Legislature(2011 - 2012)Anch LIO Rm 220

03/21/2011 09:00 AM FINANCE


Download Mp3. <- Right click and save file as

Audio Topic
09:05:32 AM Start
09:05:46 AM HB110
11:48:36 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- HELD IN ANCHORAGE --
+= HB 110 PRODUCTION TAX ON OIL AND GAS TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                      March 21, 2011                                                                                            
                         9:05 a.m.                                                                                              
                                                                                                                                
                                                                                                                                
9:05:32 AM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Stoltze called the  House Finance Committee meeting                                                                    
to order at 9:05 a.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Bill Thomas Jr., Co-Chair                                                                                        
Representative Anna Fairclough, Vice-Chair                                                                                      
Representative Mia Costello                                                                                                     
Representative Mike Doogan                                                                                                      
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative David Guttenberg                                                                                                 
Representative Reggie Joule                                                                                                     
Representative Mark Neuman                                                                                                      
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Representative Charisse Millett;  Former Representative John                                                                    
Harris; Bryan Butcher,  Commissioner, Department of Revenue;                                                                    
Margaret Brown, President and  Chief Executive Officer, Cook                                                                    
Inlet  Region,  Inc.  (CIRI);   Ethan  Schutt,  Senior  Vice                                                                    
President, Land  and Energy, Cook Inlet  Region, Inc.; Aaron                                                                    
Schutt,  Senior  Vice  President, Chief  Operating  Officer,                                                                    
Doyon,  Limited;  Tara  Sweeny,  Senior  Vice  President  of                                                                    
External Affairs  and Communications, Arctic  Slope Regional                                                                    
Corporation (ASRC); Eric Fox,  Vice President of Operations,                                                                    
Camp Services  NANA Management  Services (NMS);  Joe Mathis,                                                                    
President,   NANA  Pacific;   Isaac  Nukapigak,   President,                                                                    
Kuukpik  Corporation; Joe  Nukapigak,  Former President  and                                                                    
Chairman  of the  Board, Kuukpik  Corporation; Tom  Leonard,                                                                    
Communications Manager, Calista Corporation.                                                                                    
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 110    PRODUCTION TAX ON OIL AND GAS                                                                                         
                                                                                                                                
          HB 110 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
[Note: This meeting took place in Anchorage.]                                                                                   
                                                                                                                                
HOUSE BILL NO. 110                                                                                                            
                                                                                                                                
     "An  Act relating  to the  interest rate  applicable to                                                                    
     certain amounts due for fees,  taxes, and payments made                                                                    
     and property  delivered to  the Department  of Revenue;                                                                    
     relating  to  the  oil and  gas  production  tax  rate;                                                                    
     relating to  monthly installment payments  of estimated                                                                    
     oil and  gas production  tax; relating  to oil  and gas                                                                    
     production  tax   credits  for   certain  expenditures,                                                                    
     including  qualified capital  credits for  exploration,                                                                    
     development,   and   production;    relating   to   the                                                                    
     limitation  on assessment  of  oil  and gas  production                                                                    
     taxes;  relating to  the determination  of oil  and gas                                                                    
     production  tax values;  making conforming  amendments;                                                                    
     and providing for an effective date."                                                                                      
                                                                                                                                
9:05:46 AM                                                                                                                    
                                                                                                                                
MARGARET BROWN, PRESIDENT AND  CHIEF EXECUTIVE OFFICER, COOK                                                                    
INLET   REGION,   INC.   (CIRI),  discussed   her   personal                                                                    
background and  that she had  been the  head of the  oil and                                                                    
gas  division of  CIRI for  35  years prior  to her  current                                                                    
position  as   president.  She   discussed  that   CIRI  was                                                                    
headquartered in Anchorage and  that its regional boundaries                                                                    
represented  the traditional  territorial boundaries  of the                                                                    
Dena'ina  Athabascan  Indians  in Alaska.  The  company  had                                                                    
operating investments  inside and  outside of the  state and                                                                    
had  recently  developed  energy  projects  in  Southcentral                                                                    
Alaska such  as the  Fire Island  Wind farm  and Underground                                                                    
Coal  Gasification. The  company had  also been  involved in                                                                    
the oil  and gas  business for many  years. The  company had                                                                    
acquired land  through Alaska  Native Claims  Settlement Act                                                                    
(ANCSA)   that   included   legacy  oil   fields   and   had                                                                    
participated in  exploration primarily in Cook  Inlet and in                                                                    
a well on  the North Slope. The company  was concerned about                                                                    
exploration in  Cook Inlet  and on the  North Slope  and was                                                                    
excited  that it  currently had  a well  underway on  CIRI's                                                                    
Kenai Peninsula property. She  emphasized CIRI's belief that                                                                    
North Slope  development and exploration efforts  had a very                                                                    
significant impact on the state's entire economy.                                                                               
                                                                                                                                
9:10:08 AM                                                                                                                    
                                                                                                                                
Ms.  Brown  discussed  CIRI's   ownership  interest  in  two                                                                    
companies  that conducted  a significant  amount of  work on                                                                    
the  North Slope,  including Peak  Oilfield Service  Company                                                                    
(Peak)  and Alaska  Interstate Construction  LLC (AIC).  The                                                                    
companies  were known  for their  work that  included moving                                                                    
oil rigs,  building ice roads, moving  heavy modular pieces,                                                                    
etc. The company  had reviewed its budget and  had been very                                                                    
concerned that  the estimated income  derived from  Peak and                                                                    
AIC reflected  the decline in  work on the North  Slope. The                                                                    
company had  seen the  effects in  the numbers  projected by                                                                    
Peak and  AIC in addition to  a reduction in work  force for                                                                    
the two companies.  Both Peak and AIC had  begun a workforce                                                                    
reduction  the   prior  year  given  the   decline  in  work                                                                    
projects. She  was alarmed by  the magnitude of  the decline                                                                    
and how  the economy as a  whole would be impacted.  She had                                                                    
seen  reports  which  had  indicated  that  Alaska  was  not                                                                    
business friendly  and did  not welcome  private investment.                                                                    
The  difficulty of  doing  business in  the  state had  "hit                                                                    
home"  in her  office. She  discussed a  recent dinner  with                                                                    
Governor   Parnell  and   business  leaders   that  included                                                                    
telecommunications leaders, Alaska  native corporations, oil                                                                    
companies,  and tourism  leaders. The  overall concern  that                                                                    
had been  expressed was that private  enterprise and private                                                                    
investment  in  the state  were  being  "squeezed out."  She                                                                    
explained that  CIRI had  seen a  lot of  resistance towards                                                                    
the  ability  to put  private  investment  dollars into  the                                                                    
region,  specifically  related  to   the  Fire  Island  Wind                                                                    
project. She  highlighted that she had  also been personally                                                                    
looking  for business  opportunities  outside  the State  of                                                                    
Alaska.  She  believed  that   private  capital  would  move                                                                    
towards the  highest likelihood of  investment return  and a                                                                    
balance between return versus risk.  She did not want to see                                                                    
private investment dollars slip  away in Alaska and believed                                                                    
it was necessary to examine  aspects of the business climate                                                                    
that were  resulting in  the decline.  She relayed  that her                                                                    
husband  was  a  geologist  who  had  worked  in  harsh  and                                                                    
challenging conditions in Prudhoe  Bay. She thought he would                                                                    
agree that some of the easy oil had already been found.                                                                         
                                                                                                                                
9:16:27 AM                                                                                                                    
                                                                                                                                
Ms.  Brown  opined   that  it  was  important   to  see  the                                                                    
appropriate return  for the risk  taken by investors  and to                                                                    
recognize  that the  oil that  remained on  the North  Slope                                                                    
would  be  difficult  to produce.  A  balanced  risk  versus                                                                    
return would  create a "robust" economy.  She discussed that                                                                    
the decline  in the throughput  on the North Slope  had been                                                                    
obscured by the  significant rise in oil prices  in the past                                                                    
several  years.  The  state  had  benefited  from  high  oil                                                                    
prices;  however, because  the throughput  decline had  been                                                                    
masked, there  was a  lack of  understanding about  the true                                                                    
vulnerability of  the pipeline. She believed  that there was                                                                    
a  need for  legislative reform  and that  HB 110  worked to                                                                    
address  concerns  of  the  oil  industry  and  the  general                                                                    
public. She  did not believe  the status quo was  an option.                                                                    
She disagreed  with the  approach that  focused on  how much                                                                    
the state  would be "giving  away" to the oil  companies and                                                                    
emphasized  that without  a competitive  environment on  the                                                                    
North Slope, there  would be no oil companies  to invest and                                                                    
develop in  the area. Business leaders  throughout the state                                                                    
were   concerned  and   there  were   several  grass   roots                                                                    
organizations  that were  researching where  the competitive                                                                    
nature could  be improved in  the state. She thought  it was                                                                    
indicative of  the broad concern  that people  shared across                                                                    
all business segments  about the lack of  competition on the                                                                    
North Slope. She did not  profess to know every nuance about                                                                    
HB 110,  but believed the bill  was on the right  track. She                                                                    
noted  that Alaska  had a  royalty stream  that allowed  for                                                                    
benefits when  production and oil  prices were high  and she                                                                    
thought  that the  focus should  not be  on squeezing  every                                                                    
cent from oil companies in  the tax structure. She contended                                                                    
that Alaskans were looking for  a balance that would allow a                                                                    
long-term robust  business climate  to persist on  the North                                                                    
Slope that would spread to the rest of the state.                                                                               
                                                                                                                                
