Legislature(2013 - 2014)HOUSE FINANCE 519

04/09/2013 01:30 PM FINANCE


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01:36:28 PM Start
01:39:02 PM SB21
03:20:22 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 21 OIL AND GAS PRODUCTION TAX TELECONFERENCED
Heard & Held
+= SB 18 BUDGET: CAPITAL TELECONFERENCED
Scheduled But Not Heard
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                       April 9, 2013                                                                                            
                         1:36 p.m.                                                                                              
                                                                                                                                
                                                                                                                                
1:36:28 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Vice-Chair  Neuman   called  the  House   Finance  Committee                                                                    
meeting to order at 1:36 p.m.                                                                                                   
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Alan Austerman, Co-Chair                                                                                         
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Mark Neuman, Vice-Chair                                                                                          
Representative Mia Costello                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative Lindsey Holmes                                                                                                   
Representative Scott Kawasaki, Alternate                                                                                        
Representative Cathy Munoz                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative David Guttenberg                                                                                                 
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Sara  Obed, Director,  Government Relations,  Doyon Limited;                                                                    
James  Mery,  Senior  Vice   President,  Lands  and  Natural                                                                    
Resources,  Doyon   Limited;  Michael   Pawlowski,  Advisor,                                                                    
Petroleum  Fiscal  Systems,  Department  of  Revenue;  Barry                                                                    
Pulliam, Managing  Director, Econ  One Research  Inc.; Bruce                                                                    
Tangeman, Deputy  Commissioner, Tax Division,  Department of                                                                    
Revenue.                                                                                                                        
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Tara Sweeney, Arctic  Slope Regional Corporation, Anchorage;                                                                    
Michelle Anderson, President,  Ahtna Inc., Glennallen; Helvi                                                                    
Sandvik,  President,   NANA  Development   Corporation;  Kim                                                                    
Reitmeier, President, ANCSA Regional Association.                                                                               
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
CSSB 18(FIN) am                                                                                                                 
          BUDGET: CAPITAL                                                                                                       
                                                                                                                                
          CSSB 18(FIN) am was SCHEDULED but not HEARD.                                                                          
                                                                                                                                
CSSB 21(FIN) am(efd fld)                                                                                                        
          OIL AND GAS PRODUCTION TAX                                                                                            
                                                                                                                                
          CSSB 21(FIN) am(efd fld) was HEARD and HELD in                                                                        
          committee for further consideration.                                                                                  
                                                                                                                                
CS FOR SENATE BILL NO. 21(FIN) am(efd fld)                                                                                    
                                                                                                                                
     "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;                                                                    
     providing a  tax credit against the  corporation income                                                                    
     tax  for   qualified  oil  and  gas   service  industry                                                                    
     expenditures; relating  to the  oil and  gas production                                                                    
     tax rate; relating  to gas used in  the state; relating                                                                    
     to  monthly installment  payments  of the  oil and  gas                                                                    
     production tax; relating to oil  and gas production tax                                                                    
     credits for  certain losses and  expenditures; relating                                                                    
     to  oil and  gas  production  tax credit  certificates;                                                                    
     relating  to  nontransferable   tax  credits  based  on                                                                    
     production;  relating to  the  oil and  gas tax  credit                                                                    
     fund; relating  to annual  statements by  producers and                                                                    
     explorers;    establishing    the     Oil    and    Gas                                                                    
     Competitiveness  Review  Board; and  making  conforming                                                                    
     amendments."                                                                                                               
                                                                                                                                
1:39:02 PM                                                                                                                    
                                                                                                                                
TARA SWEENEY,  ARCTIC SLOPE REGIONAL  CORPORATION, ANCHORAGE                                                                    
(via  teleconference), spoke  to the  legislation. She  read                                                                    
from a document (copy on  file) titled, "Testimony of Arctic                                                                    
Slope  Regional Corporation  by  Tara  Sweeney, Senior  Vice                                                                    
President of External Affairs on CSSB 21 HRES Version K."                                                                       
                                                                                                                                
     ASRC  is Alaska's  largest Alaskan-owned  company, with                                                                    
     approximately  10,000  employees nationwide,  of  which                                                                    
     nearly half  are Alaskan jobs.   ASRC represents 11,000                                                                    
     Iñupiat shareholders  of the  North Slope, and  we have                                                                    
     been   successful  in   striking   a  balance   between                                                                    
     representing   the   business    interests   with   the                                                                    
     subsistence needs  of our shareholders.   We  have five                                                                    
     major business  lines:  1) energy  support services, 2)                                                                    
     petroleum   refining  and   marketing,  3)   government                                                                    
     services,    4)   construction,    and   5)    resource                                                                    
     development.                                                                                                               
                                                                                                                                
     The  work  performed  by  ASRC's  family  of  companies                                                                    
     within  the oil  and gas  industry on  the North  Slope                                                                    
     returns  tangible  benefits  to  our  shareholders  and                                                                    
     thousands of Alaskans.   We are a  $2.6 billion company                                                                    
     and our  enterprise is heavily invested  in this state.                                                                    
     I appreciate  the opportunity to introduce  to you some                                                                    
     of the members of our family of companies.                                                                                 
                                                                                                                                
     ASRC  Energy Services  performs an  array of  oil field                                                                    
     engineering,  operations,   maintenance,  construction,                                                                    
     fabrication, regulatory, permitting  and other services                                                                    
     to some of  the world's largest integrated  oil and gas                                                                    
     companies.   With  more  than  3,000 Alaska  employees,                                                                    
     Energy Services  provides more jobs in  Alaska than any                                                                    
     other  locally-owned employer  and has  emerged as  the                                                                    
     state's  largest  oil  field services  company.    ASRC                                                                    
     Energy  Services  also  has a  presence  in  Louisiana,                                                                    
     California,  Utah, Hawaii,  Indiana, Washington,  and a                                                                    
     growing presence in North Dakota.                                                                                          
     Another  member of  our family  of  companies is  Petro                                                                    
     Star.  Petro Star  is the  only Alaskan-owned  refining                                                                    
     and   fuel  marketing   company.    Petro  Star's   two                                                                    
     refineries  located  in  North Pole  and  Valdez,  draw                                                                    
     crude  supply from  the  Trans  Alaska Pipeline  System                                                                    
     (TAPS) to produce highway,  off-road and marine diesel,                                                                    
     as well  as jet fuel  and home heating oil.   The North                                                                    
     Pole  refinery supplies  the mining  industry, military                                                                    
     operations at  Eielson Air Force Base,  and it provides                                                                    
     heating   oil   to  communities   throughout   Interior                                                                    
     Alaska.   The Valdez  refinery produces  and transports                                                                    
     marine fuels to coastal  communities reaching as far as                                                                    
     St.  Paul Island.   The  Valdez refinery  also produces                                                                    
     ultra-low sulfur  diesel, and  it supplies jet  fuel to                                                                    
     commercial  cargo  carriers  refueling at  Ted  Stevens                                                                    
     Anchorage  International Airport  and  to the  military                                                                    
     operating at Joint  Base Elmendorf-Richardson.  Through                                                                    
     its  operations in  Dutch Harbor,  Petro Star  supplies                                                                    
     fuel to  the largest  commercial fishery in  the United                                                                    
     States.  In  addition to its refining  and distribution                                                                    
     assets,  Petro  Star  also operates  fueling  stations,                                                                    
     convenience stores and heating oil distributorships.                                                                       
     We are a  service provider and refiner.  We  are also a                                                                    
     resource owner, developer and explorer in this state.                                                                      
                                                                                                                                
     Some of our ownership  interests are subject to Section                                                                    
     7(i)  of  the  Alaska   Native  Claims  Settlement  Act                                                                    
     (ANCSA),  and  our  ability  to  explore,  develop  and                                                                    
     produce  on those  lands benefit  every region  in this                                                                    
     state.    The  absence  of  a  stable  tax  regime  and                                                                    
     positive investment climate for  the oil industry has a                                                                    
     material impact on how we  develop or not develop those                                                                    
     lands.                                                                                                                     
                                                                                                                                
     As a result  of our land entitlement  under ANCSA, ASRC                                                                    
     owns nearly five million acres  on the North Slope.  In                                                                    
     most cases,  ASRC's subsurface holdings  were primarily                                                                    
     selected for their natural resource potential.                                                                             
                                                                                                                                
