Legislature(1999 - 2000)
04/22/1999 05:12 PM House O&G
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
April 22, 1999
5:12 p.m.
MEMBERS PRESENT
Representative Jim Whitaker, Chairman
Representative Fred Dyson
Representative Gail Phillips
Representative Scott Ogan
Representative John Harris
Representative Allen Kemplen
Representative Tom Brice
Representative Harold Smalley
Representative Brian Porter
MEMBERS ABSENT
All members present.
COMMITTEE CALENDAR
HOUSE BILL NO. 58
"An Act relating to certain audits regarding oil and gas royalty
and net profits and to audits regarding costs relating to
exploration incentive credits and oil and gas exploration licenses;
and providing for an effective date."
- MOVED HB 58 OUT OF COMMITTEE
* HOUSE BILL NO. 194
"An Act correcting, in the Alaska Disaster Act, a reference to the
former oil and hazardous substance release response fund to
describe that fund by its correct name."
- MOVED HB 194 OUT OF COMMITTEE
HOUSE BILL NO. 170
"An Act establishing the Alaska Gas Corporation, a public
corporation, and providing for its structure, management,
responsibilities, and operation."
- BILL POSTPONED TO 4/29
(* First public hearing)
PREVIOUS ACTION
BILL: HB 58
SHORT TITLE: OIL & GAS AUDITS
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
1/22/99 65 (H) READ THE FIRST TIME - REFERRAL(S)
1/22/99 65 (H) OIL & GAS, RESOURCES, FINANCE
1/22/99 65 (H) 2 FISCAL NOTES (DNR, REV)
1/22/99 65 (H) GOVERNOR'S TRANSMITTAL LETTER
3/04/99 (H) O&G AT 10:00 AM CAPITOL 17
3/04/99 (H) HEARD AND HELD
3/04/99 (H) MINUTE(O&G)
3/05/99 376 (H) JUD REFERRAL ADDED
3/11/99 (H) O&G AT 10:00 AM CAPITOL 17
4/20/99 (H) O&G AT 5:00 PM CAPITOL 17
4/20/99 (H) <BILL POSTPONED TO 4/29>>
4/22/99 (H) O&G AT 5:00 PM CAPITOL 17
BILL: HB 194
SHORT TITLE: DISASTER ASSISTANCE
SPONSOR(S): REPRESENTATIVES(S) WHITAKER
Jrn-Date Jrn-Page Action
4/13/99 795 (H) READ THE FIRST TIME - REFERRAL(S)
4/13/99 795 (H) O&G, RES
4/20/99 (H) O&G AT 5:00 PM CAPITOL 17
4/20/99 (H) <BILL POSTPONED TO 4/29>
4/22/99 (H) O&G AT 5:00 PM CAPITOL 17
WITNESS REGISTER
KEVIN BANKS, Petroleum Market Analyst
Department of Natural Resources (DNR)
3601 C Street, Suite 1380
Anchorage, Alaska 99503
Telephone: (907) 269-8781
POSITION STATEMENT: Testified on HB 58.
DAN DICKINSON, Director
Oil & Gas Division
Department of Revenue
550 West 7th Avenue, Suite 570
Anchorage, Alaska 99501
Telephone: (907) 343-9225
POSITION STATEMENT: Testified on HB 58.
TOM WILLIAMS, Alaska Tax Counsel
BP Exploration (Alaska) Incorporated
P.O. Box 196612
Anchorage, Alaska 99519
Telephone: (907) 564-5955
POSITION STATEMENT: Testified on HB 58.
ACTION NARRATIVE
TAPE 99-14, SIDE A
Number 0001
CHAIRMAN JIM WHITAKER called the House Special Committee on Oil and
Gas meeting to order at 5:12 p.m. Members present at the call to
order were Representatives Whitaker, Dyson, Phillips, Harris,
Kemplen, Smalley and Porter. Representatives Ogan and Brice
arrived at 5:15 and 5:17, respectively.
HB 58 - OIL & GAS AUDITS
Number 0068
CHAIRMAN WHITAKER announced that the first order of business is
House Bill No. 58, "An Act relating to certain audits regarding oil
and gas royalty and net profits and to audits regarding costs
relating to exploration incentive credits and oil and gas
exploration licenses; and providing for an effective date."
Number 0124
KEVIN BANKS, Petroleum Market Analyst, Department of Natural
Resources, testified via teleconference from Anchorage. He
reminded the committee that HB 58 is somewhat of a housekeeping
action that may contribute to some savings and also provide each
department with a certain specialization when it comes to acquiring
revenues.
CHAIRMAN WHITAKER interjected. He asked Mr. Banks if he would give
the committee a quick synopsis of what HB 58 does.
MR. BANKS stated that HB 58 transfers the authority to conduct
audits on royalty revenues from the Department of Revenue (DOR) to
the Department of Natural Resources (DNR). Along with that
authority comes the responsibility of those who are handling the
information acquired in a royalty audit to maintain the
confidentiality of that information. The same kind of penalty that
is now imposed on the DOR is transferred to the DNR as part of HB
58. In addition there is a fiscal note that simply moves the
staffing requirements from the DOR to the DNR. DNR feels that
there is a certain level of expertise that each department brings
to the table; the DOR is the taxing authority and collects revenues
on the basis of the state's rights as a sovereign state and the DNR
collects royalty revenues on the basis of a contractual right that
it has through the leases signed by the oil companies. He pointed
out that the efficiency brought about by HB 58 should contribute to
some savings over time, because the "checking the checkers" that is
occurring now with the DNR reviewing the work that the DOR does is
unnecessary.
