Legislature(2017 - 2018)ADAMS ROOM 519
04/11/2018 05:00 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB411 | |
| Invited Testimony | |
| HB339 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 411 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| += | HB 339 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
April 11, 2018
5:08 p.m.
5:08:41 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 5:08 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Les Gara, Vice-Chair
Representative Jason Grenn
Representative David Guttenberg
Representative Scott Kawasaki
Representative Dan Ortiz
Representative Lance Pruitt
Representative Steve Thompson
Representative Cathy Tilton
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Rich Ruggiero, Consultant, In3nergy; Kara Moriarty,
President/CEO, Alaska Oil and Gas Association; Dan Seckers,
Tax Counsel, ExxonMobil; Representative Andy Josephson.
PRESENT VIA TELECONFERENCE
Carl Giesler, Glacier Oil and Gas, Houston; Scott Jepsen,
Vice President, External Affairs and Transportation, Conoco
Phillips, Anchorage; Paul Rusch, Conoco Phillips,
Anchorage; Doug Chapados, President and CEO, Petro Star
Inc.; Kate Blair, Andeavor; Damien Bilbao, BP, Anchorage;
Lewis Westwick, Vice President of Finance, BP Alaska.
SUMMARY
HB 339 INCREASE BASE STUDENT ALLOCATION
HB 339 was REPORTED out of committee with a "do
pass" recommendation and with three previously
published fiscal notes; one zero impact note: FN1
(EED); and two fiscal impact notes: FN2 (EED) and
FN3 (EED - Fund Cap).
HB 411 OIL and GAS PRODUCTION TAX;PAYMENTS;CREDITS
HB 411 was HEARD and HELD in committee for
further consideration.
Co-Chair Foster reviewed the meeting agenda.
HOUSE BILL NO. 411
"An Act relating to the oil and gas production tax,
tax payments, and credits; and providing for an
effective date."
5:09:58 PM
RICH RUGGIERO, CONSULTANT, IN3NERGY, asked that members
hold their questions to the end. He introduced the
PowerPoint presentation: "HB 411, House Finance Committee,
April 11, 2018" (copy on file).
Mr. Ruggiero began with slide 2, "Testimony Scope":
HB 411
? High level review
? Concept discussion as opposed to specific bill
language
? Observations and comments
Mr. Ruggiero turned to slide 3, "Fiscal Design
Considerations, What are Your Drivers?":
? Alaska is very dependent on energy revenues
? Many other regimes are in a similar position
? Savings account balance is low, budget deficit
high ? Nothing in energy developments happens
quickly in Alaska
? Legislative action must balance competing forces
? How to keep the lights on??Without killing the
"Goose that laid the golden eggs"
? Short-term needs/reactions versus longer-term
strategic success
? Fiscal design drivers
? Fill the pipe extending legacy field life
worth billions
? Encourage new players competition, new ideas
? Get our fair share how? timing?
Mr. Ruggiero advanced to slide 4, "Fiscal Design
Considerations, From Fiscal Design 102":
? Sometimes the timing of the government take is more
impactful on investment decisions than the size of the
take
5:15:55 PM
Mr. Ruggiero continued to slide 5, "Fiscal Design
Considerations, Fill the Pipe":
? Keeping TAPS flowing should be priority number 1
? Need to ensure that short term needs and their
corresponding actions do not jeopardize
attainment of the goal
? Projects have long lead times thus, we must
not stall progress towards commercialization and
first oil
Mr. Ruggiero moved to slide 6, "Fiscal Design
Considerations, Making LNG Happen":
? For Alaska LNG to become a reality, it will require
a high degree of fiscal certainty
? Current AGDC timing appears to target 2019 for
signing detailed commitment level agreements
? Entities willing to invest over $40Bn will, in
order to make it a reality, demand a number of
conditions precedent and one or more of those
will be related to Alaska fiscal structures for
both upstream and midstream assets
? The state's track record for petroleum fiscal
changes will shape investor opinions on what they
likely will require, i.e. fairly high level of
certainty or some form of fiscal stabilization
? Are the contemplated changes in HB411 in line with
the long term strategic goals of filling TAPS and
making Alaska LNG a reality?
5:20:37 PM
Mr. Ruggiero discussed slide 7, "Fiscal Design
Considerations, Change is the Only Constant":
? Alaska always has and always will be competing for
investment capital
? Versus the Lower 48/unconventional
? Versus the rest of the world
? You have good "Rocks" but also a very high cost
structure
? One of the best 'windows' into the thinking of an
oil company are its analyst presentations, for
example:
? Not too many years ago Alaska figured
prominently in analyst presentations for all the
legacy players; BP, CP and XOM
? In 2018 analyst and investor presentations:
? COP AK still figures prominently
? BP and XOM brief references, not listed as
growth area
? All 3 have an LNG segment focus
? How do you encourage a refocus on Alaska
developments?
Mr. Ruggiero spoke to Alaska's complexity in terms of doing
business on slide 8, "Fiscal Design Considerations, Time
for Change":
? Alaska has a very complex fiscal system
? Hard to administer
? Costly to administer
? Contrary to other opinions expressed regarding a
roughly 2 year timeframe to address Alaska's fiscal
system
? It need not take more than a few months to put
together a comprehensive new plan to present to
the legislature
? Get the right people in the room, give
them a (realistic) deadline, expect results
? You already know generally where you stand
competitively
? Any number of consultants or committees
have put those reviews together and
presented them to you
? Creating a new fiscal structure is more a
subjective exercise than an objective
exercise
? "Fixing" pieces is how the system got to where it is
now
5:26:12 PM
Mr. Ruggiero scrolled to slide 9, "Fiscal Design
Considerations, Costs Change with Oil Price"
? As oil prices go up and down, overall costs go up
and down as well
? One major misleading aspect of many reviews of
proposed tax changes is the failure to properly
account for those cost changes providing unrealistic
comparisons at much higher or lower prices than
current:
? Past costs (from DOR prior presentation) exemplify
this concept
Mr. Ruggiero explained slide 10, "Costs Held Flat,
Correcting for the Real World." He stated that the yellow
line was the current status quo, and the blue line was the
suggested changes in the bill. He noted that the shapes of
the curves were similar to the curves from the night
before. He noted that the curves from the previous night
had a cut from 40 to 120. He noted that the current slide
went down to 20 and up to 200 to show the effect. He noted
that the green bars represented either the gain or the loss
between the two curves. He stated that when the green bars
were above the zero line, the blue [HB 411] was higher than
the status quo. He stated that the crossover was around
$140 per barrel, keeping the cost constant.
Mr. Ruggiero moved to slide 11, "Costs Proportional to
Price, Correcting for the Real World." He noted that the
crossover point occurred around $125 per barrel. He stated
that above $125 HB 411 fell below the status quo. He
stressed that it was because HB 411 was tied to the profit
per barrel (PPB), whereas the barrel credits in the status
quo were tied to the price irrespective of the profit level
or taxable income at that point in time.
