Legislature(2011 - 2012)BUTROVICH 205

02/25/2011 03:30 PM RESOURCES


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Bills Previously Heard/Scheduled (if necessary)
*+ SB 85 TAX CREDIT FOR NEW OIL & GAS DEVELOPMENT TELECONFERENCED
Heard & Held
Presentation by Sponsor
*+ SB 91 SPORT FISHING GUIDING SERVICES TELECONFERENCED
Heard & Held
Presentation by Sponsor
        SB  85-TAX CREDIT FOR NEW OIL & GAS DEVELOPMENT                                                                     
                                                                                                                                
CO-CHAIR WAGONER announced  SB 85 to be up  for consideration. He                                                               
asked for a motion to bring the bill before the committee.                                                                      
                                                                                                                                
SENATOR  PASKVAN  moved  to bring  SB  85,  labeled  27-LS0484\M,                                                               
before the committee. There were no objections.                                                                                 
                                                                                                                                
3:37:41 PM                                                                                                                    
MARY  JACKSON,  staff  to  Senator Wagoner,  sponsor  of  SB  85,                                                               
explained that  the genesis  for this bill  came from  an Alberta                                                               
royalty tax  holiday provision. She said  Senator Wagoner intends                                                               
to use  it here as  a production tax  holiday and is  intended to                                                               
encourage  new  conventional  and   unconventional  oil  and  gas                                                               
development.   The  Department   of   Revenue   fiscal  note   is                                                               
indeterminate.  She said  the target  is to  simply increase  the                                                               
throughput in the Trans Alaska  Pipeline System (TAPS) because of                                                               
the  reported  decline. The  result  of  increased throughput  is                                                               
economic activity, jobs and after  five years, assuming this bill                                                               
passes, continued production taxes.                                                                                             
                                                                                                                                
MS. JACKSON said the  bill sets a very high bar  by being for new                                                               
developments only.  It applies to  all areas and the  credit must                                                               
be taken  within five years.  The credit is not  transferable and                                                               
it may not be used to reduce  the tax liability to below zero. In                                                               
other words,  the new development  gets a five-year  holiday from                                                               
production  taxes  or  100  percent  of  the  development  costs,                                                               
whichever is first.                                                                                                             
                                                                                                                                
She  explained  when  a  producer  explores  currently  they  get                                                               
exploration credits. In  SB 85, when they hit a  field, they find                                                               
a  play that  is  developable and  then the  Alaska  Oil and  Gas                                                               
Conservation   Commission   (AOGCC)    certifies   that   it   is                                                               
developable. From  then on all development  costs associated with                                                               
it up to the point of production  are counted as part of this 100                                                               
percent.  The  bill then  says  that  the Department  of  Natural                                                               
Resources  (DNR)  certifies  that  production  is  done  and  the                                                               
company   is  producing.   All  the   costs  between   the  AOGCC                                                               
certification  and  DNR  certification are  attributable  to  the                                                               
costs for this credit.                                                                                                          
                                                                                                                                
MS. JACKSON  said the best  way to explain the  five-year holiday                                                               
is with an  example. So, she described a  $25 million development                                                               
that had $5  million worth of production, so  their tax liability                                                               
would be  a wash.  Conversely, a  $50 million  project with  a $5                                                               
million production tax  liability would only be  eligible for $25                                                               
million - because  of the cap. She explained this  feature was to                                                               
deal with the "gold plating" risk.  The policy question is if the                                                               
production tax  value that the  state gives away is  worth adding                                                               
throughput to the TAPS.                                                                                                         
                                                                                                                                
MS.  JACKSON  next  invited Don  Bullock,  Attorney,  Legislative                                                               
Legal Services, to help her go over the sectional analysis.                                                                     
                                                                                                                                
3:42:00 PM                                                                                                                    
DON  BULLOCK, Attorney,  Legislative Legal  Services, Legislative                                                               
Affairs Agency, joined Ms. Jackson.                                                                                             
                                                                                                                                
