer is liable for
a tax under AS 43.55.160(d) or 43.55.170(b) and, if
so, the amount."
Renumber the following bill sections accordingly.
Page 26, following line 5:
Insert a new bill section to read:
"* Sec. 43. AS 43.55.160(a), as amended by secs. 41
and 42 of this Act, is repealed and reenacted to read:
(a) Except as provided in (b) of this section,
for the purposes of
(1) AS 43.55.011(e), the annual production
tax value of the taxable oil, gas, or oil and gas
subject to this paragraph produced during a calendar
year is the gross value at the point of production of
the oil, gas, or oil and gas taxable under
AS 43.55.011(e), less the producer's lease
expenditures under AS 43.55.165 for the calendar year
applicable to the oil, gas, or oil and gas, as
applicable, produced by the producer from leases or
properties, as adjusted under AS 43.55.170; this
paragraph applies to
(A) oil and gas produced from leases or
properties in the state that include land north of 68
degrees North latitude, other than gas produced before
2022 and used in the state;
(B) oil and gas produced from leases or
properties in the state outside the Cook Inlet
sedimentary basin, no part of which is north of 68
degrees North latitude; this subparagraph does not
apply to
(i) gas produced before 2022 and used in
the state; or
(ii) oil and gas subject to
AS 43.55.011(p);
(C) oil produced before 2022 from a lease
or property in the Cook Inlet sedimentary basin;
(D) gas produced before 2022 from a lease
or property in the Cook Inlet sedimentary basin;
(E) gas produced before 2022 from a lease
or property in the state outside the Cook Inlet
sedimentary basin and used in the state;
(F) oil and gas subject to AS 43.55.011(p)
produced from leases or properties in the state;
(G) oil and gas produced from a lease or
property no part of which is north of 68 degrees North
latitude, other than oil or gas described in (B), (C),
(D), (E), or (F) of this paragraph;
(2) AS 43.55.011(q), the monthly production
tax value of the taxable
(A) oil and gas produced during a month
from leases or properties in the state that include
land north of 68 degrees North latitude is the gross
value at the point of production of the oil and gas
taxable under AS 43.55.011(e) and produced by the
producer from those leases or properties, less 1/12 of
the producer's lease expenditures under AS 43.55.165
for the calendar year applicable to the oil and gas
produced by the producer from those leases or
properties, as adjusted under AS 43.55.170; this
subparagraph does not apply to gas subject to
AS 43.55.011(o);
(B) oil and gas produced during a month
from leases or properties in the state outside the
Cook Inlet sedimentary basin, no part of which is
north of 68 degrees North latitude, is the gross value
at the point of production of the oil and gas taxable
under AS 43.55.011(e) and produced by the producer
from those leases or properties, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil and gas
produced by the producer from those leases or
properties, as adjusted under AS 43.55.170; this
subparagraph does not apply to gas subject to
AS 43.55.011(o);
(C) oil produced during a month from a
lease or property in the Cook Inlet sedimentary basin
is the gross value at the point of production of the
oil taxable under AS 43.55.011(e) and produced by the
producer from that lease or property, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(D) gas produced during a month from a
lease or property in the Cook Inlet sedimentary basin
is the gross value at the point of production of the
gas taxable under AS 43.55.011(e) and produced by the
producer from that lease or property, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the gas produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(E) gas produced during a month from a
lease or property outside the Cook Inlet sedimentary
basin and used in the state is the gross value at the
point of production of that gas taxable under
AS 43.55.011(e) and produced by the producer from that
lease or property, less 1/12 of the producer's lease
expenditures under AS 43.55.165 for the calendar year
applicable to that gas produced by the producer from
that lease or property, as adjusted under
AS 43.55.170."
Renumber the following bill sections accordingly.
