Legislature(2007 - 2008)HOUSE FINANCE 519
10/30/2007 06:30 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB2001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB2001 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
October 30, 2007
6:35 p.m.
MEMBERS PRESENT
Representative Carl Gatto, Co-Chair
Representative Craig Johnson, Co-Chair
Representative Anna Fairclough
Representative Bob Roses
Representative Paul Seaton
Representative Peggy Wilson
Representative Bryce Edgmon
Representative David Guttenberg
Representative Scott Kawasaki (via teleconference)
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 2001
"An Act relating to the production tax on oil and gas and to
conservation surcharges on oil; relating to the issuance of
advisory bulletins and the disclosure of certain information
relating to the production tax and the sharing between agencies
of certain information relating to the production tax and to oil
and gas or gas only leases; amending the State Personnel Act to
place in the exempt service certain state oil and gas auditors
and their immediate supervisors; establishing an oil and gas tax
credit fund and authorizing payment from that fund; providing
for retroactive application of certain statutory and regulatory
provisions relating to the production tax on oil and gas and
conservation surcharges on oil; making conforming amendments;
and providing for an effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB2001
SHORT TITLE: OIL & GAS TAX AMENDMENTS
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
10/18/07 (H) READ THE FIRST TIME - REFERRALS
10/18/07 (H) O&G, RES, FIN
10/19/07 (H) O&G AT 1:30 PM HOUSE FINANCE 519
10/19/07 (H) Heard & Held
10/19/07 (H) MINUTE(O&G)
10/20/07 (H) O&G AT 12:00 AM HOUSE FINANCE 519
10/20/07 (H) Heard & Held
10/20/07 (H) MINUTE(O&G)
10/21/07 (H) O&G AT 1:00 PM HOUSE FINANCE 519
10/21/07 (H) Heard & Held
10/21/07 (H) MINUTE(O&G)
10/22/07 (H) O&G AT 9:00 AM HOUSE FINANCE 519
10/22/07 (H) Heard & Held
10/22/07 (H) MINUTE(O&G)
10/23/07 (H) O&G AT 9:00 AM HOUSE FINANCE 519
10/23/07 (H) Heard & Held
10/23/07 (H) MINUTE(O&G)
10/24/07 (H) O&G AT 9:00 AM HOUSE FINANCE 519
10/24/07 (H) Heard & Held
10/24/07 (H) MINUTE(O&G)
10/25/07 (H) O&G AT 10:00 AM HOUSE FINANCE 519
10/25/07 (H) Heard & Held
10/25/07 (H) MINUTE(O&G)
10/26/07 (H) O&G AT 10:00 AM HOUSE FINANCE 519
10/26/07 (H) Heard & Held
10/26/07 (H) MINUTE(O&G)
10/27/07 (H) O&G AT 2:00 PM HOUSE FINANCE 519
10/27/07 (H) Heard & Held
10/27/07 (H) MINUTE(O&G)
10/28/07 (H) O&G AT 2:00 PM HOUSE FINANCE 519
10/28/07 (H) Moved CSHB2001(O&G) Out of Committee
10/28/07 (H) MINUTE(O&G)
10/29/07 (H) O&G RPT CS(O&G) NT 4DP 1NR 2AM
10/29/07 (H) DP: SAMUELS, NEUMAN, RAMRAS, OLSON
10/29/07 (H) NR: DOOGAN
10/29/07 (H) AM: KAWASAKI, DAHLSTROM
10/29/07 (H) RES AT 1:00 PM HOUSE FINANCE 519
10/29/07 (H) Heard & Held
10/29/07 (H) MINUTE(RES)
10/30/07 (H) RES AT 9:00 AM HOUSE FINANCE 519
10/30/07 (H) RES AT 6:30 PM HOUSE FINANCE 519
WITNESS REGISTER
SCOTT THORSON, Owner
Network Business Systems
Anchorage, Alaska
POSITION STATEMENT: During hearing on HB 2001, opposed raising
taxes on the oil industry.
AVES THOMPSON, Executive Director
Alaska Trucking Association (ATA)
Anchorage, Alaska
POSITION STATEMENT: During hearing on HB 2001, urged that the
oil tax rate be kept low and that incentives be used to
encourage increased development investment.