MS. JACKSON said sections 1, 2 and  3 are new and are added to AS                                                               
43.55.026.  Section   3  actually  sets  out   the  new  credits;                                                               
subsection (a) directs  that the new credit  applies to qualified                                                               
expenditures that  were incurred prior  to the production  of oil                                                               
and gas  in paying quantities for  a lease or a  property that is                                                               
not and  has not been  within any unit  or produced oil  and gas.                                                               
She explained that this language targets the new development.                                                                   
                                                                                                                                
SENATOR FRENCH asked what "within a unit" means.                                                                                
                                                                                                                                
MR. BULLOCK  answered that unitization is  authorized through the                                                               
oil and gas leasing statute,  AS 38.05.180 (b). Generally it will                                                               
occur  whether  a  common  pool may  actually  be  under  several                                                               
leases.  It protects  one person's  milkshake straw  from sucking                                                               
all the  oil out  from underneath  somebody else's  property. The                                                               
production  and costs  of producing  it are  allocated among  the                                                               
operators, "So, once  the unit is formed, it's a  group of leases                                                               
to develop a particular area."                                                                                                  
                                                                                                                                
SENATOR  FRENCH  said  one  widely  covered  new  development  is                                                               
ConocoPhillips' efforts to get across  the Colville River into an                                                               
area known as CD5. If oil starts  to flow out of CD5, as he hoped                                                               
it  would,  he asked  if  their  expenditures would  qualify  for                                                               
credit under this bill or not.                                                                                                  
                                                                                                                                
MR.  BULLOCK  replied that  he  wasn't  familiar with  the  facts                                                               
relating to  that field, but  the key date  in SB 85  is December                                                               
31, 2010 and  whether or not the project had  previously not been                                                               
within a unit or produced oil and gas.                                                                                          
                                                                                                                                
SENATOR FRENCH  remarked that they  had not produced oil  and gas                                                               
yet in paying quantities, but they had probably found some.                                                                     
                                                                                                                                
MR. BULLOCK said  the Alaska Oil and  Gas Conservation Commission                                                               
(AOGCC) could probably answer that.                                                                                             
                                                                                                                                
CO-CHAIR WAGONER added that AOGCC people will be here next week.                                                                
                                                                                                                                
3:45:52 PM                                                                                                                    
SENATOR  WIELECHOWSKI  asked  if   this  credit  would  apply  to                                                               
activities  on federal  lands  -  NPRA and  ANWR  -  and OCS.  He                                                               
guessed it  doesn't apply past  the 6-mile limit, but  within the                                                               
3-6 mile limit.                                                                                                                 
                                                                                                                                
MR. BULLOCK answered the production tax  is a tax on the activity                                                               
of producing  oil and gas;  it's not on  the oil and  gas itself.                                                               
So, if  there is activity on  federal land that produces  oil and                                                               
gas, that  activity would  be taxable. The  oil that  is produced                                                               
that  is not  taxable (for  example, the  federal royalty  share)                                                               
would  not be  subject  to tax  because of  the  exclusion in  AS                                                               
43.55.011  that  limits  the  tax to  taxable  production  -  and                                                               
defines it.                                                                                                                     
                                                                                                                                
SENATOR WIELECHOWSKI said then that  it would apply in NPRA, ANWR                                                               
and  within 3  miles  off the  coast, but  how  about within  3-6                                                               
miles?                                                                                                                          
                                                                                                                                
MR. BULLOCK answered that it applies  in any area that is subject                                                               
to the state's tax jurisdiction.                                                                                                
                                                                                                                                
CO-CHAIR WAGONER added,  "But only to that share of  the oil that                                                               
belongs to the State of Alaska."                                                                                                
                                                                                                                                
MR. BULLOCK  stated that both  state and federal royalty  oil are                                                               
not taxed.                                                                                                                      
                                                                                                                                