5:30:23 PM
Mr. Ruggiero continued to slide 12, "HB 411, Our High Level
Views":
? Alaska State Perspective
? Closes the gap on the 2/3 1/3 share split
target
? Reduces competitiveness
? Provides near term tax revenue
? Legacy Players Perspective
? It's a tax increase
? State will pay a larger share of future
investments
? New administrative nightmare
? New Players Perspective
? Raises the hurdle (likely a 16+ percent royalty
and a 25 percent petroleum tax) for being able to
generate investment level economics
? Another change that could spook investors as
very few companies have the balance sheet to
carry a project on their own
Mr. Ruggiero advanced to slide 13, "HB 411, Our High Level
Recommendations":
? Overall thoughts
? Focus on what is necessary to bring on new NS
developments
? Make the low lower?. 10 percent base
? ?.and the highs higher (i.e. more steps)
? "Windfall" and high tax rates will only occur
with short duration price spikes
? Since costs rise with sustained price
increases, this lowers anticipated PTV/bbl which
pushes a 'windfall' to an ever higher price point
? With LNG coming soon, the time to put together
a comprehensive new fiscal system is before next
January
5:35:03 PM
Vice-Chair Gara that there may be an increase, but remarked
that the original was not necessarily fair. He remarked
that the gross value reduction (GVR) fields paid basically
no production tax for seven years. The legacy fields paid
the minimum gross tax up to $60 per barrel. Therefore, any
change would increase those rates. He wondered whether the
current rates were fair to the people of the state and
served all interests well, when considering the public and
the desire for long-term revenue and investment.
Mr. Ruggiero replied that the legislature must determine
fairness. He stressed that his recommendations were focused
on the impact of the major projects that needed to be
brought on. He remarked that there should be a balance
about fairness and stifling other production.
Vice-Chair Gara remarked that a number of consultants had
asserted that the two most unstable tax regimes in
democracies were too high and too low.
Mr. Ruggiero agreed. He remarked that there must be a
balance to please both the companies and the government.
5:38:49 PM
Representative Guttenberg remarked that there would be
supposed encouraging of development and production. He felt
that there were different levels and needs, so he queried
the efforts to balance. He remarked that the ability of the
state to see the results of changes was difficult. He
queried a comprehensive possible to put people at ease and
trust that would yield results.
Mr. Ruggiero replied that there was an initial focus on the
expected projects and developers. He stressed that some
countries would only target the "super majors." He remarked
that countries had small independents and large offshore
operations. He shared that Alaska had a limited possibility
for a subset of players. He stressed that the system in
Alaska was designing for companies of substantial size. He
remarked that those companies would be listed in the stock
exchange, and understand the requirements and pressure in
those companies. He stated that the types of companies help
to influence the determination of the types of projects
that may develop on the North Slope.
5:43:32 PM
Representative Guttenberg remarked that the credits would
transfer to people who were interested in a segment. He
queried a way to only encourage exploration by itself.
Mr. Ruggiero responded that the credits that were in place
in 2007 and 2008, which had lead to the credits on the
balance on the pay. He noted that there were a significant
number of wells drilled, and a quantity of seismic with
potential discoveries. He understood that the state would
not continue to pay those credits, but that was the process
that encouraged exploration. He noted that there should be
a similar approach with transferability to other players.
He stressed that some were known as explorers, who prefer
not to develop. He stated that others were harvesters. He
remarked that there were different roles with different
players.
Representative Grenn asked if he was aware of anyone in the
lower 48 contemplating a tax restructure like Alaska.
Mr. Ruggiero was not aware of anyone in the lower 48 who
had a tax restructure like Alaska.
Representative Grenn thought Mr. Ruggiero was aware of the
potential growth in Alaska. He asked what Mr. Ruggiero was
hearing about in his circle.
Mr. Ruggiero could speak firsthand to his question. He had
had the opportunity to talk to private equity investors.
Almost every one of them he had talked to was that they
would have to have much more certainty before investing in
Alaska.
Co-Chair Seaton noted that on slide 8, and asked if a
portion of the number was a sliding scale. He wondered if
he would recommend a sliding scale.
Mr. Ruggiero would not suggest tying a sliding scale to
price, because he would tie it to profit.
Co-Chair Seaton wondered whether the tax structure in the
bill was self-correcting for cost structure, because it was
based on a percentage of production tax value by field or
company and their tax structure.
Mr. Ruggiero responded in the affirmative.
5:50:10 PM
Representative Pruitt looked at page 4, and remarked on the
examples of what might turn a doable project into a "no-
go", because of a lower internal rate of return (IRR). He
noted that the presentation from Department of Revenue
(DOR) used a hypothetical example of a new field of 750
million barrels, with approximately 120 barrels a day of
peak production. He remarked that there was already an
active similar field. He stated that the example gave
several prices of oil, and the IRR in that scenario. He
stated that changing to the new system would result in a
7.4 percent IRR. He wondered who had the ability to play in
a scenario where there may be an IRR of a 6 percent, which
would be considered a "no go." He queried the companies
that would invest in fields that could potentially be 750
million barrels at 120 barrels per day.
Mr. Ruggiero replied that switching between the IRR of 7.4
percent and 7.9 percent was not a small change. He stressed
that thirty to forty year projects could show a loss of
hundreds of millions or billions of dollars that would make
up that 0.5 percent IRR difference. He remarked that
revenues in the future were discounted coming back to a net
present value, so it took a lot in year thirty to impact
the numbers in the present day. He stated that there would
be no investors at the presented level of return. He noted
that there may be added value in consideration when
determining investment. He stated that some companies my
want to keep Trans-Alaska Pipeline System (TAPS) open for
added three to four years. He stressed that there were
several different considerations for companies.
5:51:40 PM
Representative Wilson wondered what would occur that if the
legislature passed a bill to "take care of the credit." She
asked specifically about trust.
Mr. Ruggiero responded there would be many considerations
and questions to determine whether it would happen again.
He stressed that there would be care before investing the
billions of dollars to develop new North Slope fields.
Representative Wilson asked about attempting to make
changes and how it would reflect on a project.
Mr. Ruggiero replied that one of the countries that had
changed their fiscal system more than most was the United
Kingdom, yet they were deemed one of the most stable places
to do work. He stressed that the United Kingdom changed to
higher taxes when profits increased, and removed the higher
taxes and go to lower taxes when profits decreased. He
asserted that an investor would not whether the changes in
the state of Alaska were in the right direction for the
time period.
Representative Wilson spoke about a level people would
invest in. She wondered if he had been speaking about the
current structure or the proposed structure. She asked
about the impact of the proposed bill.
Mr. Ruggiero responded that his answer was more generically
about an IRR and the impact on investment. He stressed that
it was irrespective of fiscal system.
5:58:57 PM
Representative Wilson asked how long a project could be
delayed if the numbers were wrong.
Mr. Ruggiero answered that there were many factors that
impacted investment.
