Legislature(2013 - 2014)BELTZ 105 (TSBldg)
01/29/2013 03:30 PM Senate SENATE SPECIAL COMM ON TAPS THROUGHPUT
| Audio | Topic |
|---|---|
| Start | |
| SB21 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 21 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
SB 21-OIL AND GAS PRODUCTION TAX
3:34:27 PM
CO-CHAIR MICCICHE announced that SB 21 would be the only order
of business.
JOE BALASH, Deputy Commissioner, Department of Natural
Resources, introduced himself.
MICHAEL PAWLOWSKI, Oil & Gas Project Manager, Department of
Revenue, stated that he would walk the committee through SB 21
so that they could understand the language and locations of the
provisions in the bill. He reviewed the Governor's principles of
SB 21:
· Tax reform must be fair to Alaskans
· Encourage new production
· Simple so that it restores balance to the system
· Durable for the long term
He said when taken together, these guiding principles are
intended to create a competitive environment that attracts new
investment to the state and grows the economy.
MR. PAWLOWSKI explained that the proposal is built around four
core provisions:
· Eliminate progressivity and credits based on capital
expenditures
· Reform remaining credits to be carried forward to when
there is production
· Establish a "Gross Revenue Exclusion" for newer units and
new participating areas in existing units
· Hold Cook Inlet and Middle Earth Harmless
3:37:15 PM
MR. PAWLOWSKI explained how the bill intends to eliminate
progressivity and the credits based on capital expenditures. He
turned to Section 26, page 23, line 12 of the bill, which
contains the repeal of AS 43.55.011(g), the progressive feature
within the current tax system, effective January 1, 2014. When
progressivity is appealed, other sections of law must also be
addressed.
He turned to Section 1, which goes from page 1, line 12, through
page 2, line 7. In this section a fund that provides for
community revenue sharing is located. The revenue for that fund
came from progressivity monies, therefore, a new source must be
found to fund community revenue sharing. On page 2, lines 1 - 7,
is an adjustment to the funding mechanism for community revenue
sharing that preserves deposits into that fund. Two substantive
changes were made in this section. The first is on page 2, line
2. Under current law, an amount equal to 20 percent of the money
received under progressivity goes into the revenue sharing fund.
The bill removes that 20 percent cap. The actual amounts going
into the revenue sharing fund are found on page 2, line 5, and
are maintained with current statute, either $60 million or the
amount that when added to the fund balance on June 30 of the
previous fiscal year, equals $180 million. He emphasized that no
change was made to the amount of money going into the revenue
sharing fund. The source of the revenue was changed, as shown on
page 2, line 3, inserting AS 43.20.030(c), which is the
mechanism through which income tax payers in Alaska pay
corporate income taxes. The source of revenue sharing moves away
from the single tax payer to the broad corporate income tax
statutes. The new fund source now comes from general payments
under Alaska's corporate income tax statutes.
CO-CHAIR MICCICHE noted the attendance of Senator French.
3:41:43 PM
MR. PAWLOWSKI said another adjustment was required due to the
removal of progressivity from the bill. He said it is found in
Section 2, page 2, lines 8 through 18. The language deleted in
the current statute is, "the taxes are calculated as the sum of
a base tax, plus the progressive tax." When the progressive tax
is repealed, the "sum of" language is no longer necessary,
because it is now a simple 25 percent net tax rate.
CO-CHAIR DUNLEAVY asked why progressivity was eliminated in
total, instead of changed.
MR. PAWLOWSKI replied that progressivity creates a host of
issues. The concept of decoupling is a function of progressivity
and applies to any high cost resource that is blended with a low
cost resource. In the current system, progressivity is highly
variable and a concern to many. Also, one of the Governor's core
principles is to move to a simple system.
3:44:26 PM
CO-CHAIR MICCICHE asked about QCE credits.
MR. PAWLOWSKI said QCE is defined as qualified capital
expenditure credits.
MR. PAWLOWSKI turned to the conforming sections related to the
removal of progressivity. Section 5 begins on page 5, line 27
and runs through page 8, line 25. He explained that
progressivity is calculated monthly under the current system.