     We have a significant  royalty position in the Colville                                                                    
     River Unit (CRU), home of  the Alpine oil field, one of                                                                    
     the largest  oil producing fields  on the  North Slope.                                                                    
     While  the Alpine  field production  peaked four  years                                                                    
     ago, the  CRU satellite  developments have  helped slow                                                                    
     the  rate   of  decline.  These   satellites  currently                                                                    
     account for nearly 35 percent  of the oil production in                                                                    
     the  CRU  and are  processed  through  the main  Alpine                                                                    
     facility.    Additional  development   in  the  CRU  is                                                                    
     challenged  by  a  complex  and  unfriendly  permitting                                                                    
     regime that impedes timely development.                                                                                    
                                                                                                                                
     ASRC  has   also  invested   in  the   exploration  and                                                                    
     development of  State-owned lands  on the  North Slope.                                                                    
     With  investment in  the Badami  and Placer  Units, our                                                                    
     exploration  company  experiences   the  same  tensions                                                                    
     regarding the  State tax regime similar  to other small                                                                    
     producers and independent explorers.                                                                                       
                                                                                                                                
     As  part of  our investment  in the  Badami Unit,  ASRC                                                                    
     Exploration, LLC  (AEX) owns a 32.5%  working interest.                                                                    
     AEX and operator Savant Alaska  continue to work toward                                                                    
     increased production.   However,  due to the  high cost                                                                    
     environment   and  current   low   throughput,  it   is                                                                    
     extremely  important  that  the Small  Producer  Credit                                                                    
     stay  intact and  be extended  in  order for  continued                                                                    
     investment in the Badami Unit.                                                                                             
                                                                                                                                
     The tax reform  discussion highlights good perspectives                                                                    
     and has spurred meaningful debate.   We ask that as you                                                                    
     go forward you remain  mindful of the Alaskan companies                                                                    
     involved  in the  industry.   There has  been a  lot of                                                                    
     focus on  the multi-national and  independent explorers                                                                    
     and small producers, so sometimes  the local voice gets                                                                    
     muffled in the process.                                                                                                    
                                                                                                                                
     As  an  employer,  service  provider,  resource  owner,                                                                    
     explorer, producer  and developer, ASRC is  in a unique                                                                    
     position to  provide comments.   I submit  our comments                                                                    
     from  the  perspective  of  a  local  company  with  an                                                                    
     enterprise  involved   in  the   value  chain   of  oil                                                                    
     development  in this  state,  from exploration  through                                                                    
     refining product and all services in-between.                                                                              
                                                                                                                                
     This committee  substitute is  an improvement  over the                                                                    
     current ACES  and also the  Senate version.   There are                                                                    
     several  provisions we  support  and  areas that  still                                                                    
     need improvement.                                                                                                          
                                                                                                                                
   · We support the repeal of progressivity.                                                                                    
                                                                                                                                
   · We support the base rate change from 35% to 33%.                                                                           
                                                                                                                                
   · The community sharing provision is a good start, and                                                                       
     we encourage  the Legislature  to continue  to consider                                                                    
     linking  it to  a  percentage of  the  tax, versus  the                                                                    
     current language  of a  legislative appropriation.   We                                                                    
     feel  this  is a  more  objective  approach to  sharing                                                                    
     revenues with Alaskan communities.                                                                                         
                                                                                                                                
   · We support the 35% Loss Carry Forward (LCF) Credits,                                                                       
     as  currently written.   They  enable explorers,  small                                                                    
     producers,  majors  and   organizations  like  ASRC  to                                                                    
     receive carry-forward loss  credit, through a transfer,                                                                    
     refund  or   tax  deduction.     This   flexibility  is                                                                    
     attractive to us.                                                                                                          
                                                                                                                                
   · We support the Gross Value Reduction (GVR) formula                                                                         
     contained   in  the   bill.      It  makes   investment                                                                    
     opportunities even  in marginal fields  more attractive                                                                    
     for companies like ASRC.   It encourages development of                                                                    
     new  production  for  all producers,  as  well  as  new                                                                    
     entrants.                                                                                                                  
                                                                                                                                
   · We support linking the $5 per barrel tax credit to the                                                                     
     production subject  to the GVR  for the  reasons listed                                                                    
     above; this creates a more  level playing field for all                                                                    
     players.                                                                                                                   
                                                                                                                                
   · We support the 10% service credit because it                                                                               
     stimulates  the economy  within  the service  industry.                                                                    
     Our   subsidiary,   ASRC   Energy   Services,   employs                                                                    
     thousands of  Alaskans, and this  credit could  help us                                                                    
     revamp  our fabrication  and  construction services  in                                                                    
     the state.                                                                                                                 
                                                                                                                                
   · We support the AIDEA bonding capability - this will                                                                        
     give new entrants another  avenue to finance facilities                                                                    
     that  have  the  capability  to  bring  new  production                                                                    
     online.                                                                                                                    
                                                                                                                                
   · The sliding scale provision for non-GVR production                                                                         
     provides  for  tax benefits  to  producers  at low  oil                                                                    
     prices and  increases the State's 'take'  at higher oil                                                                    
     prices.    This,  again, provides  the  right  type  of                                                                    
     incentives  in a  changing price  environment, and  the                                                                    
     State benefits on the upside swing of prices.                                                                              
                                                                                                                                
   · Refining the definition of Lease Expenditures on what                                                                      
     counts for  tax filings  provides necessary  clarity to                                                                    
     both   the   explorers,   producers  and   the   Alaska                                                                    
     Department of Revenue.                                                                                                     
                                                                                                                                
   · Finally, I want to impress upon the committee the                                                                          
     importance of the  small producer credit to  ASRC.  The                                                                    
     extension of  this credit to  2022 goes a long  way for                                                                    
     the "little  guy".  Through  our subsidiary,  AEX, this                                                                    
     extension improves  our ability  and that of  the other                                                                    
     small   producers,  to   maintain   or  grow   existing                                                                    
     production.    This extension makes  it more attractive                                                                    
     for companies like  AEX to explore for  and develop oil                                                                    
     and  gas deposits  on leaseholds  outside of  our units                                                                    
     that could  add new  production to our  unit positions.                                                                    
     This is good.  Elimination  of this credit would impact                                                                    
     how we  choose to invest  our capital in  this company,                                                                    
     or if it  makes more sense to invest in  other parts of                                                                    
     our business.                                                                                                            
                                                                                                                              
     There  are two  areas of  concern for  us.   First, the                                                                    
     expiration of the  Qualified Capital Expenditures (QCE)                                                                    
     in 2014  is too soon.   We support a phase  out program                                                                    
     over a  slightly modified period,  like 2015.   This is                                                                    
     important because  investments planned with  the credit                                                                    
     as part  of project financing will  require replacement                                                                    
     of  this source  of investment  capital or  the project                                                                    
     will  be  shelved.   Phasing  this  out over  a  longer                                                                    
     period makes  more sense for the  current explorers and                                                                    
     potential developers.                                                                                                      
                                                                                                                                
     Finally, deletion  of the proposed modification  of the                                                                    
     Exploration  Tax Credit  (ETC) that  eliminated the  3-                                                                    
     mile buffer for drilling  and extended the deadline for                                                                    
     ETC's  to 7/1/2022  would remove  any  incentive for  a                                                                    
     small producer  to add  new production  to its  unit or                                                                    
     create other opportunities for new production.                                                                             
                                                                                                                                
     In  closing,   on  behalf  of  Arctic   Slope  Regional                                                                    
     Corporation, I  want to thank  you for  your leadership                                                                    
     on  this  issue.   We  appreciate  your  dedication  to                                                                    
     public  service   and  taking  the  time   to  work  to                                                                    
     reinforce  Alaska's economic  foundation.   While  some                                                                    
     may be looking at this  issue through a narrow lens, we                                                                    
     have  the  fortune  to  see  this  issue  from  several                                                                    
     important viewpoints.   ASRC strategically plans  for a                                                                    
     sustainable future  in Alaska and we  support a healthy                                                                    
     and  robust  oil industry  here.    Thank you  for  the                                                                    
     opportunity to provide our perspective.                                                                                    
                                                                                                                                
Ms.  Sweeney  continued  to  discuss   the  members  of  the                                                                    
corporation including Petro Star.  She noted that Petro Star                                                                    
was  the  only Alaskan  owned  refining  and fuel  marketing                                                                    
company. The  company owned two refineries  located in North                                                                    
Pole and  Valdez, which  drew crude  supply from  the Trans-                                                                    
Alaska  pipeline to  produce highway,  off  road and  marine                                                                    
diesel as well  as jet fuel and home heating  oil. The North                                                                    
Pole  refinery   supplied  the  mining   industry,  military                                                                    
operations at  Eielson Air Force  Base and  provided heating                                                                    
oil to  communities throughout  Interior Alaska.  Petro Star                                                                    
also produced ultra-low sulfur diesel  fuel and supplied jet                                                                    
fuel to  commercial cargo carriers refueling  at Ted Stevens                                                                    
Anchorage   International  Airport   and  to   the  military                                                                    
operating at joint base Elmendorf Richardson.                                                                                   
                                                                                                                                
