Legislature(2005 - 2006)CAPITOL 124
04/28/2006 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB498 | |
| HB497 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| = | HB 498 | ||
| = | HB 497 | ||
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
April 28, 2006
1:21 p.m.
MEMBERS PRESENT
Representative Jay Ramras, Co-Chair
Representative Ralph Samuels, Co-Chair
Representative Jim Elkins
Representative Carl Gatto
Representative Gabrielle LeDoux
Representative Paul Seaton
Representative Harry Crawford
Representative Mary Kapsner
MEMBERS ABSENT
Representative Kurt Olson
COMMITTEE CALENDAR
HOUSE BILL NO. 498
"An Act authorizing tax credits against the production tax on
oil and gas for qualified expenditures for challenged or
nonconventional oil or gas and for qualified expenditures for
nonconventional or renewable energy resources; giving the Act
contingent effect; and providing for an effective date."
- MOVED CSHB 498(RES) OUT OF COMMITTEE
HOUSE BILL NO. 497
"An Act providing for the transfer of property at Clark Bay to
the Inter-Island Ferry Authority."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 498
SHORT TITLE: TAX CREDITS NONCONVENTIONAL OIL/GAS
SPONSOR(s): RULES
04/03/06 (H) READ THE FIRST TIME - REFERRALS
04/03/06 (H) O&G, RES, FIN
04/11/06 (H) O&G AT 8:00 AM CAPITOL 120
04/11/06 (H) Moved Out of Committee
04/11/06 (H) MINUTE(O&G)
04/12/06 (H) O&G RPT 2DP 1NR 3AM
04/12/06 (H) DP: ROKEBERG, KOHRING;
04/12/06 (H) NR: SAMUELS
04/12/06 (H) AM: GUTTENBERG, DAHLSTROM, MCGUIRE
04/12/06 (H) LETTER OF INTENT WITH O&G REPORT
(FORTHCOMING)
04/19/06 (H) RES AT 1:00 PM CAPITOL 124
04/19/06 (H) Heard & Held
04/19/06 (H) MINUTE(RES)
04/20/06 (H) RES AT 1:00 PM CAPITOL 124
04/20/06 (H) Heard & Held
04/20/06 (H) MINUTE(RES)
04/21/06 (H) CORRECTED O&G RPT 2DP 2NR 2AM
04/21/06 (H) DP: ROKEBERG, KOHRING;
04/21/06 (H) NR: SAMUELS, DAHLSTROM;
04/21/06 (H) AM: MCGUIRE, GUTTENBERG
04/21/06 (H) RES AT 1:00 PM CAPITOL 124
04/21/06 (H) Heard & Held
04/21/06 (H) MINUTE(RES)
04/27/06 (H) RES AT 1:30 PM CAPITOL 124
BILL: HB 497
SHORT TITLE: TRANSFER CLARK BAY TERMINAL
SPONSOR(s): TRANSPORTATION
03/29/06 (H) READ THE FIRST TIME - REFERRALS
03/29/06 (H) RES, FIN
04/26/06 (H) RES AT 1:00 PM CAPITOL 124
04/26/06 (H) Heard & Held
04/26/06 (H) MINUTE(RES)
04/27/06 (H) RES AT 1:30 PM CAPITOL 124
WITNESS REGISTER
REPRESENTATIVE NORM ROKEBERG
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Discussed HB 498 as sponsor.
BILL VAN DYKE, Director
Division of Oil and Gas
Department of Natural Resources
POSITION STATEMENT: Answered questions regarding HB 498.
ROBERT MINTZ, Assistant Attorney General
Oil, Gas, and Mining Section
Department of Law
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding HB 498.
MICHAEL HURLEY,
ConocoPhillips Alaska, Inc.
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding HB 498.
ACTION NARRATIVE
CO-CHAIR RALPH SAMUELS called the House Resources Standing
Committee meeting to order at 1:21:38 PM. Representatives
Elkins, Ramras, Samuels, Gatto, and Seaton were present at the
call to order. Representatives LeDoux, Crawford, and Kapsner
arrived as the meeting was in progress.