Number 0405
DAN DICKINSON, Director, Oil & Gas Division, Department of Revenue,
testified via teleconference from Anchorage. He stated that back
in 1980 when the DOR was given the function of audits on royalty
revenues, essentially the tax audits and the royalty audits were
very similar. Over the last two decades, through a series of court
decisions and wealthy contracts, the two audits have parted ways;
therefore, there are not the efficiencies that may have existed 20
years ago. He said that it makes sense to move the function from
the DOR to the DNR.
Number 0495
TOM WILLIAMS, Alaska Tax Counsel, BP Exploration (Alaska)
Incorporated, testified via teleconference from Anchorage. He
noted that he was Commission of Revenue in 1980 when the audit
functions were transferred over to the DOR from the DNR. BP
Exploration Incorporated recognizes the importance of the audits to
the state and they know they are going to be audited regardless of
which department does the auditing. They also would hope that each
department would audit them just as extensively as the other one
would, which means they have no reason to savor being audited by
one department or the other and consequently no position on who
should to the auditing.
MR. WILLIAMS continued. He stated that royalty and net profit
audits are always going to involve scrutiny of their oil sale
contracts and other sensitive information on how they market their
oil. The audit information and material developed by the state
auditors must be kept confidential, not only because those things
would be valuable to the competitor, but also because federal and
state anti-trust laws make it illegal to share or disclose
competitive marketing information with the competitor. The
disclosure doesn't have to be directly to a competitor for it to be
illegal; anti-trust laws may be violated simply by disclosing
information to third party who in turn discloses it to a
competitor. Under the Public Records Act all information and
material in the position of the state is public unless there is a
specific law stating otherwise. This has not been an issue with
the DOR doing the audits, because the same confidentiality laws for
taxes also apply to audits. He added that the DOR's concern is
that the same confidentiality which now exists with the DOR will
continue to exists with the DNR. He noted that DOR has closely
examined the confidentiality provisions in HB 58 and the present
version appears to provide the same level of protection that
currently exists with the DOR, and this satisfies DOR's concern.
He stated that the DOR has no reason to oppose HB 58.
REPRESENTATIVE PHILLIPS wondered if Mr. Williams thinks any changes
need to be made in the DNR if the transfer occurs or would the
confidentiality structure that is currently in DOR be adequate.
Number 0744
MR. WILLIAMS indicated that there is a provision in HB 58 that
calls for the materials to be held confidential by the DNR auditors
under the same terms that currently apply to the DOR auditors. In
addition there is the same criminal penalty for those who violate
that confidentiality. He said that confidentiality is very
serious; it is the lynch pin to making the tax work. He feels that
it is necessary and appropriate to have the criminal penalty for
those who do not take it seriously enough.
REPRESENTATIVE OGAN asked Mr. Williams what the thinking was in
1980 when the audit functions were transferred from DNR to DOR.
MR. WILLIAMS explained that it seemed at the time that the issues
with regards to the value of oil or gas would be basically the same
whether the question was being asked in the context of tax or in
the context of royalty; therefore, it made sense to have one set of
auditors go out and look at the documents and provide an answer to
the question, Have they reported the right value? He pointed out
that in June of 1977, Prudhoe Bay started production and the
trans-Alaska pipeline started operating. At the end of July the
first royalty reports and tax payments had to be made and the
payments were in fact made by the oil companies. In August or
September of that year, on the basis of the first reports, the
North Slope Royalty Case was filed by the state of Alaska against
the Prudhoe Bay owners. When that lawsuit was filed, the oil
companies took the position that tax auditors could come in,
because tax isn't a royalty, but the royalty auditors couldn't come
in. If the state wanted to find out the details, the position of
the attorneys in the litigation was "We'll see you in court. You
file a motion for discovery and we'll produce it in due course."
The DOR could go into the companies and see the information and
then report to DNR what they saw going on. It was a way to keep
DNR informed, instead of being in the dark until the formal
discovery process and litigation showed them what was going on.
Number 0977
REPRESENTATIVE KEMPLEN wondered how many audits the DOR performs
presently on BP Exploration Inc.
MR. WILLIAMS replied that they are audited every year for
production tax, which they pay monthly. He said that they report
and pay royalties on a month to month basis. Every year they are
audited for royalty returns and income tax. There is not a single
tax period since the start of Prudhoe Bay production, in 1977, that
has not been audited or is in the process of being audited by the
state.
Number 1050
REPRESENTATIVE HARRIS made a motion to move HB 58 with individual
recommendation and attached fiscal notes. There being no
objection, HB 58 was moved from the House Special Committee on Oil
and Gas.
HB 194 - DISASTER ASSISTANCE
Number 1073
CHAIRMAN WHITAKER announced that the next order of business was
House Bill No. 194, "An Act correcting, in the Alaska Disaster Act,
a reference to the former oil and hazardous substance release
response fund to describe that fund by its correct name."
Number 1145
REPRESENTATIVE OGAN made a motion to move HB 194 with individual
recommendation and an attached zero fiscal note. There being no
objection, HB 194 was moved from the House Special Committee on Oil
and Gas.
ADJOURNMENT
Number 1167
CHAIRMAN WHITAKER adjourned the House Special Committee on Oil and
Gas meeting at 5:30 p.m.
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