9:21:07 AM                                                                                                                    
                                                                                                                                
ETHAN SCHUTT,  SENIOR VICE PRESIDENT, LAND  AND ENERGY, COOK                                                                    
INLET REGION, INC.,  was responsible for leasing  of oil and                                                                    
gas production  on CIRI land  in Cook Inlet and  for general                                                                    
energy development.  He relayed that CIRI  had encountered a                                                                    
significant  amount of  resistance to  the Fire  Island Wind                                                                    
project, primarily  because CIRI was a  for-profit business.                                                                    
He had  heard several times  in the past year  behind closed                                                                    
doors that  there was  no place  in the  railbelt electrical                                                                    
market  for a  for-profit energy  company. He  believed that                                                                    
the idea  that there should  not be  a profit motive  was an                                                                    
unacceptable premise and had been  a significant obstacle to                                                                    
the  project  on  Fire Island.  The  company  was  currently                                                                    
looking  at several  wind farm  investments outside  Alaska,                                                                    
which essentially  diverted investment  money away  from the                                                                    
state.  He   expressed  that  when  local   businesses  felt                                                                    
unwelcome  they would  take their  business outside.  He had                                                                    
visited Calgary,  Alberta in the  spring and  had discovered                                                                    
that Calgary  had been rewarded  for an abundance  of energy                                                                    
development   in   oil   fans,    oil   and   gas   leasing,                                                                    
unconventional oil and gas, CO2  tertiary recovery, etc. His                                                                    
visit to Calgary coincided with  two negative pieces of news                                                                    
for  Alaska. During  his  visit to  Calgary  there had  been                                                                    
Nigerian engineers  looking at  the Agrium plant  in Nikiski                                                                    
for  possible dismantling  of the  energy infrastructure  in                                                                    
Cook Inlet.                                                                                                                     
                                                                                                                                
9:25:24 AM                                                                                                                    
                                                                                                                                
Mr.  Ethan  Schutt  had also  heard  the  announcement  that                                                                    
ConocoPhillips  was closing  the  LNG  (Liquid Natural  Gas)                                                                    
export  terminal  in  Nikiski.  He believed  the  state  had                                                                    
overreached  its  power  to  tax  and  had  in  turn  driven                                                                    
business away. He did not think  that it was helpful to make                                                                    
"hysterical"  pronouncements in  the  press  about the  high                                                                    
profits that  oil companies were making  and the implication                                                                    
that profit motive was bad.  He relayed that exploration was                                                                    
both very  costly and very  risky and that the  state needed                                                                    
exploration investment dollars. He  added that the chance of                                                                    
oil and  gas exploration success  was less than  10 percent;                                                                    
therefore, companies  needed to  be rewarded  for successful                                                                    
investment. He vocalized that HB  110 was a good vehicle for                                                                    
change and that CIRI appreciated the governor's efforts.                                                                        
                                                                                                                                
Representative Doogan wondered whether  Mr. Ethan Schutt did                                                                    
not believe  that law  makers were  making enough  effort to                                                                    
incentivize  exploration. He  believed that  law makers  had                                                                    
been under  the impression  that they  were working  hard to                                                                    
incentivize  exploration. Mr.  Ethan  Schutt responded  that                                                                    
there were  exploration tax credit incentives  for companies                                                                    
who  did  not  have  a  significant  amount  of  production;                                                                    
however,   companies   who   had  "real"   production   paid                                                                    
significantly  higher  taxes.  He elaborated  that  the  tax                                                                    
credit  incentivized companies  that were  new to  the state                                                                    
and was not  in balance when there was  both exploration and                                                                    
production.  Additionally, there  was  a difference  between                                                                    
the power  to tax and  the current royalty  system. Resource                                                                    
owners had  a royalty interest  and it was important  to not                                                                    
"squeeze"  too much  out on  the tax  structure because  the                                                                    
power  to tax  was  a governmental  function. The  sentiment                                                                    
that the oil belonged to  Alaskans and that the state should                                                                    
get its fair share was  specific to the "royalty regime." He                                                                    
explained that  the tax regime  related to what was  fair in                                                                    
relation to the state as a government and its power to tax.                                                                     
                                                                                                                                
Representative Doogan expressed  interest in any information                                                                    
that would help law makers  know whether they were not doing                                                                    
something   right.  He   was  under   the  impression   that                                                                    
approximately half  of the $900  million spent in  the prior                                                                    
fiscal year had  gone to established oil  companies in order                                                                    
to incentivize exploration and development.                                                                                     
                                                                                                                                
9:30:08 AM                                                                                                                    
                                                                                                                                
Mr.  Ethan  Schutt  recommended further  thought  about  the                                                                    
belief that  incentivizing oil companies  to invest  more in                                                                    
the established fields, particularly  in Prudhoe Bay was not                                                                    
in the  state's interest.  He believed that  the legislature                                                                    
may  want  to  look  at  tweaks  to  incentivize  additional                                                                    
production  and  production  enhancement  investment  within                                                                    
established oil fields, because  the reserves on Prudhoe Bay                                                                    
that were  not attainable  with primary and  secondary types                                                                    
of recovery may  have been the state's largest  oil asset on                                                                    
state  land. The  best  place to  find more  oil  was in  an                                                                    
established oil field  and the reserves left  in Prudhoe Bay                                                                    
were significant;  however, the  tax incentive  structure in                                                                    
Alaska related  to true  exploration outside  of established                                                                    
units. He  relayed that  CIRI was not  present to  carry the                                                                    
water for  big oil  and that  it would  be necessary  to get                                                                    
answers from oil companies directly.                                                                                            
                                                                                                                                
Vice-chair  Fairclough  asked  about CIRI's  perspective  on                                                                    
actions related to  oil taxes that the  state could consider                                                                    
in  order to  help create  a business  friendly environment.                                                                    
Ms.  Brown  responded  that  CIRI   would  like  to  see  an                                                                    
established  fair tax  rate that  was  not overreaching  and                                                                    
that would allow  the free enterprise system  work. The idea                                                                    
that  the  profit  motive  of  private  enterprise  was  not                                                                    
appropriate was the most alarming  to CIRI. It was important                                                                    
to  have  an  appreciation  for  where  private  enterprise,                                                                    
including  native  corporations,  small companies,  and  oil                                                                    
companies,  fit in  Alaska  in order  to  move forward.  She                                                                    
explained   that  in   Cook  Inlet   investments  CIRI   had                                                                    
experienced permitting  delays and  had run into  the notion                                                                    
that private enterprise did not  belong in the production of                                                                    
power generation.  The state  was founded  by people  with a                                                                    
"can do" attitude and she worried  that Alaska had come to a                                                                    
place where  people no  longer had  that attitude  and could                                                                    
not  design  a future  to  move  towards. Additionally,  she                                                                    
thought  that  discussions  related  to  the  type  of  work                                                                    
commitments that  would be obtained  under lower  taxes were                                                                    
beyond  the scope  and did  not  represent healthy  dialogue                                                                    
regarding the tax  regime. She believed that  the demand for                                                                    
a particular work commitment would  happen in unit operating                                                                    
and lease agreements required by royalty owners.                                                                                
                                                                                                                                
9:35:58 AM                                                                                                                    
                                                                                                                                
Vice-chair  Fairclough wondered  how many  workers had  been                                                                    
impacted  and how  CIRI would  reposition those  workers who                                                                    
were no longer employed at Peak  and AIC as a result of what                                                                    
was characterized  as "dramatic" decline. Ms.  Brown did not                                                                    
know the  exact number  of workers  that had  been impacted,                                                                    
but the  decline had been  more dramatic than  expected. She                                                                    
explained that both companies  had made workforce reductions                                                                    
and that although  it was not always  possible, each company                                                                    
worked hard to  find work for employees  in other locations.                                                                    
The companies  did not  want to  lose trained  and qualified                                                                    
workers;  however, the  reality was  that without  available                                                                    
work it was not possible  to retain employees. The companies                                                                    
worked  hard to  maintain  the balance  between retaining  a                                                                    
trained workforce without running into the red.                                                                                 
                                                                                                                                
Representative   Wilson   asked   whether   it   was   state                                                                    
regulation, federal regulation,  or non-profit organizations                                                                    
that  did not  support private  business. Ms.  Brown replied                                                                    
that  CIRI  had  currently  only  had  dealings  with  state                                                                    
regulation  through  the  Department  of  Natural  Resources                                                                    
permitting  process and  were pleased  with the  agency. She                                                                    
believed  that  the  problem  for people  was  caused  by  a                                                                    
rattling of  the status quo. She  knew it was not  easy, but                                                                    
it was important to be  able to embrace change and recognize                                                                    
that there were  systems in the state that  were not serving                                                                    
the people of  Alaska the way that they should.  She did not                                                                    
think that Alaska's unique and  special status could be used                                                                    
as  an excuse  anymore. She  professed that  Alaska was  not                                                                    
that  unique  and  companies were  going  to  North  Dakota,                                                                    
Alberta, and overseas for oil exploration and development.                                                                      
                                                                                                                                
9:41:41 AM                                                                                                                    
                                                                                                                                
AARON  SCHUTT,   SENIOR  VICE  PRESIDENT,   CHIEF  OPERATING                                                                    
OFFICER, DOYON, LIMITED, discussed  that Doyon was the ANCSA                                                                    
regional corporation  for Interior  Alaska. The  company was                                                                    
headquartered in  Fairbanks and  13,697 shareholders  out of                                                                    
18,158 lived  in Alaska. He  expressed that  Doyon supported                                                                    
HB  110, but  preferred  to see  certain  portions, such  as                                                                    
"bracketing,"  implemented  during  the current  year.  Like                                                                    
CIRI, the company  believed it was time for  change. The two                                                                    
primary goals  set forth by  the board of directors  were to                                                                    
be as  profitable as  possible and  employment opportunities                                                                    
for  shareholders. Doyon  had three  primary pillars  of the                                                                    
business  that  produced  revenue and  jobs,  including  oil                                                                    
field   services,   government  contracting,   and   natural                                                                    
resource development.  There were four oil  field businesses                                                                    
that operated primarily on the  North Slope: Doyon Drilling,                                                                    
Inc.   had  approximately   300  year-round   employees  and                                                                    
operated  drilling rigs;  Doyon Universal  Services employed                                                                    
approximately  850   workers  and   was  a   food  services,                                                                    
security, maintenance, and  emergency medical company; Doyon                                                                    
Associated, LLC was a pipeline  and oil field infrastructure                                                                    
construction  company that  employed 150  seasonal employees                                                                    
and much fewer year-round;  Doyon Emerald was an engineering                                                                    
and  technical consulting  firm  that had  40 employees.  He                                                                    
emphasized that  approximately 90  percent of  the employees                                                                    
were Alaskans  working in  Alaska. Approximately  75 percent                                                                    
or $300  million of  the corporate  assets were  invested in                                                                    
the  combined  oil field  services  primarily  on the  North                                                                    
Slope.                                                                                                                          
                                                                                                                                