Section 5 eliminates "sum of" language again. On page 7, lines 3
to 5 refer to the exception for the gross revenue exclusion.
Because progressivity is being removed, the associated statutes
governing how it was to be paid have to be changed.
He noted a similar change in Section 6, page 8, line 25, through
page 9, line 11. Under the current system, when there is private
royalty, the producers pay the production tax. A conforming
change has to be made to recognize that that progressive feature
no longer applies.
3:46:56 PM
MR. PAWLOWSKI addressed changes in Section 22, beginning on page
21, line 10. He said there are exceptions for progressivity for
different types of resources, as shown on line 21, such as oil
and gas produced from leases or properties north of 68 degrees -
the North Slope - before 2022. On page 21, line 24, there is an
exception for oil and gas produced in Middle Earth. On page 21,
line 31, there is an exception for oil in Cook Inlet produced
before 2022, and on page 22, line 2, gas produced in Cook Inlet
is also an exception. On page 22, line 5, gas produced before
2022 from each lease or property outside Cook Inlet and used in
state, other than the gas subject to AS 43.55.011(p), is an
exception. The gas treated under AS 43.55.011(p) had a 4 percent
tax put into effect in 2012. The final exception is oil and gas
not yet found. He explained that the base 25 percent tax will
apply to all resources other than those listed as exceptions.
After 2022 the 25 percent will apply to all areas.
3:50:24 PM
He noted that Section 23 is a conforming section to Section 22.
3:50:47 PM
MR. PAWLOWSKI defined QCE as qualified capital expenditure
credits. He related that Section 8 is the main section that
deals with changes to North Slope QCE credits. The information
begins on page 9, line 30, and extends to page 10, line 18. He
reminded the committee that effective January 1, 2014, no
expenditures on the North Slope under SB 21 would qualify for
QCE credits. That language is found on page 10, lines 16 to 18.
SENATOR GARDNER asked if a lot of investment is anticipated
before January 1, 2014.
MR. PAWLOWSKI replied that DOR has some understanding of what
lease expenditures might be, in terms of whether spending might
be accelerated. He said he does not have an official position on
that.
SENATOR FAIRCLOUGH asked if industry prepares their budgets
years in advance and the 2014 date in the bill allows them time
to make spending changes.
MR. PAWLOWSKI said that is correct. He said the date of January
1, 2014, was a compromise.
He turned to Section 7, page 9, lines 12 through 29. He said it
was important to recognize that a current North Slope QCE credit
has to be divided into two certificates and spread out over two
years. Section 7, page 9, lines 21 and 22, deletes that
requirement. Outside of the North Slope, under AS 43.55.023(m),
credits are able to be taken within a single year. Under SB 21
credits just for 2013 on the North Slope can be closed out and
taken in the first year.
3:55:01 PM
SENATOR FAIRCLOUGH recalled that under ACES, one of the
provisions was to acquire knowledge regarding oil companies'
investment strategies. She inquired if that provision was
retained under the proposal.
MR. PAWLOWSKI deferred to Mr. Balash to answer.
MR. BALASH responded that those provisions are specific requests
the department may make of taxpayers on their annual filings.
Those provisions remain fully intact in SB 21.
MR. PAWLOWSKI turned to Section 11, page 11, line 4 through line
28, a conforming section. On page 11, line 8, the word
"certificates" is changed to "certificate" because in 2013 there
will be one certificate. Conforming statements on page 11, lines
20 through 28, apply to the one year of capital expenditures
moving from a certificate that is divided in two, to closing out
the obligation to the state.
He noted that in Section 12, page 11, line 29, to page 12, line
17, tax credits incurred after December 31, 2013, are accepted
from the tax certificate section.
3:57:43 PM
MR. PAWLOWSKI turned to Section 9 to discuss North Slope net
operating loss credits beginning on page 10, line 19. Under the
current system, on the North Slope there is a combination of the
QCE credit, which is 20 percent of a capital expenditure, and a
25 percent credit for a net loss carry forward. A net loss carry
forward is when a company does not have revenues, or their
spending exceeds their revenues. Under the proposal, on page 10,
lines 19 through 29, after December 31, 2013, the new loss carry
forward credits are the same calculation as they were under the
existing program, but they are no longer allowed to be cashed
out. They are subject to new areas of law, referenced on page
10, line 24, and found in Section 15, beginning on page 13.