MS. JACKSON pointed  out that some people are  interested who are                                                               
in that range Senator French just  spoke to; so there may be some                                                               
public  comment about  expanding  it beyond  "new."  But that  is                                                               
obviously a policy call.                                                                                                        
                                                                                                                                
SENATOR WIELECHOWSKI asked  if this credit applies  only north of                                                               
the 68th parallel. Would it apply to Cook Inlet?                                                                                
                                                                                                                                
CO-CHAIR WAGONER  responded that  discussion had happened  in his                                                               
office, but  it was decided to  leave it out for  the time being.                                                               
He didn't think it would apply to many areas in Cook Inlet.                                                                     
                                                                                                                                
MS. JACKSON  added that  most of Cook  Inlet is  already unitized                                                               
and  therefore wouldn't  be eligible  for this  credit. She  said                                                               
that Senator Wagoner want a high  bar - like new development - to                                                               
have discussions on and then go from there.                                                                                     
                                                                                                                                
3:48:48 PM                                                                                                                    
SENATOR STEDMAN  said that's a point  they could work on  as they                                                               
work with  the bill, because the  tax structure in Cook  Inlet is                                                               
quite a bit different than the rest of the state.                                                                               
                                                                                                                                
MS. JACKSON  said that subsection  (b) defines the amount  of the                                                               
credit, which is 100 percent of  the qualified costs - subject to                                                               
the  AOGCC  and  DNR  certifications  of  starting  and  stopping                                                               
production. She  said that  AOGCC prefers  to certify  both start                                                               
and stop since the production is under their purview.                                                                           
                                                                                                                                
SENATOR PASKVAN  asked if the  "Department of  Natural Resources"                                                               
in (b)(2) on page 2, line 30, would be changed to "AOGCC".                                                                      
                                                                                                                                
MS.  JACKSON answered  yes, and  that was  DNR's suggestion.  She                                                               
didn't have a  chance to talk it over with  Mr. Bullock. She said                                                               
the credit  is for 100  percent of the  costs or a  five-year tax                                                               
holiday, whichever comes first.                                                                                                 
                                                                                                                                
SENATOR WIELECHOWSKI asked if this credit would cover dry holes.                                                                
                                                                                                                                
MS. JACKSON  answered no; AOGCC has  to certify that the  pool is                                                               
developable.                                                                                                                    
                                                                                                                                
SENATOR WIELECHOWSKI asked what the standard is for that.                                                                       
                                                                                                                                
MR. BULLOCK answered  that language in subsection (h)  on page 3,                                                               
line 31,  says "meets  an expenditure  other than  an expenditure                                                               
for exploring  for new oil  or gas  reserves." This would  all be                                                               
subject to how AOGCC categorizes the wells.                                                                                     
                                                                                                                                
CO-CHAIR WAGONER remarked  that other credits would  apply to it,                                                               
but not under this bill.                                                                                                        
                                                                                                                                
SENATOR WIELECHOWSKI  said a well  in a new  unit would get  a 40                                                               
percent  tax credit  right  now, plus  other  net operating  cost                                                               
deductions and asked how this credit interplays with those.                                                                     
                                                                                                                                
3:52:44 PM                                                                                                                    
MR. BULLOCK  replied subsection (d)  on page 3 explains  the fact                                                               
that 100 percent  credit can be taken and that's  a lot. They may                                                               
not double dip  and take a credit for the  same expenditure under                                                               
another credit provision.                                                                                                       
                                                                                                                                
SENATOR WIELECHOWSKI asked if a company  drills in a new area and                                                               
is  eligible for  the 40  percent tax  credit, the  net operating                                                               
loss  deduction and  maybe  some  other things,  do  they get  it                                                               
immediately.                                                                                                                    
                                                                                                                                