HB 498-TAX CREDITS NONCONVENTIONAL OIL/GAS
CO-CHAIR SAMUELS announced that the first order of business
would be HOUSE BILL NO. 498, "An Act authorizing tax credits
against the production tax on oil and gas for qualified
expenditures for challenged or nonconventional oil or gas and
for qualified expenditures for nonconventional or renewable
energy resources; giving the Act contingent effect; and
providing for an effective date."
CO-CHAIR RAMRAS REPRESENTATIVE moved to adopt the committee
substitute (CS) to HB 498, 24-LS1817\S, Chenoweth, 4/26/06.
Hearing no objections, Version S was before the committee.
1:22:24 PM
CO-CHAIR SAMUELS listed the changes in the CS from the original
bill. He said the CS eliminates research and development
credits and delineates geographical areas of known heavy oil
fields. The CS allows the Department of Natural Resources (DNR)
to determine new heavy oil areas and then report it to
Legislative Budget and Audit and the Department of Revenue
(DOR), which will issue the credit after 30 days. The credit is
non transferable, and the CS "tightens up some of the language
on qualified capital expenditure." The CS eliminates the
alternative energy section of the bill because it was exclusive
to the oil industry, and he said gas was left in the CS because
heavy oil doesn't have much gas within it. Exploration costs
will not be eligible for the challenged-oil credit, he added.
1:25:24 PM
REPRESENTATIVE NORM ROKEBERG thanked Co-Chair Samuels, the staff
at DOR and DNR, and ConocoPhillips Alaska, Inc. for "spending
the weekend with me." He noted that the CS is a light version
of the bill. He said the key element is defining everything as
qualified development expenditures rather than qualified capital
expenditures. He said one of the amendments being considered
relates to page 3, line 21 (i), and the definition of challenged
oil pools, and it "includes the Ugnu or Schrader Bluff within
the Prudhoe Bay unit or the Milne Point Unit, except that
portion of a pool in the Schrader Bluff formation produced from
the drill site "s"...and then the West Sac Ugnu within Kuparuk,
except those portions in the pool West Sac information produced
and from drill site 1c, 1d, e, and 1i...and including the
Lisburne." He said there is an email to remove the exceptions.
He said he has been specific to minimize the application of the
credit and left the door open to encourage other companies "to
enter and develop formations on the North Slope or anywhere in
Alaska." With a few tweaks, it is a good piece of legislation,
he opined. He wants the bill to go to House Finance Committee
to include it in [the legislation for the petroleum production
tax], where they might want to substitute portions of this bill
into that one. He said, "This is more of a rifle shot area at
the area that we as the citizens of the State of Alaska want to
develop, and not a broad-brushed, open-ended credit."
1:30:19 PM
CO-CHAIR SAMUELS said a lot of people heard the comments made by
Pedro van Meurs in the last few days. "But I would concur with
the rules chairman, that if we get this to the next committee we
may be able to use some of the language ... I wouldn't see that
this bill would pass as a stand-alone bill." He stated that he
did not get a chance to meet with Dr. van Meurs, but he has no
problem with getting HB 498 to the next committee.
REPRESENTATIVE ROKEBERG said Daniel Johnston, a legislative
consultant, issued "what I would call a glowing endorsement of
the idea of having heavier, challenged oil having ... greater
incentives [indecipherable] so we have the two consultants
diametrically opposed, and my opinion of Mr. Johnston went up
significantly after I read his letter."
1:32:04 PM
REPRESENTATIVE SEATON said the 30-day notice [of heavy oil
determination] to Legislative Budget and Audit (LB&A) is short
for such projects, especially if there will be any kind of
challenge to the designation.
REPRESENTATIVE ROKEBERG said he was involved in a bill for
royalty relief 12 years ago, and he and Representative Kohring
fixed the bill three years ago to narrow down the legislative
and governor reviews. He said this 30-day period is only the
period after there's been notice.