JOHN SHIVELY, President
Resource Development Council (RDC)
Anchorage, Alaska
POSITION STATEMENT: During hearing on HB 2001, opposed raising
taxes on the oil industry.
BRIAN HOVE, Government Relations Committee Chair
Greater Fairbanks Chamber of Commerce
Fairbanks, Alaska
POSITION STATEMENT: During hearing on HB 2001, testified that
the managerial objectives of Alaska's Clear and Equitable Share
(ACES) legislation could be accomplished through a non-statutory
manner and that the petroleum production profits tax (PPT)
system should not be overhauled at this time.
DONALD BENSON
Palmer, Alaska
POSITION STATEMENT: Supported HB 2001 as originally introduced.
JAN BROPHY
Soldotna, Alaska
POSITION STATEMENT: During hearing on HB 2001, testified that
the tax needs to be fixed and that the oil industry does not
need any incentives.
HARVEY ROOKUS
Anchorage, Alaska
POSITION STATEMENT: During hearing on HB 2001, opposed a tax
increase.
CHUCK LOGSDON
Palmer, Alaska
POSITION STATEMENT: During hearing on HB 2001, urged that
provisions of the PPT be kept as they are.
BILL WARREN
Nikiski, Alaska
POSITION STATEMENT: Supported HB 2001 and a larger tax.
TOM LAKOSH
Anchorage, Alaska
POSITION STATEMENT: Testified that the provisions of HB 2001
violate three constitutional provisions and that these
violations need to be remedied.
STACY SCHUBERT, President
Anchorage Chamber of Commerce
Anchorage, Alaska
POSITION STATEMENT: During hearing on HB 2001, urged that the
PPT not be discarded and that it be given more time to work.
MARK SHARP
Fairbanks, Alaska
POSITION STATEMENT: During hearing on HB 2001, supported a
gross tax rather than a net tax.
MERRICK PIERCE
Fairbanks, Alaska
POSITION STATEMENT: During hearing on HB 2001, urged that the
state not under tax its oil resource and requested that there be
discussion of a gross tax versus a net profits tax.
MICHAEL MELIELO, President
Chugiak-Eagle River Chamber of Commerce
Eagle River, Alaska
POSITION STATEMENT: During hearing on HB 2001, testified that
waiting four years to review the PPT will provide the time and
data necessary for doing a good assessment.
PAT TOLSON
Hydaburg, Alaska
POSITION STATEMENT: During hearing on HB 2001, testified that
people in economically depressed rural communities need the oil
industry for job opportunities.
JIM UDELHOVEN, Owner
Udelhoven Oilfield System Services (UOSS)
Kasilof, Alaska
POSITION STATEMENT: During hearing on HB 2001, requested that
decisions be made in a manner that will propel the oil industry
forward.
BILL ZORB
Fairbanks, Alaska
POSITION STATEMENT: During hearing on HB 2001, urged that the
net profits tax be restored to 25 percent.
FAY VON GEMMINGEN
Palmer, Alaska
POSITION STATEMENT: During hearing on HB 2001, supported a
gross tax rather than a net profits tax.
DARYL NELSON
Chugiak, Alaska
POSITION STATEMENT: During hearing on HB 2001, supported a tax
of at least 25 percent off of the gross.
PAUL D. KENDALL
Anchorage, Alaska
POSITION STATEMENT: During hearing on HB 2001, supported a
gross tax.
GLORIA DESROCHERS
North Pole, Alaska
POSITION STATEMENT: During hearing on HB 2001, testified that
the state should receive higher profits on its oil.
LISA PEGER
Fairbanks, Alaska
POSITION STATEMENT: During hearing on HB 2001, urged that the
bill be passed ungutted.
JERRY DIXON
Seward, Alaska
POSITION STATEMENT: During hearing on HB 2001, supported an
increased oil tax.
ACTION NARRATIVE
CO-CHAIR CARL GATTO called the House Resources Standing
Committee meeting to order at 6:35:41 PM. Representatives
Gatto, Johnson, Roses, Guttenberg, Edgmon, Fairclough, Wilson,
Kawasaki (via teleconference), and Seaton were present at the
call to order.