CO-CHAIR MICCICHE requested further explanation of line 16 on
page 10, the administration's concern with allowing refunds as
opposed to taking credits against tax liability.
MR. PAWLOWSKI explained that the principles of being fair to
Alaskans, encouraging new production, and being durable for the
long term, recognize that in the current system when
expenditures are made and an obligation to the state treasury is
created, those credits create an increasing obligation to the
state. Given that the intent of SB 21 is to "grow the state of
Alaska", there is a natural tension between the near-term
obligations on the credit side to the state treasury with the
long term revenues received from production. The balance is to
relieve impact on the near-term part of the state treasury and
carry forward the credits to offset a tax liability, so there
will be revenue to pay for the credits when they are being
created.
CO-CHAIR MICCICHE summarized that the administration's concern
was, if there was a year with difficult pricings, the state
could actually have a liability, as opposed to production
revenue.
MR. PAWLOWSKI said that was correct. He added that high cost
projects with low prices in the end, given the degree of state
participation through the credit program, could lead to the
state being "negative" in the long-term revenue of that project.
He stressed that carrying tax credits forward to offset tax
revenue encourages new production. That information is found in
Section 15, page 13, line 15.
4:02:07 PM
He explained that new sections of law are found in Section 15.
These sections create guidelines to encourage the carry forward
for new production.
He related that on page 13, line 16, subsection (p) limits the
application of the credit to two or more calendar years later
than which the lease expenditures were incurred. On page 13,
line 23, it limits the use of that credit to 10 calendar years
after it was issued. A credit issued in 2015 would expire after
2025.
He said that subsection (q) creates an important point called
"first earned, first used." On page 14, lines 2 through 14, it
says the value of the credit will increase at the rate of 15
percent on an annual basis, beginning two years after the credit
is issued, compounding until the credit is used. The first
credit earned has to be used first.
4:06:03 PM
He explained that subsection (s) is intended to protect the
state in the use of the credits. If a company with a tax
liability chooses not to use a credit, which is increasing by 15
percent, the company would not get the 15 percent increase for
that year. He termed it a "use it or lose it" provision.
CO-CHAIR MICCICHE inquired if the "first in - first used" credit
could encourage a greater cost to the state if the earlier
credit was a much smaller sum than the later credit.
MR. PAWLOWSKI explained that the first credit is compounding
faster at a 15 percent rate. The point was to keep the first
credit from generating a larger amount into the future. He
agreed with the idea proposed by Co-Chair Micciche, in that a
larger capital expenditure in year two might have a larger
credit, but it will also have to be used. If it is not used to
offset a tax liability, the state is further protected by not
providing the 15 percent increase if the credit could have been
used. A company can't just warehouse credits.
REPRESENTATIVE GARDNER asked under what circumstances a taxpayer
might forego using a credit.
MR. PAWLOWSKI gave an example of a company that thought it was
more beneficial to get the 15 percent value on the credit rather
than to use it to offset the tax liability.
MR. PAWLOWSKI turned to page 15, line 15, to explain that under
existing law, loss carry forward credits tax can be transferred
to another tax payer or turned into the state for cash payment.
When credits are transferrable, a company buys a credit from
another company and then uses it against their tax liability.
What they pay for that tax credit may not be 100 cents on the
dollar for the seller. The issue for the state is, whether it
reduces the tax liability or the state pays in cash, it has the
same impact to the treasury. Subsection (t) prohibits the
transfer of the credits on a broad basis. Companies must now
carry the tax credit forward until there is production and tax
revenue to pay for the credit. There is an exception in
subsection (u), page 16, line 3. Because the principle
underlying the bill is to encourage new production, a company
can buy a lease from a company that accumulated credits and
those credits may be transferred, but they may only be used as
an offset for tax liability. There is a limitation, on page 16,
lines 3 through 25, that says credits may only be used to offset
a tax liability to a proportion or extent to which the lease or
property purchased goes into production. The state wants to see
production before the credits can be used.
