Legislature(2013 - 2014)BUTROVICH 205

02/25/2013 03:30 PM RESOURCES


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03:32:13 PM Start
03:34:00 PM SB21
05:42:55 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 21 OIL AND GAS PRODUCTION TAX TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
-- 5:30 p.m. SB 21 Public Testimony --
               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