MR.   BULLOCK  answered   they  would   continue  to   get  their                                                               
exploration  credits  for  those  costs. Whether  they  have  net                                                               
operating losses  that are  carried forward  depends on  what the                                                               
value   of  their   production   is  and   whether  their   lease                                                               
expenditures exceed that value.                                                                                                 
                                                                                                                                
SENATOR WIELECHOWSKI  asked if  a company  found oil  and started                                                               
producing  it in  recoverable  amounts,  say if  they  got a  tax                                                               
credit  of  60  percent  of their  exploration  costs,  are  they                                                               
proposing giving them an additional 40 percent?                                                                                 
                                                                                                                                
MR. BULLOCK nodded no. He said  the first thing this bill does is                                                               
set up  the period  in which  the credit may  be earned  and that                                                               
period starts on  a lease or property in which  they discovered a                                                               
pool that  is capable of  production. From that point  until they                                                               
produce oil  in sufficient  quantities to  go into  the pipeline,                                                               
all  those costs  to get  that  field in  operation -  additional                                                               
drilling  for  wells and  the  equipment  needed  for that  -  to                                                               
produce  the oil  in a  pipeline  quality, then  those costs  are                                                               
development  costs. And  they get  100 percent  credit for  those                                                               
costs during that time period.                                                                                                  
                                                                                                                                
CO-CHAIR  WAGONER  said maybe  a  different  way  to say  it  is,                                                               
generally  speaking,  an exploratory  well  does  not become  the                                                               
producing well.  So, existing credits  go towards  an exploratory                                                               
well  and  then  once they  know  they  have  a  pool and  it  is                                                               
producible, that's when these credits kick in.                                                                                  
                                                                                                                                
3:55:07 PM                                                                                                                    
MS. JACKSON said the drafter  was charged with saying "only costs                                                               
that lead to  production" excluding any exploration  from the day                                                               
AOGCC says this well is developable.                                                                                            
                                                                                                                                
MS. JACKSON said the credit  is not transferable and can't reduce                                                               
a  tax  liability  to  "under  zero."  She  said  subsection  (f)                                                               
authorizes the department to promulgate regulations.                                                                            
                                                                                                                                
SENATOR STEDMAN  went back  to the  exclusion on  AS 43.55.011(e)                                                               
[page 3,  line 15] and asked  if that referred to  the 25 percent                                                               
base tax.                                                                                                                       
                                                                                                                                
MS. JACKSON answered yes.                                                                                                       
                                                                                                                                
SENATOR STEDMAN asked if the  progressivity part of the tax would                                                               
still trigger in.                                                                                                               
                                                                                                                                
MR. BULLOCK  answered (e)  says the  tax is  25 percent  plus the                                                               
amount determined under (g).                                                                                                    
                                                                                                                                
SENATOR STEDMAN said  he was trying to fit  these parts together.                                                               
He said  AS 43.20.043 in (d)  deals with gas, which  some believe                                                               
is already a negative. He asked  the impact of this credit on the                                                               
gas tax.                                                                                                                        
                                                                                                                                
MR. BULLOCK  answered this  particular credit  is not  limited to                                                               
oil; AS 43.20.043(d) combines oil and gas.                                                                                      
                                                                                                                                
SENATOR STEDMAN said he understands  there is no gas market other                                                               
than the  small one  which costs the  state treasury  around $150                                                               
million a year,  but he thought the gas issue  should be explored                                                               
so people could  be clear about how this credit  stacks into what                                                               
some people think is already a negative impact.                                                                                 
                                                                                                                                
MR. BULLOCK added  that part of the issue is  that reinjected gas                                                               
may not  be considered produced  and therefore is not  taxable at                                                               
that time.                                                                                                                      
                                                                                                                                
MS.  JACKSON added  that his  question might  be perhaps  to just                                                               
separate oil and gas.                                                                                                           
                                                                                                                                