Representative Wilson referred to his example of the United
Kingdom. She asked if the oil was similar to Alaska.
Mr. Ruggiero replied that he had been stationed in the U.K.
for six years.
6:02:10 PM
AT EASE
6:02:30 PM
RECONVENED
^INVITED TESTIMONY
6:03:13 PM
KARA MORIARTY, PRESIDENT/CEO, ALASKA OIL AND GAS
ASSOCIATION, read from a prepared statement, "AOGA
Testimony HB 411 House Finance Committee April 11, 2018"
(copy on file):
First, rhetoric. I hear time and time again, that the
oil companies asked for and supported all of the
changes since 2005. The reality is, that is simply not
true. As you can see, we have opposed all but two of
the previous changes. No other industry has
experienced as many changes to its fiscal structure
than Alaska's oil and gas industry, even though our
industry still accounts for 77 percent of the
unrestricted revenue. In fact, petroleum revenue
doubled from FY 17 to FY 18. Other industries do not
even contribute enough to the state treasury to cover
the costs to regulate them. The constant bombardment
of proposed tax increases we see introduced by the
House, does instill uncertainty among already nervous
investors. Yes, just discussing taxes makes us
nervous. Look at what happened to the stock market
when the federal tax bill was being discussed.
Investors react to talk, not just action.
Another thing we hear is about how new production
won't pay taxes for 7 years. Let's put that in
context. First, the lack of payment illustrates how
long it takes to start making money on a new
development. And, as the Administration said last
night, this provision in the tax law was a specific
policy measure built to encourage new companies to
Alaska. It basically only applies to new companies
with new production. So what portion of this provision
applies to current production? Roughly about 7-8
percent. The way some are talking it would appear to
the public that all new production would not pay
production tax. Not true. And even if it were true,
that new production would be paying royalty, corporate
income tax, and property tax, not to mention providing
jobs and economic benefit to Alaska. HB 411 is
designed to collect more revenue for Alaska. It is
clearly not designed to attract more investment and
production to the state, which is a shame, because
Alaska continues to fall behind the rest of the
country in terms of investment and production.
According to this chart, you can see capital
investment for the last decade for Alaska and the rest
of the US, as it corresponded to oil price. The bottom
line is what Alaskans should care about: This year,
2018, energy companies plan to invest $120 billion in
capital projects in the United States alone. What
portion is coming to Alaska? Less than 2 percent. Why
would that be? We have the "rocks" in fact, one-
third of the nation's reserves are here in Alaska. We
have a well-trained work force, and according to some,
one of the lowest tax rates in the country at current
prices.? And at the beginning of this session, the
legislature's consultant, in3energy, shared a
presentation outlining that at $60 oil, an Alaskan
producer's net is $12/barrel for legacy fields and
$1.50/barrel for new fields. Meanwhile, companies
operating in West Texas net $31/barrel Texas many
have a higher minimum production tax at these prices,
but even with a higher tax rate, due to Texas's cost
structure and overall fiscal policy, oil companies can
earn a lot more per barrel. And at the end of the day,
companies invest where they can make money. Perhaps
that's why business is booming in Texas. With
investment dismal compared to the rest of the country,
and companies being able to net three times or more
compared with their investments elsewhere, it should
be no secret that even though we had slight increases
in Alaska production the past two years, Alaska has
recently slipped to 5th in the nation. When I started
working at AOGA 13 years ago, we were 2nd.
Speaking of production tax rates, Rep. Gara is
correct. At these lower prices in 2016, we do have one
of the lowest production tax rates. Our current system
is designed that way because of the high cost
environment. But if you look at our tax structure
holistically, and not in a vacuum looking only at one
component, you will see that according to this recent
report, our effective tax rate, at lower prices, is
one of the highest in the nation. HB 411 makes three
significant changes that completely alters the current
tax structure: it would lower the current base
production tax rate from 35 percent down to 25
percent, eliminate the sliding-scale per barrel tax
credits on legacy production and eliminate the $5 per
barrel tax credits on new production. The bill would
also create three compounding levels of progressive
higher tax brackets, beginning when the "production"
taxable value exceeds $40 per barrel. Additionally,
the structure of AS 43.55.011(g) as it reads in
Section 2 of the bill looks to us like a means to
establish a framework for more extreme versions in the
new progressivity tax in the future. To us, HB 411
is merely an attempt to roll back the voter-ratified
reforms under "SB 21" in 2013, in favor of the "bad
old days" of progressivity. I think it is important
for the committee to recognize that due to the
complexity in how the bill was written and the
effective dates of these new progressivity rates, it
is conceivable that the "progressive" rates could be
amended to have different rates for production tax
values above the respective thresholds, or different
thresholds for the period before 2022 and the one that
follows. In regards to the sliding-scale tax credits,
your own legislative consultants and the
Administration warned against lowering or repealing
the sliding-scale tax credits as those "credits" were
essential to keeping Alaska's fiscal regime
competitive. On July 17, 2015, legislative
consultants, Enalytica, described the per barrel
credit as a "misnomer." They testified that - "The
credit against the production tax is not really a
credit; it has an explicit tax-rate-setting goal." On
that same day, the DOR Tax Director acknowledged the
importance of the sliding-scale tax credits for
keeping Alaska's overall production tax competitive.
He said: "With SB 21 the (per-barrel) credit is an
offset to the tax and is designed to create a
progressive element, a little bit lower tax rate at
lower prices, a higher tax rate at higher prices, so
it's hard to really consider them a credit in the
context of an inducement to doing work. It's really
what we are calling an integral part of the system."
About two years later, Legislative consultant Roger
Marks said that the sliding-scale tax credits were an
"important feature" of the current tax structure as an
"adjustment of effective tax rate to offset high
royalty at low prices. Adopting House Bill 411's new
tax rate, turning the "progressivity" section back on,
and removing the sliding-scale per barrel tax credits
would in effect revert the current tax structure to a
modified ACES type of tax structure a tax structure
which would raise industry taxes by significant
amounts at low prices much as ACES did at high prices.
Constant discussions and changes to tax policy does
not impart confidence that Alaska is a good place for
oil and gas investment. Instead, HB 411 is simply
another attempt to take more from the one industry
that pays more than its way in Alaska. HB 411 will not
increase production. It does not simplify the tax
structure. It will not incentivize investment. In
closing, what is most troubling and concerning to my
member companies is the constant barrage of tax
increase proposals we have seen introduced in the
House this legislative session, even though the
Speaker of the House when speaking on January 4, 2018
about broad based taxes and the potential for industry
taxes, he said, "I don't see that (industry taxes) on
the table." But here we are, on the 86th day of the
Session with a bill that would triple our taxes. HB
411 is before us despite your leader's comment,
despite the Administration not supporting this bill,
despite the Administration not supporting changes to
the oil tax system at this time, and despite all the
statements that the Working Group was to be the entity
to vet and consider changes to policy. It surprises me
that the Finance Committee did not take this draft
bill to the co-chairs of the Working Group and ask
them and the legislature's consultants to consider the
impacts of this bill and all the others introduced
this session. We have not seen this type of impact
since ACES, which on a scale of 1 to 10 for us was a
10, which puts this bill at least a 9.5. My member
companies respectfully ask, when will it be enough?