9:46:38 AM                                                                                                                    
                                                                                                                                
Mr. Aaron  Schutt discussed  Doyon's second  pillar, natural                                                                    
resource  development. Doyon  was  Alaska's largest  private                                                                    
landowner and  had 12.5  million acres  and roughly  half of                                                                    
the acreage  had been selected for  its resource development                                                                    
potential.  He  explained that  roughly  half  of the  lands                                                                    
selected for resource development  had been selected for oil                                                                    
and gas  potential. The company  had partnered in 2005  on a                                                                    
multi-year  commitment with  the State  of Alaska  in a  gas                                                                    
exploration project at  Nenana on lands owned  by the state,                                                                    
Alaska  Mental Health  Trust,  and Doyon.  A  well had  been                                                                    
drilled in 2009  without the hoped success,  but the company                                                                    
would run  another seismic  exploration during  the upcoming                                                                    
winter in  the Nenana  basin. Doyon  also owned  two million                                                                    
acres in the  Yukon Flats with 500,000 selected  for oil and                                                                    
gas potential.  In 2010  Doyon had  conducted a  100 percent                                                                    
ownership  seismic program  near Stevens  Village and  would                                                                    
continue ongoing  efforts in the  Yukon Flats. As  a service                                                                    
contractor and  investor in exploration activity,  Doyon was                                                                    
aligned with  the State of  Alaska regarding the  success of                                                                    
the  oil and  gas industry  in Alaska.  The bottom  line was                                                                    
that the  company believed  that it was  time to  adjust the                                                                    
oil  and  gas  tax  structure in  Alaska.  Doyon  had  1,500                                                                    
employees that relied on the  success in the oil fields. The                                                                    
company believed  that there were still  vast underdeveloped                                                                    
oil  and  gas  opportunities  in Alaska.  Like  CIRI,  Doyon                                                                    
believed  that the  best  production  opportunities were  in                                                                    
existing fields. There  had been a loss of  jobs and revenue                                                                    
in Doyon's business segments during  the past several years.                                                                    
The  company  believed that  the  current  oil and  gas  tax                                                                    
policy was a  part of the problem. He  reiterated that Doyon                                                                    
supported the bill but did want  to see portions of the bill                                                                    
implemented during the current year.                                                                                            
                                                                                                                                
Representative  Guttenberg wondered  whether  there was  any                                                                    
part  of  the  oil  and gas  tax  structure,  administrative                                                                    
codes, or  permitting that should be  changed to incentivize                                                                    
or motivate  exploration and development. He  expressed that                                                                    
many law makers  pointed to Doyon's success  in the Interior                                                                    
as a game changer for energy  in the state. Mr. Aaron Schutt                                                                    
replied  that  the  exploration incentives  that  the  state                                                                    
provided  were very  motivating for  exploration outside  of                                                                    
existing  fields. At  the beginning  of  the Nenana  project                                                                    
Doyon was a 20 percent  working interest owner. He explained                                                                    
that Doyon was  very committed to the project,  but that its                                                                    
partners  who at  one  time  owned up  to  50 percent  owner                                                                    
interest  were  not  Alaskan companies  and  looked  at  the                                                                    
lifecycle of  an oil  and gas  development project.  Some of                                                                    
the  companies were  purely exploration  and  the major  oil                                                                    
producers were  involved with the exploration  to production                                                                    
stages. It  was important  to look  at each  opportunity and                                                                    
the players  at the  table. A detriment  to the  company was                                                                    
its  inability  to attract  major  producers  that would  be                                                                    
present  for  the  "long   haul"  from  exploration  through                                                                    
production. The  major producers that could  invest hundreds                                                                    
and  billions of  dollars in  Alaska had  not expressed  the                                                                    
interest that Doyon hoped.                                                                                                      
                                                                                                                                
9:53:19 AM                                                                                                                    
                                                                                                                                
Representative Gara  asked whether the tax  structure in the                                                                    
Yukon Flats was much lower  than the ACES tax structure. Mr.                                                                    
Aaron  Schutt did  not know.  He explained  that due  to the                                                                    
ANCSA 7(i) structure, the company  strategy was to jumpstart                                                                    
exploration activity.  He added  that Doyon  would not  be a                                                                    
significant  working interest  owner in  any development  in                                                                    
the Yukon Flats.                                                                                                                
                                                                                                                                
Representative  Gara wondered  whether the  difficulty Doyon                                                                    
had  experienced  in  attracting producers  to  the  project                                                                    
could  have  been  due  to  a  reason  other  than  the  tax                                                                    
structure given  the possibility that  tax was lower  in the                                                                    
Yukon  Flats.  Mr. Aaron  Schutt  replied  that it  was  not                                                                    
entirely clear why the company  had not been able to attract                                                                    
major players to  the Yukon Basin. He expounded  that at the                                                                    
forefront  of a  rank  exploration project  there was  major                                                                    
risk  and that  more  than 90  percent  of rank  exploration                                                                    
ended  in  dry wells  or  less  than successful  wells.  The                                                                    
exploration   credits  helped   and  were   driving  Doyon's                                                                    
activity in the Yukon Flats  and Nenana. He relayed that the                                                                    
lifecycle of  business opportunity included an  analysis and                                                                    
predictability of the tax structure.                                                                                            
                                                                                                                                
Vice-chair  Fairclough referenced  that  from some  people's                                                                    
perspective "everyone in the world  could make large profits                                                                    
except  oil."  She asked  about  the  difference between  an                                                                    
exploration and  a development  company. She  explained that                                                                    
exploration seemed to have credits  that were doing what the                                                                    
tax  structure  had  intended  to  do  and  were  attracting                                                                    
smaller explorers  who were  interested in  locating smaller                                                                    
pools  of  oil or  another  Prudhoe  Bay. Mr.  Aaron  Schutt                                                                    
responded  that  he was  not  an  oil  and gas  expert,  but                                                                    
provided his perspective. He  explained that major producers                                                                    
had  the  ability to  conduct  exploration  and to  see  the                                                                    
project through  to production; however,  because production                                                                    
on large  or remote fields were  billion dollar investments,                                                                    
smaller  companies  with  smaller balance  sheets,  such  as                                                                    
Armstrong  Gas  Company LLC,  needed  to  "sell down"  their                                                                    
working  interests to  major producers  after finishing  the                                                                    
exploration period.                                                                                                             
                                                                                                                                
Vice-chair Fairclough  explained that a conversation  on the                                                                    
House  floor had  lead Alaskans  to believe  that everything                                                                    
was  fine  because  there were  incentives  for  exploration                                                                    
companies who  were aware of  the tax base  and consequently                                                                    
there was no need to  address the severance tax; however, it                                                                    
was important  to understand that the  equation had multiple                                                                    
parts  and involved  both  exploration  and production.  Mr.                                                                    
Aaron  Schutt  agreed.  Explorers were  important,  but  the                                                                    
primary goal  was production. He elaborated  that when there                                                                    
was  a transition  from the  explorer to  the producer  that                                                                    
often there were delays related  to locating the appropriate                                                                    
partner,   the   transactional   process,  and   the   short                                                                    
exploration season.                                                                                                             
                                                                                                                                
9:59:08 AM                                                                                                                    
                                                                                                                                
Representative Edgmon wondered what  advice Mr. Aaron Schutt                                                                    
had to  help find a  balance between increasing  business to                                                                    
address  the   "precipitous"  production  decline   and  the                                                                    
possible impact of a budget  shortfall. As a legislator that                                                                    
represented rural  communities he recognized  the importance                                                                    
of increased business  but was weary of  the consequences of                                                                    
a potential  budget shortfall and  the impact it  would have                                                                    
on rural  Alaska. Mr.  Aaron Schutt  replied that  there had                                                                    
been  little discussion  about the  secondary impact  of oil                                                                    
tax  policy   on  contractors.   Doyon  was  aware   of  the                                                                    
investment  and activity  decline  as  commodity prices  had                                                                    
increased and  they had not  seen an increase  in contracts,                                                                    
opportunities, and  in secured  contractor rates.  It seemed                                                                    
that with  high commodity  prices that  there would  be more                                                                    
activity and  higher wages, but  Doyon had not been  able to                                                                    
command  higher  contract  rates.     The  contractor  rates                                                                    
directly  impacted   employee  wages  and  Doyon   had  been                                                                    
struggling to maintain their workforce level.                                                                                   
                                                                                                                                
Representative Doogan  wondered whether Doyon's work  on the                                                                    
250,000 acres  in the Yukon  Flats was primarily  related to                                                                    
oil or gas. Mr. Aaron Schutt  responded that it was aimed at                                                                    
oil exploration.                                                                                                                
                                                                                                                                
Representative   Doogan  asked   for  a   definition  of   a                                                                    
"contractor" as  it related to  the oil industry.  Mr. Aaron                                                                    
Schutt  responded   that  "service  provider"  was   a  more                                                                    
appropriate term.  He explained  that Doyon  contracted with                                                                    
major oil  producers to provide various  services, including                                                                    
drilling, security engineering,  food service, construction,                                                                    
etc.                                                                                                                            
                                                                                                                                
Representative Doogan  thought that major oil  companies had                                                                    
reduced  exploration prior  to  the  implementation of  ACES                                                                    
and; therefore,  a direct correlation  may not  have existed                                                                    
between the  changes that  were attributed  to ACES  and the                                                                    
decline.                                                                                                                        
                                                                                                                                