Ms. Sweeney continued  that Petro Star supplied  fuel to the                                                                    
largest  commercial fishery  in the  U.S. Fueling  stations,                                                                    
convenience  stores and  heating  oil distributorships  were                                                                    
also  operated by  Petro Star.  The company  was a  refiner,                                                                    
resource  owner,  developer  and  explorer  in  Alaska.  The                                                                    
ability to  produce on  Native settlements  benefitted every                                                                    
region  in the  state with  ownership of  approximately five                                                                    
million  acres  on  the  North   Slope.  She  spoke  to  the                                                                    
significant  royalty position  in  the  Colville River  Unit                                                                    
(CRU), home of the Alpine  oil field. While the Alpine Field                                                                    
Production  peaked   four  years  ago,  the   CRU  satellite                                                                    
developments   helped  slow   the  rate   of  decline.   The                                                                    
satellites  accounted  for  nearly  35 percent  of  the  oil                                                                    
production  in  CRU  and were  processed  through  the  main                                                                    
Alpine facility.                                                                                                                
                                                                                                                                
Ms.  Sweeney explained  that additional  development in  the                                                                    
CRU was  challenged by a  complex and  unfriendly permitting                                                                    
regime.   She  pointed   out  the   Arctic  Slope   Regional                                                                    
Corporation   (ASRC)    investment   in    exploration   and                                                                    
development  of  state-owned  lands   on  the  North  Slope.                                                                    
Tensions regarding the state tax  regime were experienced by                                                                    
her  company. The  high-cost  environment  and current  low-                                                                    
throughput  required that  the  small  producer credit  stay                                                                    
intact and be extended in  order for continued investment in                                                                    
the Badami unit.  She stated that the  tax reform discussion                                                                    
highlighted   good  perspectives   and  spurred   meaningful                                                                    
debate.   She  requested   consideration   of  the   Alaskan                                                                    
companies in the oil industry.                                                                                                  
                                                                                                                                
1:43:18 PM                                                                                                                    
                                                                                                                                
Ms.  Sweeney stated  that ASRC  provided  comments with  the                                                                    
perspective of  a local company.  She relayed that  HCS CSSB                                                                    
21(RES)  was an  improvement over  the current  system. They                                                                    
supported the  33 percent  tax, and  other items  related to                                                                    
the  bill.   She  spoke   in  support   of  the   repeal  of                                                                    
progressivity.   She   supported   the   community   sharing                                                                    
provision  and she  encouraged the  legislature to  consider                                                                    
linking it  to a  percentage of the  tax versus  the current                                                                    
language,  which was  a more  objective approach  to sharing                                                                    
revenues  with Alaskan  communities.  She  supported the  35                                                                    
percent loss  carry forward credit, which  enabled owners to                                                                    
receive  carry  forward  loss  credit  through  a  transfer,                                                                    
refund or tax deduction.                                                                                                        
                                                                                                                                
Ms. Sweeney  continued that ASRC  supported the  GVR formula                                                                    
in HCS CSSB 21(RES),  which allowed investment opportunities                                                                    
in marginal fields to be  more attractive for companies like                                                                    
ASRC.  The GVR  formula  encouraged the  development of  new                                                                    
production  for all  producers including  new entrants.  She                                                                    
supported  linking  the $5  per  barrel  tax credit  to  the                                                                    
production subject  to the GVR,  which created a  more level                                                                    
playing field. She supported the  10 percent service credit,                                                                    
which stimulated  the economy  within the  service industry.                                                                    
She supported  the Alaska Industrial Development  and Export                                                                    
Authority  (AIDEA)  bonding  capability, which  allowed  new                                                                    
entrants another  avenue to finance facilities.  The sliding                                                                    
scale  provision for  the  non-GVR  production provided  tax                                                                    
benefits for producers  at low oil prices  and increased the                                                                    
state's take at higher oil prices.                                                                                              
                                                                                                                                
1:46:33 PM                                                                                                                    
                                                                                                                                
Ms. Sweeney stressed the importance  of the extension of the                                                                    
small producer credit  to ASRC. The extension  of the credit                                                                    
to  2022 would  improve the  ability of  small producers  to                                                                    
maintain  or grow  existing production.  The extension  made                                                                    
exploration for oil and gas  deposits on lease holds outside                                                                    
of current  units that could potentially  add new production                                                                    
to  the  unit positions.  Elimination  of  the credit  would                                                                    
impact capital  investment. She expressed  concern regarding                                                                    
expiration of  the Qualified  Capital Expenditures  (QCE) in                                                                    
2014. She  supported a  plan that would  phase out  QCE's by                                                                    
2015.   She  supported   the   deletion   of  the   proposed                                                                    
modification  of  the  Exploration  Tax  Credit  (ETC)  that                                                                    
eliminated the  three mile buffer  for drilling.  She stated                                                                    
that ETC would remove any  incentive for a small producer to                                                                    
add   new   production  to   its   unit   or  create   other                                                                    
opportunities for new production.                                                                                               
                                                                                                                                
1:49:40 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze thanked ASRC for their contribution.                                                                           
                                                                                                                                
1:50:09 PM                                                                                                                    
                                                                                                                                
MICHELLE  ANDERSON, PRESIDENT,  AHTNA INC.,  GLENNALLEN (via                                                                    
teleconference)  shared information  about the  company. She                                                                    
noted  that 55  miles  of the  Trans-Alaska Pipeline  System                                                                    
(TAPS)  crossed  Ahtna  land. She  pointed  out  that  Ahtna                                                                    
provided  pipeline maintenance,  construction and  oil-spill                                                                    
response  over the  last  40 years.  She  stated that  Ahtna                                                                    
encouraged the legislature to remain  focused on the goal of                                                                    
increased production from both legacy  and new oil fields by                                                                    
lowering the  base tax  rate from 35  percent to  33 percent                                                                    
and extending the small producer credit to 2022.                                                                                
                                                                                                                                
Ms. Anderson  reported to the  committee that 56  percent of                                                                    
Alaskan's supported  oil production  tax reform.  She stated                                                                    
that SB 21 would help  all Alaskans have a prosperous future                                                                    
by  making   Alaska  more  attractive  for   private  sector                                                                    
investment. She  noted that continuation of  ACES would lead                                                                    
to continued declines in  throughput. She supported revision                                                                    
of  the  new frontier  basin  tax  credits by  stemming  the                                                                    
exploration terms  and eliminating the 3  mile limit, making                                                                    
it comparable to the Cook Inlet Basin.                                                                                          
                                                                                                                                
Vice-Chair Neuman asked Ms. Anderson  to provide her written                                                                    
testimony.                                                                                                                      
                                                                                                                                
1:53:20 PM                                                                                                                    
                                                                                                                                
SARA  OBED, DIRECTOR,  GOVERNMENT RELATIONS,  DOYON LIMITED,                                                                    
provided  information about  the  native corporation,  which                                                                    
was headquartered  in Fairbanks. She stated  that land owned                                                                    
by Doyon  Limited spanned the  Brooks Range in the  north to                                                                    
the Alaska Range in the  south and extended to Norton Sound.                                                                    
She stated  that Doyon Limited  had 18,700  shareholders and                                                                    
2,700  employees. She  shared that  Doyon  Drilling was  the                                                                    
premier   company  that   owned   7   advanced  drill   rigs                                                                    
specifically  designed  to   operate  in  Alaska's  northern                                                                    
climates. The  company prided itself  as an  industry leader                                                                    
among support  service contractors in Alaska.  She continued                                                                    
to discuss  the company's structure and  work. She testified                                                                    
in support  of the  oil tax reform  effort. She  stated that                                                                    
the company was comprised  of beneficiaries and participants                                                                    
who knew oil and gas exploration was declining.                                                                                 
                                                                                                                                