HB2001-OIL & GAS TAX AMENDMENTS
6:36:04 PM
CO-CHAIR GATTO announced that the only order of business would
be HOUSE BILL NO. 2001, "An Act relating to the production tax
on oil and gas and to conservation surcharges on oil; relating
to the issuance of advisory bulletins and the disclosure of
certain information relating to the production tax and the
sharing between agencies of certain information relating to the
production tax and to oil and gas or gas only leases; amending
the State Personnel Act to place in the exempt service certain
state oil and gas auditors and their immediate supervisors;
establishing an oil and gas tax credit fund and authorizing
payment from that fund; providing for retroactive application of
certain statutory and regulatory provisions relating to the
production tax on oil and gas and conservation surcharges on
oil; making conforming amendments; and providing for an
effective date." [Before the committee was CSHB 2001(O&G).]
6:36:15 PM
SCOTT THORSON, Owner, Network Business Systems, stated that his
company is an information technology ("IT") services firm in
Anchorage with 30 employees, but that he is testifying only for
himself. He said his customer base is primarily the private
sector and that people generally invest in their IT
infrastructure when the business environment is sound. About 1-
2 percent of his revenue is directly from the oil industry, and
about 80 percent is from companies that are directly or
indirectly connected to the oil industry. He related that he
has heard concern from his customers about increasing taxes on
the oil industry and that he is also concerned because he thinks
it will have a chilling effect on the overall business
environment in Alaska. The main beneficiary of increased taxes
on the oil industry is state government, he said. Most working
Alaskans, including myself, will not see a benefit. There will
be more job opportunities and higher income for Alaskans if the
private sector is allowed to develop and the business sector
stays robust. The ability of businesses to give raises equates
to thousands more in personal annual income than does a couple
of hundred dollars from the Permanent Fund, he said. "If you
want less of something, put a tax on it," he said. "Alaska needs
more production, not less." He did not see how increasing oil
taxes would improve the production situation that the state is
facing. The legislature has the power to improve things or to
crush industry by extracting more tax. He said he does not want
to repeat the downturn that happened in the 1980s.
6:43:14 PM
AVES THOMPSON, Executive Director, Alaska Trucking Association
(ATA), spoke from the following written statement [original
punctuation provided]:
Thank you. Mr. Chairman and members of the committee,
I am Aves Thompson, Executive Director of the Alaska
Trucking Association. The Alaska Trucking Association
is a state wide organization representing trucking
interests from Barrow to Ketchikan. In 2008, our
association celebrates its 50th Anniversary of serving
the interests of the trucking industry in Alaska. Our
more than 200 members represent all of the diverse
trucking operations in the state and many associate
members who provide goods and services to our
industry. It is important to note that, in Alaska,
trucking employs over 20,000 people - 1 out of 14
workers. Trucking payrolls are over $900 million
annually and several thousand family-owned and
corporate trucking businesses (most have less than 10
employees) operate in Alaska.
On behalf of ATA, I want to make several observations
about PPT issues.
It has been said many times that, in developing our
natural resources, our constitution requires that we
seek maximum return to the citizens of Alaska. While
it seems that the emphasis has been on raising taxes
to increase tax revenue to the state, we believe that
the better way to maximize benefits to Alaskans is to
provide good paying, long term jobs for this and
future generations.
The State needs to focus on how to slow the decline of
production. To accomplish that objective, investments
need to continue in existing fields, investments need
to be made in heavy oil and investments need to be
made to promote the development of new fields.
Existing field development should be the first
priority. Most of the new production, in recent
years, has occurred in existing fields. Without this
base production, heavy oil and other new field
development will face major additional challenges.
The oil and gas business is capital intensive and it
takes many years for return on investments to occur.
Increases to taxes lengthen that recovery time and can
negatively impact project economics and investment
decisions.
We believe that it is important in setting tax policy
to produce adequate revenues for the state but more
importantly, encourage further investment in the
development of our abundant resources.
We urge you keep the tax rate low and use incentives
to encourage increased development investment. As
stated earlier, we believe that the better way to
maximize benefits to Alaskans is to provide good
paying, long term jobs for this and future
generations. Investment, not taxes, will provide the
jobs we need to ensure our future.