4:11:02 PM
SENATOR GARDNER asked if the original timeline attached to the
lease would be in place under those circumstances.
MR. PAWLOWSKI said yes.
He listed the conforming sections related to the changes
regarding net operating loss credits: Sections 10, 19, and 20.
In Section 10, page 10, line 30, through page 11, line 3, is a
provision that does not allow a company to use their credits to
reduce their tax liability for a calendar year below zero to a
negative number. Section 19 cleans up language that refers to
"explorers and producers" throughout the bill.
MR. PAWLOWSKI explained Section 16, page 16, line 26, which
refers to the small producer tax credits. He said small producer
tax credits cannot be transferred or monetized; they can only be
used to offset a tax liability. Under current statutes they are
set to expire for production after 2016. In SB 21, that date is
extended to 2022 and lasts for nine years.
4:14:43 PM
CO-CHAIR MICCICHE commented that the "lack of simplicity" as it
applies to a tax code is relative.
MR. PAWLOWSKI turned to the gross revenue exclusion (GRE) for
newer units and new participating areas in existing units. The
information is found in Section 24, page 23, lines 1 through 10.
The provision provides an exclusion or allowance for new
production, which is defined on page 23, line 4, as "the oil or
gas is produced from a lease or property that does not contain
land that was within a unit on January 1, 2003." He pointed out
that 80 percent of the value of that new oil will be allowed the
GRE.
CO-CHAIR MICCICHE stated that the committee is focused on
increasing throughput in TAPS. He asked how leveraging the
benefits of the GRE's are in comparison with the tax credits in
existing law. He inquired if they would increase throughput.
MR. PAWLOWSKI recalled the presentation by Mr. Pulliam which
described the effect of the GRE to increase the cash flows for
new investments, to decrease government take, to create a
competitive environment, in order to drive long-term decision
making for new production. He believed the GRE was a material
step towards encouraging new production in how it balances with
the loss carry forward credits. The GRE, for the targeted
resources it has identified, makes a very strong step toward
encouraging new production.
He pointed out that areas inside existing units deserve the same
treatment that areas outside existing units receive regarding
the GRE. The provision on page 23, line 6, provides for that. He
said that if "the oil or gas is produced from a participating
area established after December 31, 2011, that was within a unit
that was formed before January 1, 2003," it qualifies for GRE.
4:18:36 PM
MR. BALASH explained that DNR and specifically the Department of
Oil and Gas, manages oil and gas properties through leases,
units, and a participating area (PA). Both leases and units
define properties in a two-dimensional way; they are boundaries
on a map. A participating area includes a third dimension.
Boundaries define ownership interests all the way to the earth's
core because oil and gas exist in different horizons or depths.
A unit bundles leases together for purposes of production
management. A PA defines which leases contribute to production
that is occurring. There have been disagreements over lease
ownership. The department feels confident that PA's in place
today, govern and encompass the parts of the reservoir that are
contributing to production today.
CO-CHAIR MICCICHE understood that "by it not containing a
reservoir that had previously been in a participating area
established before January 1, 2012, a very expensive 'workover'
wouldn't qualify in an existing well bore."
MR. BALASH said that was correct. In order for somebody to
qualify for the GRE, the working interest owners within the unit
would come forward to the department and propose the formation
of a new participating area and demonstrate through sound
science and geologic information that they are, in fact, going
to be drilling to a new location, a new horizon, a new
reservoir, that will contribute new production to the state. The
state will be able to govern that activity. There are no units
that have been formed on non-state land prior to 2003. This
approach allows DNR to clearly and confidently tell Alaskans
that this particular mechanism is being applied to new oil
production.
CO-CHAIR MICCICHE concluded that DNR is guarding against
accelerating depletion of existing reserves.
MR. BALASH replied that is an issue that occurs at a number of
different levels, but "in essence, yes." He noted he would be
interested in exploring further, through the committee process,
to identify ways and means to improve recovery factors from
existing PA's. He stressed that DNR is very confident in the new
PA approach.