SENATOR  STEDMAN said  he  would like  to do  that,  but for  the                                                               
discussion on this bill, he wanted  to know how this credit flows                                                               
into  what  is   already  a  negative  impact   on  the  treasury                                                               
concerning  gas.  If  someone  had  several  sources  of  gas  to                                                               
reinject, would  it be beneficial  for them  to use some  of this                                                               
gas to go  after the credit if  they didn't hit oil  and just hit                                                               
gas reserves. It  might make it better  to hit a dry  hole than a                                                               
gas well.                                                                                                                       
                                                                                                                                
4:00:46 PM                                                                                                                    
MR. BULLOCK said there may never  be production for one reason or                                                               
another  and  the  state  won't  get  anything  unless  there  is                                                               
production that is taxable.                                                                                                     
                                                                                                                                
SENATOR WIELECHOWSKI said  he thought he had it  figured out. So,                                                               
if  he is  an explorer  and goes  out and  does seismic  studies,                                                               
there  is no  tax  credit  under this  bill.  But  the moment  he                                                               
identifies a field  he wants to explore, he puts  his well in the                                                               
ground.  Then AOGCC  determines potential  development, then  the                                                               
credit would  kick in at  that point. Ms. Jackson  indicated that                                                               
was  correct. He  went on  and supposed  he was  a new  entrant -                                                               
Great Bear  for instance  - then  he is  not eligible  because he                                                               
can't transfer his  tax credit because he doesn't  have an income                                                               
stream  now.  He  doesn't  start getting  the  credits  until  he                                                               
actually produces.                                                                                                              
                                                                                                                                
MS. JACKSON said that is correct.                                                                                               
                                                                                                                                
SENATOR WIELECHOWSKI said  if he were BP  or ConocoPhillips, then                                                               
the moment he  starts drilling he can actually  start taking that                                                               
credit off of his production taxes.                                                                                             
                                                                                                                                
MS. JACKSON answered for that unit.                                                                                             
                                                                                                                                
CO-CHAIR WAGONER added not until you are in production.                                                                         
                                                                                                                                
MS. JACKSON added it's per well and not transferable.                                                                           
                                                                                                                                
SENATOR  WIELECHOWSKI   asked  what  "quantities   sufficient  to                                                               
recover the  cost of  operating and marketing"  means and  why it                                                               
would cover marketing expenses.                                                                                                 
                                                                                                                                
MR.  BULLOCK replied  if a  company  is producing  oil above  the                                                               
breakeven point  it must get  sold and part  of that is  going to                                                               
involve a  certain amount  of developing  the market  and getting                                                               
the product there.                                                                                                              
                                                                                                                                
SENATOR  WIELECHOWSKI  queried  that  companies  typically  start                                                               
producing in very small quantities,  maybe a few thousand barrels                                                               
a day and that is not the breaking point, right?                                                                                
                                                                                                                                
MR. BULLOCK  replied that  would be  a question  of fact,  but at                                                               
some point  they would produce  enough oil  to cover the  cost of                                                               
production.                                                                                                                     
                                                                                                                                
SENATOR WIELECHOWSKI said  that is the point at  which they would                                                               
start taking  the tax credit, but  lines 29 and 30  say "although                                                               
the  quantity  may  be  insufficient   to  recover  the  cost  of                                                               
drilling."                                                                                                                      
                                                                                                                                
MR.   BULLOCK  replied   right,  but   drilling  costs   are  not                                                               
recoverable;  operating costs  are. He  said this  is a  standard                                                               
definition for  production in paying quantities  which he thought                                                               
came from "Williams and Myer."                                                                                                  
                                                                                                                                
MS.  JACKSON  said  AOGCC  also  wants  to  know  what  that  is,                                                               
particularly if they are the ones  who are going to be certifying                                                               
that a  well is producing.  The sponsor's  intent is to  keep the                                                               
bar very high she repeated.                                                                                                     
                                                                                                                                