When will the constant discussions end? Thank you for
the opportunity to testify and I'm happy to address
any questions.
6:05:21 PM
Ms. Moriarty discussed the presentation, "Alaska Oil and
Gas Association, HB 411 - Oil and Gas Production Tax" (copy
on file). She began with slide 5, "FY 19 North Slope
Production."
Ms. Moriarty looked at slide 6, "Alaska Needs Investment":
Today, Alaska is only capturing 1.7 percent of total
U.S. investment, or around $1.9 billion in capital.
Recent history shows Alaska needs at least $3.6
billion of investment capital to grow production.
How does Alaska compete for the investment capital
necessary to grow production beyond 2018?
Ms. Moriarty turned to slide 8, "Alaska is Falling Behind":
Texas: 3.89 million
North Dakota: 1.15 million
New Mexico: 540,000
Oklahoma: 528,000
Alaska: 508,000
Alaska now ranks 5th among U.S oil producing states
Ms. Moriarty discussed slide 9, "Fact: Alaska's tax rate
exceeds U.S. average":
Investment decisions are based on all tax rates.
6:10:14 PM
Ms. Moriarty turned to slide 10, "HB 411 Major Policy
Changes":
?Changes base rate from 35 percent to 25 percent
?Eliminates sliding scale per-barrel credit
?Eliminates $5 per barrel tax credits on new
production
? Creates 3 compounding levels of progressivity when
taxable value exceeds $40/barrel
All changes combined triple production tax at current
prices
Ms. Moriarty continued to slide 11, "Per Barrel Credits
'Integral'":
"The credit against the production tax is not really
a credit; it has an explicit tax-rate-setting goal."
-Enalytica, Legislative Consultant June 17, 2015
"With SB 21 the (per barrel) credit is an offset to
the tax and is designed to create a progressive
element, a little bit lower tax rate at lower prices,
a higher tax rate at higher prices, so it's hard to
really consider them a credit in the context of an
inducement to doing work. It's really what we are
calling an integral part of the system."
-DOR Tax Division Director June 17, 2015
"(per barrel credit) is an adjustment of effective tax
rate to offset high royalty at low prices.
-Roger Marks, Legislative Consultant, April 15, 2017
Ms. Moriarty turned to slide 12, "Speaker Edgmon on
Industry Taxes":
Speaking about broad-based and the potential for
industry taxes: "I don't see that (industry taxes) on
the table."
-Speaker of the House Bryce Edgmon Resource
Development Council Breakfast Forum January 4,
2018
Ms. Moriarty turned to slide 13, "The Walker Administration
Opposes HB 411":
"The Administration does not support this bill (HB
411) and we do not support changing the oil tax system
at this time." -Commissioner Sheldon Fisher House
Finance Committee April 10, 2018
6:14:56 PM
Vice-Chair Gara stressed that Representative Edgmon's
comments were general, and not intended to address the oil
industry.
Ms. Moriarty stated that the comments from Representative
Edgmon included all of industry, and she felt that the oil
and gas industry was part of all industry.
Vice-Chair Gara felt that there was some wrong information
in the presentation.
Ms. Moriarty replied that the information came from the
legislature's oil consultant's presentation.
Vice-Chair Gara asked Ms. Moriarty to return to slide 9. He
asked about the chart on the right. He relayed that a much
larger royalty to the private sector.
Ms. Moriarty agreed to provide that information.
Vice-Chair Gara felt the chart would be vastly different.
Ms. Moriarty would provide the chart.
Vice-Chair Gara stated that it was his job to be fair to
Alaskans but not necessarily her job.
Ms. Moriarty took exception with her job not being fair to
Alaskans. The question was whether the legislature would
provide an incentive to new producers to invest in the
state.
Vice-Chair Gara did not think anyone wanted to have their
words twisted. He asked her if it was fair to Alaska.
Ms. Moriarty suggested that was the legislature's policy
call.
Representative Grenn asked Ms. Moriarty if her membership
looked at the tax changes - he asked for an adjective to
describe the feeling of members.
Ms. Moriarty responded, "schizophrenic and exhausting."
Representative Grenn asked about the chart on slide 6.
Ms. Moriarty pointed to the bottom line on the graph, and
asserted that if the state were to get back to those
prices, the state had to figure out how to compete.
6:25:08 PM
Representative Grenn thought it was difficult to see on the
graph, but felt that it appeared that the state was the
lowest in the graph that it had been.
Representative Wilson thought profit was a good thing. She
asked how companies viewed a profit.
Ms. Moriarty responded that different companies looked at
the meaning differently for different companies.
Representative Pruitt asked when she was aware of the bill.
Ms. Moriarty stated she had heard rumor but was not aware
of it until it was read across the floor.
Representative Pruitt asked if she had been notified prior
to the bill being read across the floor for feedback.
Ms. Moriarty responded in the negative.
Vice-Chair Gara referred to page 3, and felt that there had
been no tax increases since 2008. He wondered whether SB 21
was seen as a tax increase or decrease.
Ms. Moriarty responded that SB 21 did both: increased taxes
at low oil price and decreased at high oil price.
Representative Grenn noted that Ms. Moriarty had mentioned
the working group. He asked that if it would have changed
the climate if the group had met regarding HB 411 or HB
399.
Ms. Moriarty responded that the point of having the working
group when legislators offered a bill without running it by
the working group.
Co-Chair Foster indicated there were 6 remaining
testifiers.
6:32:43 PM
CARL GIESLER, GLACIER OIL AND GAS, HOUSTON (via
teleconference), stated that even the discussion of the
bill created instability. He remarked that his company was
a small operation in Alaska. He stressed that the bill
would almost triple the tax burden to almost $800 million
on the still recovering oil and gas industry in Alaska. He
felt that passage of the bill would deter investment, and
therefore employment.
6:36:34 PM
SCOTT JEPSEN, VICE PRESIDENT, EXTERNAL AFFAIRS AND
TRANSPORTATION, CONOCO PHILLIPS, ANCHORAGE (via
teleconference), introduced himself.
PAUL RUSCH, CONOCO PHILLIPS, ANCHORAGE (via
teleconference), introduced himself.
Mr. Jepsen discussed the presentation, "House Finance
Committee HB 411" (copy on file).
Mr. Jepsen turned to slide 2, "Cautionary Statement and
Safe Harbor":
The following presentation includes forward-looking
statements. These statements relate to future events,
such as anticipated revenues, earnings, business
strategies, competitive position or other aspects of
our operations, operating results or the industries or
markets in which we operate or participate in general.