4:23:18 PM
SENATOR FAIRCLOUGH asked if SB 21 passes, if regulations would
define or constrain criteria for new PA's. She shared an
experience where she was able to watch directional drilling on
the North Slope that involved using 3D to watch the process. She
wondered how new PA's would be defined.
MR. BALASH said the issue is whether or not the area is already
in a PA, or whether it is new production. In the 3D example, the
company would have to get a new participating area formed within
the unit itself in order to protect the ownership rights of the
individual lessees. He noted that the process to do so is
already in place.
SENATOR FAIRCLOUGH concluded that there are existing criteria
for PA's that would set minimums to help limit producers'
liabilities.
MR. BALASH said that was correct. He added that the PA process
allows the state to "count barrels" and segregate them from
legacy production.
MR. PAWLOWSKI added that the process allows DNR to tell DOR that
a certain production qualifies for the GRE because it has been
demonstrated that it is new oil. From the DNR's point of view,
in counting the barrels and applying a basic reduction in the
value of those barrels to start the net calculation, the
department no longer has to think about cost allocation and
auditing. He emphasized that simplicity is important to
competitiveness.
4:27:45 PM
SENATOR McGUIRE suggested writing a committee letter of intent
that includes recommendations for increasing throughput. She
thought some latitude should be given for the Division of Oil
and Gas to write provisions that could include new technology as
it develops. That could make it possible to offer credits to new
producers who would like to expand production in a legacy field.
MR. PAWLOWSKI concurred. He related that new production would
come from legacy and new units. He suggested the GRE was about
identifying what is truly "new production," whether it involves
new technology or discrete geological traps, which is what the
PA approach does.
4:30:38 PM
MR. PAWLOWSKI turned to the subject of differing types of tax
treatment for gas and oil production. He explained that the
section in SB 21 that deals with an exception to the proposed
tax is Section 3, page 2, line 23. It resolves a conflict
created when the new AS 43.55.011(p) was passed last year. He
read, "For the seven years immediately following the
commencement of commercial production of oil or gas produced
from leases or properties in the state that are outside the Cook
Inlet sedimentary basin and that do not include land located
north of 68 degrees north latitude." This section applies to
"Middle Earth."
He continued, "Where that commercial production began after
December 31, 2012, and before January 1, 2022, the levy of tax
under (e) of this section may not exceed 4 percent of the gross
value at the point of production." He said that language did not
distinguish between gas used in state or gas produced. He
explained that (p) recognizes the legislature's passage of a
different tax ceiling for oil or gas produced from Middle Earth
for the purposes of the "gas used in state" provision that
conflicts with that statute as it was passed last year.
4:33:51 PM
CO-CHAIR MICCICHE recognized the presence of Senator Huggins.
CO-CHAIR DUNLEAVY asked how the bill supports the exploration
and production of nonconventional oil.
MR. PAWLOWSKI replied that the bill works in two important ways.
The first is through the elimination of progressivity. It
returns the profitability of resources, along with price, to the
investors and allows the state a consistent share within the tax
system at a base 25 percent. It also diminishes the complexity
of the decoupling issue and provides GRE to new areas of
unconventional production. It allows additional GRE's to be
created for unconventional oil. It also provides a simple system
to accommodate new types of production.
He concluded that the intent of SB 21 sets a basic architecture
around which additional opportunities can be brought into the
system in a way that works for the producers and for the state.
The base of 20 percent could apply to any of them. He could not
speak to the economics of shale oil which has not been produced
at this time.
4:37:54 PM
CO-CHAIR MICCICHE asked about heavy oil in Section 24. He said
it seems like an initial investment in heavy oil would be
rewarded, but further investment in that reservoir could be
challenged.
MR. BALASH suggested thinking about a specific formation, the
Ugnu Formation; a deposit that is present, not only in Prudhoe
Bay but also in Kuparuk and parts in between. Because Ugnu has
not contributed to production previously, it is not within a
participating area; therefore, it would qualify for the GRE if
it were put into production. As an initial investment by an
incumbent producer, they could deduct the cost of that
investment against their production tax liability. The
production of that heavy oil would be discounted by the GRE for
purposes of going into the overall revenue bucket, against which
taxes are calculated.