CO-CHAIR SAMUELS said LB&A is inundated with everything coming
to the legislature. He asked how long it would take DNR to go
through seismic and geologic data to come up with a ruling on
whether there was heavy oil.
1:35:16 PM
BILL VAN DYKE, Director, Division of Oil and Gas, Department of
Natural Resources (DNR), said it is unlikely that someone would
apply for the credit for only one well, unless it is a well that
expands an existing pool. "You are building your information
over time...the actual determination would probably just take a
month or two." There would be a lot information by then and
"you'd sort of know where you were going to likely go with it."
CO-CHAIR SAMUELS asked about the timeline and not delaying a
project. He said it would depend on the time of year, but he
wondered if a few more weeks would really matter.
1:36:35 PM
REPRESENTATIVE ROKEBERG said the bill allows six months for DNR
to make a determination after an application from the industry.
CO-CHAIR SAMUELS asked about sending a copy of the application
to the committee so the members could follow the process.
REPRESENTATIVE ROKEBERG said he didn't think the committee would
want "a stack of technical data."
1:37:48 PM
MR. VAN DYKE said most of the information will be confidential.
CO-CHAIR SAMUELS said he doesn't have an opinion.
REPRESENTATIVE SEATON asked about qualified development
expenditures, and he said on line 13, page 4, the bill states: a
lease expenditure under AS43.55.160, the primary purpose for
challenged oil and qualified capital. He said, "As this is
constructed, they're all 'ands', right? We're not talking about
ordinary operating costs, and I just wanted to make sure that
wasn't an opening. I wanted to make sure that those three -- a,
b, and c -- were all 'ands'."
REPRESENTATIVE ROKEBERG said they are all conjunctive and they
have to all apply.
REPRESENTATIVE SEATON said he just wants to make sure that the
bill is not mistakenly allowing "any lease expenditure; it's got
to be a lease expenditure that's for challenged oil and also has
to be a capitalized expenditure."
1:40:13 PM
The committee took an at-ease from 1:40 to 1:41 p.m.
CO-CHAIR SAMUELS explained Amendment 2, labeled 24-LS1817\S.1,
April 27, 2006, as follows [original punctuation provided]:
Page 3, Line 25-27
Amend as follows:
(ii) the Milne Point Unit; [except for that portion or
portions of a pool in the Schrader Bluff formation
produced from the drill site S area;]
Page 3, Line 29-30
Amend as follows:
...River Unit; [, except for that portion or portions
of a pool in the West Sak formation produced from the
drill site 1C, 1D, 1E, or 1J drill site areas;]
CO-CHAIR SAMUELS said it looks like a conforming amendment.
MR. VAN DYKE said, "If you're going to define viscous oil
pools...in the known core area oil pools--if you're going to
include the Prudhoe Bay Unit, Ugnu, and Schrader Bluff
formations, and that would be on page 3, line 24. If those
entire pools are going to be included, then I don't see really
any justification to exclude the core areas in other oil pools.
It's either all the core areas are included or all the core
areas are excluded." He said the current bill is a mix of the
two ideas; line 24, page 3 includes the core areas in Prudhoe
Bay, and lines 25-30 exclude other core areas, and he said he
doesn't see the logic.
1:43:00 PM
REPRESENTATIVE ROKEBERG said Scott Digert is the subsurface team
leader from BP and supports the amendment.
CO-CHAIR SAMUELS said this was discussed over the weekend and he
wants the bill to "specifically say there are geographical
areas-we wanted to eliminate those four drill sites and leave
another one in. That was the specific intent of the CS."
REPRESENTATIVE ROKEBERG said he received Mr. Van Dyke's email
prior to writing the CS, and said Mr. Van Dyke said that
"removing them, given the way we redefined the eligible fields,
was inappropriate after we had put the sideboards up by limiting
the scope of the definition, therefore, not making it necessary
to accept those particular existing drill pads because the
credits would only be due on future development expenditures,
not retrospective expenditures. And those are, like, projects
in progress, so you don't want to-they're actually sinking money
down those holes-you want to keep them doing that, so we don't
want to 'disincent' those and have them get a credit for a drill
pad down the block, a new one, when you couldn't get it on the
current one they're working on to try to-because these are test
pads. They're producing but you want to make them produce more."