10:05:03 AM                                                                                                                   
                                                                                                                                
Representative Costello  asked what portion of  HB 110 Doyon                                                                    
wanted  to see  implemented  immediately.  Mr. Aaron  Schutt                                                                    
responded  that an  immediate change  from progressivity  to                                                                    
the bracketed tax provision would  be helpful. He noted that                                                                    
it  could   take  companies  years  to   implement  a  plan;                                                                    
therefore,   earlier   implementation  of   the   bracketing                                                                    
provision would  result in more activity  sooner rather than                                                                    
later.                                                                                                                          
                                                                                                                                
Representative  Neuman  wondered  how  changes  in  the  tax                                                                    
structure over  the past seven  to eight years  had impacted                                                                    
job security at  Doyon. He asked how changes  to the current                                                                    
system  would affect  employment opportunities  at Doyon  in                                                                    
the  future.  Mr.  Aaron  Schutt  replied  that  five  years                                                                    
earlier   commodity  prices   were   high   and  Doyon   had                                                                    
experienced   difficulty   finding   technically   qualified                                                                    
employees. The lower commodity prices  that followed made it                                                                    
hard to  keep contracts;  however, Doyon had  been fortunate                                                                    
and had  maintained a significant  number of  its contracts.                                                                    
He  detailed  that  industry competitors  had  not  been  as                                                                    
fortunate and the loss of  qualified workers had reduced the                                                                    
trained job pool in Alaska and was bad for all companies.                                                                       
                                                                                                                                
Representative  Neuman  asked  whether changes  in  the  tax                                                                    
structure were  needed in  order to revive  oil and  gas job                                                                    
opportunities  that  had  been strained.  Mr.  Aaron  Schutt                                                                    
believed that  investment decisions by major  producers were                                                                    
influenced by the  tax structure and as a  result there were                                                                    
fewer job opportunities in Alaska.                                                                                              
                                                                                                                                
10:09:06 AM                                                                                                                   
                                                                                                                                
Co-Chair Thomas asked how to  keep money and jobs in Alaska.                                                                    
He did  not want to provide  oil tax breaks just  to see the                                                                    
money  leave the  state for  other locations  such as  North                                                                    
Dakota  and Mississippi.  Mr. Aaron  Schutt replied  that it                                                                    
was  in the  purview  of the  legislature  to determine  the                                                                    
appropriate  balance  between incentivizing  investment  and                                                                    
the tax  level. Doyon believed  that it  was time to  make a                                                                    
change  given   that  its   principal  concern   was  higher                                                                    
activity.                                                                                                                       
                                                                                                                                
Co-Chair Thomas did not have  a problem providing tax relief                                                                    
to oil  companies; however, he  reiterated his  concern that                                                                    
easier  and cheaper  production in  other states  would take                                                                    
money  away   from  Alaska's   economy.  Mr.   Aaron  Schutt                                                                    
responded  that   the  highest  investment  return   was  in                                                                    
existing fields and  it was important to  discuss what could                                                                    
be done to increase production  in areas like Cook Inlet and                                                                    
Prudhoe Bay that had seen  little investment for many years.                                                                    
Investment decisions  on items such as  tertiary recovery in                                                                    
existing  fields were  related to  tax policy.  He expounded                                                                    
that  development of  infrastructure  in  places like  North                                                                    
Dakota was  more expensive and  riskier than  the production                                                                    
of oil on known fields.                                                                                                         
                                                                                                                                
10:12:43 AM                                                                                                                   
                                                                                                                                
TARA SWEENY,  SENIOR VICE PRESIDENT OF  EXTERNAL AFFAIRS AND                                                                    
COMMUNICATIONS,  ARCTIC SLOPE  REGIONAL CORPORATION  (ASRC),                                                                    
discussed that  ASRC had been established  pursuant to ANCSA                                                                    
in  1971. The  corporation was  headquartered in  Barrow and                                                                    
had subsidiary offices in Anchorage  and across the U.S. She                                                                    
relayed that  ASRC was owned by  11,000 Inupiaq shareholders                                                                    
who  lived in  various villages  in Alaska.  The corporation                                                                    
was  the  largest locally  owned  and  operated business  in                                                                    
Alaska and had five diverse  lines of business that included                                                                    
construction,  resource  development,  government  services,                                                                    
energy support  services, petroleum refining  and marketing.                                                                    
The  corporation also  operated  a  BIDCO financial  lending                                                                    
service. She  explained that ASRC Energy  Services, Inc. was                                                                    
the largest Alaska  based oil and gas  services company, had                                                                    
over  3,000 employees  across the  state, and  had the  only                                                                    
Alaskan owned  refining and fuel marketing  operation in the                                                                    
state.  The corporation  worked with  Alaskan businesses  of                                                                    
all sizes  across all economic sectors,  had 4,000 employees                                                                    
working across  the state,  and approximately  6,000 working                                                                    
in the  Lower 48. She  communicated that ASRC  represented a                                                                    
broad  population  with  diverse political  views,  cultural                                                                    
experiences, and  personal beliefs,  who shared the  goal of                                                                    
job protection and growth in Alaska.                                                                                            
                                                                                                                                
Ms.  Sweeny  urged  the  legislature  to  reform  ACES.  She                                                                    
emphasized  that   the  state   needed  a   competitive  tax                                                                    
structure to  attract new investment  and production  on the                                                                    
North Slope and  to put an end to the  decline. She stressed                                                                    
that the state  could not expect to  attract new investments                                                                    
with the  ACES tax rate  that imposed double and  triple the                                                                    
rates  of Wyoming,  Texas, and  North Dakota.  She vocalized                                                                    
that  the oil  and gas  industry  was the  "bedrock" of  the                                                                    
Alaskan  economy. The  industry accounted  for approximately                                                                    
one-third of the  state's economy and generated  close to 90                                                                    
percent  of  its general  fund  revenue.  The industry  also                                                                    
helped to provide  jobs in other sectors  as well throughout                                                                    
the state.  She stressed that  oil had peaked at  nearly two                                                                    
million barrels per day in  the late 1980s and currently the                                                                    
number  had been  reduced to  approximately 600,000  barrels                                                                    
per day. She stated that at  the current rate of decline the                                                                    
pipeline could shut  down within a decade and  that the loss                                                                    
of jobs and damage to the economy could be irreversible.                                                                        
                                                                                                                                
10:17:54 AM                                                                                                                   
                                                                                                                                
Ms.  Sweeny  strongly believed  that  reform  of ACES  would                                                                    
increase investment  and job opportunities.  She accentuated                                                                    
that ACES  reform was not  about saving money  for producers                                                                    
but was for  employee job protection, job  growth for future                                                                    
generations,  and to  create a  sustainable  future for  the                                                                    
company. She delineated that ASRC  Energy Services had heard                                                                    
from large  and small, international and  national companies                                                                    
that  were  excited  about investing  in  Alaska,  but  were                                                                    
waiting  for ACES  to become  more  competitive. She  shared                                                                    
that without  ACES reform the  clients would  invest dollars                                                                    
elsewhere.  She relayed  that lost  work opportunities  were                                                                    
devastating  at ASRC  Energy Services  and that  the company                                                                    
continued to  lose out on  new work related  to engineering,                                                                    
construction, operations, and  maintenance. She acknowledged                                                                    
the complexity of  the issue and stressed  the importance of                                                                    
reform to attract new investment to the state.                                                                                  
                                                                                                                                
10:20:07 AM                                                                                                                   
                                                                                                                                
Representative  Hawker wondered  about the  market that  the                                                                    
Petro  Star  refineries  had  in  Interior  Alaska  and  who                                                                    
depended on them. He explained  that management of the Trans                                                                    
Alaska Pipeline  System (TAPS) had testified  the prior week                                                                    
that the shutdown  of TAPS and the refineries  (one of which                                                                    
was owned  by ARSC)  would be  a risk  to health,  life, and                                                                    
safety  particularly in  the  Interior.  Ms. Sweeny  replied                                                                    
that there  was a  large client base  that was  dependent on                                                                    
the products that  were sold and distributed  by Petro Star.                                                                    
The refinery was located in North  Pole and Petro Star had a                                                                    
significant presence  in rural Alaska including  the Bristol                                                                    
Bay and Koniag  regions. She was happy to  get the committee                                                                    
specific numbers.                                                                                                               
                                                                                                                                
Representative Hawker  requested a market report  that would                                                                    
provide  detail   of  the  statewide  dependence   on  TAPS.                                                                    
Additionally, he  wondered whether she could  provide detail                                                                    
on why a  tax change would bring a stronger  and more robust                                                                    
economy to  ASRC and  its shareholders.  He referred  to her                                                                    
earlier  testimony  that  the lost  opportunities  had  been                                                                    
devastating  for ASRC  subsidiaries. He  also discussed  Co-                                                                    
Chair Thomas' concern that the  state may provide tax breaks                                                                    
only  to have  the  money invested  outside  of Alaska.  Ms.                                                                    
Sweeny  answered  that  there had  been  conversations  with                                                                    
potential investors and without  ACES reform it would impact                                                                    
ASRC's  ability   to  do  more   business  in   Alaska.  The                                                                    
corporation  employed  Alaskans,   shareholders,  and  other                                                                    
Alaska Natives  and the  impacts felt  in rural  Alaska were                                                                    
real in  that jobs were  a very good economic  indicator and                                                                    
provided stability for the company's people.                                                                                    
                                                                                                                                
10:25:18 AM                                                                                                                   
                                                                                                                                
Representative  Hawker   understood  that  ASRC   needed  to                                                                    
protect  corporate business  plans,  but  surmised that  Ms.                                                                    
Sweeny  had corporate  experience  that led  her to  believe                                                                    
very strongly  that investment dollars would  come to Alaska                                                                    
in the  event that ACES  was reformed. Ms.  Sweeny responded                                                                    
in the affirmative.                                                                                                             
                                                                                                                                
Co-Chair  Thomas  explained  that his  concern  about  money                                                                    
leaving the  state was  directed at "big  money" and  not at                                                                    
regional corporations.  He was a regional  corporation board                                                                    
member and  he did not  want money that would  have filtered                                                                    
down to regional corporations to  be taken away from Alaska.                                                                    
He emphasized that  was not directing an  attack at regional                                                                    
corporations.                                                                                                                   
                                                                                                                                
