03/16/2006 05:00 PM House OIL & GAS
| Audio | Topic |
|---|---|
| Start | |
| HB386 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 386 | TELECONFERENCED | |
| += | HB 372 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
March 16, 2006
5:14 p.m.
MEMBERS PRESENT
Representative Vic Kohring, Chair
Representative Norman Rokeberg
Representative Ralph Samuels
Representative Nancy Dahlstrom
MEMBERS ABSENT
Representative Lesil McGuire
Representative Berta Gardner
Representative David Guttenberg
COMMITTEE CALENDAR
HOUSE BILL NO. 386
"An Act making uniform throughout the state the deadline for
certain exploration expenditures used as credits against the
production tax on oil and gas produced from a lease or property
in the state by extending to July 1, 2010, the deadline for
those expenditures on leases or properties located north of 68
degrees, 15 minutes, North latitude."
- MOVED CSHB 386(O&G) OUT OF COMMITTEE
HOUSE BILL NO. 372
"An Act delaying to June 30, 2010, the last date by which
hydrocarbon exploration geophysical work must be performed or
drilling of a stratigraphic test well or exploratory well must
be completed in order for a person to qualify for an exploration
incentive credit under the oil and gas exploration incentive
credit that is not authorized by the Alaska Land Act."
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 386
SHORT TITLE: EXTEND NORTH SLOPE SEVERANCE TAX CREDIT
SPONSOR(s): REPRESENTATIVE(s) KOHRING
01/20/06 (H) READ THE FIRST TIME - REFERRALS
01/20/06 (H) O&G, RES, FIN
02/23/06 (H) O&G AT 5:00 PM CAPITOL 124
02/23/06 (H) NATURAL GAS PIPELINE INCENTIVE/ GAS TAX
03/02/06 (H) O&G AT 5:00 PM CAPITOL 124
03/02/06 (H) NATURAL GAS PIPELINE INCENTIVE/ GAS TAX
03/07/06 (H) O&G AT 5:30 PM CAPITOL 124
03/07/06 (H) Scheduled But Not Heard
03/08/06 (H) O&G AT 6:00 PM CAPITOL 124
03/08/06 (H) Scheduled But Not Heard
03/16/06 (H) O&G AT 5:00 PM CAPITOL 124
WITNESS REGISTER
CHARISSE MILLETT, Staff
to Representative Vic Kohring
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented CSHB 386, Version F, on behalf of
the sponsor, Representative Kohring.
MARK HANLEY, Manager
Public Affairs for Alaska
Anadarko Petroleum Corporation
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 386.
BILL VAN DYKE, Acting Director
Central Office
Division of Oil & Gas
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 386.
RICHARD TREMAINE, Economist
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Discussed the economic implications of HB
386.
ACTION NARRATIVE
CHAIR VIC KOHRING called the House Special Committee on Oil and
Gas meeting to order at 5:14:38 PM. Representatives Kohring,
Rokeberg, Samuels, and Dahlstrom were present at the call to
order.
HB 386-EXTEND NORTH SLOPE SEVERANCE TAX CREDIT
5:14:53 PM
CHAIR KOHRING announced that the only order of business would be
HOUSE BILL NO. 386, "An Act making uniform throughout the state
the deadline for certain exploration expenditures used as
credits against the production tax on oil and gas produced from
a lease or property in the state by extending to July 1, 2010,
the deadline for those expenditures on leases or properties
located north of 68 degrees, 15 minutes, North latitude."
Speaking as the sponsor, he explained that HB 386 extends the
production tax credits in existing statute, which expire in
2007, by three years to 2010. He further explained that he's
[proposing to] extend [the production tax credits] at this time,
as opposed to next year, to present those in the industry with
interest in [the production tax credits] the opportunity to plan
in advance. He is proposing this bill in order that the credits
are more uniform across the state, all expiring in 2010. He
noted that the verbiage of HB 386 is a section of the CS
proposed [for HB 488] in the House Resources Standing Committee
today. He expressed his belief that it's still prudent to move
this bill forward because HB 488 has the potential to be
"volatile." Therefore, he would like to have HB 386 on a stand-
by basis in the event that the provisions in this bill are not
ultimately contained in HB 488. He acknowledged that there are
substantial risks involved for companies and opined that these
credits will help mitigate those risks. He remarked that [this
bill] will encourage "independent" companies which are more
marginal in terms of their bottom line to develop. He mentioned
that if the existing tax credits weren't in statute, certain
wells wouldn't have been drilled, notably one in Glennallen. He
expressed his belief that this program has been beneficial and
has a lot of potential for the future. He noted that there have
been 12 applications thus far, seven of which have been granted,
in terms of the credits, and there are currently five
applications being processed. The total credits which have been
authorized by the State of Alaska totals nearly $15 million. He
further remarked that the program is in fact working and
attracting companies, and thus capital in the state.