1:57:09 PM                                                                                                                    
                                                                                                                                
JAMES  MERY,  SENIOR  VICE   PRESIDENT,  LANDS  AND  NATURAL                                                                    
RESOURCES, DOYON LIMITED, spoke  about areas the company was                                                                    
exploring  for  hydrocarbons   in  Interior  Alaska  (middle                                                                    
earth).  He pointed  to exploration  credits  that were  not                                                                    
addressed  in  the  bill  that   sunset  in  2016.  He  also                                                                    
addressed  a cap  on  production tax  that  applied only  to                                                                    
middle  earth. He  shared that  the  company was  conducting                                                                    
frontier  exploration.  He  believed that  areas  in  middle                                                                    
earth  were capable  of generating  billions  of barrels  of                                                                    
oil. He noted  that Doyon Limited's efforts  were focused on                                                                    
finding  oil for  the Trans-Alaska  Pipeline System  (TAPS).                                                                    
Another  company goal  was to  find gas  for local  use. The                                                                    
company's  risk  was  shared  with  the  state  through  the                                                                    
expiring   exploration  credits   programs.  Without   state                                                                    
assistance,  the  company's  exploration efforts  would  not                                                                    
have  been successful.  He noted  exploration in  the Nenana                                                                    
Basin, where  the company held  400 thousand acres  in state                                                                    
leases.                                                                                                                         
                                                                                                                                
2:00:55 PM                                                                                                                    
                                                                                                                                
Mr.  Mery continued  to  discuss  the company's  exploration                                                                    
efforts.  He shared  that Nenana  was the  company's highest                                                                    
priority  and  was  also  exploring   the  Yukon  Flats.  He                                                                    
mentioned two  seismic programs at Stevens  Village. Success                                                                    
in the  Yukon Flats could  lead to renewed  exploration near                                                                    
the  Canadian   border.  These  areas   enjoyed  significant                                                                    
exploration  by  major  oil   companies  a  generation  ago,                                                                    
including   Arco  Alaska,   Shell,  ExxonMobil,   Amoco  and                                                                    
Chevron.  Smaller companies  followed  with new  hydrocarbon                                                                    
finds.  He  believed  that the  five  areas  mentioned  held                                                                    
hundreds of millions of barrels of recoverable oil.                                                                             
                                                                                                                                
Mr.  Mery respectfully  requested a  five year  extension of                                                                    
the  30-40 percent  exploration credits.  Without the  state                                                                    
sharing the risk, exploration by  Doyon Limited would likely                                                                    
cease.  He mentioned  legislation passed  last session  that                                                                    
placed a cap of 4 percent  of the gross value production for                                                                    
a  limited period  of  time on  new  production from  middle                                                                    
earth.  The  provision  was critically  important  to  Doyon                                                                    
Limited  in  navigating  unknown permitting  and  litigation                                                                    
risks during  the capital investment  recovery phase  of new                                                                    
projects  lacking  production infrastructure.  He  advocated                                                                    
for an extension of the sunset date to 2027.                                                                                    
                                                                                                                                
2:05:13 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Neuman requested  written  testimony from  Doyon                                                                    
Limited.                                                                                                                        
                                                                                                                                
Representative Wilson asked  about the 4 percent  tax on new                                                                    
production  and how  certainty regarding  taxes provided  an                                                                    
opportunity  for  the  company  to move  forward.  Mr.  Mery                                                                    
answered that  it was certainty and  a lower rate for  a set                                                                    
period of time that  allowed for exploration and production.                                                                    
The  simplicity and  certainty helped  the company  in their                                                                    
exploration efforts.                                                                                                            
                                                                                                                                
Representative Wilson  asked if  location and  tax certainty                                                                    
were  related.  Mr.  Mery replied  that  tax  certainty  was                                                                    
advantageous in any location.  The situation was exaggerated                                                                    
in  the case  of his  company because  of their  exploration                                                                    
risk.                                                                                                                           
                                                                                                                                
Representative  Wilson  was  interested to  know  if  middle                                                                    
earth was different  than the North Slope. She  asked if the                                                                    
company would  not move forward  if the two  items mentioned                                                                    
in  Mr.  Mery's  testimony  were  not  in  place.  Mr.  Mery                                                                    
responded that  the state was  a great partner  with respect                                                                    
to the exploration  credits. If the items  were not extended                                                                    
the company may not move forward with frontier exploration.                                                                     
                                                                                                                                
Representative Wilson asked if  other private entities might                                                                    
be willing to  partner with Doyon Limited.  Mr. Mery replied                                                                    
that his  company was  the only  one interested  in frontier                                                                    
exploration  in  Alaska. His  company  had  more reasons  to                                                                    
pursue   frontier  exploration   because  of   their  unique                                                                    
location.                                                                                                                       
                                                                                                                                
2:08:05 PM                                                                                                                    
                                                                                                                                
HELVI SANDVIK, PRESIDENT,  NANA DEVELOPMENT CORPORATION (via                                                                    
teleconference), spoke  in support  of the  legislation. She                                                                    
stressed that it  was critical to address tax  reform in the                                                                    
current  session.   She  communicated  that   the  company's                                                                    
shareholders   made  significant   investment  in   the  oil                                                                    
industry. She noted that her  company was one of the largest                                                                    
employers  in   the  state,  employing   approximately  4000                                                                    
Alaskans. She  noted the  company's practice  of reinvesting                                                                    
in new  facilities and equipment  to sustain Nana  oil field                                                                    
services for  the next 40 years.  She spoke to the  value of                                                                    
leveraging  the  experience  gained  from work  in  the  oil                                                                    
sector  leading to  significant investments  in other  state                                                                    
industries.  The  company's  priority was  natural  resource                                                                    
development and support.                                                                                                        
                                                                                                                                
Ms.  Sandvik  expressed alarm  at  the  decline in  business                                                                    
activity in companies serving the  sector. Alaska talent was                                                                    
migrating elsewhere  to pursue  economic opportunity  in the                                                                    
oil  sector. She  hoped  that her  children  would have  the                                                                    
ability  to work  and  live in  Alaska.  She recognized  the                                                                    
increase in activity seen in  the Lower 48 and international                                                                    
locations.  Those  locations  created  an  environment  that                                                                    
invited investment  as opposed  to discouraging  it. Without                                                                    
investment,  Alaska  will  see   no  financial  return.  She                                                                    
believed  that  SB   21  lent  the  most   promise  for  new                                                                    
investment  and  increased  production.  She  mentioned  the                                                                    
crisis   in  the   North  West   Arctic   Borough  with   an                                                                    
unemployment rate of approximately  15 percent. She spoke to                                                                    
limited infrastructure and high energy costs.                                                                                   
                                                                                                                                
2:12:32 PM                                                                                                                    
                                                                                                                                
Ms. Sandvik expressed that her  only hope for the future was                                                                    
an   increase   in   economic  activity,   opportunity   and                                                                    
stability.  She urged  the committee  to  remember that  the                                                                    
future of  Alaskans depended on  the decisions made  in this                                                                    
legislature.  She  opined that  the  bill  struck a  balance                                                                    
between Alaska's  short and long  term needs.  She supported                                                                    
the middle earth amendments discussed  by Doyon Limited that                                                                    
would strengthen  future development opportunities  in areas                                                                    
of the  state with limited exploration  and development. She                                                                    
urged the  passage of SB  21 to  create a stable  climate to                                                                    
serve all Alaskans well into the future.                                                                                        
                                                                                                                                
Vice-Chair  Neuman  asked  Ms. Sandvik  to  provide  written                                                                    
testimony.                                                                                                                      
                                                                                                                                
2:13:52 PM                                                                                                                    
                                                                                                                                
KIM  REITMEIER, PRESIDENT,  ANCSA REGIONAL  ASSOCIATION (via                                                                    
teleconference) testified in favor of SB 21.                                                                                    
                                                                                                                                