CO-CHAIR PASKVAN said subsection (d)  says whatever is taken as a                                                               
credit may  not be used as  an expenditure and his  assumption is                                                               
that means a company is  not taking expenditures as deductions on                                                               
their taxes in that five-year period.                                                                                           
                                                                                                                                
MR.    BULLOCK   replied    right;    the    bill   intends    to                                                               
"compartmentalize" all  the costs that  are incurred  during this                                                               
development period.                                                                                                             
                                                                                                                                
CO-CHAIR  PASKVAN  asked  if  operation  expenses  are  currently                                                               
deducted at Prudhoe Bay.                                                                                                        
                                                                                                                                
MR. BULLOCK said  he didn't know for sure, but  the Department of                                                               
Revenue would know.                                                                                                             
                                                                                                                                
4:06:32 PM                                                                                                                    
MS. JACKSON  went on to subsection  (g) [on page 3]  which has to                                                               
do with the credits being applied  only toward leases and then on                                                               
to  the definitions  section, subsection  (h). One  company asked                                                               
what if they  didn't want to take this credit  but take the other                                                               
credit  instead.  But  she  hadn't had  the  opportunity  to  see                                                               
whether or not that choice was available to them.                                                                               
                                                                                                                                
SENATOR STEDMAN said  that is a good question and  maybe later on                                                               
they could have some calculations  and comparisons back and forth                                                               
on it.                                                                                                                          
                                                                                                                                
SENATOR WIELECHOWSKI  asked how this  credit would play  out with                                                               
shale oil, because the oil is trapped in sands not in a pool.                                                                   
                                                                                                                                
CO-CHAIR WAGONER  answered that  wells wouldn't get  drilled that                                                               
fast and this  is meant to stimulate development in  the area. It                                                               
wouldn't be in  effect long enough to develop the  total area. He                                                               
thought  this  committee should  discuss  a  five or  seven  year                                                               
sunset  date for  that reason.  He  added that  this credit  also                                                               
allows  companies that  are looking  to develop  these new  "non-                                                               
traditional  plays" on  the  North Slope  to  have others  become                                                               
involved with them and share the risk of the development phase.                                                                 
                                                                                                                                
4:09:42 PM                                                                                                                    
MS. JACKSON went to section 4  on page 4 that amends existing law                                                               
to include  this new  section of  tax credits.  Section 5  is the                                                               
effective date, which is immediate.                                                                                             
                                                                                                                                
CO-CHAIR  PASKVAN  said the  original  thought  pattern for  this                                                               
credit came from  tax changes done in Alberta and  asked what was                                                               
included  compared  to  what  wasn't   included  from  their  tax                                                               
pattern,  so  they  can determine  which  expenditures  might  be                                                               
working or not compared to Alberta.                                                                                             
                                                                                                                                
CO-CHAIR WAGONER  answered that Alberta reduced  their royalty to                                                               
a 2 percent  level and stays at the level  until the company pays                                                               
itself back from coming into production.  The credit in SB 85 was                                                               
designed to  do that, but with  a different design. This  is done                                                               
using the reduction  of the production tax.  Alberta's royalty is                                                               
about 50 percent.                                                                                                               
                                                                                                                                
MS.  JACKSON said  it is  interesting to  see Alberta  go through                                                               
what they are going through now.                                                                                                
                                                                                                                                
SENATOR  WIELECHOWSKI   said  they  might  want   to  consider  a                                                               
provision about shortening  the credit time period  for a company                                                               
that finds a major well and asked if that was done in Alberta.                                                                  
                                                                                                                                
CO-CHAIR WAGONER  answered Alberta didn't do  that, but companies                                                               
did come back  and asked for more royalty  reductions. That's why                                                               
he wanted to look  at a sunset date that is not  too soon and not                                                               
too late.                                                                                                                       
                                                                                                                                
SENATOR WIELECHOWSKI said if their  goal is to incent oil fields,                                                               
hypothetically Congress  could decide  to open  up ANWR  and then                                                               
Alaska  would   be  subsidizing   its  development.   What  about                                                               
excluding some production that doesn't need incentives?                                                                         
                                                                                                                                