Page 26, following line 25:
Insert a new bill section to read:
"* Sec. 45. AS 43.55.160(e), as amended by sec. 44
of this Act, is amended to read:
(e) Any adjusted lease expenditures under
AS 43.55.165 and 43.55.170 that would otherwise be
deductible by a producer in a calendar year but whose
deduction would cause an annual production tax value
calculated under (a)(1) [(a)] of this section of
taxable oil or gas produced during the calendar year
to be less than zero may be used to establish a
carried-forward annual loss under AS 43.55.023(b).
However, the department shall provide by regulation a
method to ensure that, for a period for which a
producer's tax liability is limited by
AS 43.55.011(j), (k), (o), or (p), any adjusted lease
expenditures under AS 43.55.165 and 43.55.170 that
would otherwise be deductible by a producer for that
period but whose deduction would cause a production
tax value calculated under (a)(1)(C), (D), (E), or (F)
[(a)(3), (4), (5), OR (6)] of this section to be less
than zero are accounted for as though the adjusted
lease expenditures had first been used as deductions
in calculating the production tax values of oil or gas
subject to any of the limitations under
AS 43.55.011(j), (k), (o), or (p) that have positive
production tax values so as to reduce the tax
liability calculated without regard to the limitation
to the maximum amount provided for under the
applicable provision of AS 43.55.011(j), (k), (o), or
(p). Only the amount of those adjusted lease
expenditures remaining after the accounting provided
for under this subsection may be used to establish a
carried-forward annual loss under AS 43.55.023(b). In
this subsection, "producer" includes "explorer.""
Renumber the following bill sections accordingly.
Page 27, following line 11:
Insert a new bill section to read:
"* Sec. 47. AS 43.55.160 is amended by adding a
new subsection to read:
(g) Notwithstanding any contrary provision of
AS 43.55.150, for purposes of calculating a monthly
production tax value under (a)(2) of this section, the
gross value at the point of production of the oil and
gas is calculated under regulations adopted by the
department that provide for using an appropriate
monthly share of the producer's costs of
transportation for the calendar year."
Renumber the following bill sections accordingly.
Page 29, following line 28:
Insert a new bill section to read:
"* Sec. 50. AS 43.55.023(p), 43.55.023(q),
43.55.023(r), 43.55.023(s), 43.55.023(t),
43.55.023(u), 43.55.024(i), 43.55.030(g), and
43.55.160(f) are repealed January 1, 2018."
Renumber the following bill sections accordingly.
Page 30, line 2:
Delete "Sections 3, 6, 7, and 26 - 28"
Insert "Sections 4, 10, 12, 42, 44, and 46"
Page 30, line 4:
Delete "Sections 4 and 25"
Insert "Sections 6 and 41"
Page 30, line 6:
Delete "Sections 8, 11, 13, and 14 of this Act
and AS 43.55.023(a)(1), as amended by sec. 8"
Insert "Sections 14, 20, 23, and 25 of this Act
and AS 43.55.023(a)(1), as amended by sec. 14"
Page 30, line 8:
Delete "Sections 9, 10, 12, 15, and 24"
Insert "Sections 16, 18, 21, 27, and 40"
Page 30, following line 9:
Insert new subsections to read:
"(e) Sections 5, 7, 8, 11, 13, 43, and 45 of
this Act apply to oil and gas produced after
December 31, 2017.
(f) Sections 15, 17, 19, 22, 24, and 26 of this
Act and AS 43.55.023(v), enacted by sec. 27 of this
Act, apply to expenditures incurred after December 31,
2017."
Page 30, line 14:
Delete "sec. 29"
Insert "sec. 48"
Page 30, line 27:
Delete "Sections 4, 11, 13, 14, 21, 25, and 30 of
this Act and AS 43.55.023(a)(1), as amended by sec. 8"
Insert "Sections 6, 20, 23, 25, 34, 41, and 49 of
this Act and AS 43.55.023(a)(1), as amended by sec.