Representative  Doogan  asked  Ms. Sweeny  for  more  detail                                                                    
about  what  she  meant  by "reforming  ACES"  and  how  she                                                                    
thought reform should take place.  Ms. Sweeny responded that                                                                    
ASRC was  supportive of HB 110  and of a climate  that would                                                                    
increase  certainty,  stability,  and jobs  in  Alaska.  The                                                                    
corporation  believed  that  the   current  system  was  not                                                                    
working and  that the specific  structure of the  reform was                                                                    
at the purview of the legislature.                                                                                              
                                                                                                                                
Representative Wilson  wondered whether Alyeska  was correct                                                                    
in its prediction that there  would only be two weeks' worth                                                                    
of  oil  for  the  Interior  in  the  event  of  a  pipeline                                                                    
shutdown.  Ms.  Sweeney  replied  that  she  would  get  the                                                                    
numbers.                                                                                                                        
                                                                                                                                
Representative   Wilson  asked   whether  ASRC   wanted  the                                                                    
effective  date of  the bracket  provision in  HB 110  to be                                                                    
changed to the current year.  Ms. Sweeney verified that ASRC                                                                    
was supportive  of immediate  implementation of  the bracket                                                                    
provision that  had been discussed by  Doyon Vice President,                                                                    
Mr. Aaron Schutt.                                                                                                               
                                                                                                                                
10:29:15 AM                                                                                                                   
                                                                                                                                
Representative  Gara  wondered  why   ASRC  thought  that  a                                                                    
reduction to the  tax rate would increase  oil activity when                                                                    
there had not been increased  activity when the tax rate had                                                                    
been zero on  most fields on the North Slope  until 2006. He                                                                    
discussed  that   there  were  two  different   items  being                                                                    
weighed,  one of  which was  an increase  to tax  credits to                                                                    
incentivize exploration.  He explained that the  state could                                                                    
increase the credits to 50  percent and that companies would                                                                    
not get the  money unless the exploration  wells were built.                                                                    
He was more  sympathetic to the tax credits  compared to the                                                                    
second item  that related  to a reduction  in the  tax rate,                                                                    
which had  not worked well in  the past.  He  expounded that                                                                    
despite an  oil price increase  from $20  a barrel to  $40 a                                                                    
barrel  in  2004,  two  years  later  there  had  been  less                                                                    
employment  and  less investment  on  the  North Slope  than                                                                    
there  was  currently.  He elaborated  that  the  production                                                                    
decline was approximately 40 percent  between 1998 and 2006.                                                                    
He  understood  that it  was  difficult  to speculate  which                                                                    
change  would  alter  the behavior  of  oil  companies.  Ms.                                                                    
Sweeney  replied that  from  a  service provider  standpoint                                                                    
that  the current  system  was not  working.  She could  not                                                                    
speak  directly  to the  decisions  that  were made  by  the                                                                    
industry, and  although ASRC employed thousands  of Alaskans                                                                    
and provided  good services to  the industry, it  was losing                                                                    
out due to the current tax structure.                                                                                           
                                                                                                                                
Representative  Hawker was  concerned  that prior  questions                                                                    
had presumed  that big  oil had  quit exploring  before ACES                                                                    
and  that  nothing had  occurred  during  the ELF  [Economic                                                                    
Limit  Factor]   tax  period.  He  asserted   that  previous                                                                    
testimony had  provided an  extensive list  of insignificant                                                                    
developments  that  had  taken  place  during  the  ELF  tax                                                                    
structure.  He  stated there  had  also  been a  significant                                                                    
number   of   businesses   that  had   failed   because   of                                                                    
unsuccessful efforts.                                                                                                           
                                                                                                                                
10:32:41 AM                                                                                                                   
AT EASE                                                                                                                         
                                                                                                                                
10:47:56 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
ERIC FOX, VICE PRESIDENT  OF OPERATIONS, CAMP SERVICES, NANA                                                                    
MANAGEMENT  SERVICES   (NMS),  discussed  that  NMS   was  a                                                                    
subsidiary  of   Nana  Development  Corporation   (NDC).  He                                                                    
explained  that  Nana  Regional  Corporation  was  owned  by                                                                    
12,500 Inupiat  who had originated  in Northwest  Alaska. He                                                                    
began working for  Nana 20 years earlier on  the North Slope                                                                    
and  he  was  proud  to   be  an  owner/shareholder  of  his                                                                    
employer.  He  relayed  that  NANA  supported  HB  110.  The                                                                    
corporation believed that  the bill would lead  Alaska to be                                                                    
in  a  more  competitive   global  position.  The  increased                                                                    
competitive  environment would  also  increase  oil and  gas                                                                    
exploration   and  development.   Increased   oil  and   gas                                                                    
exploration  would  allow  several of  NANA's  companies  to                                                                    
compete for  increased work. The  corporation would  then be                                                                    
able to  help the  Alaska economy  grow with  private sector                                                                    
jobs and could provide  opportunities and employment to NANA                                                                    
shareholders. He  discussed that unemployment was  a problem                                                                    
in most  of the 11  Northwest Alaska regions.  He emphasized                                                                    
the importance of  NANA's mission to improve  the quality of                                                                    
life  for  its  people  by maximizing  economic  growth  and                                                                    
protecting and enhancing its land.                                                                                              
                                                                                                                                
Mr. Fox shared  that NANA had a long history  of serving the                                                                    
oil patch  in Alaska  and had started  working on  the North                                                                    
Slope not  long after  the passage  of ANCSA.  Nana Oilfield                                                                    
Services, Inc.  had provided services  for the  industry for                                                                    
four decades  and NMS  had served the  industry for  over 30                                                                    
years. In  recent years NANA WorleyParsons  had designed and                                                                    
engineered new North Slope  facilities and NANA Construction                                                                    
had built modules  for use on the oil fields.  He provided a                                                                    
quote from NDC President,  Helvi Sandvik regarding the state                                                                    
of the oil industry:                                                                                                            
                                                                                                                                
     The   State  of   Alaska's   taxes   and  the   federal                                                                    
     government's regulation oversight  of Alaska's resource                                                                    
     development   industry  are   not  good   for  business                                                                    
     investment.  Many  of  our   companies  serve  the  oil                                                                    
     industry.  Until the  state changes  its tax  structure                                                                    
     the oil  industry will not  spend the kind of  money it                                                                    
     has…to  further   develop  Alaska's  oil   fields.  The                                                                    
     industry  will look  to other  places in  the world  to                                                                    
     spend its  money, so our  companies that serve  the oil                                                                    
     industry  will continue  to face  tough  times. If  the                                                                    
     companies we  serve are  discouraged from  investing in                                                                    
     Alaska that means less work  for our businesses and our                                                                    
     people.                                                                                                                    
                                                                                                                                
Mr. Fox  was honored that  he had been named  shareholder of                                                                    
the year at the NANA annual  meeting the prior week and took                                                                    
his  responsibility seriously.  He  stressed  that ACES  was                                                                    
having  a negative  impact  on the  interests  of NANA,  his                                                                    
region, and  his people. He  communicated that NMS  had seen                                                                    
the direct impact  of the lack of growth of  the oil and gas                                                                    
industry in the  state. The company had  2,400 employees and                                                                    
was among the  10 largest employers in Alaska.  Over half of                                                                    
its revenues  came from  providing services  to the  oil and                                                                    
gas   industry,  including,   food  service,   housekeeping,                                                                    
facilities  management,  maintenance,  remodeling  projects,                                                                    
wastewater  management, logistics  and  security, and  crime                                                                    
prevention  and investigation,  emergency medical  response,                                                                    
leak  detection,  transportation, environmental  and  safety                                                                    
training, and temporary staffing.  The company was committed                                                                    
to  providing  employment  and career  advancement  for  its                                                                    
shareholders.  Nearly  one  quarter  of  the  workforce  was                                                                    
Alaska  Natives  and 12  percent  to  14 percent  were  NANA                                                                    
shareholders.  The company  provided air  transportation for                                                                    
NANA shareholders to  travel to work on the  North Slope. He                                                                    
emphasized that any contraction  of the oil industry reduced                                                                    
jobs, earnings, and the ability  for rural Alaska Natives to                                                                    
work close  to home.  As oil  production declined  in Alaska                                                                    
the  oil producers  were  forced to  demand  cost cuts  from                                                                    
suppliers like NMS.  The company was faced  with cutting its                                                                    
costs, including the benefits  it provided to its employees.                                                                    
The lack  of investment  from the oil  and gas  industry was                                                                    
evident when  NMS Camp Services  recently lost a  $5 million                                                                    
contract that it had serviced  since 1989. He explained that                                                                    
the winning  bid had  cut employee  wages from  the existing                                                                    
contract by 20 percent and  that NMS Camp Services could not                                                                    
have   made  that   wage  reduction   in  good   conscience,                                                                    
especially in light of increased health insurance premiums.                                                                     
                                                                                                                                
10:54:39 AM                                                                                                                   
                                                                                                                                
Mr. Fox shared  that he had spent several days  on the North                                                                    
Slope  with  NMS  President Mary  Quin  the  past  November.                                                                    
Employees had  communicated their  fears and  distress about                                                                    
greater  health  care costs  and  lower  profit margins.  He                                                                    
explained  NANA  was not  the  only  company that  had  been                                                                    
impacted by the  decline and that the oil  industry had shed                                                                    
1,700 jobs over the past two years.                                                                                             
                                                                                                                                