5:18:06 PM
CHARISSE MILLETT, Staff to Representative Vic Kohring, Alaska
State Legislature, explained that the changes in [Version F] are
regarding the use of credits. Currently, the credits are
authorized to be used against production tax. [The bill
proposes to] expand the credits in order that they be available
for use for bonus bids, lease rental [payments], state property
tax, and corporate [income] tax. In response to Representative
Rokeberg, she noted that the changes made in the [Version F] are
located on page 2, lines 15-17.
5:18:54 PM
CHAIR KOHRING clarified that the original version of HB 386,
which reflects existing statute, would provide a credit toward
production tax credits, and [Version F] expands that to include
the aforementioned by Ms. Millett.
REPRESENTATIVE ROKEBERG inquired as to whether HB 386 takes the
sunset date off of Cook Inlet.
MS. MILLETT responded no and added that [Version F] extends the
North Slope credits in order that they're all uniform.
5:20:44 PM
REPRESENTATIVE SAMUELS, in response to Representative Rokeberg,
clarified that last year, the legislation that began as HB 71
and ended up as HB 286, originally extended credits for the
Alaska Peninsula and ended up doing so for everything south of
the Brooks Range. He added that the North Slope was not
included.
MS. MILLETT reiterated that all of the credits will be uniform
until 2010. In response to Representative Rokeberg, she further
added that last year, the Cook Inlet credits were extended to
2007 and HB 386 would extend them again.
REPRESENTATIVE ROKEBERG expressed his confusion regarding the
title. He noted that [HB 386] applies to all forms of taxation.
CHAIR KOHRING noted letters of support from Davis Keane, BG
North America; Mark Hanley, Anadarko Petroleum Corporation; and
Pioneer Natural Resources Company.
5:22:32 PM
MARK HANLEY, Manager, Public Affairs for Alaska, Anadarko
Petroleum Corporation ("Anadarko"), relayed that Anadarko
believes that these incentives are important and are working.
By adding some of these incentives and credits, the State of
Alaska is encouraging investment and trying to help reduce the
risk [involved]. He noted that Anadarko supports the credits,
particularly with the existing tax system. Anadarko had pitched
that [the credits] be extended this year, rather than waiting
until [the sunset date], because companies are making more long-
term decisions. The addition of the ability to utilize [the
credits] against other sources of income is important,
particularly for companies which Anadarko is partnering with who
don't have existing production.
5:26:17 PM
BILL VAN DYKE, Acting Director, Central Office, Division of Oil
& Gas, Department of Natural Resources (DNR), expressed his
belief that the exploration incentive credit program has finally
"taken off." He added that it takes a few years for companies
to "roll" [such programs] into their economics. He remarked
that it makes perfect sense for the State of Alaska to invest in
its future by extending the program.
CHAIR KOHRING noted that [the committee] is dealing with a bill
which has a proven track record of reasonable success. He added
that it makes it that much more important to extend this
legislation.
5:27:24 PM
RICHARD TREMAINE, Economist, Department of Revenue (DOR),
relayed that companies have benefited economically. The DOR
expects the State of Alaska to benefit economically as it
accrues property taxes, royalties, and severance taxes.
5:28:17 PM
REPRESENTATIVE ROKEBERG asked, "Could you refresh my memory of
what revenues we received for on the federal leases in NPR-A,
from the State's perspective, and the applicability of the
credits here to those particular lease activities?"