1:45:30 PM
CO-CHAIR SAMUELS said, "What we did is we included Orion and
Polaris and excluded the drill sites because the drill sites
were actually producing."
MR. VAN DYKE said that is correct.
CO-CHAIR SAMUELS said he excluded 1c, 1d, 1e, 1j, and there was
one other because they are already producing. That was the
middle ground that was reached by including Orion and Polaris.
MR. VAN DYKE said there are viscous oil drill sites in Prudhoe
Bay that are producing today, and one or two yet to be built.
Prudhoe Bay is a mix. He said his email had excluded most of
it, and that is where the debate is. It is hard to divide the
Prudhoe Bay viscous oil pools by drill sites, he opined.
1:47:13 PM
CO-CHAIR SAMUELS said the email said, "except the oil produced
from those four drill sites," and you also want to exclude Orion
and Polaris.
MR. VAN DYKE said that is correct, the email from last week had
drill site "s" in Milne Point; drill sites 1c, 1d, 1e, 1j in
Kuparuk; plus an area in Prudhoe Bay. He said the CS adopted
that idea from Milne Point and Kuparuk, but not his suggestion
from Prudhoe Bay. He said he had discussions with the "Kuparuk
and Milne Point folks" and then indicated in his email that it
may be wiser to not exclude those areas. He stated that carving
out areas creates disincentives.
CO-CHAIR SAMUELS said, "We could go back to your original view
and take out Orion and Polaris, but we drafted the entire bill
based on the conversation we had this weekend, and we took most
of what you wanted and we put Orion and Polaris there."
MR. VAN DYKE said, "At Prudhoe Bay you could name a couple drill
sites in Prudhoe and that would leave room for any new drill
sites to earn credits, and that would be the way...to approach
Prudhoe Bay." He said by going the "exclusion route," the bill
would exclude w and z pads.
1:49:01 PM
REPRESENTATIVE ROKEBERG read an email from Scott Digert of BP
saying that BP would need to spend $10 million to $30 million to
target additional reservoir layers from the Milne pad. There is
a sound argument for not excluding those drill pads when they
are still under development, he said.
CO-CHAIR SAMUELS said that argument could have been made a week
ago.
REPRESENTATIVE ROKEBERG said, "Yea, [in] a perfect world."
1:50:54 PM
REPRESENTATIVE SEATON moved Amendment 2, as described above.
Hearing no objections, Amendment 2 carried.
CO-CHAIR SAMUELS asked if Mr. Van Dyke agrees with conceptual
Amendment 1, which "appears to be a technical definition."
Conceptual Amendment 1, labeled 24-LS1817\S.2, April 27, 2006,
is as follows [original punctuation provided]:
Page 3, Line 20
Amend as follows:
...in an oil pool[.] and the method to be used to
determine the average permeability of an oil pool's
reservoir rock.
MR. VAN DYKE said he agrees that it is a technical definition.
REPRESENTATIVE SEATON said he would move it but he doesn't
understand it.
MR. VAN DYKE said the amendment is similar to a regulation that
would state how one would determine API [American Petroleum
Institute] gravity for a pool. This language would state how
permeability is determined. He noted that parts of a reservoir
will differ, so there needs to be an average.
1:54:12 PM
REPRESENTATIVE SEATON asked if the amendment refers to other oil
challenges rather than viscosity.
MR. VAN DYKE said yes; it would use permeability to define
challenged oil.
Hearing no objections, conceptual Amendment 1 carried.
REPRESENTATIVE SEATON moved Amendment 3, labeled 24-LS1817\S.2,
Chenoweth, 4/27/06, as follows [original punctuation provided]:
Page 2, line 30:
Delete "(i)(1)(A) - (D)"
Insert "(m)(1)(A) - (D)"
Page 3, following line 12:
Insert new subsections to read:
"(g) If the department determines under (i) of
this section that the average price of Alaska North
Slope oil on the United States West Coast during the
period April 1, 2006, through March 31, 2016, is $50 a
barrel or more, a producer that takes a credit under
this section shall repay to the department, no later
than June 30, 2016, the amount of the credit, with
interest at the rate prescribed in this subsection.