MR. THOMPSON, in response to Co-Chair Gatto, stated that he is
the Executive Director of the Alaska Trucking Association which
has approximately 200 members and represents more than half of
the truck-tractors that operate in the state.
6:47:34 PM
JOHN SHIVELY, President, Resource Development Council (RDC),
noted that RDC's membership includes resource industries, Native
corporations, governments, and unions. The message being sent
to the oil industry with this tax is also being sent to the
whole economy, he stated. Raising taxes now would be doing so
at a time when the economy is somewhat fragile. Most of the
resource sectors are currently under attack, he said, including
timber, mining, coal, commercial fishing, and the cruise ship
industry. With school registrations flat or slightly down and a
soft housing market, it is not a good time to be sending such a
negative signal. Additionally, he said, the tax increase is
being considered at a time when the state has a surplus and has
not addressed its fiscal future. It does not seem responsible
for the legislature to make this major of a decision without a
plan in place for the state's fiscal future and how the state's
assets will be used. He said he did not believe the legislature
would be in session to raise the tax if it was a state income
tax on individuals and there was a surplus like there is today.
This should be the same for taxes on the oil industry.
6:51:13 PM
BRIAN HOVE, Government Relations Committee Chair, Greater
Fairbanks Chamber of Commerce, spoke from the following written
testimony [original punctuation provided with formatting
changes]:
The mission of the Greater Fairbanks Chamber of
Commerce is to advocate for, and support, a strong
investment and economic development climate in our
community and our state. With this commitment in
mind, the Chamber was a close observer of last year's
PPT discussion. So it follows that this year's debate
on a proposed replacement is being monitored just as
carefully.
Where oil tax policy is concerned, the Chamber
recognizes the delicate balance that must be struck.
The State's petroleum assets are non-renewable. As
such there is only one opportunity to receive fair
value from the severed resource. On the other side of
the fulcrum lies the responsibility to implement a tax
structure conducive to enhancing future revenue
opportunities through creation of a positive
investment climate for businesses large and small.
Last year the Chamber supported replacing the obsolete
ELF system with PPT, a plan designed to steer revenues
to the State that would satisfy a contemporary notion
of "fair share". Of equal importance to Chamber
membership was PPT's tax credit program designed to
kick-start an investment cycle that would help sustain
the State until commercial quantities of North Slope
natural gas could be delivered to market. The Chamber
remains a strong advocate for both of these vital
development objectives.
The Administration's ACES proposal has raised much
concern among Chamber membership regarding the
prudence of completely revamping a tax system that has
been on the books only a short time. As proposed,
ACES would change every single one of the PPT
variables. These include:
Net Rate
Floor Rate
Progressivity Rate
Progressivity Starting Point
Investment Tax Credit Structure
The Department of Revenue, in its August 2007 PPT
Implementation Status Report, acknowledges that it is
too early to tell if the PPT system will have the
desired effect. So, while it might be entirely
possible that PPT will need some minor modifications
to achieve the intended purpose, how do we know what
these might be absent a sufficient assessment period?
PPT has returned a level of revenue to the State which
is substantially higher than the ELF system it
replaced. Yet, the Status Report complains that
industry capital and operating costs have exceeded
projections and as a result anticipated tax revenues
have not met expectations. The Report goes on to
acknowledge the recent spate of extraordinary price
increases for labor and materials that have beset the
industry.
Upward spiraling cost trends defy accurate
projections. Anybody in business during the 1970s or
early 80s can attest to this. Revamping PPT to take a
larger tax cut serves only to exacerbate this cost
pressure. And it certainly does not work to achieve
the investments the State needs on the North Slope. A
final word on costs, the Department of Revenue Spring
2007 Revenue Source Book was prescient in its closing
statement regarding PPT, "The PPT system is designed
to encourage additional investment. If PPT is
successful, costs will increase in the near term and
production will increase shortly thereafter."
Of concern to all State residents is the implication
that PPT deliberations were subject to undue
influence. Much of the discussion on PPT centered on
whether the tax rate should be 20% or 25%. Strong
personalities on both sides argued the relative merits
of each alternative. Yet, it's important to note that
ultimately the Legislature did what legislatures do -
it compromised. In this case at a very predictable
rate of 22.5%. While this was not the level the
Chamber supported, membership understands the value in
compromise and reconciliation in the interest of
achieving a greater goal.