JOE  MATHIS, PRESIDENT,  NANA PACIFIC,  discussed that  NANA                                                                    
Pacific  was  a  subsidiary  of  NDC. He  had  been  a  NANA                                                                    
employee for  close to  three decades and  was proud  of the                                                                    
work that the  company did for its shareholders  and for its                                                                    
contribution  to  the  Alaskan   economy.  He  relayed  that                                                                    
despite the vast oil resources  remaining on the North Slope                                                                    
that production continued  to decline at a  serious rate. He                                                                    
stressed   that   North   Dakota  could   surpass   Alaska's                                                                    
production in  three to four  years. Without new  oil coming                                                                    
on line,  production would be down  to approximately 250,000                                                                    
barrels  per   day  in  2020,  which   would  cause  serious                                                                    
operational  challenges   for  the  pipeline.   The  reduced                                                                    
exploration and work  on the North Slope made  it harder for                                                                    
NANA  to  help  its  region, shareholders,  and  Alaska.  He                                                                    
observed that Alaska  had once been the top  oil producer in                                                                    
the nation, but  it was currently number two  and would soon                                                                    
slip to  number four.  He contended that  investment dollars                                                                    
were bypassing Alaska for  North Dakota, Alberta, Australia,                                                                    
and  Russia.  He discussed  that  there  would be  only  one                                                                    
exploration well  drilled on the  North Slope in  the winter                                                                    
of 2011 compared  to approximately 170 active  drill rigs in                                                                    
North Dakota. The  prior week he had attended  RES 2011, the                                                                    
largest conference of tribes and  native peoples in the U.S.                                                                    
and had  met with  tribes that were  based in  North Dakota,                                                                    
Montana,  and Oklahoma.  He  wished he  could  have been  as                                                                    
excited about Alaska's  oil field future as  the tribes were                                                                    
about the growth prospects and  new oil field development in                                                                    
their states. He emphasized that  Alaska was not competitive                                                                    
compared to  other oil regions  and that the  total marginal                                                                    
government  take on  a barrel  of $100  oil was  82 percent,                                                                    
compared  to 55  percent in  Alberta and  43 percent  in the                                                                    
Gulf of Mexico.                                                                                                                 
                                                                                                                                
Mr.  Mathis stressed  that Alaska's  investment climate  was                                                                    
driving away  business and it  was necessary to  reverse the                                                                    
trend. He stated  that a new drill site  would include goods                                                                    
and  services, engineering,  permitting, building  roads and                                                                    
gravel  pads, materials  for local  vendors, modules,  power                                                                    
supply   from   source   to  drill   site,   backup   power,                                                                    
transportation,  operators, and  fulltime maintenance.  NANA                                                                    
had invested $20  million in the NANA  Construction Big Lake                                                                    
facility  where  modules  for  the  resource  industry  were                                                                    
built.   He   stated   that    an   increase   in   Alaska's                                                                    
competitiveness would  mean there  would be direct  work for                                                                    
NANA Construction to build modules.  There would be 20 to 70                                                                    
new jobs  for residents in  the Mat-Su Valley,  Eagle River,                                                                    
and Anchorage.  He discussed that  the NANA  subsidiary NANA                                                                    
WorleyParsons  was an  industrial  engineering company  that                                                                    
had  been  hurt by  the  downturn.  He explained  that  NANA                                                                    
WorleyParsons directly  benefited from  new projects  by oil                                                                    
and gas  companies because  of its  role in  the engineering                                                                    
and  design of  new  facilities. When  the  company had  new                                                                    
projects  it  hired  new employees  and  helped  the  entire                                                                    
economy  grow.  He reported  that  the  impact of  ACES  was                                                                    
currently hitting the state hard.                                                                                               
                                                                                                                                
11:00:17 AM                                                                                                                   
                                                                                                                                
Mr.  Mathis elaborated  that the  combination of  the recent                                                                    
recession  and   ACES  had  been  devastating   to  the  oil                                                                    
industry. He  discussed that  NANA WorleyParsons  had peaked                                                                    
in 2008 with  675 employees and $115 million  in revenue and                                                                    
was  currently operating  at about  half  that size.  Highly                                                                    
qualified employees  had left the state  for more attractive                                                                    
career opportunities  and were  creating a "brain  drain" in                                                                    
Alaska. He  explained that senior designers  were looking to                                                                    
learn about new software that  was used in offshore industry                                                                    
and  without change  in the  exploration  action they  would                                                                    
look to a future outside of  the state. He voiced that other                                                                    
oil producing  regions had recovered from  the recession and                                                                    
that  some areas  were currently  growing or  booming. There                                                                    
were new  projects occurring  in Texas,  Alberta, Australia,                                                                    
and  throughout  the Middle  East;  however,  Alaska was  no                                                                    
longer an  attractive place to  do business.  He accentuated                                                                    
that  investment  in new  projects  took  years and  without                                                                    
action the way of life  in Alaska would change dramatically.                                                                    
He highlighted  four reasons  why HB  110 would  create jobs                                                                    
and  increase  production.  First,   the  brackets  for  the                                                                    
progressive portion  of the production tax  would reduce one                                                                    
of  the  highest  marginal  tax  rates  in  the  world.  The                                                                    
brackets would be similar to  income tax brackets; therefore                                                                    
when the price  of a barrel increased,  only the incremental                                                                    
portion of  the barrel  would be taxed  at the  higher rate.                                                                    
Second, the bill promoted infield  drilling with tax credits                                                                    
that were increased to 40 percent  on the North Slope and to                                                                    
equal tax  credits in the  other parts of the  state. Third,                                                                    
the  bill calculated  taxes on  an annual  basis of  average                                                                    
prices   and   costs   as  opposed   to   volatile   monthly                                                                    
calculations. Fourth,  HB 110 allowed companies  to take tax                                                                    
credits  in one  year  instead of  spreading  them over  two                                                                    
years. He emphasized  that he had come to the  state to help                                                                    
build the Trans  Alaska Pipeline and did not want  to see it                                                                    
torn down.                                                                                                                      
                                                                                                                                
Co-Chair Stoltze  related personal experience  regarding his                                                                    
father's work  at NANA Purcell  Security. He  expressed that                                                                    
the current  discussion had been  less about the  details of                                                                    
HB 110  and more about the  story of the industry  in Alaska                                                                    
and the economy.                                                                                                                
                                                                                                                                
11:04:08 AM                                                                                                                   
                                                                                                                                
Representative  Gara wondered  whether there  were producers                                                                    
in  Alaska that  were leaving  the  state to  work in  North                                                                    
Dakota.  He observed  that the  committee had  received very                                                                    
little  information regarding  development in  North Dakota.                                                                    
He   understood  that   the  developers   in  North   Dakota                                                                    
represented a  different group that  did small  fields, used                                                                    
the  fracking  method,  and used  different  technology  and                                                                    
production  than was  used  in Alaska.  He  did not  believe                                                                    
there was  a major overlap  between the companies  that were                                                                    
conducting  business in  Alaska and  the companies  in North                                                                    
Dakota;  therefore, unless  there was  proof that  companies                                                                    
were  leaving the  state  for North  Dakota,  the idea  that                                                                    
companies in  Alaska were  fleeing to  North Dakota  did not                                                                    
hold water.  Mr. Mathis  did not  know which  producers were                                                                    
taking   business  to   North   Dakota.   He  thought   that                                                                    
ConocoPhillips may  have been  interested in  working there,                                                                    
but that  it would be necessary  to get the answer  from the                                                                    
producers.  There  were  service   companies  that  had  not                                                                    
necessarily been leaving but had  been sending operations to                                                                    
North  Dakota. In  an email  received that  day, the  Mandan                                                                    
Tribe in North Dakota had  asked Mr. Mathis whether he would                                                                    
be  interested  in providing  them  with  oil field  service                                                                    
work. He explained that North  Dakota was working to attract                                                                    
industry  and  that  he  would  hate  to  see  the  valuable                                                                    
expertise in Alaska leave the  state. He elaborated that the                                                                    
expertise would  be driven  by the amount  of work  that was                                                                    
available and that it would move wherever it was needed.                                                                        
                                                                                                                                
Representative  Gara asked  whether it  was understood  that                                                                    
the actual  tax rate paid  by an  oil company was  much less                                                                    
than the marginal  tax rate. He explained  that the marginal                                                                    
tax  rate  at $100  a  barrel  only  measured the  tax  rate                                                                    
between $99 a  barrel and $100 a barrel. Mr.  Mathis did not                                                                    
know.                                                                                                                           
                                                                                                                                
Representative Neuman wondered how  to show that there would                                                                    
be increased oil in the pipeline  as a result of a change to                                                                    
the  tax  system.  Mr.  Mathis  replied  that  it  was  very                                                                    
difficult  to   provide  a   guarantee  regarding   how  oil                                                                    
companies  would  spend  their  money. There  were  no  more                                                                    
guarantees  on how  companies would  spend their  money than                                                                    
there were  on how  and where  Alaska residents  would spend                                                                    
their  Permanent Fund  Dividend checks  or how  people would                                                                    
spend  an energy  check  that was  provided  to offset  high                                                                    
energy  costs.  He emphasized  that  there  would not  be  a                                                                    
different outcome in production without a change.                                                                               
                                                                                                                                
Vice-chair Fairclough  believed that committee  member input                                                                    
was  important;   however,  it  was  not   helpful  to  make                                                                    
accusations  that  were  based   on  personal  opinion.  She                                                                    
discussed that  Cruz Construction was a  service provider in                                                                    
Alaska  that had  experienced the  secondary effects  of the                                                                    
current  taxation  structure.  She understood  that  it  was                                                                    
subjective that the tax structure  was the cause and effect;                                                                    
however, from  the perspective of  Cruz Construction  it was                                                                    
the cause and  effect. The company was  repositioning all of                                                                    
its assets  in North Dakota  and the number of  employees in                                                                    
Alaska had  been reduced  from two hundred  down to  ten and                                                                    
the number could  potentially go down to three  or four. She                                                                    
emphasized that  the claim that  there had been  no evidence                                                                    
of  loss   of  jobs  on   the  North  Slope   represented  a                                                                    
perspective.  She   encouraged  committee  members   to  ask                                                                    
questions that could be answered  with fact. She thought the                                                                    
question regarding the  difference in development strategies                                                                    
in  North Dakota  from Alaska  was important.  She explained                                                                    
that development  in North Dakota  was occurring  on private                                                                    
property  and  that  the  same  government  regulations  and                                                                    
permitting processes were not required.                                                                                         
                                                                                                                                
Vice-chair  Fairclough  asked Mr.  Fox  how  to reframe  the                                                                    
conversation  with   Alaskans  related  to   the  difference                                                                    
between  explorers and  producers and  who would  be put  to                                                                    
work under each scenario.                                                                                                       
                                                                                                                                
