Legislature(2011 - 2012)BUTROVICH 205

04/04/2011 03:30 PM RESOURCES


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03:31:41 PM Start
03:32:41 PM SB85
03:57:17 PM Confirmation Hearings: Aogcc, Commercial Fisheries Entry Commission, and Board of Fisheries
04:56:33 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 85 TAX CREDIT FOR NEW OIL & GAS DEVELOPMENT TELECONFERENCED
Heard & Held
+ Confirmations: TELECONFERENCED
AOGCC, Dan Seamount
Commercial Fisheries Entry Commission, Ben Brown
Board of Fisheries, William Brown
Board Fisheries, Susan Jeffrey
Board of Fisheries, John Jensen
Board of Fisheries, Michael Smith
+ Bills Previously Heard/Scheduled TELECONFERENCED
        SB  85-TAX CREDIT FOR NEW OIL & GAS DEVELOPMENT                                                                     
                                                                                                                                
CO-CHAIR WAGONER  announced the consideration of  SB 85. [Version                                                               
27-LS0484\E was before the committee.]                                                                                          
                                                                                                                                
3:32:41 PM                                                                                                                    
CO-CHAIR PASKVAN moved  to withdraw version E and  adopt CSSB 85,                                                               
labeled 27-LS0484\X ("version X"), as the working document.                                                                     
                                                                                                                                
CO-CHAIR WAGONER objected for discussion purposes.                                                                              
                                                                                                                                
3:33:26 PM                                                                                                                    
MICHAEL  PAWLOWSKI, staff  to Senator  McGuire, stated  that CSSB                                                               
85, version  X, makes  two substantive changes.  The first  is in                                                               
Section  2,  page  2,  lines  2-4. The  timeframe  for  the  Sec.                                                               
43.55.026  development  cost  credit  was changed  to  within  24                                                               
months  after completion  of  the first  development  well for  a                                                               
qualifying pool, lease or property.  This responds to the earlier                                                               
concern  that  the way  the  credit  was established  could  have                                                               
incentivized producers to delay the beginning of production.                                                                    
                                                                                                                                
3:34:10 PM                                                                                                                    
The second substantive  change is the addition of  new sections 3                                                               
and 4. Section 3 amends AS  43.55.160(a), on page 3, lines 17-18,                                                               
by referring to a new subsection (f) in AS 43.55.160.                                                                           
                                                                                                                                
Section 4, [page 5, line 31  through page 6, lines 1-5,] adds the                                                               
new subsection (f). It increases  the production tax value by the                                                               
value of  the development cost  credit under Sec  43.55.026. This                                                               
addresses  the concern  that  qualified development  expenditures                                                               
could  be deducted  from a  person's tax  liability, which  would                                                               
essentially overcome the sponsor's intent  of a 100 percent limit                                                               
on the credit.                                                                                                                  
                                                                                                                                
MR. PAWLOWSKI said the other  changes are largely conforming, and                                                               
based  on  moderate language  suggestions  by  the Department  of                                                               
Revenue (DOR). One  of the most important is on  page 2, line 16.                                                               
The development cost  credit under Sec. 43.55.026  is 100 percent                                                               
of the qualified  capital expenditures less other  credits that a                                                               
producer  would  get  under  the  current  tax  system.  Now  the                                                               
exploration  credits  under Sec  43.55.025  are  included in  the                                                               
calculation.  If  there  is  delineation  work  after  the  first                                                               
development well is drilled, this  ensures that credit, too, will                                                               
be subtracted in determining the 100 percent.                                                                                   
                                                                                                                                
Sections  6, 7,  and 8  were  renumbered to  accommodate the  new                                                               
sections.                                                                                                                       
                                                                                                                                
SENATOR FRENCH asked  if he had an estimate on  the fiscal impact                                                               
of the changes.                                                                                                                 
                                                                                                                                
MR. PAWLOWSKI answered  no, but subsection (g), on  page 3, lines                                                               
2-7, tightens the allocation language  to clarify that the credit                                                               
earned under Sec.  43.55.026 can offset a  person's tax liability                                                               
proportional  to the  volume  of  oil and  gas  produced that  is                                                               
attributable  to the  pool or  lease  from which  the credit  was                                                               
earned.  The goal  is  that  the tax  credit  is  only usable  on                                                               
revenue the state isn't getting under current production.                                                                       
                                                                                                                                
3:37:44 PM                                                                                                                    
SENATOR WIELECHOWSKI joined the committee.                                                                                      
                                                                                                                                
SENATOR FRENCH  mused that this  does a good job  of ring-fencing                                                               
the credit, and he appreciates the focus.                                                                                       
                                                                                                                                
CO-CHAIR WAGONER asked Senator McGuire to discuss Section 6.                                                                    
                                                                                                                                
SENATOR MCGUIRE  asked the members  to review the bill  in detail                                                               
to better  prepare to  respond to those  people who  believe that                                                               
modification of  the fiscal  system is in  order. She  noted that                                                               
the  Senate version  of the  bill does  not have  a progressivity                                                               
element, but  it could be  added. She emphasized that  the Senate                                                               
is listening and  that her goal is to ensure  that Alaska remains                                                               
the number one  oil and gas province in the  nation. Tweaking the                                                               
tax code  isn't difficult for her  to accept, and this  should be                                                               
the committee that is expert at doing that.                                                                                     
                                                                                                                                