The Chamber membership applauds the Administration's
efforts to enhance the quality of information flowing
to-and-from State agencies as well as improving the
structural flow of information among its various
departments. Furthermore, the Chamber supports the
Administration's desire to improve the level of
expertise applied to complex tasks necessary to
validate compliance with State law. These are prudent
managerial objectives which could likely be
accomplished in a non-statutory manner.
In summary, the Greater Fairbanks Chamber of Commerce
supports the Administration's efforts relating to the
gathering and sharing of information as well as the
need to attract higher levels of expertise in certain
tax accounting fields. With respect to the
Administration's tax proposal, it is clear that ACES
cannot possibly serve the State's interest in
fostering a stable investment climate necessary to
secure sustainable levels of North Slope oil
production. Therefore, the Chamber cannot support the
Administration's desire to completely overhaul the PPT
tax system after just one year of experience.
6:58:18 PM
DONALD BENSON stated that he is representing himself. He said
the current tax structure of PPT is compromised and needs to be
re-examined for two reasons: 1) to restore the public trust
from those who clouded the names of Alaska's state legislators,
and 2) to finally bring in Alaska's fair share of oil and gas
revenue. Governor Palin's ACES plan [HB 2001, as introduced,]
will do just this, he said. He related that in a recent poll 72
percent of the respondents believed Alaska was not getting its
fair share. He encouraged the committee to keep intact the key
elements of the ACES plan - the progressivity and the trigger,
the tax rate, and the important administrative tools that expand
the list of reporting returns and expenditure information that
the state's administrative accountants need. He stated that
ACES is a tax system that will ensure tax write-off of company
investments, and additional taxes to companies that do not
invest. Additionally, ACES ensures that Alaska, as an owner
state, will be treated as an equal business partner. The state
needs a new accounting system, he said, that ensures teamwork
and partnership. In response to Co-Chair Gatto, Mr. Benson said
he is a 55-year-old, third generation Alaskan.
7:02:26 PM
JAN BROPHY said he has been in Alaska for 22 years, has raised
four boys, and is now retired. He stated that he has never
before been involved in politics, but that he has been following
this issue and some things have been very appalling to him. He
said he read Co-Chair Gatto's article in the Peninsula Clarion
and that he agrees with everything in the article. Alaska's
citizens should not be apologetic for the state's rich natural
resources, he said. The oil industry has brought the oil to
market, but the oil belongs to the state. He said he did not
think the oil industry is going anywhere because as long as
there is oil or gas in the ground there is money to be made.
The oil industry is making a profit and does not need any
incentives to get the oil out of the ground, he maintained. The
oil industry wants financial security in the state, but they
cannot have security if critics are always going to say that the
tax is not right and needs to be fixed. The tax needs to be
fixed, he stressed. Elected officials need to remember that
they are elected to represent the people of Alaska. The oil
industry does not want to deal with a state that is double-
minded and can be bought, they want to do business with a body
of people that they can trust. As good business people, he
said, the legislative body can go head to head with industry and
come up with a good plan.
7:07:03 PM
HARVEY ROOKUS stated that he worked as an oil company employee
for 37 years before retiring in 1983. He said he would like to
keep the oil companies here and that he "can't see the feeling
of making a bunch of money on the first year of the tax increase
and then increasing it the next year." This is not the way to
go, he said.
7:08:13 PM
CHUCK LOGSDON spoke from the following written statement
[original punctuation provided with formatting changes]:
For the record my name is Chuck Logsdon. I am a
petroleum economist currently working as a consultant
to the Alaska Oil and Gas Association. Today I am
testifying as a citizen from Palmer.
I like the PPT as it is currently structured. I
believe it strikes a good balance between obtaining a
fair share of the "economic rent" for the State from
its production tax, while at the same time providing
incentives to encourage reinvestment of industry
profit. Reinvestment that will be crucial to keep oil
flowing in the pipeline.
In particular, I like the use of net cash flow as the
tax base. From an economist's perspective this is an
efficient way of taxing business activity as it
directly recognizes the ability to pay the tax in an
industry with extremely high upfront capital costs. I
also like the progressive rate schedule applied to the
tax base because once again, it directly matches the
tax to the ability of industry to pay the tax.