     My  name  is  Kim  Reitmeier, President  of  the  ANCSA                                                                    
     Regional Association. The  ANCSA Regional Association's                                                                    
     membership  includes  the  CEOs of  the  12  land-based                                                                    
     regional Alaska  Native Corporations.  Our corporations                                                                    
     are  owned by  over  100,000 Alaska  Native people  and                                                                    
     were formed  under the Alaska Native  Claims Settlement                                                                    
     Act of 1971. Our mission  is to collaborate in creation                                                                    
     of  a  sustainable   socioeconomic  future  for  Alaska                                                                    
     Native people.                                                                                                             
     I would  like to thank  Co-Chair, Rep Bill  Stoltze for                                                                    
     extending  a   personal  invitation  to   our  Regional                                                                    
     Corporations  to participate  today. You've  heard from                                                                    
     of   our   Regional    Corporations   this   afternoon;                                                                    
     unfortunately, many  of our  CEOs are  traveling today,                                                                    
     and  extend  their  regards  for   not  being  able  to                                                                    
     participate   in   this  very   important   legislative                                                                    
     discussion.                                                                                                                
     On March  28th the ANCSA Regional  Association issued a                                                                    
     press  release  calling  for  a   robust  oil  and  gas                                                                    
     industry with a  stable tax regime. Tax  reform for the                                                                    
     oil and  gas industry  that truly results  in increased                                                                    
     production  will  give  communities  across  the  state                                                                    
     access  to important  economic opportunities.  We can't                                                                    
     stress  enough  the  importance of  new  and  increased                                                                    
     production  with  long-term  benefits to  Alaskans.  We                                                                    
     hope  that the  final bill  will benefit  all Alaskans,                                                                    
     including our rural residents.                                                                                             
     Our membership  recognizes the  importance of  a robust                                                                    
     oil  and  gas  industry  for our  state,  and  for  our                                                                    
     people,  to thrive.  It's  about  sustainability -  and                                                                    
     without it  the entire  state treasury is  in jeopardy.                                                                    
     Alaska Natives  have lived here  for 10,000  years, and                                                                    
     we will be here for 10,000  more. A healthy oil and gas                                                                    
     industry is vital for all  Alaskans. As you go forward,                                                                    
     we  ask   that  you   be  guided   by  the   values  of                                                                    
     responsibility  to our  communities and  cooperation to                                                                    
     sustain our  connection to the land;  and have tangible                                                                    
     results for all of Alaska.                                                                                                 
     In closing, on behalf  of ANCSA Regional Association, I                                                                    
     would like  to thank  you for  your leadership  on this                                                                    
     issue.  We  appreciate  your  dedication  and  work  to                                                                    
     ensure  Alaska's economic  future.  Thank  you for  the                                                                    
     opportunity to provide our comments.                                                                                       
                                                                                                                                
Representative   Edgmon    thanked   the    ANCSA   Regional                                                                    
Association  for  prioritizing  the survivability  of  rural                                                                    
Alaska.                                                                                                                         
                                                                                                                                
Representative  Wilson   asked  if   the  benefits   of  the                                                                    
legislation outweighed the risks.  Ms. Reitmeier answered in                                                                    
the affirmative.  Representative Wilson asked  if additional                                                                    
jobs would become available for  all Alaskans as a result of                                                                    
the legislation. Ms. Reitmeier answered yes.                                                                                    
                                                                                                                                
2:18:04 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:19:52 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
MICHAEL  PAWLOWSKI,   ADVISOR,  PETROLEUM   FISCAL  SYSTEMS,                                                                    
DEPARTMENT  OF REVENUE,  introduced Econ  One's presentation                                                                    
on oil  production decline  rates. He  stressed the  goal of                                                                    
mitigating those decline rates.                                                                                                 
                                                                                                                                
BARRY PULLIAM,  MANAGING DIRECTOR,  ECON ONE  RESEARCH INC.,                                                                    
provided  a   PowerPoint  presentation   titled  "Additional                                                                    
Comments on HCS  CSSB 21(RES)" (copy on  file). He explained                                                                    
that he  had reviewed  various decline rates  in preparation                                                                    
for  the presentation.  He pointed  to slide  2 and  the red                                                                    
line projecting  production on the  North Slope  under rates                                                                    
ranging from 6 percent long-term  to no decline (blue line).                                                                    
He  noted that  a 6  percent  decline rate  would include  a                                                                    
reduction from 500  thousand to 100 thousand  barrels of oil                                                                    
per day. Mitigation  of the decline rate to  3 percent would                                                                    
change  the   overall  production  considerably   by  adding                                                                    
approximately  900 million  barrels of  total recovery  over                                                                    
the next 30 years.                                                                                                              
                                                                                                                                
Mr. Pulliam continued that a  further reduction to 1 percent                                                                    
would  add  another billion  barrels.  If  decline could  be                                                                    
stemmed altogether,  the recovery would include  5.5 billion                                                                    
barrels of total recovery over the next 30 years.                                                                               
                                                                                                                                
2:24:16 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  asked  if  the  graph  depicted  the                                                                    
barrels of oil required to prevent a decline in production.                                                                     
                                                                                                                                
Mr. Pulliam clarified that the  graph followed the long term                                                                    
decline path  and would include production  of approximately                                                                    
3  billion   barrels.  If  decline  was   stemmed,  the  oil                                                                    
companies would  recover an additional 2.5  billion barrels,                                                                    
or 5.5 billion total barrels.                                                                                                   
                                                                                                                                
Mr.  Pawlowski   added  that   the  Department   of  Natural                                                                    
Resources  (DNR) estimated  production in  legacy fields  at                                                                    
approximately 3  billion barrels.  There was an  estimated 3                                                                    
billion  barrels that  were yet  to be  discovered on  state                                                                    
lands.  The  chart  took  into  account  legacy  fields  and                                                                    
undiscovered oil.                                                                                                               
                                                                                                                                
Representative  Wilson  asked  if the  state  could  predict                                                                    
ample  oil  resources  through  2042 in  the  absence  of  a                                                                    
decline rate.                                                                                                                   
                                                                                                                                
Mr. Pulliam  replied in the  affirmative. He added  that the                                                                    
question was about oil discovery and recovery.                                                                                  
                                                                                                                                
Representative Gara  asked about responses to  questions the                                                                    
committee had posed.  He pointed to a question  related to a                                                                    
comparison  in revenue  between  HCS CSSB  21(RES) and  ACES                                                                    
using a range of realistic prices.                                                                                              
                                                                                                                                
2:27:59 PM                                                                                                                    
                                                                                                                                
Mr.  Pawlowski apologized  for not  including  the range  of                                                                    
questions  in the  presentation. He  offered to  present the                                                                    
information using different price scenarios.                                                                                    
                                                                                                                                
Representative Gara stated that  he would appreciate answers                                                                    
to his questions.                                                                                                               
                                                                                                                                
BRUCE   TANGEMAN,   DEPUTY   COMMISSIONER,   TAX   DIVISION,                                                                    
DEPARTMENT OF  REVENUE, stated that the  department provided                                                                    
responses  to  members'  questions   over  the  weekend.  He                                                                    
interpreted that Representative Gara  wished to receive data                                                                    
regarding a 3 percent decline  rate. He pointed out that the                                                                    
department had worked  hard on the issues  for the committee                                                                    
and he apologized for the misinterpretation.                                                                                    
                                                                                                                                
Mr. Pawlowski surmised that the  department must address the                                                                    
questions.                                                                                                                      
                                                                                                                                
Representative  Gara  noted  that   his  questions  were  in                                                                    
writing.                                                                                                                        
                                                                                                                                
Representative  Wilson  added  that  she  had  not  received                                                                    
answers to her questions either.                                                                                                
                                                                                                                                
2:31:06 PM                                                                                                                    
                                                                                                                                
Mr. Pawlowski apologized.                                                                                                       
                                                                                                                                
Mr.  Pulliam  pointed  to  slide 3  titled  "Impact  of  New                                                                    
Drilling on Production 10 New  Wells Drilled Annually 2013 -                                                                    
2042." He modeled a decrease of  a 6 percent decline rate to                                                                    
3 percent,  which would require additional  development. The                                                                    
additional  requirement  would  occur   over  time  and  the                                                                    
expected  recovery  was  depicted  in  slide  3.  The  slide                                                                    
illustrated  an increase  of 10  wells  annually. The  wells                                                                    
were expected to produce at  a rapid rate initially and then                                                                    
decrease over time.  He expressed that the  plan outlined in                                                                    
the slide would  allow for the needed 30  million barrels of                                                                    
development  per year,  which would  stem the  decline at  3                                                                    
percent.                                                                                                                        
                                                                                                                                
Mr. Pawlowski  added that the  focus of barrels per  day for                                                                    
production targets  must be  supplemented by  the production                                                                    
levels of  already existing wells.  Wells that  were drilled                                                                    
in  previous years  were still  contributing to  production,                                                                    
which created the "layering effect"  illustrated in slide 3.                                                                    
Ten  wells  drilled  annually would  create  the  production                                                                    
needed to limit the decline from 6 percent to 3 percent.                                                                        
                                                                                                                                
Mr.  Pulliam  agreed that  the  chart  displayed wells  that                                                                    
contributed to already existing production.                                                                                     
                                                                                                                                
Representative Wilson interpreted the  chart to show that of                                                                    
the 300 wells drilled, only 26 would produce.                                                                                   
                                                                                                                                