CO-CHAIR WAGONER  answered they could "ringfence  this thing" and                                                               
put lines where  they want them - north of  the Brooks Range over                                                               
to but not to exceed the boundary of such and such.                                                                             
                                                                                                                                
MS. JACKSON  said a  lot of  those questions  would go  away with                                                               
sunset language.                                                                                                                
                                                                                                                                
4:14:21 PM                                                                                                                    
SENATOR STEDMAN  went back to  Senator Wielechowski's point  of a                                                               
big  find  in   a  big  field  -  maybe  they   could  have  some                                                               
hypotheticals run under the current  tax structure with different                                                               
dollar  amounts  and different  size  pools  versus the  scenario                                                               
under this bill.  They might get a better feel  for which type of                                                               
credit enhancement  would be most  desirable from  the industry's                                                               
perspective.                                                                                                                    
                                                                                                                                
MR. BULLOCK said  there are two factors relating to  the value of                                                               
the  production: the  quantity of  the production  and the  costs                                                               
that are incurred to develop the  field. So, if the field is very                                                               
rich, the credit would be used  up quickly. On the other hand, if                                                               
the development costs are very high  and the production is not of                                                               
sufficient value, the full amount  of credit might never get used                                                               
because of the five-year limitation.                                                                                            
                                                                                                                                
SENATOR  WIELECHOWSKI asked  if the  credit applies  only to  the                                                               
production tax.                                                                                                                 
                                                                                                                                
MR.  BULLOCK answered  yes,  only  to the  production  tax in  AS                                                               
43.55.011.                                                                                                                      
                                                                                                                                
SENATOR WIELECHOWSKI asked  if a company paying  its 12.5 percent                                                               
royalty can't lower its burden there at all.                                                                                    
                                                                                                                                
MR. BULLOCK  said the royalty continues,  as well as the  1 and 4                                                               
cent surcharges and income tax.                                                                                                 
                                                                                                                                
SENATOR  WIELECHOWSKI  asked  what   percentage  of  a  field  is                                                               
typically developed  in the first  five years and whether  or not                                                               
companies  could  extract  enough  in that  time  to  damage  the                                                               
fields.                                                                                                                         
                                                                                                                                
MS. JACKSON  replied that the AOGCC  would have to allow  them to                                                               
do that because of that very issue.                                                                                             
                                                                                                                                
SENATOR  STEDMAN  went to  a  hypothetical  larger find  that  is                                                               
actually profitable  where the credit  is used up in  three years                                                               
and  asked  if they  would  then  automatically trigger  existing                                                               
credits for ongoing work and development.                                                                                       
                                                                                                                                
MR. BULLOCK replied  that is his understanding.  They are allowed                                                               
to  take credits  until the  production  tax is  offset by  those                                                               
credits; then this  credit is not an issue any  more. The credits                                                               
they earn for  ongoing capital and lease  expenditures will apply                                                               
from that point on.                                                                                                             
                                                                                                                                
SENATOR STEDMAN  stated there is  no look-back provision  so they                                                               
would have to  have a date certain where one  stops and the other                                                               
one activates.                                                                                                                  
                                                                                                                                
MR. BULLOCK said  the department would have to  consider when the                                                               
transition occurs when they adopt  their regulations. He remarked                                                               
that payments are made on a monthly basis.                                                                                      
                                                                                                                                
4:18:49 PM                                                                                                                    
CO-CHAIR PASKVAN asked  since the bill indicates  that the credit                                                               
doesn't apply to work that was  done in an area that is currently                                                               
in a  unit or  had previously been  in a unit,  if it  applies to                                                               
heavy oil in the known fields.                                                                                                  
                                                                                                                                