14"
Page 30, line 29:
Delete "Sections 1, 3, 6, 7, 9, 10, 12, 15, 17,
18, 24, and 26 - 28 of this Act"
Insert "Sections 1, 4, 10, 12, 16, 18, 21, 29,
30, 40, 42, 44, 46, and 50 of this Act, and
AS 43.55.023(p) - (u), enacted by sec. 27 of this
Act,"
Page 30, following line 30:
Insert a new bill section to read:
"* Sec. 57. Sections 2, 5, 7, 8, 11, 13, 15, 17,
19, 22, 24, 26, 33, 35, 37, 39, 43, 45, 47, and 51 of
this Act, and AS 43.55.023(v), enacted by sec. 27 of
this Act, take effect January 1, 2018."
Renumber the following bill section accordingly.
Page 30, line 31:
Delete "sec. 37"
Insert "secs. 57 and 58"
CHAIR GIESSEL objected for discussion purposes.
SENATOR FRENCH said Amendment 2 was another lengthy amendment
that sunsets provisions of CSSB 21( ) on December 31, 2017
unless some action is taken by the legislature. On that sunset
date the law would refer to the current tax law, ACES. Putting
this sunset on the books ahead of time will alleviate the
legislature from having to change the tax law if the changes
don't work. In his experience it is extremely difficult to
change oil tax laws, whether you want to raise them or lower
them.
CHAIR GIESSEL asked for a roll call vote on Amendment 2.
A roll call vote was taken: Senator French voted yea; Senators
Micciche, Fairclough, McGuire, Dyson and Giessel voted nay.
Therefore, Amendment 2 failed on a 1:5 vote.
SENATOR FRENCH moved Amendment 3.
28-GS1647\N.1
Bullock
AMENDMENT 3
OFFERED IN THE SENATE BY SENATOR FRENCH
TO: CSSB 21(RES), Draft Version "N"
Page 26, line 28, following "section,":
Insert "for the first seven years immediately
following the commencement of production subject to
tax under AS 43.55.011(e),"
CHAIR GIESSEL objected for purposes of discussion.
4:43:30 PM
SENATOR FRENCH explained that this amendment simply puts a
seven-year time limit on the application of the new GRE that in
the CS is increased to 30 percent. He felt the new oil under the
GRE is defined very broadly and could encompass some fields
already under development and production: three of those are Pt.
Thomson, Oooguruk and Nikiatchuq. The amendment would give
adequate time for a company to make back its original investment
before paying full taxes on production.
To illustrate how it would work, he took a slide from a Pioneer
presentation of a few days ago and drew green lines to show when
the GRE would start, which is when the first production begins
and to when it would stop seven years out, just as the
production starts to crest and tail off. Most of the economic
impact of the GRE will be used in those first few years to get a
field off the blocks he reasoned. Once it is online and
profitable, it no longer needs that boost.
SENATOR FRENCH said the other thing he was concerned about was
if they were careful, they will find a world fairly soon where
all the oil being produced on the North Slope would be oil
produced with a GRE. It would be a reduced-tax oil that will
slowly swallow up the rest of the "legacy oil" with very
significant impacts to the state treasury. He encouraged them to
think about an eight or nine year exclusion if they didn't like
the seven years, because this aspect of the lax law needs to be
contained.
SENATOR MICCICHE said he wanted to hear Mr. Pawlowski comment on
that.
CHAIR GIESSEL said she wanted to comment first and referred back
to a DOR letter, dated February 7, 2013, that came to a member
of the TAPS Throughput Committee. This exact question was posed
on page 5 as question 14:
The gross revenue exclusion is forever. Was there
consideration of doing a seven-year exclusion as we
did with the Middle Earth legislation last session.
The DOR answered:
Yes, consideration was given to a seven-year GRE as
well as the life of recovery GRE that is proposed in
SB 21. Including the GRE for the life of recovery
enhances the investment metrics relative to a seven-
year GRE. It also encourages continuing investment and
recovery from new fields and removes the potential
that oil recovery may be inefficiently front-loaded in
a new project.