MR. PAWLOWSKI noted that the GRE does not time out. The
production going into the future would not have to qualify for
another PA within the Ugnu Formation to qualify for the
additional GRE. If the Ugnu itself was defined as a PA, all the
production from that formation would get the preferential
treatment of the GRE because it is truly new production.
4:40:27 PM
At ease
4:48:23 PM
CO-CHAIR MICCICHE opened public testimony.
SCOTT THORSON, Network Business Solutions, testified in support
of SB 21.
DAVE CRUZ, CEO, Cruz Construction, testified in support of SB
21. He shared his experience with oil production in North Dakota
and the need to be competitive.
JEANINE ST. JOHN, Vice President, Lyndon Logistics, testified in
support of SB 21. She termed it good for Alaskans. She said to
make Alaska competitive.
4:53:38 PM
ETHAN SHUTT, Senior Vice President, CIRI Land and Development,
testified in support of SB 21. He encouraged making Alaska a
more attractive environment for investment.
SENATOR GARDNER questioned Mr. Shutt's investment success.
MR. SHUTT explained that recent investments have not been that
lucrative.
4:56:14 PM
JOHN STURGEON, Forest Products, testified about the decline of
the timber industry. He suggested the state not allow the oil
resource to disappear. Instead, the state should act now to
prevent the oil industry from disappearing. He testified in
support of SB 21.
CO-CHAIR DUNLEAVY asked why the timber industry disappeared.
MR. STURGEON said it was due to litigation.
4:59:37 PM
AVES THOMPSON, Alaska Trucking Association, testified in support
of SB 21. He compared the trucking industry with the oil
industry and encouraged the committee to find the right answer
to fix the oil tax.
SENATOR GARDNER asked about the number of jobs in the trucking
industry.
MR. THOMPSON offered to provide that information.
5:02:03 PM
DEANTHA CROCKETT, Executive Director, Alaska Miners Association,
testified in support of SB 21. She encouraged making the oil
investment climate more attractive.
5:04:53 PM
BARBARA HUFF-TUCKNESS, Director, Teamsters Local 959, testified
in support of SB 21. She pointed out that the oil industry
provides jobs in many other sectors of Alaska. New production
and Alaska hire are important to Alaska.
SENATOR GARDNER agreed that Alaska hire is important. She
pointed out that it cannot be required. She asked Ms. Huff-
Tuckness for ideas.
MS. HUFF-TUCKNESS suggested encouraging Alaska hire with a tax
incentive.
CO-CHAIR DUNLEAVY asked for clarification on her support.
MS. HUFF-TUCKNESS said the Teamsters 959 do support the concept
of SB 21.
CO-CHAIR MICCICHE said he has personally asked the Commissioner
of Labor for ways to incentivize Alaska hire. He stressed that
it should be a driving force. He asked how many teamsters are
Alaska residents.
MS. HUFF-TUCKNESS said that all members are Alaska residents.
5:10:48 PM
CO-CHAIR MICCICHE asked if it was 100 percent compliance.
MS. HUFF-TUCKNESS said that was correct.
5:11:50 PM
At ease
5:38:04 PM
CO-CHAIR MICCICHE reconvened the meeting.
JIM SCHERIEBLE, General Manager, Kenworth Alaska and President,
Alaska Trucking Association, testified in support of SB 21. He
maintained that what is done now will set the standard for
business in the future.
MARTY METIVA, Executive Director, Mat-Su Resource Conservation
and Development and the Alaska Regional Development
Organization, testified in support of SB 21. He likened the tax
issue to the controversy over the bed tax. When Governor Parnell
reduced the bed tax, the cruise industry returned. He urged the
committee to use that model.
5:43:19 PM
JOE PASKVAN, representing himself, testified in opposition to SB
21. He expressed concern that the production tax in SB 21 may
promote a super harvest mode in the legacy fields. The current
system has promoted reconstruction of the legacy fields for the
future. He voiced concern that the proposed changes in the
production credits might promote a super harvest mode because
the cost of operation in the legacy fields will be lower now
that the infrastructure has been rebuilt.