Actual outcomes and results may differ materially from
what is expressed or forecast in such forward looking
statements. These statements are not guarantees of
future performance and involve certain risks,
uncertainties and assumptions that may prove to be
incorrect and are difficult to predict such as oil and
gas prices; operational hazards and drilling risks;
potential failure to achieve, and potential delays in
achieving expected reserves or production levels from
existing and future oil and gas development projects;
unsuccessful exploratory activities; unexpected cost
increases or technical difficulties in constructing,
maintaining or modifying company facilities;
international monetary conditions and exchange
controls; potential liability for remedial actions
under existing or future environmental regulations or
from pending or future litigation; limited access to
capital or significantly higher cost of capital
related to illiquidity or uncertainty in the domestic
or international financial markets; general domestic
and international economic and political conditions,
as well as changes in tax, environmental and other
laws applicable to ConocoPhillips' business and other
economic, business, competitive and/or regulatory
factors affecting ConocoPhillips' business generally
as set forth in ConocoPhillips' filings with the
Securities and Exchange Commission (SEC). We caution
you not to place undue reliance on our forward-looking
statements, which are only as of the date of this
presentation or as otherwise indicated, and we
expressly disclaim any responsibility for updating
such information.
Use of non-GAAP financial information This
presentation may include non-GAAP financial measures,
which help facilitate comparison of company operating
performance across periods and with peer companies.
Any non-GAAP measures included herein will be
accompanied by a reconciliation to the nearest
corresponding GAAP measure on our website at
www.conocophillips.com/nongaap.
Cautionary Note to U.S. Investors The SEC permits
oil and gas companies, in their filings with the SEC,
to disclose only proved, probable and possible
reserves. We use the term "resource" in this
presentation that the SEC's guidelines prohibit us
from including in filings with the SEC. U.S. investors
are urged to consider closely the oil and gas
disclosures in our Form 10-K and other reports and
filings with the SEC. Copies are available from the
SEC and from the ConocoPhillips website.
MR. Jepsen spoke on slide 3, "Pipeline of Projects on the
Western North Slope":
GMT1
?~ 25,000-30,000 BOPD*
?First oil planned late 2018
?~700 construction jobs
?~$1 billion gross
GMT2
?25,000-30,000 BOPD*
?First oil planned late 2021
?~700 construction jobs
?~$1.5 billion gross
Fiord West
?20,000 BOPD*
?First oil planned Aug 2020
Willow Discovery
?100,000 BOPD*
?First oil possible as soon as 2023
?Multi-billion dollar investment
?Potential for hundreds of direct jobs, thousands
of construction jobs
6:41:19 PM
Mr. Jepsen spoke about slide 4, "2018 Exploration - Three
Rig Program":
ConocoPhillips NPRA acreage
? 594,972 gross acres acquired in late 2016
? 79,998 gross acres acquired in late 2017
? 1,000,000+ gross acres in NPRA
Willow appraisal and exploration
? 3 wells: T7, T8 and West Willow 1 (WW1)
? 3 potential well tests (T6, T7, T8)
? 37+ miles of ice road and 5 ice pads
? Drilling rig - Doyon 141
Stony Hill (SH1) exploration
? 1 well: 1 slant + 1 vertical
? 1 potential well test
? 17+ miles of ice road and 1 ice pad ? Drilling
rig - Arctic Fox
Putu (P2) exploration (state land)
? 1 well: 1 slant + 1 vertical
? 1 potential well test
? 1 mile of ice road and 1 ice pad ? Drilling rig
- Kuukpik 5
Mr. Jepsen moved to slide 5, "Robust North Slope Investment
Outlook." The slide showed the projects that were either
underway or in the permitting phase. He stated that the
projects were actively being pursued. He detailed the
contents of the slide.
6:45:17 PM
Mr. Rusch moved to slide 6, "Unconventional North American
Fields are Alaska's Competition":
? Enormous resource potential
? Tens of thousands of drilling opportunities
? Lower cost of supply
? Closer to market
? Easier to permit
? Stable fiscal policies
6:52:32 PM
Mr. Rusch moved to slide 7, "Increase in Production Tax
from HB 411." He remarked that the bill was a significant
tax increase.
Mr. Rusch advanced to slide 8, "FY 2018 State/Fed/Producer
Share vs ANS WC - Fall 2017 RSB Assumptions." He remarked
that the slide initially presented the slide to the House
Resources Committee.
6:59:46 PM
Mr. Jepsen turned to slide 9, "HB 411":
? Costs matter: Taxes and royalties are only part of
the equation. Total cost drives competitiveness.
? Bill raises taxes at lower prices
? 100 percent+ increase in tax at $50/bbl; 220
percent increase at $66/bbl
? Will likely cause reduced investment at times
when economy and North Slope needs more
investment, not less
? Alaska still competes because:
? Focus on cost reduction and efficiencies
? Core SB21 structure unchanged in 4+ years
? Oil and gas investment leads to more jobs and state
revenue key part of the solution to the State's
fiscal gap
? The North Slope is on the cusp of significant
spending for new fields
? Maintaining SB21 competitive fiscal framework
will encourage investment
? Recommend AGAINST passage of HB 411
Vice-Chair Gara appreciated the presentation and the
civility of the presentation .He asked about CD5, and
whether CD5 was and anchor field.
Mr. Jepsen responded that CD 5 was an extension of the
Alpine Field.
7:06:05 PM
Vice-Chair Gara commented that the civil tone was
appreciated. He spoke to the losses in the lower 48 and
Canada versus Alaska over the previous three years.
Mr. Rusch replied that he did not have the financial
reports. He asserted that in 2016 the lower 48 lost $1.9
billion, and Alaska had positive earnings of $233 million.
He stated that the depreciation expense in 2016 for lower
48 was $4.2 billion, and in Alaska it was $867 million. He
shared that, on a cash flow basis, there was $1.1 billion
for Alaska and $2.3 billion for the lower 48. He stated
that there were the same drivers.
Vice-Chair Gara remarked that investment costs had a
bearing on profit. He wondered whether the gross tax had
any impact on investment costs.
Mr. Jepsen answered with slide 8, and remarked that there
was the same effect on both Alaska and the lower 48. He
stressed that the only difference was that the overall
costs in the lower 48 were lower than Alaska.
7:09:47 PM
Representative Grenn looked at slide 9, second to the last
bullet point and slide 4 related to construction of ice
road. He asked for the cost of the ice road.
Mr. Jepsen answered that typical costs were about $1
million per mile, and the road was about 140 miles.
Representative Grenn asked for verification that the roads
melt.
Mr. Jepsen answered in the affirmative.
Representative Grenn asked for verification that the state
did not need ice roads.
Mr. Jepsen answered in the affirmative.
7:12:51 PM
Representative Grenn asked what the immediate impact would
be if HB 411 was signed into law.
Mr. Jepsen answered that the question came up every time
there was a proposal to increase taxes. The impact was not
positive; the impacts would be negative.