4:47:36 PM
CHAIR GIESSEL said they are looking at creating a tax structure
that is durable for the long term; so investors coming in know
that this GRE will be in place for all new oil as they go
forward. So putting an expiration date on it will affect the
investment metrics.
MR. PAWLOWSKI said that letter adequately described the basic
issue the department considered in looking at this. The GRE was
targeted specifically to units that were formed after January 1,
2013 trying to be very careful to limit them to new oil or new
participating areas (PA). They heard testimony that that was too
limited and the committee considered applying it to expansions
of PAs and for all the things that can be considered new oil,
and so, the language in the CS puts the burden on industry to
prove that the expansion is indeed new oil for qualification of
the GRE. The key is that the GRE does not exist in isolation. It
is intended to offset both the higher base rate in the CS and
the removal of monetized credits. That balance between the
state's exposure to an up-front credit obligation in exchange
for the long-term returns - looking at the level of production
that the state is experiencing today - created some of the
impetus behind the overall balance that the governor tried to
strike and that the committee is trying to advance.
4:49:40 PM
SENATOR MICCICHE said the only reason they are in this
discussion is a focus on the future state treasury. The benefits
of SB 21 leading to competitiveness are elimination of punitive
progressivity and GREs that are directed toward production. The
real worry was the ACES credits that were coming out of the
treasury and not necessarily going to any real production.
MR. PAWLOWSKI said in addition while taking a step back from
whether they are or not directed to production, the added value
of the credits based on spending when balanced against a tax
system that is based on price, really leads to a situation where
- whether it's for an incumbent producer or a new entrant - a
large credit liability was created to offset a high tax rate.
So, the goal was to get to being competitive in a way that
doesn't risk the treasury upfront while providing the
predictable environment for companies to make the investments
that are going to grow production.
SENATOR MICCICHE clarified that ACES' credits didn't lead to
production and the GREs are designed to ensure production.
MR. PAWLOWSKI agreed.
4:51:57 PM
SENATOR FAIRCLOUGH said she would be voting against this now,
but it's an interesting proposal to consider for the long term
and our children's future. She said she would make sure the
conversation was carried forward in the Senate Finance Committee
of which she was a member.
CHAIR GIESSEL added that they were planning on sending a letter
of intent forward with the ideas that have been discussed that
may not have been caught in the CS and this would be among them.
CHAIR GIESSEL asked for a roll call.
A roll call vote was taken: Senator French voted yea; Senators
McGuire, Fairclough, Dyson, Micciche, and Senator Giessel voted
nay. Therefore, Amendment 3 failed on a 1:5 vote.
4:53:41 PM
SENATOR FRENCH moved Amendment 4.
28-GS1647\N.4
Nauman/Bullock
AMENDMENT 4
OFFERED IN THE SENATE BY SENATOR FRENCH
TO: CSSB 21(RES), Draft Version "N"
Page 1, line 11, following "Board;":
Insert "relating to the financing of oil
processing facilities on the North Slope by the Alaska
Industrial Development and Export Authority;"
Page 29, following line 26:
Insert new bill sections to read:
"* Sec. 30. AS 44.88.080 is amended by adding a new
paragraph to read:
(32) to acquire an interest in a project as
necessary or appropriate to provide working or venture
capital for an oil or natural gas development project
under AS 44.88.800 and 44.88.810, whether by purchase,
gift, or lease.
* Sec. 31. AS 44.88 is amended by adding new
sections to read:
Article 9A. Interest in Oil and Gas Resources.
Sec. 44.88.800. Acquisition of interest in
businesses. (a) The authority may acquire, through
purchase or other means, an interest in a lease held
by a corporation or other business entity in an oil or
natural gas field in the state that has been explored,
but only if the authority determines the leaseholder
has made reasonable efforts to obtain financing from
the private sector to develop the lease and those
efforts have, in whole or part, been unsuccessful. The
authority shall exercise due diligence in acquiring a
leasehold interest under this section.