He referred to information on page 59 of Econ One's presentation
on January 24 to support his idea that the net present value
(NPV) to the producer is the same for a new development under
either the current system or the proposed changed system, even
though the producer is getting more gross dollars over time. He
maintained that the credits under the current system promote the
actual construction of a project by front loading a reward for
actual capital spending. Removing capital credits does not
change the NPV, making it less likely the project will actually
get built and more likely a super harvest mode is advanced by
the incumbent producer in legacy fields.
He pointed out that additional major treatment facilities were
not built under the current tax system even though the expenses
are both deductible and credits were available. There is less
reason to build major treatment facilities under the proposed
system as credits are taken away. This does promote a super
harvest mode for legacy field operation.
He referred to pages 8 and 9 of the Econ One presentation which
states that the decline in throughput is a natural decline over
time. As more gas and more water needs to be processed, the
decline naturally occurs, even though the oil resource remains
enormous.
He concluded that SB 21 does not help because the removal of the
credits takes away Alaska's participation over the entire
spectrum of proposed oil prices. The throughput decline began in
1989 and has nothing to do with tax policy.
5:46:58 PM
SENATOR GARDNER asked if super harvest means harvesting without
reinvesting in facilities and other infrastructure.
MR. PASKVAN said yes.
5:47:23 PM
JIM PLAQUEST, Fairbanks Membership and Events Coordinator,
Alaska Industry Support Alliance, testified in support of SB 21.
He maintained that the ACES tax has eliminated the upside of
potential in investment and has stifled investment.
5:49:17 PM
BRAD CHASTAIN, Vice President of Energy and Natural Resources,
W. H. Pacific, testified in support of SB 21. He said his
company directly supports the oil and gas company and the
ability to employ Alaskans is limited without a vibrant oil and
gas business in Alaska. He stressed that other states are
attracting investments while Alaska is not. He said simplifying
the oil tax structure will lead to more investment.
5:52:17 PM
JOE MATHIS, NANA Development Corporation, testified in support
of SB 21. He said NANA was one of the first companies hired on
the North Slope. They have expanded to the Gulf of Mexico and
Australia. The road to success has been built on partnerships;
however, somehow, the partnerships in Alaska became adversarial.
He suggested fixing ACES in order to renew those partnerships.
5:55:17 PM
JERRY MCCUTCHEON, Alaska Oil and Gas, testified in opposition to
SB 21. He said ACES is promoting oil and gas development and it
has generous tax credits. He stressed that ACES should be
allowed to run unchanged for 10 years.
5:58:30 PM
STEVE PLATT, Executive Director, Consumer Energy Alliance
Alaska, testified in support of SB 21. He said that oil
production is in a free fall decline of about 5 to 7 percent a
year. The current regime creates a disincentive to invest in
Alaska and he argued for a more competitive tax structure.
6:01:13 PM
ROD MCCOY, representing himself, testified in opposition to SB
21. He said there is opportunity for a natural throughput
increase. He urged the committee to stand for Alaska, not the
oil industry.
6:04:26 PM
MICHAEL DUNSMORE, representing himself, testified in opposition
to SB 21. He said it would be improper to act hastily and change
the current tax structure. The state is currently able to save
money each year even though the budget has been high. He
encouraged maintaining the status quo.
6:06:31 PM
GRANT JOHNSON, representing himself, testified in support of SB
21. He said that Alaska has lost its competitive edge while
other regions are attracting huge investment.
6:09:13 PM
PHILLIS SPENCER-BELZ, representing herself, said she is an
educated shareholder of the Arctic Slope Regional Corporation,
testifying in opposition to SB 21. She discussed the Native
Claims Settlement Act and said that she had not seen big oil do
much for Natives or the state.
6:12:12 PM
JERRY AHWINONA, representing himself, testified in opposition to
SB 21. He said that progressivity reductions would not protect
Alaskans. Capital credits eliminate incentives to all but the
big three oil companies. He urged the committee to allow ACES to
work for a decade.