3:41:19 PM                                                                                                                    
SENATOR MCGUIRE  explained that the  proposal in Section 6  is to                                                               
establish  an  "Oil  and Gas  Competitiveness  Review  Board"  to                                                               
maintain  focus  on  the  single   largest  revenue  source  that                                                               
supports the state. This board  will consist of nine members: one                                                               
senator   appointed  by   the  president   of  the   Senate;  one                                                               
representative  appointed   by  the  speaker  of   the  House  of                                                               
Representatives; five  public members appointed by  the governor,                                                               
including one  petroleum engineer, one geologist,  one economist,                                                               
and  one who  is a  member  of an  environmental or  conservation                                                               
group; the  commissioner of natural resources  or their designee;                                                               
and the commissioner of revenue or their designee.                                                                              
                                                                                                                                
The legislative  members will be  co-chairs and each  member will                                                               
serve for the duration of the  Legislature during which he or she                                                               
is appointed. Each  public member will serve three  years and may                                                               
be reappointed.  Vacancies will  be filled in  the manner  of the                                                               
original  appointment.  Board  members  may be  replaced  at  the                                                               
discretion of  the person appointing that  member. Public members                                                               
will not  be compensated,  but will receive  per diem  and travel                                                               
expenses,  as  authorized for  boards  and  commissions under  AS                                                               
39.20.180. The  board may contract for  professional services and                                                               
may hire administrative support staff.                                                                                          
                                                                                                                                
3:44:44 PM                                                                                                                    
SENATOR MCGUIRE  said the  duties of  the board  set out  in Sec.                                                               
44.99.610 are based on what the  Province of Alberta did, when it                                                               
assessed  the competitiveness  of the  province in  terms of  its                                                               
fiscal  and regulatory  regime.  The board  will  be tasked  with                                                               
reviewing  the  historical,  current,  and  potential  levels  of                                                               
investment  in the  state's  oil  and gas  sector  on an  ongoing                                                               
basis. Alaska currently  does not have the necessary  data in one                                                               
readily accessible location.                                                                                                    
                                                                                                                                
The board  will also identify  factors that affect  investment in                                                               
oil  and gas  exploration,  development, and  production in  this                                                               
state, including  the tax structure, rates,  and credits; royalty                                                               
requirements;   infrastructure;   workforce   availability;   and                                                               
regulatory  requirements. She  explained  that this  is meant  to                                                               
compliment  Alaska's Clear  and  Equitable Share  (ACES), and  to                                                               
highlight the need  to have a board that  is continually tracking                                                               
the state's  overall competitiveness.  The board will  review the                                                               
competitive  position  of  the  state  to  attract  and  maintain                                                               
investment  in  the  oil  and  gas  sector  as  compared  to  the                                                               
competitive  position   of  other   regions  with  oil   and  gas                                                               
resources.  She   referenced  the   Wood  Mackenzie   report  and                                                               
emphasized  that  members  should  be  continually  tracking  the                                                               
updates to see how Alaska compares on a worldwide basis.                                                                        
                                                                                                                                
Another  duty of  the board  will be  to establish  procedures to                                                               
accept and  keep confidential information  that is  beneficial to                                                               
the work of the board. This  includes creating a secure data room                                                               
and   confidentiality  agreements   that   will   be  signed   by                                                               
individuals that have access to the confidential information.                                                                   
                                                                                                                                
3:50:47 PM                                                                                                                    
The  board  will  make   written  findings,  recommendations  and                                                               
suggest  legislation before  December 1  of each  year regarding:                                                               
changes  to   the  state's  regulatory  environment   that  would                                                               
encourage  investment  while  protecting  the  interests  of  the                                                               
people and the environment; changes  to the state's fiscal regime                                                               
to   encourage  new   and   ongoing   long-term  investment   and                                                               
development   of  the   state's  oil   and  gas   resources;  and                                                               
alternative means  for increasing the state's  ability to attract                                                               
and maintain  investment and development  of the state's  oil and                                                               
gas resources.                                                                                                                  
                                                                                                                                
SENATOR   MCGUIRE   said   Sec.   44.99.620   states   that   all                                                               
commissioners who are responsible  for information related to oil                                                               
and gas investment  and activity in this state  shall provide any                                                               
information that the board requires  to carry out its duties. She                                                               
noted  that  legislation  passed  last  year  that  directed  the                                                               
Department of  Natural Resources (DNR)  to give a license  on the                                                               
instate  line returned  great dividends.  Except for  information                                                               
that  is  confidential  under  AS43.05.230,  a  commissioner  may                                                               
disclose   information   to   the   board   that   is   otherwise                                                               
confidential.                                                                                                                   
                                                                                                                                
SENATOR  MCGUIRE welcomed  suggestions with  regard to  Section 6                                                               
and  opined that  regardless  of the  viewpoint,  Alaska is  well                                                               
behind the  times in adopting  some sort  of board to  assess the                                                               
its  competitiveness.  She directed  attention  to  a March  2011                                                               
report by Commonwealth North urging a competitiveness review.                                                                   
                                                                                                                                
CO-CHAIR WAGONER announced he would hold SB 85 in committee.                                                                    

Document Name Date/Time Subjects
Apr 4 Confirms.pdf SRES 4/4/2011 3:30:00 PM
Confirmations
UFA Support Ben Brown CFEC - Senate Resources 040411.pdf SRES 4/4/2011 3:30:00 PM
Confirmation
SB 85 CompStudyPresentation2Stakeholders.pdf SRES 4/4/2011 3:30:00 PM
SB 85
CompStudyStakeholderBriefing.pdf SRES 4/4/2011 3:30:00 PM
SB 85