(b) If the authority acquires a leasehold
interest under this section, the authority may use the
authority's assets, as appropriate, to aid in the
development of the oil or natural gas field in which
the business entity has a leasehold interest.
Sec. 44.88.810. Alaska resource development fund.
(a) The Alaska resource development fund is
established in the authority for the purpose of
developing oil and gas resources, and consists of
appropriations to the fund. The authority shall manage
the fund and may create separate accounts within it.
Income of the fund or of enterprises of the authority
shall be separately accounted for and may be
appropriated to the fund.
(b) The authority may use money from the fund to
carry out the purpose of the fund set out in (a) of
this section.
* Sec. 32. AS 44.88.900(10) is amended to read:
(10) "project" means
(A) a plant or facility used or intended
for use in connection with making, processing,
preparing, transporting, or producing in any manner,
goods, products, or substances of any kind or nature
or in connection with developing or utilizing a
natural resource, or extracting, smelting,
transporting, converting, assembling, or producing in
any manner, minerals, raw materials, chemicals,
compounds, alloys, fibers, commodities and materials,
products, or substances of any kind or nature;
(B) a plant or facility used or intended
for use in connection with a business enterprise;
(C) commercial activity by a business
enterprise;
(D) a plant or facility demonstrating
technological advances of new methods and procedures
and prototype commercial applications for the
exploration, development, production, transportation,
conversion, and use of energy resources;
(E) infrastructure for a new tourism
destination facility or for the expansion of a tourism
destination facility; in this subparagraph, "tourism
destination facility" does not include a hotel or
other overnight lodging facility;
(F) a plant or facility, other than a plant
or facility described in (D) of this paragraph, for
the generation, transmission, development,
transportation, conversion, or use of energy
resources;
(G) a plant or facility that enhances,
provides for, or promotes economic development with
respect to transportation, communications, community
public purposes, technical innovations, prototype
commercial applications of intellectual property, or
research;
(H) a plant or facility used or intended
for use as a federal facility, including a United
States military, national guard, or coast guard
facility;
(I) infrastructure for an area that is
designated as a military facility zone under AS 26.30;
(J) development of an oil and gas field by
providing working or venture capital in exchange for
an equity interest;"
Renumber the following bill sections accordingly.
Page 30, line 27:
Delete "30"
Insert "33"
Page 30, line 31:
Delete "sec. 37"
Insert "sec. 40"
CHAIR GIESSEL objected for discussion purposes.
SENATOR FRENCH explained that this would come under the heading
of state direct financial investment (SDFI). Two years ago he
took part in a week-long tour of Norway put on by the Institute
of the North that was attended by many policy makers. He found
some parallels between their system and ours and the point of
contact went back to Governor Wally Hickel who loved to tell the
story about how he made an X in the ground and told the oil
companies that if you don't drill here I will, the basic idea
being that at some level the state needs to take on management
of its own resources. But Senator French said he didn't believe
Alaska would ever have a state run oil company, but he did think
Alaska would see more state direct financial investment, and
that is what this amendment was designed to help further. Mr.
Keithley spoke of this in glowing terms. It would help align the
state and producers in a way that few other ideas do; you're
sitting right next to the industry as an investor putting
dollars to work on projects that might not otherwise be
achievable.
SENATOR FRENCH said testimony had indicated that it takes all
three partners to agree to an investment on the North Slope and
if one partner says no the investment doesn't go forward. New
leases could be structured such that the state could take the
place of the partner that doesn't want to invest. He brought
that example up, because BP might be hard pressed to just pay
the claims that result from the Gulf disaster in the trial that
is just beginning and the awards could run in the tens of
billions, not to mention being able to fully invest on the North
Slope no matter what our tax rate is.