6:14:22 PM
MICHAEL JESPERSON, representing himself, testified in support of
SB 21. He said the Governor's bill isn't perfect but it's better
than doing nothing, as is happening now. He said he wants to be
able to pay for college for his kids, but that's not possible
now. They'll have to move to the Lower 48 and work to get
through school.
6:17:32 PM
ANDREA LANG, representing herself, testified in opposition to SB
21. She said Alaska's revenue surplus has grown under ACES. She
questioned who the Governor and legislature are working for when
they give oil companies billions and flat line school budgets.
6:20:25 PM
THOMAS DUFFY, representing himself, testified in opposition to
SB 21. He said he disagreed with the intent if taxes are reduced
by half or more even if throughput is increased. It is a zero
sum gain. He applauded legislators last year for putting
principle before party.
6:23:31 PM
DAN KENNEDY, representing himself, testified in support of SB
21. He disagreed with leaving ACES in place for 10 years as
previously suggested.
6:25:16 PM
MERRICK PIERCE, representing himself, testified in opposition to
SB 21. He said the state isn't taking enough under ACES. There
is no evidence that the Governor's bill will increase
production. A reasonable discussion is what can be done with $2
billion per year to increase revenue from the North Slope.
6:28:12 PM
LAURIE FAGNANI, NSI Communications, testified in support of SB
21. She said she has to be competitive and she expects the state
to be as well. It appears that Alaska has lost competitiveness
in the global market.
CO-CHAIR MICCICHE said the committee would take a break awaiting
additional testimony.
6:31:32 PM
At ease
6:53:02 PM
CO-CHAIR MICCICHE reconvened the meeting. He said testimony
would be taken until 7:30 p.m.
6:53:46 PM
DEBORAH BROLLINE, representing herself, said she is not wedded
to the Governor's bill, but it is a starting point.
6:55:27 PM
TARA SWEENEY, Senior Vice President, Arctic Slope Regional
Corporation (ASRC), said ASRC is currently doing an analysis of
SB 21, but does know that reform is needed. The work that ASRC
does on the North Slope returns benefits to shareholders and to
Alaska in general.
CO-CHAIR MICCICHE stated that the committee would take a brief
break awaiting additional testimony.
6:58:17 PM
At ease
7:12:00 PM
CO-CHAIR MICCICHE reconvened the meeting.
7:12:12 PM
ABLE BULT-HO, representing himself, testified in opposition to
SB 21. He said it is a giveaway to oil companies without some
commitment that they will increase production. The oil belongs
to Alaskans and should benefit Alaskans first.
7:14:22 PM
LAURA MAKETA, representing herself, testified in support of SB
21. She told the committee that she is a small business owner
and mother of two. She said there is excellent research on the
negative impact that ACES has had on small businesses, such as
hers, and the support industry. She urged the committee to be
solution focused.
SENATOR FAIRCLOUGH encouraged testifiers to submit written
testimony.
SENATOR GARDNER described the testimony as compelling and
articulate.
SENATOR FAIRCLOUGH asked when public testimony would next be
taken.
CO-CHAIR MICCICHE stated that the next meeting would be Thursday
and the committee would meet from 1:00 p.m. until 7:30 p.m.
7:20:42 PM
At ease
7:28:18 PM
CO-CHAIR MICCICHE reconvened the meeting and stated that public
testimony was taken from 5:30 to 7:30. There will be a meeting
on January 31 and public testimony will be taken from 4:30 p.m.
until 7:30 p.m.
SENATOR McGUIRE said Alaskans who cannot be physically present
at the Legislative Information Offices can call in using the
offnet number or submit written testimony.
CO-CHAIR MICCICHE held SB 21 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 21 Sectional Analysis -DOR-TAX-01-11-13.pdf |
STTP 1/22/2013 3:30:00 PM STTP 1/29/2013 3:30:00 PM |
SB 21 |
| Overview of SB 21 Oil & Gas Production Tax 1-29-13.pdf |
STTP 1/29/2013 3:30:00 PM |
SB 21 |