Representative Ortiz asked about slide 8 pertaining to
factors that increased producers' share. He asked about
what factors allowed the company to achieve cost
reductions.
Mr. Rusch replied there should be an arrangement that was
suitable for both parties.
Mr. Jepsen elaborated that they had tried to find ways to
reduce costs.
Representative Ortiz asked if there was a way of estimating
how much of the reduction was driven by labor reductions.
Mr. Rusch answered that he did not have an answer for that.
7:17:37 PM
DAN SECKERS, TAX COUNSEL, EXXONMOBIL, read from a prepared
statement. The must provide confidence that the underlying
rules would not be changed. The company supported testimony
by Ms. Moriarty. He point to two of the state's major
problems: reducing the deficit and increasing the economy.
The company opposed the bill; it was bad for Alaska's
struggling economy. The bill would make the state less
competitive. He remarked that with the federal government's
reopening of Alaska National Wildlife Refuge (ANWR) there
had been a growing interest in the state; however, the bill
would diminish the interest. Constant changes or threats of
changes were discouraging to investment. He stated it was a
significant tax increase. He spoke to the need for a stable
fiscal policy. The production increase had let to an
improved economy. Changing the tax structure again would
not help Alaskans weather the economic downturn.
7:23:00 PM
Mr. Seckers continued to speak in opposition to the bill.
He spoke about the cost of development, total government
take, infrastructure needs, and other. Alaska was less
competitive than other states and regimes in each of the
areas. The bill would increase taxes, and would not lead to
more investment or production. The legislature's tax
consultants had stated over the years that changes should
be carefully considered. He spoke about the bicameral
bipartisan working group with the purpose to examine the
state's tax structure. He wondered why the working group
had not been consulted. He stated that the company believed
the bill would reduce Alaska's overall competitiveness and
would force companies to reexamine their investments. He
spoke to the need for Alaska to remain competitive. The
current tax structure was working as intended and if it
remained it would continue to encourage more industry
investment. He announced that the bill would be a major
step in the wrong direction. He opposed the passage of the
bill.
7:27:39 PM
Representative Wilson noted Mr. Seckers had spoken about
the working group more than other testifiers. She wondered
whether a necessary bill would have come from the working
group.
Mr. Seckers answered in the affirmative; it was the
company's understanding of the reason the working group had
been established. He stated that all of the committee's
questions were all good questions and underscored the need
for a thorough vetting with consultants. The working group
was intended to provide the sound board.
Representative Wilson asked when the company was made aware
of the bill.
Mr. Seckers answered the prior Friday.
Representative Wilson wondered if the company would have
been willing to provide feedback on the bill if it had
received it earlier.
Mr. Seckers answered it depended on various circumstances.
Representative Wilson asked if the company would have
representation at working group meetings.
Mr. Seckers answered in the affirmative if meetings were
public.
7:30:36 PM
Vice-Chair Gara thanked Mr. Seckers for his testimony. He
remarked it was effectively the same bill the legislature
had three weeks of testimony on the previous legislative
session. He spoke to testimony from the prior year and
differences in the bills. He understood the company's
perspective but repeated that the bill was essentially the
same with the exception of the smoother progressivity
feature.
Mr. Seckers replied that he understood the point. However,
the climate had changed, and the provision was not in the
bill the previous year. The company paid taxes under a
different regime, and there was significant complexity. The
bill from the previous year had not passed and he thought
there must be a reason.
Vice-Chair Gara did not believe there would ever be history
that they would have the same view. The oil industry had
changed his mind about a gross tax. He thought a modest
profit tax when making money made sense.
Representative Wilson asked when a part of HB 111 did not
pass if the company had made investment decisions because
of that.
Mr. Seckers answered that he believe it negatively risk
weighted.
Representative Wilson asked how much ExxonMobil had
invested in Alaska.
Mr. Seckers answered it was well into the upper billions of
dollars. He did not have the number on hand.
7:36:07 PM
Representative Guttenberg felt that the working group was
dysfunctional. He did not believe that the legislature
needed to wait for the working group recommendation. He
stressed that there was already a comprehensive
understanding of the problem. He felt that the legislature
could still act accordingly without the working group.
Mr. Seckers replied that there had been very little
modeling for the bill and it was the 86th legislative day.
Parts of the bill had been vetted and disposed of the
previous session. He did not know why the legislative
working group had not met. To fast track a bill for the
sake of fast tracking a bill was very concerning.
Representative Guttenberg understood that the company was
constantly looking at the environment in Alaska. He stated
it was possible to look at PowerPoint presentations all
day, but stressed the need to have a dialogue to bounce
something off of was a piece of legislation. He thought it
was the legislature's role to constantly be looking at the
changing structure.
Mr. Seckers did not take exception to the comments. He
added that HB 411 would be a major tax increase - doubling
and tripling taxes. He stated that a bill of that magnitude
without more consideration about what it would do to jobs
and other was not positive. He wondered how the legislature
understood what it would do to the state's economy without
a more thorough analysis. He thought the time line was too
fast and problematic.
7:42:13 PM
Representative Ortiz asked for Exxon's profits in 2017.
Mr. Seckers answered that he could not provide that
information. The company provided the information to DOR,
but it was proprietary.
Representative Ortiz asked if he could not find the
information anywhere.
Mr. Seckers answered that he believed it could probably be
extrapolated, but it was not public information.
Representative Ortiz stated the industry's responsibility
was to drive the company's best interest and to protect the
competitive business environment in the state. The
legislature's job was to come up with the best fiscal
solution. The legislature had not made progress in
establishing a fiscal plan, and the state was running out
of time.
Mr. Seckers answered that he could not address why the
legislature had been unable to come up with a broad-based
plan. He stated it was up to the legislature. He stated
that Alaskan citizens would all like to know why a fiscal
plan had not been developed.
7:47:33 PM
Representative Pruitt stated that Mr. Seckers had
highlighted something that was not really recognized -
there was an effective date that would occur in a few
months. He noted that the companies had already made their
budget plans for the year. He asked if a knee jerk reaction
- vis a vie the passage of the bill would mean the industry
would also have a knee jerk reaction regarding investment.
Mr. Seckers answered it would be necessary to put a new
system in place, and when the state had adopted mid-year
tax regimes it had been an audit nightmare in the past.
Representative Pruitt asked for his thoughts on the issue.
He asked how to respond to that.
Mr. Seckers responded that the company had always
maintained that Alaska had a lot of potential. He stressed
that ExxonMobil was always looking for potential
investments.
7:52:09 PM
Co-Chair Seaton indicated that the suggestion for July
would be a large plus to have the tax changes effective in
January 1 versus in July. He asked if he agreed with Mr.
Ruggiero's analysis that instead of the flat 25 percent
proposal - profits tax rate - then it was converted to a 35
percent with a sliding scale.
Mr. Secker responded that that even if the effective date
was changed to January 1 ExxonMobil would not support the
bill.
Representative Grenn queried the effect of the instability
of the credits.