2:35:18 PM                                                                                                                    
                                                                                                                                
Mr. Pulliam  replied that the  base level of  production was                                                                    
represented  by the  color red  and depicted  1000 producing                                                                    
wells. Each additional year's color represented 10 wells.                                                                       
                                                                                                                                
Representative Wilson asked if  the state required 600 wells                                                                    
to prevent any decline whatsoever.                                                                                              
                                                                                                                                
Mr. Pulliam opined that the  goal of 20 additional wells per                                                                    
year was realistic.                                                                                                             
                                                                                                                                
Representative  Wilson   clarified  that  the   state  would                                                                    
require  600 new  producing wells  to  stem decline  between                                                                    
2013 and 2042.                                                                                                                  
                                                                                                                                
2:37:09 PM                                                                                                                    
                                                                                                                                
Mr.  Pulliam moved  to slide  4 "Impact  of New  Drilling on                                                                    
Production 20  New Wells Drilled  Annually 2013 -  2042." He                                                                    
explained  that the  increase in  wells  drilled would  stem                                                                    
decline to approximately 1.5 percent annually.                                                                                  
                                                                                                                                
Representative Edgmon  asked what the slide  depicted inside                                                                    
and  outside  of  the  legacy  wells.  He  recalled  earlier                                                                    
testimony from Pioneer that 11  oil wells must be drilled to                                                                    
arrive at one functioning well.                                                                                                 
                                                                                                                                
Mr.  Pulliam responded  that  the data  in  slide 4  assumed                                                                    
successful development of the drilled wells.                                                                                    
                                                                                                                                
Representative  Edgmon  asked  if the  chart  accounted  for                                                                    
location of the well.                                                                                                           
                                                                                                                                
Mr. Pulliam  responded that  the chart  did not  represent a                                                                    
prediction,  but  instead  the activity  necessary  to  stem                                                                    
decline.                                                                                                                        
                                                                                                                                
Representative  Edgmon understood  that  the  effort of  HCS                                                                    
CSSB 21(RES) was to increase development and activity.                                                                          
                                                                                                                                
2:38:40 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Neuman  asked  if DOR  staff  could  respond  to                                                                    
questions   like  Representative   Edgmon's.  Mr.   Tangeman                                                                    
replied that he had staff  online responsible for noting the                                                                    
important questions posed.                                                                                                      
                                                                                                                                
Representative Gara asked how many  oil wells existed on the                                                                    
North Slope in 2006.                                                                                                            
                                                                                                                                
Mr. Pulliam  asked if Representative  Gara was  referring to                                                                    
producing or new wells drilled.                                                                                                 
                                                                                                                                
Representative Gara responded that  he was interested in the                                                                    
wells  drilled annually  in 2006.  Mr. Pulliam  replied that                                                                    
approximately 100 wells were drilled annually in 2006.                                                                          
                                                                                                                                
Representative Gara noted that  the decline rate was between                                                                    
5 and 8  percent per year between 2004 and  2007 despite the                                                                    
fact that 100 wells were drilled annually.                                                                                      
                                                                                                                                
Mr.  Pulliam responded  that that  the base  level was  much                                                                    
greater between  2004 and 2007.  In 2013 the base  level was                                                                    
500  thousand  barrels per  day,  as  opposed to  1  million                                                                    
barrels per day in 2004 - 2007.                                                                                                 
                                                                                                                                
2:40:38 PM                                                                                                                    
                                                                                                                                
Vice-Chair Neuman asked if a new well meant a new site.                                                                         
                                                                                                                                
Mr. Pulliam  replied that  he was referring  to a  new well.                                                                    
Additional  production could  be obtained  from an  existing                                                                    
well.                                                                                                                           
                                                                                                                                
Representative  Thompson  asked  if  the graph  on  slide  4                                                                    
depicted  20 new  producing wells  versus  20 wells  drilled                                                                    
annually.                                                                                                                       
                                                                                                                                
Mr. Pulliam replied 20 new producing wells.                                                                                     
                                                                                                                                
Representative Kawasaki  wondered about the  assets provided                                                                    
in the  100 existing producing  wells. He wondered  how many                                                                    
new wells were  built and capped or reworked  and capped. He                                                                    
asked  the  cost per  company  for  the 20  producing  wells                                                                    
drilled annually.                                                                                                               
                                                                                                                                
Mr. Pulliam estimated  the cost to be $15  million per well.                                                                    
He  anticipated  that  the  combination  of  production  and                                                                    
injector would cost $25 to $30 million.                                                                                         
                                                                                                                                
Representative Kawasaki  clarified that  the total  cost was                                                                    
approximately $300 million for the industry.                                                                                    
                                                                                                                                
Mr.  Pulliam  responded $600  million  annually  for 20  new                                                                    
producing wells per year.                                                                                                       
                                                                                                                                
2:43:20 PM                                                                                                                    
                                                                                                                                
Representative  Gara  thought  that   the  number  of  wells                                                                    
drilled   was  not   one-to-one.  He   clarified  that   the                                                                    
anticipation was for 20 new producing wells.                                                                                    
Mr. Pulliam replied in the affirmative.                                                                                         
                                                                                                                                
Representative  Gara  wondered  how many  exploratory  wells                                                                    
were required to find 20 producing wells.                                                                                       
                                                                                                                                
Mr.  Pulliam  responded  that  he  heard  testimony  that  a                                                                    
handful of  exploration wells  drilled led  to approximately                                                                    
20 wells.                                                                                                                       
                                                                                                                                
Representative Gara  expressed difficulty  understanding Mr.                                                                    
Pulliam's  answer. He  recalled  testimony  stating that  20                                                                    
wells must be drilled to arrive at new oil.                                                                                     
                                                                                                                                
2:45:06 PM                                                                                                                    
                                                                                                                                
Mr. Pulliam  disagreed. He  stated that once  a pool  of oil                                                                    
was found, multiple  wells were then drilled.  He added that                                                                    
much  of the  initial work  was performed  above the  ground                                                                    
with the use of seismic tests prior to drilling.                                                                                
                                                                                                                                
Representative  Kawasaki  expressed surprise  because  prior                                                                    
testimony  stated   that  "dry  holes"  were   part  of  the                                                                    
industry's cost.  He understood that the  industry was aware                                                                    
of the location of 2  billion barrels of recoverable oil and                                                                    
the committee hoped for the production of that oil.                                                                             
                                                                                                                                
Mr.  Pulliam replied  that drilling  in  an exploration  and                                                                    
appraisal fashion would eventually yield  a pool of oil. The                                                                    
pool would be initially  located through seismic test, which                                                                    
advanced in  recent years.  He noted that  once the  oil was                                                                    
discovered,  the   reservoir  would  be   further  developed                                                                    
leading to  multiple wells. He noted  the difference between                                                                    
drilling  in a  new area  without any  existing discoveries.                                                                    
Drilling   in  those   areas  was   often  referred   to  as                                                                    
wildcatting and could potentially lead to dry holes.                                                                            
                                                                                                                                
2:48:11 PM                                                                                                                    
                                                                                                                                
Representative Munoz  understood that it would  take between                                                                    
three to five years to see  new production in the state. She                                                                    
wondered about the possibility  of transitioning the credits                                                                    
to depreciate over a three to five year period.                                                                                 
                                                                                                                                
Mr.  Pulliam  asked  if  she   was  speaking  about  capital                                                                    
credits.                                                                                                                        
                                                                                                                                
Representative Munoz nodded.                                                                                                    
                                                                                                                                
Mr.  Pulliam  replied  that the  capital  credits  would  be                                                                    
eliminated with the  passage of HCS CSSB 21(RES)  at the end                                                                    
of 2013.                                                                                                                        
                                                                                                                                
Representative Munoz  asked if  there were  other deductible                                                                    
expenses that  could be  depreciated over  time in  HCS CSSB                                                                    
21(RES).                                                                                                                        
                                                                                                                                
Mr.  Pulliam  responded  that  the  option  of  depreciating                                                                    
capital over time was proposed,  but he did not advocate for                                                                    
that  choice. He  opined that  HCS CSSB  21(RES) proposed  a                                                                    
cleaner   and  more   robust  system.   He  stated   that  a                                                                    
depreciation   of  capital   would  complicate   the  system                                                                    
considerably.                                                                                                                   
                                                                                                                                
Mr. Pawlowski elaborated that  the capital depreciation idea                                                                    
might  lead  to   a  tax  increase  for   certain  types  of                                                                    
development over the current system (ACES).                                                                                     
                                                                                                                                
2:52:13 PM                                                                                                                    
                                                                                                                                
Representative Gara  heard rumors that Alaska  was unique in                                                                    
allowing all  of the deductions and  capital expenditures to                                                                    
be taken in one year.                                                                                                           
                                                                                                                                