MR. VAN DYKE informed the committee that the State [of Alaska]
substantially benefits from [oil and gas] activities in the
National Petroleum Reserve-Alaska (NPR-A). [The State of
Alaska] shares in 50 percent of the royalty revenues, although
those revenues don't go directly into the general fund (GF).
[The funds] go through a separate process and a lot of that
money ends up in the communities on the North Slope, which is
how it was designed by the federal government. He added that
[the State of Alaska] will share in production taxes when there
is production from NPR-A. In addition, [the State of Alaska]
shares in 50 percent of the bonuses and rents.
REPRESENTATIVE ROKEBERG surmised that the corporate income tax
is included.
MR. TREMAINE stated that corporate income tax is increased with
corporate revenues in the state. The DOR's models don't have
severance tax under the current ELF system for NPR-A. He added
HB 488, or a substitute bill that deals with production taxes,
would generate revenue for the State.
5:30:30 PM
REPRESENTATIVE ROKEBERG asked, "Would that be 100 percent of the
production tax applicable to the State, or is there a sharing
with the federal government or any other entity?"
MR. TREMAINE responded that he's not familiar with how the
severance tax coming out of NPR-A is. In further response to
Representative Rokeberg, he confirmed that the bonus bids are
50/50.
REPRESENTATIVE ROKEBERG added, "We'd get 100 percent of the
corporate tax because they pay a federal tax separately."
MR. TREMAINE confirmed, "We do, after deductions for other
things."
5:31:07 PM
REPRESENTATIVE ROKEBERG said, "As much as the tax credits under
this are applicable to Cook Inlet, we have the bottom whole
restrictions still applying." He asked, "Is that correct where
we have the differential between the 20 percent and 40 percent?"
He expressed his concern regarding this bill impacting Cook
Inlet offshore development. He said that it seems as if the
majority of areas of interest would be excluded from a tax
credit under this particular provision.
5:33:12 PM
MR. VAN DYKE responded that it's very difficult to get that 20
mile distance in Cook Inlet. He stated that the 20 percent
credit still applies and the geophysical credits still apply -
the seismic credits, which are at 40 percent. He said, "It's
pretty difficult in Cook Inlet to drill a real rank wildcat well
and get that 40 mile distance."
REPRESENTATIVE ROKEBERG asked, "What about 25 miles?" He
surmised that nearly all of Cook Inlet is under a development
plan, or at least within 25 miles of a boundary.
MR. VAN DYKE confirmed that Representative Rokeberg is correct
and added that it's pretty difficult to get 25 miles away from a
boundary.
REPRESENTATIVE ROKEBERG surmised that this bill would have
little or no impact in Cook Inlet.
MR. VAN DYKE responded that it effects the geophysical activity
and added that some of the wells in Cook Inlet are earning
credits, but not at the higher rate.
5:34:57 PM
MR. TREMAINE, in response to Representative Rokeberg, noted that
of the seven sets of credits that have been granted thus far,
three were in Cook Inlet - two for seismic and one for well. He
clarified that was for work in fiscal year (FY) 2006.
REPRESENTATIVE ROKEBERG inquired as to whether the granting of
an application is confidential.
MR. TREMAINE clarified that the location of the well would be
confidential.
5:36:29 PM
REPRESENTATIVE DAHLSTROM moved to adopt CSHB 386, Version 24-
LS1510\F, Chenoweth, 3/7/06, as the working document. There
being no objection, Version F was before the committee.
REPRESENTATIVE ROKEBERG expressed his concern regarding the
problems in sharing of NPR-A revenues. Under the current impact
funding, the North Slope Borough gets the first opportunity to
ask for impact aid. He further expressed his concern regarding
the applicability of this credit on the Cook Inlet basin.
CHAIR KOHRING expressed his concern regarding the effect of HB
488 and his hope that there will be substantial benefits in the
form of credits.
5:39:53 PM
REPRESENTATIVE DAHLSTROM moved to report CSHB 386, Version 24-
LS1510\F, Chenoweth, 3/7/06, out of committee with individual
recommendations and the accompanying fiscal notes. There being
no objection, CSHB 386(O&G) was reported out of the House
Special Committee on Oil and Gas.
5:40:16 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Oil and Gas meeting was adjourned at 5:40
p.m.
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