Mr. Secker responded that Exon had never received cash
credits. However, from his perspective, it had left a
chilling effect on the industry members that it affected.
It sent a chilling reflection to industry and on the state.
It has caused some negative impact to the state on its view
of Alaska being competitive.
7:57:03 PM
DOUG CHAPADOS, PRESIDENT AND CEO, PETRO STAR INC. (via
teleconference), read from a prepared statement:
For those who may not be familiar with our company,
Petro Star is engaged in petroleum refining at its
Valdez and North Pole refineries. Additionally,
through terminals and distribution centers located in
Fairbanks, Anchorage, Valdez, Kodiak, and Unalaska,
Petro Star also provides fuel and services to a wide
range of Alaska consumers, including home and business
owners, fishing fleets, electrical utilities,
commercial airlines, and Alaska's military and coast
guard installations.
Being a wholly owned subsidiary of Arctic Slope
Regional Corporation, Petro Star is Alaska's only
locally owned refiner and, with the closure of the
Flint Hills Resources Refinery in 2014, the last
operator of refineries that draw crude oil directly
from the Trans-Alaska Pipeline System, or TAPS as it
is more commonly known.
Given its reliance on TAPS for crude oil supply, Petro
Star and our parent company ASRC are opposed to yet
another attempt to change Alaska's existing oil and
gas tax policies. It is especially troubling that
this latest effort comes despite two consecutive years
of increased North Slope production and TAPS
throughput, which strongly suggests that the existing
tax regime is working as intended.
After many years of steady decline, increased TAPS
throughput is something of a new concept for Petro
Star, but it is one we are happy to embrace. Just two
years ago, Petro Star was engaged in negotiations with
the Department of Natural Resources and Division of
Oil and Gas for the purchase of State Royalty in Kind
(RIK) crude oil. Entering these negotiations, Petro
Star was seeking to secure a long term supply of
30,000 bbls/day of RIK crude oil. However, it soon
became evident that DNR would be unable to meet Petro
Star's volume request. In fact, North Slope
production forecasts at the time predicted continued
steep, year-over-year declines, thus limiting DNR's
ability to supply RIK oil in the quantities Petro Star
needed.
Ultimately, Petro Star signed two RIK crude oil
contracts together, these cover a five-year period
and feature a sharp ramp down in sales volume,
starting at 23,500 bbls/day of supply in Year 1 and
steadily falling to just 10,500 bbls/day in Year 5.
This real world example helps to illustrate how far
Alaska has come in just two years' time in terms of
oil production and I believe that were we negotiating
contracts today, far more RIK oil would be made
available to Petro Star's needs.
ANS crude oil is Petro Star's lifeblood and the
potential for future declines in North Slope
production is not a scenario we care to contemplate.
However, legislation like HB411 has the very real
potential to reverse recent production gains and comes
at a time when the industry appears poised to ship
even more oil on TAPS in the coming years. This
renewed vitality is one of many reasons why ASRC
elected to reinvest capital in Petro Star's operations
most notably, Petro Star acquired a fuel terminal
within the Port of Anchorage last year and recently
completed expansion of its North Pole Refinery,
restoring both asphalt oil production to Interior
Alaska and a local source of low-cost fuel to Golden
Valley Electric Association's power generation
facilities.
Investments such as these are far less likely in the
event Petro Star cannot be assured of an adequate long
term supply of crude oil. HB411 creates additional
uncertainty and threatens potential TAPS throughput
growth and sustainability and for these reasons, both
Petro Star and ASRC oppose its passage.
8:01:51 PM
Representative Wilson appreciated all of the investment
that had been made. She remarked that Petro Star saved her
area from Flint Hills.
Mr. Chapados responded that company was the sole supplier
for Ellison AFB. The company hoped to be around to meet
that new demand.
Representative Wilson asked if he thought the company would
have invested had the bill been in place prior to the
laying of asphalt.
Mr. Chapados could not speak emphatically about what the
company would have done.
Representative Wilson remembered sitting in the committee
room while there was an attempt to keep Petro Star in
business.
Mr. Chapados thought it was representative of the
commitment of Petro Star.
Co-Chair Foster requested that Mr. Chapados send his
written testimony to the committee.
Representative Thompson asked if Petro Star was still owed
tax credits.
Mr. Chapados relayed that the company had only received a
small amount that was owed by the state.
8:05:56 PM
Representative Grenn asked if the company had been paid in
the prior year.
Mr. Chapados responded that only a small amount had been
paid.
Representative Grenn wondered whether the nonpayment of
credits had an impact on future investment.
Mr. Chapados replied that it made it difficult to attract
investors.
Representative Thompson thanked Petro Star for laying the
asphalt and making that investment. He commented that the
company was saving the state millions but.
8:08:45 PM
KATE BLAIR, ANDEAVOR (via teleconference), read from a
prepared statement:
For the record, my name is Kate Blair and I am the
Government and Public Affairs Manager for Andeavor,
formerly known as Tesoro Corporation.
Andeavor operates ten refineries across the western
United States, have an extensive logistics portfolio,
a record of solid performance, and a solid platform
for growth for years to come. Although we are a
growing company, Andeavor has a proud Alaska legacy,
with our first refinery located in Nikiski. We employ
approximately 270 family wage jobs in Nikiski,
Anchorage, and Fairbanks and have greater than 97
percent Alaska hire rates.
To understand why we are testifying tonight, it's
helpful to understand our operations in the state. In
addition to our refinery, Andeavor's Alaska assets
include marine assets that bring North Slope crude
from TAPS to our Nikiski refinery, and a 69-mile
common-carrier pipeline from Nikiski to the Ted
Stevens International Airport and to our two terminals
at the Port of Alaska, where refined products such as
jet fuel, ultra-low sulfur diesel, and gasoline, are
stored and transported to our terminals in Fairbanks
and throughout the state. We rely on consistent in-
state production to manufacture the jet fuel that
flies cargo jets out of the Ted Stevens International
Airport, heat homes in the Interior, and to fuel the
cars of Alaskans from Homer to Tok and everywhere in
between.
We refine every drop of oil that comes out of the Cook
Inlet basin, and we purchase North Slope crude
straight from TAPS. In fact, we purchase
approximately one-third of TAPS throughput, 160,000-
170,000 barrels of North Slope crude per day, shipping
it from Valdez for refining in Nikiski or to our
refineries along the west coast. In 2016, we signed a
royalty oil contract with the State that allows us to
purchase 20,000- 25,000 barrels per day of the State's
royalty share of oil, with a benefit to Alaska of $45-
56 million.
The increased investment and production since the
passage of the Cook Inlet Recovery Act and the More
Alaska Production Act (SB 21) have resulted in a
stable, local supply for most of our crude. Declining
production in either region would result in our Kenai
refinery importing more crude to meet the demands of
the market. Every barrel of oil that we buy in state
is a barrel that we don't need to import to supply the
state's needs. Importing a majority of our crude
supply could make local refining a less economical
option than shipping in refined products from other
areas of the West Coast.