11:11:49 AM                                                                                                                   
                                                                                                                                
Mr.  Fox  responded  that exploration  and  production  were                                                                    
outside of the  services that NMS provided.  The company was                                                                    
involved  in  the production  phase  with  services such  as                                                                    
security, camp services, facility  management, etc. The jobs                                                                    
that   NMS    provided   were   frequently    available   to                                                                    
shareholders. There  was a charter  flight to  Kotzebue that                                                                    
had  previously  operated once  a  week  because there  were                                                                    
enough  jobs on  the  North  Slope to  call  for a  frequent                                                                    
flight;  however, currently  the flight  operated every  two                                                                    
weeks given the decline  in jobs, particularly in Deadhorse.                                                                    
He  explained that  the shareholders  were experiencing  the                                                                    
decline first-hand and that the  company had pumped millions                                                                    
of  dollars  in  revenue  into  the  NANA  region  that  was                                                                    
whittling away. He emphasized  that rural Alaska desperately                                                                    
needed the income.                                                                                                              
                                                                                                                                
Vice-chair Fairclough wondered whether  the company had seen                                                                    
job loss  from service  organizations. Mr. Fox  responded in                                                                    
the affirmative. He explained  that exploration did not fall                                                                    
into  the  NMS realm  and  that  the  job  loss was  on  the                                                                    
technical end.                                                                                                                  
                                                                                                                                
Mr.  Mathis added  that  NANA WorleyParsons  had  seen a  50                                                                    
percent decline from 678 employees down to fewer than 300.                                                                      
                                                                                                                                
Representative   Doogan   referred  to   earlier   testimony                                                                    
regarding  1,700  lost  jobs  in  the  past  few  years  and                                                                    
wondered where  the loss had occurred.  Mr. Mathis responded                                                                    
that the job loss had occurred in the oil industry.                                                                             
                                                                                                                                
Representative Doogan  asked for clarification that  the job                                                                    
loss was within  the oil industry in  Alaska. The Department                                                                    
of Labor  and Workforce Development (DLWD)  data showed that                                                                    
oil  and gas  employment had  gone  from 12,900  in 2008  to                                                                    
13,000  in 2009  and was  projected at  12,700 in  2010. The                                                                    
department's numbers  did not  reconcile with  the statement                                                                    
that 1,700  jobs had been  lost. Mr. Mathis replied  that he                                                                    
would provide  the committee  with the  source of  the 1,700                                                                    
figure.                                                                                                                         
                                                                                                                                
11:15:47 AM                                                                                                                   
                                                                                                                                
Representative  Gara explained  that the  committee had  not                                                                    
heard  any  evidence that  producers  had  been leaving  the                                                                    
state for  North Dakota  and that he  would be  concerned to                                                                    
find  out  that  they  were. He  discussed  that  there  was                                                                    
evidence    that    completely   substantiated    Vice-chair                                                                    
Fairclough's point  that contractors  were looking  for work                                                                    
wherever they could get it,  whether it was in Alaska, North                                                                    
Dakota or both.  Mr. Mathis replied that he did  not mean to                                                                    
infer that  producers had  been closing  up and  leaving the                                                                    
state.                                                                                                                          
                                                                                                                                
Vice-chair  Fairclough  remarked  that the  major  producers                                                                    
were currently  repositioning their assets and  competing in                                                                    
a global  market. She  would continue  to pursue  her belief                                                                    
that because the  state was competing with  a global market,                                                                    
the  tax structure  was causing  Alaska to  lose out  on its                                                                    
larger investments.                                                                                                             
                                                                                                                                
Representative Guttenberg  had heard  concern that  the firm                                                                    
CH2M Hill  had been  consolidating work  on the  North Slope                                                                    
instead of outsourcing it. He  wondered whether NMS had lost                                                                    
work to another company. He  discussed that it was difficult                                                                    
to reconcile all of the  different factors including the job                                                                    
loss at  NMS and other  companies and the DWLD  numbers. Mr.                                                                    
Mathis replied that  job loss had been a  result of canceled                                                                    
projects and was not due  to competition. He could not speak                                                                    
for CH2M Hill.                                                                                                                  
                                                                                                                                
Representative  Guttenberg was  concerned that  there was  a                                                                    
conflict  between  different  perceptions and  some  of  the                                                                    
statistics provided by DWLD.                                                                                                    
                                                                                                                                
Representative Joule  hoped that the state  never lost sight                                                                    
of the importance that Alaska  Native corporations played in                                                                    
the overall state economy.                                                                                                      
                                                                                                                                
Co-Chair Stoltze  explained that  although the topic  was on                                                                    
oil tax, the discussion was  an opportunity to help Alaskans                                                                    
understand that the corporations  were important engines for                                                                    
the state economy.                                                                                                              
                                                                                                                                
11:20:40 AM                                                                                                                   
                                                                                                                                
ISAAC NUKAPIGAK,  PRESIDENT, KUUKPIK  CORPORATION, discussed                                                                    
that  the corporation  was under  ANCSA for  the village  of                                                                    
Nuiqsut  located in  the Colville  River delta.  Nuiqsut was                                                                    
eight  miles from  the Alpine  oilfield processing  facility                                                                    
and  four  miles from  Nanuq,  one  of the  Alpine  oilfield                                                                    
satellites. The Alpine oil field  was located on the western                                                                    
edge of existing oil and  gas development on the North Slope                                                                    
and  Nuiqsut  was  located  within  the  National  Petroleum                                                                    
Reserve  Alaska  (NPRA).  He   delineated  that  Alpine  was                                                                    
discovered  in  1992  by  ARCO  Alaska  (now  ConocoPhillips                                                                    
Alaska  Inc.) and  was  the first  oil  discovered on  ANCSA                                                                    
land. Many of the facilities  were expected to be located on                                                                    
land owned  by Kuukpik, the village  corporation of Nuiqsut.                                                                    
Kuukpik   had  negotiated   for   environmental  and   other                                                                    
protection  for subsistence  on behalf  of its  shareholders                                                                    
and the residents  of Nuiqsut. Kuukpik was able  to reach an                                                                    
agreement to ensure that Alpine  and future Alpine oil field                                                                    
satellites   would   be   developed  in   a   balanced   and                                                                    
environmentally  responsible  way.  The corporation  was  in                                                                    
favor   of    balance   and    environmentally   responsible                                                                    
development on the North Slope.  Kuukpik depended on oil and                                                                    
gas  resources  and  many shareholders  and  their  families                                                                    
worked  in   the  oil  industry.   He  explained   that  Joe                                                                    
Nukapigak, the former Kuukpik president  and chairman of the                                                                    
board, would testify  for Kuukpik and on the  impact of ACES                                                                    
on  jobs and  the  people  of Nuiqsut.  Kuukpik  was in  the                                                                    
business of providing services for  the oil and gas industry                                                                    
on  the  North Slope  and  other.  The corporation  had  two                                                                    
wholly owned subsidiaries that  provided oil field services,                                                                    
including drilling, construction of  ice roads, pads, roads,                                                                    
and pipeline.  Kuukpik also had a  business partnership that                                                                    
provided services that  included geophysical, transportation                                                                    
logistics, catering,  surveying, engineering, and  oil field                                                                    
security.                                                                                                                       
                                                                                                                                
11:25:19 AM                                                                                                                   
                                                                                                                                
Mr.  Nukapigak relayed  that through  its business  ventures                                                                    
Kuukpik  had  firsthand  experience  with the  oil  and  gas                                                                    
industry  on a  daily  basis, including  the  wealth of  the                                                                    
industry and  the changing level of  activity. He emphasized                                                                    
that the  oil industry needed  to move  west to the  NPRA in                                                                    
order  to  make  and  develop  significant  new  discoveries                                                                    
onshore  on the  North Slope.  One of  the biggest  problems                                                                    
that blocked development on the  NPRA was the failure of the                                                                    
Army Corps  of Engineers  to issue a  bridge permit  for the                                                                    
Nigliq  Channel on  the  Colville River  for  the "CD-5"  or                                                                    
"Alpine West"  project. He expounded that  the Environmental                                                                    
Protection  Agency   (EPA)  opposed  the  CD-5   bridge.  He                                                                    
explained  that  without  the  bridge  and  other  potential                                                                    
satellites,  oil  fields  that ConocoPhillips  had  proposed                                                                    
were unlikely to  be built in the  foreseeable future, which                                                                    
would delay  and prevent other  oilfields in the NPRA  to be                                                                    
developed. He  relayed the bridge  permits would do  no good                                                                    
without  the  interest of  the  oil  and gas  companies.  He                                                                    
stressed  that  the current  ACES  tax  regime was  a  major                                                                    
obstacle  to the  oilfield development  on  NPRA. He  stated                                                                    
that even if the permits  for the bridge and three potential                                                                    
oil field  satellites were obtained  that Kuukpik  oil field                                                                    
services companies  had seen reduced activity  levels across                                                                    
the  North  Slope. He  believed  that  the ACES  concept  of                                                                    
sharing  the upside  of higher  oil prices  made good  sense                                                                    
along with a substantial  reduction to the state's severance                                                                    
tax when the price of oil reached  $40 a barrel as it had in                                                                    
2008. The  concept of sharing  was positive for oil  and gas                                                                    
in the  state; however, the  profit share that the  ACES tax                                                                    
regime took during  high oil prices was too  high. He opined                                                                    
that  the development  of oil  and gas  fields needed  to be                                                                    
environmentally  balanced  and responsible.  Similarly,  the                                                                    
State of  Alaska needed  to balance  its desire  for revenue                                                                    
from  oil  and  gas  development in  the  non-renewable  oil                                                                    
resources with the  business need of the  oil companies that                                                                    
powered  much of  the state  economy. A  balance would  be a                                                                    
win-win  situation  for  the state  and  the  oil  industry.                                                                    
Without  ACES  reform and  a  more  balanced structure,  the                                                                    
state  and  the  oil  companies would  eventually  lose.  He                                                                    
expounded that the  oil companies would leave  the state for                                                                    
better opportunities in the competitive global market.                                                                          
                                                                                                                                