SENATOR FRENCH said this idea had already been seen through
AIDEA helping Brooks Range develop its road and production
facility and in Cook Inlet through the purchase of a jack up
rig. This takes the idea one step forward by allowing AIDEA to
actually take an equity position in the investment so the state
is not just a bank but a partner who is co-investing. He felt
that sooner or later Alaska would realize the best way to grow
the Alaskan oil industry was to use state dollars to make
investments happen here.
CHAIR GIESSEL said she had contacted AIDEA and asked about
having an equity interest in a development project and it was
pointed out that an equity interest owner faces a substantial
risk if there is a bankruptcy and that would also be a
complicating factor in what is otherwise a tax bill. However,
she had noticed the SB 23 addresses the financing functions of
AIDEA and might be a more appropriate place for this kind of
expansion of their authority and activity.
SENATOR MICCICHE pointed out that AIDEA currently has the
ability to invest on a limited basis in projects by helping with
infrastructure, the kinds of things he thought were appropriate
for our western government, but he didn't think that type of
discussion should happen with SB 21.
CHAIR GIESSEL asked for a roll call on Amendment 4.
A roll call vote was taken: Senator French voted yea; Senators
McGuire, Micciche, Dyson, Fairclough and Giessel voted nay.
Therefore, Amendment 4 failed on a 1:5 vote.
5:00:23 PM
At ease from 5:00 to 5:31 p.m.
5:31:05 PM
CHAIR GIESSEL reconvened the meeting at 5:31 p.m. and opened
public testimony.
DEBORAH BROLLINI, speaking on her own behalf and that of her
children, Anchorage, Alaska, supported the CSSB 21( ), and
especially establishing the Competitive Review Board in order to
make sound business decisions and take the politics out of the
process. She hoped it would help lawmakers make long term
decisions that will provide her children with a future they
deserve.
SENATOR MCGUIRE said that Ms. Brollini was one of her
constituents and truly speaks on behalf of herself and her
children. She thanked Ms. Brollini for her support and for her
blog on Alaska energy issues.
5:35:01 PM
At ease from 5:35 to 5:38 p.m.
5:38:05 PM
KARL WESTLAND, speaking on his own behalf, Anchorage, Alaska,
opposed SB 21 and preferred SB 50. Oil companies need incentives
to continue work on the North Slope and not just give them a
blank check and say Alaska should not benefit in the high oil
prices.
CHAIR GIESSEL invited Mr. Warren from Kenai, Alaska,
representing himself, to submit his written comments since he
could not be heard by phone.
CHAIR GIESSEL, finding no further comments, closed public
testimony on SB 21.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 21 vs N.pdf |
SRES 2/25/2013 3:30:00 PM |
SB 21 |
| SB 21 DOR Answers to Cmte Q's SRES 2013.02.21.pdf |
SRES 2/25/2013 3:30:00 PM |
SB 21 |
| SB 21 Alaska Venture Capital Group Thompson SRES 2013.02.25.pdf |
SRES 2/25/2013 3:30:00 PM |
SB 21 |
| SB 21 Alliance Smith SRES 2013.02.25.pdf |
SRES 2/25/2013 3:30:00 PM |
SB 21 |
| SB 21 Memo Muni Revenue Sharing DOR Tangeman 2013.02.22.pdf |
SRES 2/25/2013 3:30:00 PM |
SB 21 |
| SB21 amendment N.3 French SRES 2013.02.25.PDF |
SRES 2/25/2013 3:30:00 PM |
SB 21 |
| SB21 amendment N. 2 French SRES 2013.02.25.PDF |
SRES 2/25/2013 3:30:00 PM |
SB 21 |
| SB 21 amendment N.1 French SRES 2013.02.25.PDF |
SRES 2/25/2013 3:30:00 PM |
SB 21 |
| SB 21 amendment N.4 French SRES 2013.02.25.PDF |
SRES 2/25/2013 3:30:00 PM |
SB 21 |
| CSSB21 Written Testimony COP Heinrich 2013.02.25.pdf |
SRES 2/25/2013 3:30:00 PM |
SB 21 |