Interest is at a rate equal to the rate of return, as
determined by the department, that is earned by the
budget reserve fund established under art. IX, sec.
17, Constitution of the State of Alaska, from the date
the credit was applied against the producer's tax
liability until the earlier of June 30, 2016, or the
date the payment is made to the department. Interest
on an amount unpaid after June 30, 2016, is at the
rate prescribed under AS 43.05.225(1) from July 1,
2016 until the date the payment is made to the
department.
(h) A producer that otherwise is allowed to
apply a credit under this section against a tax due
for a month ending before April 1, 2016, may defer
using the credit until after April 30, 2016. If the
department determines under (i) of this section that
the average price of Alaska North Slope oil on the
United States West Coast during the period April 1,
2006, through March 31, 2016, is less than $50 a
barrel, the producer then may apply the credit against
a tax due under AS 43.55.011(a) or may request a
refund from the department of the amount of the
credit, with interest at the rate prescribed in this
subsection. Interest is at a rate equal to the rate of
return, as determined by the department, that is
earned by the budget reserve fund established under
art. IX, sec. 17, Constitution of the State of Alaska,
from the date the tax under AS 43.55.011(e) was due
against which the amount of a credit could have been
applied against the producer's tax liability in
accordance with (c) of this section, until
(1) the date the amount of the credit is
actually applied against a tax under this subsection,
if it is applied; or (2) the earlier of 90 days after
a refund request for the amount of the credit is
received by the department or the refund is paid, if a
refund is requested. Interest on an amount unpaid 90
days after a refund request is received by the
department is at the rate prescribed under
AS 43.05.225(1) from the 91st day after the refund
request is received until the date the refund is paid.
(i) The department shall, by regulation, specify
the method by which the average price of Alaska North
Slope oil on the United States West Coast shall be
calculated, with reference to one or more published
sources of price information. The department shall
make available to the public no later than April 30,
2016, its determination of the average price of Alaska
North Slope oil on the United States West Coast during
the period April 1, 2006, through March 31, 2016.
(j) For purposes of the period of limitations
provided under AS 43.05.260, an amount that a producer
is obligated to repay to the department under (g) of
this section is considered a tax imposed by this title
for which a return is filed on June 30, 2016. A
producer that incurs an expenditure before April 1,
2016, for which a credit is claimed under this section
shall maintain until July 1, 2019, its records
sufficient to show whether the expenditure is a
qualified development expenditure and to show the tax
liability against which the credit is or, under (h) of
this section, could have been applied."
Reletter the following subsections accordingly.
Page 3, line 13:
Delete "(h)"
Insert "(l)"
CO-CHAIR SAMUELS objected.
REPRESENTATIVE SEATON said Amendment 3 provides a price
guideline [to qualify for the credits], which is an ANS West
Coast price of $50 [per barrel]. There is a look-back period in
applying for credits, "just as in the bill, or they could be
delayed, and then at the end of the ten-year period, you'd look
at the average price of the oil and if it had exceeded that
price cap, then the company would repay the state for the credit
because it wouldn't have been...needed, because it was at a
price level that was economic to develop." Oil price will
either exceed a certain amount or there will be a credit, he
said. He said he would "conceptually change from the price of
ANS West Coast to average price at point of production."
The committee took an at-ease from 1:57:05 PM to 1:57:11 PM.
CO-CHAIR SAMUELS said he doesn't know the consequences of
changing the price to the point of production.
REPRESENTATIVE SEATON said the House Finance Committee could
look at that.
REPRESENTATIVE ROKEBERG asked if Representative Seaton wanted to
adjust the price.
REPRESENTATIVE SEATON said he will leave it to the House Finance
Committee. He said "some of the companies" suggested inflation
proofing, but "that complicates everything." He added that if
it is incorporated into the PPT, it can be adjusted to conform.