Mr. Pulliam  replied that petroleum  taxes based on  the net                                                                    
were commonly  deducted in one  year. He suggested  that the                                                                    
question be posed to Mr. Mayer from PCE.                                                                                        
                                                                                                                                
Representative Gara understood that  the United States taxed                                                                    
on the gross, which allowed  deductions to come out of their                                                                    
income  tax. He  wondered if  those deductions  came out  of                                                                    
income tax rather than royalty.                                                                                                 
                                                                                                                                
Mr. Pulliam answered  that Alaska's severance tax  was a net                                                                    
tax, while the  Lower 48 had a gross tax.  The income tax in                                                                    
Alaska and the Lower 48 capital was depreciated over time.                                                                      
                                                                                                                                
Representative Gara pointed  to a gross tax in  the Lower 48                                                                    
the  deductions  given for  capital  were  derived from  the                                                                    
income tax,  which depreciated  over a  number of  years. In                                                                    
Alaska  the main  deduction was  on the  profits tax,  which                                                                    
came in one year.                                                                                                               
                                                                                                                                
Mr.  Pulliam   stated  that   Alaska  had   a  fundamentally                                                                    
different tax rate than in the Lower 48.                                                                                        
                                                                                                                                
Representative Gara clarified  that the gross tax  on oil in                                                                    
the  Lower 48  with an  income  tax that  also applied,  the                                                                    
deductions  for  capital  were deducted  over  a  number  of                                                                    
years.                                                                                                                          
                                                                                                                                
Mr. Pulliam replied that it was  correct in the Lower 48 and                                                                    
in  Alaska.  In  both  places   the  capital  deduction  was                                                                    
depreciated  over  time.  Against   the  severance  tax  the                                                                    
capital deduction was  not an issue in the Lower  48, but in                                                                    
Alaska was deducted in one year.                                                                                                
                                                                                                                                
Representative Gara asked if there  was a place in the Lower                                                                    
48 where capital expenses could be deducted in one year.                                                                        
                                                                                                                                
2:56:05 PM                                                                                                                    
                                                                                                                                
Mr. Pulliam replied that there was  not a place in the Lower                                                                    
48 with a tax system similar to that of Alaska.                                                                                 
                                                                                                                                
Representative Wilson  understood that even in  the event of                                                                    
an  oil discovery,  a  well must  first  compete with  other                                                                    
projects for investment. She stated  that Alaska must revise                                                                    
the tax structure to allow for better competition.                                                                              
                                                                                                                                
Mr. Pulliam replied in the affirmative.                                                                                         
                                                                                                                                
Representative  Wilson stated  that a  small producer  would                                                                    
benefit most from a change in the tax structure.                                                                                
                                                                                                                                
Mr. Pulliam replied that smaller  companies would often look                                                                    
for  capital  outside  of the  firm  where  large  companies                                                                    
possessed efficiencies.                                                                                                         
                                                                                                                                
Representative Wilson noted that  the state was competing in                                                                    
a global market.                                                                                                                
                                                                                                                                
Representative Costello  asked if increased  production from                                                                    
legacy fields had been included in slide 4.                                                                                     
                                                                                                                                
Mr.  Pulliam answered  that the  analysis  assumed that  the                                                                    
legacy  fields were  producing in  the base  production. The                                                                    
colorful wedges  were representative of  development outside                                                                    
of the legacy fields.                                                                                                           
                                                                                                                                
Mr. Pawlowski  added that  the first  two slides  related to                                                                    
production.  The   decline  was   based  on   the  currently                                                                    
producing   legacy  field   infrastructure.  He   noted  the                                                                    
possibilities  for additional  production from  those legacy                                                                    
fields.                                                                                                                         
                                                                                                                                
3:00:26 PM                                                                                                                    
                                                                                                                                
Representative  Costello   clarified  that   the  industry's                                                                    
interest  in  Alaska  would equate  to  wells  drilled.  The                                                                    
increase in wells would stem the decline.                                                                                       
                                                                                                                                
Mr.  Pawlowski  answered  that the  intent  was  to  provide                                                                    
information  on the  scale of  activity. The  administration                                                                    
believed that  the number of  wells proposed in slide  4 was                                                                    
achievable.                                                                                                                     
                                                                                                                                
Representative  Costello  clarified  that the  slide  should                                                                    
indicate 10 annual production wells.                                                                                            
                                                                                                                                
Mr.  Pulliam moved  to slide  5: "Estimated  Average 2013  -                                                                    
2042  State  Oil  Revenues  ($2012  Billion  Dollars)  Under                                                                    
Potential  Production and  Tax  Scenarios ACES  v. HCS  CSSB                                                                    
21(RES) $100 West Coast ANS  ($2012)." The graph's blue bars                                                                    
depicted a 33  percent base tax rate. He  explained that the                                                                    
graph  illustrated  state  revenues  under  ACES  with  a  6                                                                    
percent  decline and  displayed  annual  average revenue  of                                                                    
$3.3 billion.  With the  passage of HCS  CSSB 21(RES)  and a                                                                    
decline  rate of  3 percent  the revenue  would increase  to                                                                    
$3.6 billion  annually. With a  1 percent decline  rate, the                                                                    
revenue  would increase  to $4.4  billion  annually. With  a                                                                    
zero percent decline  rate the revenue would  increase to $5                                                                    
billion annually. The slide assumed  that all of the barrels                                                                    
produced over the  base decline would be  developed with the                                                                    
GRE.                                                                                                                            
                                                                                                                                
Mr.  Pulliam  continued that  the  green  bars depicted  the                                                                    
revenue impact difference  with a 35 percent  base rate. The                                                                    
revenue  would   increase  by  approximately   $100  million                                                                    
annually with the increased base tax rate.                                                                                      
                                                                                                                                
Representative Gara  requested modeling an  assumption using                                                                    
$120 per barrel.                                                                                                                
                                                                                                                                
3:04:36 PM                                                                                                                    
                                                                                                                                
Mr.  Pulliam  replied  that  the   graph's  bars  would  all                                                                    
increase  with  the use  of  $120  per  barrel and  the  gap                                                                    
between the  ACES bar and  the others would narrow  with the                                                                    
increased price of oil.                                                                                                         
                                                                                                                                
Representative  Gara asked  why $100  had been  used in  the                                                                    
presentation.                                                                                                                   
                                                                                                                                
Mr. Pulliam replied that the  figure was a typical reference                                                                    
price  used  in presentations  that  was  comparable to  the                                                                    
price  of oil  in 2013.  He offered  to run  the data  using                                                                    
alternative price scenarios.                                                                                                    
                                                                                                                                
Vice-Chair Neuman  requested the  data run using  $110, $120                                                                    
and $130 as the price of oil.                                                                                                   
                                                                                                                                
Mr. Pulliam  clarified that  his use of  $100 per  barrel of                                                                    
oil was  stated in  "real" dollars.  He assumed  2.5 percent                                                                    
inflation annually.                                                                                                             
                                                                                                                                
3:06:01 PM                                                                                                                    
                                                                                                                                
Mr.  Pawlowski  clarified  that early  reductions  in  state                                                                    
revenues  were  illustrated  in the  fiscal  note.  Slide  5                                                                    
depicted average state revenues over 30 years.                                                                                  
                                                                                                                                
Representative  Gara  pointed to  the  use  of a  6  percent                                                                    
decline   rate  under   current   law  when   ConocoPhillips                                                                    
testified to a projected 3  percent decline rate under ACES.                                                                    
He  pointed  to  Prudhoe  Bay,  Kuparuk,  Alpine  and  other                                                                    
fields.  Econ One  used low  price of  oil and  a 6  percent                                                                    
decline rate.  He believed the  presentation was  crafted to                                                                    
provide a result that the consultants wanted to show.                                                                           
                                                                                                                                
Mr.  Pulliam moved  to slide  6: "Estimated  Average 2013  -                                                                    
2042  State  Oil  Revenues  ($2012  Billion  Dollars)  Under                                                                    
Potential  Production and  Tax  Scenarios ACES  v. HCS  CSSB                                                                    
21(RES) $100 West Coast ANS ($2012)."   Slide 6 depicted a 3                                                                    
percent  decline rate.  The long-term  decline on  the North                                                                    
Slope was 6 percent.                                                                                                            
                                                                                                                                