As you assess another significant production tax
change, we ask that you consider how the modifications
will affect production, and in turn, in state
manufacturing. If your goal is to have gasoline and
jet fuel refined in-state, then your focus should be
in continuing to mitigate production decline. We urge
to maintain policies that support Alaska crude being
refined by Alaskans for use in Alaska. The current
policy supports long-term in-state refining. We are
proud to partner with the people of Alaska as the
providers of reliable transportation fuel, and hope to
continue to do so for years to come.
Thank you for the opportunity to speak this evening,
and I would be happy to answer any questions either
now or after the hearing.
Representative Wilson asked which part of the company would
be affected by HB 411.
Ms. Blair responded that it would be the refinery portion.
8:13:47 PM
DAMIEN BILBAO, BP, ANCHORAGE (via teleconference),
discussed the presentation, "BP Testimony - House Bill 411"
(copy on file).
8:18:05 PM
LEWIS WESTWICK, VICE PRESIDENT OF FINANCE, BP ALASKA (via
teleconference), looked at slide 2, "How would BN 411
impact BP Alaska?"
? HB 411 $200 million impact to BP Alaska
? Equivalent to 2 rigs at Prudhoe Bay and 1 new North
Slope pad
Mr. Westwick addressed slide 3, "BP Alaska profit 2017":
? BP Alaska Profit in 2017 $118 million
? Reported Profit (annual report) excludes one off
items and Pipeline/Shipping costs
? BP Alaska total payments in 2017 to State of $543
million
8:22:16 PM
Vice-Chair Gara noted that there was a mention that there
had been a 6 percent decline on the North Slope, but the
projections at the time was that there would be a leveling
out regardless of what there was a change to the tax law to
2 percent. He felt that, since then, almost every field
that came online was invested prior to the tax change.
Representative Grenn asked about slide 2 and the impact and
the cost of the new pad. The estimated cost was $120
million.
Mr. Westwick reported that typically a pad on the North
Slope cost $250 million depending on gravel requirements.
Representative Grenn asked about the number of jobs that
would be impacted.
Mr. Westwick responded that he did not have the figure, but
it would be thousands of jobs.
8:26:57 PM
Representative Wilson thanked the testifiers. She asked
about how SB 21 had affected investment in Alaska.
Mr. Westwick responded that in the prior year BP invested
$1.5 billion in Alaska. He noted that, looking forward, the
predictability of any production tax impacted the view on
the competitiveness of future investments.
Representative Wilson looked at page 2, and noted that they
would fit into the plan as long as the tax structure
remained the same.
Mr. Westwick replied that the graphic was meant to
represent the magnitude of the change in HB 411. He stated
that the impact of the bill to BP was estimated to be $200
million, which equated to the current spending in drilling
in Prudhoe Bay. He stressed that others had testified
regarding the instability and its impact on investment
decisions.
Mr. Bilbao furthered that SB 21, as a whole, was
fundamentally transformational to investment on the North
Slope across the value chain.
8:31:22 PM
Representative Wilson wondered whether there was a direct
impact on the decrease in TAPS.
Mr. Bilbao replied that there was a direct attribution to
TAPS and the exploration, which influenced confidence in
the industry.
Representative Wilson thanked him for all of BP's
investment in Alaska.
Representative Pruitt asked why Janet Wise shaved her head.
Mr. Bilbao explained that she shaved her head because of
flat production.
Representative Pruitt thought to get flat production in a
mature field, spending of additional capital was required.
He commented that additional capital had to be expended. He
asked for the amount of investment and whether the company
would have invested had HB 411 had passed.
Mr. Bilbao responded that investment was required, and
activity was important. He stated that BP moved forward
with new projects. He asserted that BP must reexamine
whether the activity levels were adequate, should HB 411 be
in place. He stated that BP could be efficient and use new
technology. He stressed that the state controlled the
policy.
8:35:21 PM
Representative Guttenberg pointed out that the nonresident
workforce was approximately 37.1 percent, and was expected
to increase the following year. He thanked BP for donating
to the completion of the engineering building at the
University of Alaska Fairbanks (UAF). He stressed that
there were many Alaska residents who were looking for
employment. He asserted that the nonresidents were losing
their jobs at a lower rate than the residents.
Mr. Bilbao replied that it was BP's preference to hire and
source locally when available. He stated that BP had
tremendous success hiring out of UAF.
Vice-Chair Gara recognized that the industry did not want
to contribute more than the current rate. He remarked that
he was confused, because the industry did not want HB 411
as part of the fiscal plan.
Co-Chair Foster requested that all testimony be supplied to
the committee. He also reported that Caelus would be
submitting testimony in written form.
Representative Wilson asked if Cook Inlet was included in
the bill.
Co-Chair Seaton responded that there was a $1 per barrel
tax.
Representative Wilson asked if something would be supplied
in writing from the other 2 consultants.
Co-Chair Seaton responded that the other two sets were not
utilized.
8:40:58 PM
Representative Wilson asked if the legislature had a
retainer on the other two consultants.
Co-Chair Seaton responded that there was a contract which
was not being exercised monthly.
HB 411 was HEARD and HELD in committee for further
consideration.
8:41:28 PM
AT EASE
8:44:05 PM
RECONVENED
HOUSE BILL NO. 339
"An Act relating to the base student allocation; and
providing for an effective date."
8:44:42 PM
Co-Chair Foster asked if Vice-Chair Gara had any further
comments.
REPRESENTATIVE LES GARA, SPONSOR, did not have any further
comments.
Co-Chair Seaton reviewed the fiscal notes.
Co-Chair Seaton MOVED to REPORT HB 339 out of committee
with individual recommendations and the accompanying fiscal
notes.
There being NO OBJECTION, it was so ordered.
HB 339 was REPORTED out of committee with a "do pass"
recommendation and with three previously published fiscal
notes; one zero impact note: FN1 (EED); and two fiscal
impact notes: FN2 (EED) and FN3 (EED - Fund Cap).
Co-Chair Foster reviewed the schedule for the following
day.
ADJOURNMENT
8:48:18 PM
The meeting was adjourned at 8:48 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 411 H(FIN)_In3nergy_HB411 Presentation.pdf |
HFIN 4/11/2018 5:00:00 PM |
HB 411 |
| HB 411 BP Testimony 4.11.2018 HB 411_vFinal.pdf |
HFIN 4/11/2018 5:00:00 PM |
HB 411 |
| HB 411 ConocoPhillips .pdf |
HFIN 4/11/2018 5:00:00 PM |
HB 411 |
| HB 411 - AOGA Presentation to HFIN - 4.11.18.pdf |
HFIN 4/11/2018 5:00:00 PM |
HB 411 |
| HB411 BlueCrest Written testimony 04-11-2018.pdf |
HFIN 4/11/2018 5:00:00 PM |
HB 411 |