I also believe the tax credits in the PPT are set
about right. Set too high, tax credits can create the
incentive to gold plate and as a result high
administrative costs to prevent this from happening.
The combination of a tax based on net production value
along with attractive tax credits is a solid step
toward encouraging the investment needed to keep the
TAPS flowing.
Obviously the choice of tax rate is a tough call and a
lot of information and comparisons have been generated
to try to help policy makers in making the decision as
to where that rate should be set. I believe that the
current PPT sets this rate about right both for base
rate and progressivity.
As you may have gathered, I do not like resource
production taxes that ignore the cost of extracting
the resource in the tax base. Because resource
deposits vary widely in their development costs, such
taxes generally require complex tweaking to make
adjustments to reflect these differences in the
ability to pay the tax. We already have a royalty
share that is based on the gross value at the point of
production that is the same regardless of
profitability or lease location. To encourage
resource development it makes sense to go to the net
for our production tax and apply it universally.
On efficiency grounds I also do not like fixed floor
taxes. However, since government services are an
important economic safety net a floor may be necessary
but it should be kept low. As a result I like the tax
floor mechanism in the PPT.
I would like to see these key provisions of the PPT
remain as they are.
MR. LOGSDON, in response to Co-Chair Gatto, stated that he had
written newspaper articles in the past and that he is currently
working as a consultant on contract with AOGA.
7:11:50 PM
BILL WARREN noted that he is a retired member of Local 367
Pipefitters. He said he has worked on the Trans-Alaska Pipeline
System (TAPS) and from Ketchikan to Barrow. He is a 55 year
resident, second generation Alaskan representing his
grandchildren, he said. He supported ACES and the larger take.
He said he trusts Governor Palin and most members of the
legislature, but he does not trust the big three producers
because they are a monopoly and have too much influence. The
big three producers will not be the ones doing the "exploring
and creative stuff to get more oil into our 48 inch," he
predicted. The state needs to keep its sovereignty and not be
dependent upon the three oil producers. He urged that the state
cater to, and facilitate for, the explorers and smaller outfits.
A gas line is needed right away to give these explorers a pay
day where they can not only sell their gas but also have a place
to market their oil, he said. The state should have no fear, as
the planet is getting increasingly smaller and there is less and
less range for the oil producers to operate in. The state does
not need to fall all over itself to please the big three, he
said. A larger take is needed and it is in line with what the
rest of the world is getting.
7:14:48 PM
TOM LAKOSH spoke for himself as a 24-year resident of Alaska.
He said that the provisions of [HB 2001] violate three
constitutional provisions. He requested that these violations
be remedied by the committee. He presented a summary of the
first three bullets from the following written statement
[original punctuation provided]:
My alternative to ACES is called TRIPS, Taxes,
Royalties and Infrastructure for the Petroleum Sector.
There are some, albeit few, sections of ACES that
would be useful but the basic principles at work that
require a wholesale reworking of the Bill are:
· Virtually all oil bearing structures on state lands
have been explored so there's little reason to provide
incentives to the industry to explore where they have
already exploited everything they could. BP made this
clear in their statement that 70% of their future
investment would be in the greater Prudhoe area where
they are obligated to wisely extract the hydrocarbons
pursuant to the applicable leases and AOGCC
guidelines. If producers don't provide full and
efficient extraction in the operation plans submitted
to the Division of Oil and Gas, leases may be subject
to revocation and "there's always other fish in the
sea". We should not give existing producers kickbacks
where they're obligated to do the job properly and
within technological feasibility and economic limits
under their existing lease contracts and applicable
law. With the price of oil above $80 there should be
little left to recover in our legacy fields and we
must demand that the ADOG conduct the mandated
evaluations of the economic feasibility of heavy oil
extraction now while we still have light oil to mix
into TAPS shipments and the price is still high enough
to warrant extraction without subsidy.