11:30:29 AM                                                                                                                   
                                                                                                                                
Mr. Nukapigak  emphasized that without the  oil industry the                                                                    
Inupiat  people and  their children  could not  move forward                                                                    
without  risking  their  culture and  lifestyle;  therefore,                                                                    
Kuukpik supported  HB 110 as  a promising step in  the right                                                                    
direction. He  opined that  ACES reform  was the  first step                                                                    
towards  promoting  an  increased   level  of  oil  and  gas                                                                    
exploration  and  development  in  NPRA  and  the  State  of                                                                    
Alaska.                                                                                                                         
                                                                                                                                
JOE NUKAPIGAK,  FORMER PRESIDENT  AND CHAIRMAN OF  THE BOARD                                                                    
KUUKPIK  CORPORATION,   discussed  that  he  had   been  the                                                                    
president  of  Kuukpik when  the  Alpine  oilfield had  been                                                                    
discovered. The Alpine facility  had been built partially on                                                                    
land that  was owned  by Kuukpik. He  had been  the chairman                                                                    
during  the discovery,  development, and  completion of  the                                                                    
first two Alpine  satellite fields, Nanuq and  Fiord. He had                                                                    
been involved  in resource development, particularly  in the                                                                    
oil and  gas industry  for over 20  years. He  was currently                                                                    
the  president   of  Nanuq,  Inc.,  a   wholly  owned  civil                                                                    
construction  subsidiary  of   Kuukpik.  He  discussed  that                                                                    
almost  all  of  the  residents   of  Nuiqsut  were  Kuukpik                                                                    
shareholders. Subsistence was the  foundation of the Inupiat                                                                    
culture,  but  they  were  also in  favor  of  balanced  and                                                                    
environmentally   responsible  development   of  the   North                                                                    
Slope's  oil and  gas resources.  Many  of the  shareholders                                                                    
worked  or had  worked for  the oil  companies and  the jobs                                                                    
helped  residents to  buy fuel,  ammunition, whaling  boats,                                                                    
snow  machines, and  equipment to  pursue their  subsistence                                                                    
lifestyle.  Profits   from  Kuukpik's  oil   field  services                                                                    
businesses  helped   the  company   pay  dividends   to  its                                                                    
shareholders. He discussed that the  majority of oil and gas                                                                    
exploration on  the North Slope  over the past 10  years had                                                                    
been  in NPRA.  He relayed  that permits  had delayed  three                                                                    
ConocoPhillips  satellite fields  called  Alpine West  (also                                                                    
called CD-5), Lookout, and  Rendezvous. The satellites would                                                                    
make  it  more economical  to  develop  fields farther  west                                                                    
through   the  use   of  existing   pipelines,  roads,   and                                                                    
potentially other facilities. He  explained that the Nuiqsut                                                                    
residents had seen  gas flares from a  number of exploration                                                                    
wells over the past 10  years as they traveled their hunting                                                                    
grounds in NPRA.                                                                                                                
                                                                                                                                
11:36:54 AM                                                                                                                   
                                                                                                                                
Mr.  Joe   Nukapigak  shared  that  Kuukpik   believed  that                                                                    
discoveries had been  made by several oil  companies, but no                                                                    
projects  had  been  built  in   NPRA.  There  had  been  no                                                                    
exploration in NPRA over the  past couple of winters because                                                                    
federal   agencies  did   not  allow   companies  to   build                                                                    
facilities.  He  accentuated  that  permits  for  CD-5  were                                                                    
critical, but a  reasonable and fair severance  tax was also                                                                    
extremely  important.  Kuukpik had  seen  a  decline in  oil                                                                    
field  activity and  in  jobs across  the  North Slope.  The                                                                    
problem was not  only a result of the  economic downturn and                                                                    
permitting delays, but was due  to the ACES tax structure as                                                                    
well. The  state deserved  a fair share  of oil  produced in                                                                    
Alaska;  however, the  current ACES  share was  too high  at                                                                    
higher oil  prices. The share  of the profit that  the state                                                                    
took  away  needed  to  be   reduced  to  encourage  onshore                                                                    
development  in  NPRA.  The   oil  companies  needed  to  be                                                                    
rewarded  for the  risk  they took  on  new development.  He                                                                    
emphasized  that it  was necessary  to have  a balance  that                                                                    
worked for the state, the oil companies, and for Nuiqsut.                                                                       
                                                                                                                                
Representative Gara  relayed that he and  others had written                                                                    
letters  to the  Army Corps  of  Engineers to  urge them  to                                                                    
allow the  bridge across the  Colville River to  go through.                                                                    
He wondered  whether Kuukpik would  feel comforted  and open                                                                    
to a system  that focused on increased credits  instead of a                                                                    
reduced profits tax,  provided that it was  possible to show                                                                    
that  the credits  would increase  development. He  believed                                                                    
that the portrayal that some  members of the legislature did                                                                    
not want to see expanded  oil development was inaccurate. He                                                                    
explained  that there  were  just  different approaches.  He                                                                    
relayed that  there had been  a discussion  about increasing                                                                    
the  exploration  credit to  40  percent  or 50  percent  to                                                                    
address  the  decline  in  exploration.  He  discussed  that                                                                    
ConocoPhillips  and  British  Petroleum (BP)  both  reported                                                                    
Alaska profits and  had made over $15 billion  over the past                                                                    
four years. He was concerned  that companies would spend the                                                                    
savings from a reduced tax  outside of Alaska; however, with                                                                    
exploration credits  the companies would only  receive money                                                                    
for working in the state.                                                                                                       
                                                                                                                                
Mr. Isaac  Nukapigak believed  that it  was likely  that the                                                                    
state and the industry could  reach a compromise. There were                                                                    
options  that Kuukpik  would need  to  explore. He  remarked                                                                    
that he could not speak for the industry.                                                                                       
                                                                                                                                
Representative  Joule remarked  that  Kuukpik  had been  the                                                                    
only village  corporation that the committee  had heard from                                                                    
that day. He discussed that  at one point local entities had                                                                    
not  been on  the same  page related  to the  Colville River                                                                    
bridge  but  the  federal  government   had  been  close  to                                                                    
providing  the permits;  however,  now  that local  entities                                                                    
were  united,  the  federal  government  was  deterring  the                                                                    
process. He hoped that the  project would be allowed so that                                                                    
NPRA and NPRA west development could occur.                                                                                     
                                                                                                                                
11:42:54 AM                                                                                                                   
                                                                                                                                
Mr.  Isaac  Nukapigak replied  that  Kuukpik  had worked  to                                                                    
unify  the community  and had  looked at  both economic  and                                                                    
social  areas. The  leadership of  the community  of Nuiqsut                                                                    
and Kuukpik  had passed a  joint resolution to  have Kuukpik                                                                    
take  the  lead on  oil  and  gas negotiation  for  Nuiqsut.                                                                    
Kuukpik worked to make certain  that oil and gas development                                                                    
continued  and   was  done   in  the   most  environmentally                                                                    
practical way.                                                                                                                  
                                                                                                                                
Mr. Joe  Nukapigak added  that when  Prudhoe had  first been                                                                    
discovered  many years  earlier  that the  residents of  the                                                                    
North Slope  had been skeptical.  He communicated  that over                                                                    
time the residents had learned  how the oil and gas industry                                                                    
worked and their skepticism had  changed to support. Kuukpik                                                                    
was the  first village  corporation that  had owned  part of                                                                    
Alpine.  He explained  that  Alpine  provided a  significant                                                                    
benefit to Nuiqsut and to other Alaska communities.                                                                             
                                                                                                                                
11:45:32 AM                                                                                                                   
                                                                                                                                
TOM  LEONARD, COMMUNICATIONS  MANAGER, CALISTA  CORPORATION,                                                                    
read  a   prepared  statement   from  Andrew   Guy,  Calista                                                                    
Corporation president and chief executive officer.                                                                              
                                                                                                                                
     Dear Committee members:                                                                                                    
     Calista  Corporation   supports  a   more  competitive                                                                     
     environment for  Alaska's oil and  gas exploration and                                                                     
     development.  We support  legislation  encouraging the                                                                     
     increase in oil production on the North Slope.                                                                             
                                                                                                                                
     Development of Alaska's  resources should be considered                                                                    
     a long  term investment of  long term projects.  A more                                                                    
     balanced long  term strategy  could benefit  Alaska and                                                                    
     the nation in  many ways, from the potential  of a more                                                                    
     consistent  oil and  gas supply,  to steady  employment                                                                    
     for hundreds of Alaskans.                                                                                                  
                                                                                                                                
     The current  tax structure,  "ACES," can  be improved.                                                                     
     CNBC's report  last summer placed Alaska  as the worst                                                                     
     state in which to  conduct business in the nation. The                                                                     
     survey  determined  Alaska  was  ranked last  for  the                                                                     
     fourth year in a row.                                                                                                      
                                                                                                                                
     Additionally, higher  well credits  can help encourage                                                                     
     new  and  existing  field  development.  Alaska has  a                                                                     
     strong history of exploration,  and the state laws and                                                                     
     regulations   need   to   better   support   continued                                                                     
     exploration  and business  development in  Alaska. The                                                                     
     jobs oil and gas provides for our Shareholders enables                                                                     
     them  to work  rotational schedules  and still  live a                                                                     
     subsistence lifestyle.                                                                                                     
                                                                                                                                
     Again, Calista supports utilizing  our states natural                                                                      
     resources  in  a  safe  and  responsible  way,  while                                                                      
     providing a  more balanced  business environment  for                                                                      
     the  oil and  gas industry.  Calista  thanks you  for                                                                      
     your time in this important matter.                                                                                        
                                                                                                                                
HB 110 was HEARD and HELD in committee for further                                                                              
consideration.                                                                                                                  
                                                                                                                                
ADJOURNMENT                                                                                                                   
11:48:36 AM                                                                                                                   
                                                                                                                                
The meeting was adjourned at 11:48 AM.                                                                                          

Document Name Date/Time Subjects