CO-CHAIR WAGONER remarked  that heavy oil is  already in unitized                                                               
areas but lying in a different  level than what is being produced                                                               
right now.                                                                                                                      
                                                                                                                                
SENATOR WIELECHOWSKI said  he would be interested  in finding out                                                               
what the typical  costs of developing a field  are, maybe various                                                               
sized fields.  Then he said that  the issue of gold  plating is a                                                               
potential concern, particularly in a very profitable field.                                                                     
                                                                                                                                
MR. BULLOCK agreed with him and  added also if someone is sharing                                                               
the risk with  you, perhaps the standard for  deciding whether to                                                               
make   that  investment   may  be   different  because   you  are                                                               
backstopped.                                                                                                                    
                                                                                                                                
SENATOR STEDMAN asked, "How could we be gamed?"                                                                                 
                                                                                                                                
MS. JACKSON  said they  were hoping during  the discourse  in the                                                               
next week someone would slip and tell them.                                                                                     
                                                                                                                                
SENATOR STEDMAN  said the concept  of allowing  immediate credits                                                               
is very common all over with little different twists.                                                                           
                                                                                                                                
4:22:33 PM                                                                                                                    
SENATOR  WIELECHOWSKI agreed  and  said they  hear  all the  time                                                               
about  other  countries that  have  much  higher tax  rates  than                                                               
Alaska and maybe they are doing  things like this where they keep                                                               
the high tax  rate, but front load the payback.  He said it would                                                               
be great  if the  administration could "chime  in" on  what other                                                               
countries do.                                                                                                                   
                                                                                                                                
MS. JACKSON  said she had  talked briefly with the  Department of                                                               
Revenue about  modeling that very  issue. Senator  Wagoner's goal                                                               
was  to stay  removed from  production  taxes and  see what  they                                                               
could do in terms of credits.                                                                                                   
                                                                                                                                
4:23:53 PM                                                                                                                    
CO-CHAIR WAGONER  stated his long term  goal is "more oil  in the                                                               
pipe." With  that he  thanked everyone  for coming  and adjourned                                                               
the meeting at 4:24 p.m.                                                                                                        
                                                                                                                                

Document Name Date/Time Subjects
SB 91_Hearing Request.pdf SRES 2/25/2011 3:30:00 PM
SB 91
SB 91_Sponsor Statement.pdf SRES 2/25/2011 3:30:00 PM
SB 91
SB 91_Bill Version A.pdf SRES 2/25/2011 3:30:00 PM
SB 91
SB91_Fiscal Note_DFG-SFD-02-18-11.pdf SRES 2/25/2011 3:30:00 PM
SB 91
SB 91_Letter of Support_UFA.pdf SRES 2/25/2011 3:30:00 PM
SB 91
SB0085A.PDF SRES 2/25/2011 3:30:00 PM
SB 85
SS SB 85 5 year tax holiday.pdf SRES 2/25/2011 3:30:00 PM
SB 85
SA SB 85 5 year tax holiday.pdf SRES 2/25/2011 3:30:00 PM
SB 85
SB 85 Pg 1 TAPS May 2010.pdf SRES 2/25/2011 3:30:00 PM
SB 85
SB 85 Pg 2 TAPS May 2010 info.pdf SRES 2/25/2011 3:30:00 PM
SB 85
SB 91 Packet - HB 452 Enrolled.pdf SRES 2/25/2011 3:30:00 PM
HB 452
SB 91
SB 91 Packet - 2007Summary.pdf SRES 2/25/2011 3:30:00 PM
SB 91
SB 91 Packet - LICENSING REAUTH BRIEF March102010final (2).doc SRES 2/25/2011 3:30:00 PM
SB 91
SB 91_Letter of Support_Southeast Alaska Fishermans Alliance.pdf SRES 2/25/2011 3:30:00 PM
SB 91
SB85_Fiscal Note_DOR-TAX-02-24-11.pdf SRES 2/25/2011 3:30:00 PM
SB 85