· Where extraction of heavy or viscous oils is
necessarily tied to the availability of lighter oils,
the ADNR and AOGCC must conduct the proper technology
and economic analyses to insure the optimization of
revenues from regulation of the rates heavy and light
oils are extracted. The ADNR and AOGCC must thereafter
issue the necessary directives to lessees to insure
that lessees are producing each type of hydrocarbon on
their leases in manner that optimizes the total
revenues to the state. There is no quantifiable
correlation between the oil production rates or total
state revenues and the tax rates so the proper
oversight of our regulatory agencies, ADNR/ADOG must
be conducted to insure that they regulate lessees to
the optimal benefit of the state in conformance with
Article VIII Section 2 and the applicable statute,
regulations and lease provisions. Only then could the
legislature determine if additional tax write-offs and
credits would be necessary to ensure maximum benefit
to the state and even then it would be preferable to
provide ADNR/ADOG additional tools for incentivizing
development because they could apply such incentives
with surgical accuracy to specific leases and
production units where taxes, no matter how specific,
would tend to waste considerable revenue to produce
the same hydrocarbon production/revenues.
· The fair legislative investigation of this tax matter
mandated by Article I Section 7, necessitates that
this committee call ADNR/ADOR to testify on its
approval of unit and lease operation plans and
explain: their best interest findings, the economic
feasibility findings for hydrocarbon extraction
required by lease provisions as associated with
lease/unit plans of operation; and what their
projections are for production at specific fields and
for specific hydrocarbons in an effort to reach the
maximal benefit to the state. Unless and until
ADNR/ADOG produces findings that royalty relief is
necessary to reach optimal production rates, any
subsidy envisioned in tax write-offs and credits could
only produce a negative fiscal note. Moreover, any
fiscal note produced absent this detailed
investigation would be arbitrary and capricious where
there would be no basis for relating what
production/revenue was already required of producers
in comparison to what the tax legislation was
predicted to create. The sad fact of the matter is
that ADNR/ADOR has never performed any independent
economic feasibility analyses of the operation plans
proffered by producers to evaluate whether the state
was receiving, or would receive in the future, maximum
benefit from the producers' plans of operation. This
administrative dereliction of duty must be rectified
before the legislature can move forward with any
additional incentives to industry beyond what is
already provided for in AS 38.05.180. The producers
have not utilized the current royalty reduction
incentives and should not be allowed to "buffalo" an
ill informed legislature into granting an "end run
around" the ADNR/ADOR regulations that were
specifically designed to prevent such relief without a
thorough economic assessment that shows a clear
justification for relief. The applicable statutes and
regulations actually envision that operational plans
required to generate optimal production over the life
of the field may in fact demand that lessees operate
at a net loss near the end of the field life. Where
the legislature imposes write-offs and credits over
this regulatory scheme, tax revenues could be
eliminated and we might even have to pay producers 20%
of costs where they generated no tax revenue at all
due to write-offs. This situation would clearly
require posting of a negative fiscal note that would
violate the constitutional mandate to maximize public
benefit. The legislature must first require ADNR/ADOG
to exhaust their administrative duties and lessees
must also first exhaust their administrative remedies
before any additional incentives such as write-offs or
credits are offered.
· If absolutely necessary, we can subsidize production
of hydrocarbons that are difficult to develop by
adjusting royalty rates instead of taxes. This would
allow for lease by lease evaluation that is clearly
more sensible than the broad subsidies to all
operations. The royalty rates apply to gross
production so the 19% range I've suggested has more
than enough value available to provide incentive for
development of heavy oils and remote gas should
existing lessees submit, or new lessees sign on, to
the new adjusted royalty rates that express the
relative accessibility and marketability of specific
lease types at specific distances from established
infrastructure.
· The testimony clearly enforced the principle that "if
you build it they will come". Angola got a $1 billion
for its leases and rabid global competition because
the oil co's knew there was oil to develop. If there's
oil/gas to be found, the state should find it and
define the field before it puts out leases so it can
garner the highest bids among many competitors. The
state would also be better able to predict
development, classify fields to establish proper
royalty rates and determine appropriate deadlines for
relinquishment. The more we improve information on
prospective fields and insure access, the less we need
speculators that demand high rates of return. When we
eliminate the discovery and access impediments we
essentially only need contractors to build the
production facilities and pump the oil as regulated by
ADNR and AOGCC.