Vice-Chair Neuman clarified  that individual companies might                                                                    
anticipate  3 percent  decline, but  the data  was based  on                                                                    
overall throughput through the  Trans-Alaska Pipeline with a                                                                    
6 percent rate of decline.                                                                                                      
                                                                                                                                
Mr.  Pulliam  replied  in  the  affirmative.  The  scenarios                                                                    
depicted  in slide  6  utilized a  3  percent decline  until                                                                    
2017, which was consistent with DOR projections.                                                                                
                                                                                                                                
Mr.  Pawlowski   stated  that  the   additional  development                                                                    
predicted  above  the  decline  was  included  for  all  GRE                                                                    
barrels,  which would  derive lower  revenue per  barrel for                                                                    
the  state. The  slide illustrated  the lowest  possible tax                                                                    
rate at  the prices to underrepresent  the potential revenue                                                                    
understanding that  production from the legacy  fields would                                                                    
incur a higher revenue rate.                                                                                                    
                                                                                                                                
Mr.  Pulliam discussed  slide 6  and the  3 percent  decline                                                                    
scenario. Under ACES,  a 3 percent decline  rate would yield                                                                    
$4.3  billion per  year. If  the  decline was  stemmed to  1                                                                    
percent, revenue  would increase  to $4.5  billion annually.                                                                    
He added  that a decrease  from 3  to 1 percent  required 10                                                                    
additional new producing wells per year.                                                                                        
                                                                                                                                
Mr.  Pawlowski  clarified  that  the  consultants  were  not                                                                    
presenting base rates as recommendations.                                                                                       
                                                                                                                                
3:11:14 PM                                                                                                                    
                                                                                                                                
Representative  Holmes  asked   for  verification  that  the                                                                    
slides  included a  3 percent  decline until  2017 and  were                                                                    
then adjusted.                                                                                                                  
                                                                                                                                
Mr. Pulliam replied in the affirmative.                                                                                         
                                                                                                                                
Representative Holmes  asked about different tax  rates. She                                                                    
noted  that   the  zero  percent  decline   rate  under  the                                                                    
different  tax  rates  were  the same,  yet  the  1  percent                                                                    
decline rates appeared to be "off."                                                                                             
                                                                                                                                
Mr.  Pulliam  replied  that  the   slide  assumed  that  the                                                                    
incremental oil was taxed at the lower GRE rate.                                                                                
                                                                                                                                
Representative Holmes  clarified that slide 5  assumed a six                                                                    
percent  base  for  the   various  percentages  of  decline,                                                                    
whereas slide  6 assumed a  3 percent decline moving  from 1                                                                    
percent to zero percent.                                                                                                        
                                                                                                                                
Mr. Pulliam replied in the affirmative.                                                                                         
                                                                                                                                
Representative  Wilson  pointed  to  slides  5  and  6.  She                                                                    
wondered about potential comparisons  to other slides in the                                                                    
presentation.                                                                                                                   
                                                                                                                                
Mr. Pulliam recommended  that slides 5 and 6  be compared to                                                                    
slide 2.  He noted  that the different  production scenarios                                                                    
provided  a valuable  comparison  with  the various  decline                                                                    
rates when used within ACES and HCS CSSB 21(RES).                                                                               
                                                                                                                                
Representative   Wilson   asked    for   verification   that                                                                    
production would continue through 2042.                                                                                         
                                                                                                                                
Mr. Pulliam replied in the affirmative.                                                                                         
                                                                                                                                
3:14:41 PM                                                                                                                    
                                                                                                                                
Representative Gara  pointed to slide 6.  He understood that                                                                    
the  difference  between  the  33  percent  and  35  percent                                                                    
decline rate  was $200 million  per year, yet the  slides in                                                                    
the Econ One  presentation depicted a $100  million per year                                                                    
difference.                                                                                                                     
                                                                                                                                
Mr. Pulliam answered in the  affirmative. He elaborated that                                                                    
both figures  were correct and compatible.  His presentation                                                                    
depicted inflation-adjusted  dollars where the  $200 million                                                                    
difference was illustrated in nominal dollars.                                                                                  
                                                                                                                                
Representative Gara  wondered about the practice  of placing                                                                    
ACES  in a  6 percent  decline rate  while HCS  CSSB 21(RES)                                                                    
illustrated  a  lower  decline  rate.  He  wondered  if  Mr.                                                                    
Pulliam  received industry  input on  the projected  decline                                                                    
rate if HCS CSSB 21(RES) passed.                                                                                                
                                                                                                                                
Mr.  Pulliam replied  that the  scenarios were  intended for                                                                    
illustrative purposes only.                                                                                                     
                                                                                                                                
Representative  Gara   asked  if  Econ  One   would  provide                                                                    
modeling for committee members' questions.                                                                                      
                                                                                                                                
Vice-Chair Neuman would speak  to Co-Chair Stoltze about the                                                                    
request.                                                                                                                        
                                                                                                                                
Representative Gara  believed that modeling  scenarios would                                                                    
be helpful for the committee.                                                                                                   
                                                                                                                                
Representative  Thompson  expressed   appreciation  for  the                                                                    
department's cooperation and quick response.                                                                                    
                                                                                                                                
3:18:02 PM                                                                                                                    
                                                                                                                                
Representative Kawasaki asked  about Alberta's tax reduction                                                                    
and the availability to access the relevant data.                                                                               
                                                                                                                                
Mr. Pawlowski replied that the  data was located in a larger                                                                    
packet  of  responses.  He  offered to  present  it  to  the                                                                    
committee members.  He noted  that the  data was  an excerpt                                                                    
from an  Exon One  presentation for  the public.  He pointed                                                                    
out  that the  information could  be found  on BASIS  with a                                                                    
search  for  the  February  13,  2013  in  the  presentation                                                                    
related to benchmarking.                                                                                                        
                                                                                                                                
Representative  Gara clarified  the  process for  submitting                                                                    
questions.                                                                                                                      
                                                                                                                                
Vice-Chair  Neuman  replied  that   the  questions  must  be                                                                    
submitted to the Co-Chair Stoltze' office for efficiency.                                                                       
                                                                                                                                
CSSB 21(FIN)  am(efd fld)  was HEARD  and HELD  in committee                                                                    
for further consideration.                                                                                                      
                                                                                                                                
CS FOR SENATE BILL NO. 18(FIN) am                                                                                             
                                                                                                                                
     "An    Act    making,     amending,    and    repealing                                                                    
     appropriations,   including   capital   appropriations,                                                                    
     supplemental   appropriations,  reappropriations,   and                                                                    
     other   appropriations;    making   appropriations   to                                                                    
     capitalize  funds;  and   providing  for  an  effective                                                                    
     date."                                                                                                                     
                                                                                                                                
CSSB 18(FIN) am was SCHEDULED but not HEARD.                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
3:20:22 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 3:20 p.m.                                                                                          
                                                                                                                                
                                                                                                                                

Document Name Date/Time Subjects
ANCSARegionalAssocPressRelease3_28_13.pdf HFIN 4/9/2013 1:30:00 PM
SB 21
Oil Tax MAP April 9 2013.pdf HFIN 4/9/2013 1:30:00 PM
SB 21
Savant Alaska SB 21 Written Testimony 2013-4-09.pdf HFIN 4/9/2013 1:30:00 PM
SB 21
SB 21 Econ One DOR House Finance (4-9-13).pdf HFIN 4/9/2013 1:30:00 PM
SB 21
SB21Letter.pdf HFIN 4/9/2013 1:30:00 PM
SB 21
SB 21 DOR 13.04.07 HFIN follow up 2013_Analyst_Meeting_transcript.pdf HFIN 4/9/2013 1:30:00 PM
SB 21
ANCSARegionalAssoc_SB 21 testimony.pdf HFIN 4/9/2013 1:30:00 PM
Revised SB 21 REPORT (Fineberg) 04092013.pdf HFIN 4/9/2013 1:30:00 PM
SB 21
Fineberg Testimony SB 21 HFIN April 9 2012.pdf HFIN 4/9/2013 1:30:00 PM
SB 21
ANCSARegionalAssoc_SB 21 testimony.pdf HFIN 4/9/2013 1:30:00 PM
SB 21 Doyon Testimony 4.10.13 .pdf HFIN 4/9/2013 1:30:00 PM
SB 21
SB 21 NDC Testimony HFIN April 09 2013.pdf HFIN 4/9/2013 1:30:00 PM
SB 21
SB 21 YKHC House Finance Comm Hearing on SB 21.doc HFIN 4/9/2013 1:30:00 PM
SB 21
SB 21 Opposition additional.pdf HFIN 4/9/2013 1:30:00 PM
SB 21