CO-CHAIR SAMUELS said the Department of Revenue can look at it.
REPRESENTATIVE SEATON said Ms. Wilson of DOR did look at it.
REPRESENTATIVE CRAWFORD noted that Amendment 3 said a company
"may defer using the credit until after April, 30 2016," and in
the bill it says "shall calculate and apply every month," and he
asked if that is a conflict.
1:59:48 PM
REPRESENTATIVE SEATON said page 2, line 1, of the bill reads:
the producer makes an election. He said the producer makes an
election and then amortized it or...elects to put it off to the
sunset period.
REPRESENTATIVE ROKEBERG said there would be a true-up period, so
this is a cap on the credit. If oil exceeds $50 [per barrel]
there is no credit.
ROBERT MINTZ, Assistant Attorney General, Oil, Gas, and Mining
Section, Department of Law, said line 12, page 1, states: a
credit under this subsection is subject to the provisions of g
to j. He surmised that "would tell you that, where subsection
(b) says that you shall take a credit every month, that wouldn't
apply if you were deferring it."
2:01:52 PM
CO-CHAIR SAMUELS said to pass it as a conceptual amendment.
CO-CHAIR SAMUELS removed his objection. Hearing no further
objections, Conceptual Amendment 3 carried. He said Amendment 4
will not be offered, and Amendment 5 is from Mr. Mintz.
REPRESENTATIVE SEATON moved Amendment 5 as follows:
Page 4, line 20,
Delete "producer"
Insert "expenditure"
Hearing no objection, Amendment 5 carried.
CO-CHAIR SAMUELS asked Mr. Mintz if an "and" should be added on
page 4, line 13. "Do we need to put an "and" after the
AS43.55.160 to make sure that we include all three of these?"
MR. MINTZ said there is an "and" at the end of line 13; it is
read as if it is a sentence in three parts.
2:04:11 PM
REPRESENTATIVE SEATON moved conceptual Amendment 6 as follows:
Page 2, line 19
Delete "30"
Insert "45"
CO-CHAIR SAMUELS objected.
REPRESENTATIVE ROKEBERG said he sees "no purpose in allowing a
piece of paper to sit on the desk of LB&A another 15 days."
CO-CHAIR SAMUELS said the point was to give the legislature a
voice, and during the interim it could take two weeks to get a
quorum. During the session it is no problem. "By the time you
got something, you read it, you understood it on day 1, it would
still take you two weeks to get a quorum together."
2:06:03 PM
REPRESENTATIVE ROKEBERG said if someone lights a fire, the chair
of LB&A could have a meeting. He said politicians react to
something that is brought to their attention.
REPRESENTATIVE SEATON said he is not sure how DNR would provide
the notice, but he assumes it would go out to more than just the
chair of LB&A. Most of these projects are long term, he said,
and it takes awhile to get delineation and get it sanctioned
after it was applied for.
CO-CHAIR SAMUELS asked the process for ConocoPhillips once it
completed testing and got the information to DNR. He asked if
the Board of Directors had to be informed and if the timing
between 30 and 45 days matters.
MICHAEL HURLEY, ConocoPhillips Alaska, Inc., said it will take
awhile to do a project. It is always painful to have a piece of
paper sitting on somebody's desk, "but it's going to take awhile
to get things done for a new pool."
2:08:59 PM
Hearing no further objections, Amendment 6 carried.
REPRESENTATIVE SEATON moved to report the CS for HB 498, labeled
24-LS1817\S, Chenoweth, 4/26/06, as amended, out of committee
with individual recommendations and the accompanying fiscal
notes. Hearing no objection, CSHB 498(RES) passed out of the
House Resources Standing Committee.
HB 497-TRANSFER CLARK BAY TERMINAL
2:09:37 PM
CO-CHAIR SAMUELS asked Representative Elkins about HB 497.
REPRESENTATIVE ELKINS said he pulled the bill because, "after we
had the big discussion in here," the interest group decided to
pursue a lease from the state [instead of a land grant].
[HB 497 was heard and held]
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:10 PM.
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