· If we have to subsidize the industry we should do it
in a way that benefits other businesses and public
interests. Taking money from royalties to improve
transportation to the fields/pipelines floats
everybody's boat. The heavy lift helicopters and low
impact transport would also reduce tundra impacts,
allow a longer exploration season and year round
deliveries to isolated drilling/production pads. They
would also be extremely effective tools for getting
spill response equipment to remote sites and help
repair global warming damage in remote areas that is
directly caused by the oil we peddle.
· Our economic future through 40 - 60 years depends on
our ability to market gas and the gas will not be
marketable until the relative BTU value of gas
approaches the price of oil BTUs, (PVM said it was at
40% of oil because Northern Tier coal companies
successfully marketed their coal to power plants). The
relative BTU value of gas can only be increased by de-
valuing coal as a power plant fuel with a federal
carbon tax. The carbon tax would also likely save us
as much in damages to infrastructure from global
warming as we would make on oil exports, billions and
billions in prevented damage that we wouldn't have to
otherwise spend our revenue on to mitigate. If we
can't muster the ethics to pursue a carbon tax for its
environmental benefit, we should at least pursue a
state and federal carbon tax to increase the value of
our gas in an effort to make the gas pipeline
economical. The gas problem can only be rectified with
a carbon tax and then all else will be controlled by
the high, stable gas value generated by a proper
valuation of this external cost of our hydrocarbon
economy. More stringent particulate regulation would
also likely help gas prices.
· Providing tax incentives to explore or produce on
federal land will mostly provide returns for the
federal gov't, leaving us with enormous development
bills and not much revenue to show for it. Granting
these tax write-offs without careful consideration of
what will/should be required of producers under
existing leases could well reduce revenues from taxes
to zero and the additional payment of credits could
even require the state to pay the producers for
exporting the oil. The least negative impact to
exploration from any tax increase can be accomplished
by increasing the corporate income tax on hazardous
operations because an increase in state corporate tax
is used as a direct offset to federal income taxes so
there' no net increase in taxes on the oil co's. The
increased income tax will also allow Alaska to extract
a fairer share of income from production of oil on
federal lands and even more so from the federal outer
continental shelf, (i.e. the 90/10 vs 50/50 royalty
split, justice w/o a court). The progressive sales
tax will also capture additional revenue from federal
OCS leases that is otherwise escaping sufficient state
capture.
· If we allow the oil co's to write off their Alaskan
expenses it would tend to increase the price of our
hydrocarbons and make them less competitive on the
open market. Taxes do have an effect on corporate
behavior and only taxing the gross at the point of
export or in-state delivery will serve to keep a
market check on expenditures in-state and therefore
keep our hydrocarbons as cheap as possible in the
market. We have recently discovered from RCA and FERC
tariff proceedings that the state and consumers have
been overcharged for TAPS costs by as much as $3/bbl
and a sales tax levied at the point of export must be
imposed to insure the lowest overall transportation
costs where a prior administration has illegitimately
surrendered our right to challenge tariffs overcharges
in the prior TAPS tariff settlement agreement. We
would surely have a strong case for upholding the
gross tax where it measures the oil value IN ALASKA.
Both PPT and ACES are inviting fly by might
wildcatters that will sell their credits and leave.
The majors will be just as susceptible to the notion
that spending controls are less of a priority given
that they can sell the credits for marginal projects
if they fail. Why not just take the money we'd spend
on write-offs and credits and provide the needed
oversight to exploration contractors we hire on a
competitive bid? Existing lessees are already required
to produce all hydrocarbons as is economically
feasible and can apply for royalty relief if prices do
not support optimal production rates.
· The discrepancies between projected revenues and
collected revenues under PPT suggests that either the
state is incapable of properly assessing tax
provisions or that tax payers are withholding taxes.
Both results suggest we must have a simple tax
structure to avoid revenue shortfalls and costly
litigation. Moreover, the complicated write-offs and
credits would make it nearly impossible for ADNR/ADOG
to properly assess appropriate plans for operation of
leases/units if ADNR/ADOG was indeed inclined to
properly implement their leases, statutes and
regulations. Such an impairment of the lease contracts
may well be interpreted as violating Article I Section
15 of the state constitution barring such impairment.
· The whole TRIPS scheme is designed to enhance
certainty of development, (pre-defined leases and
improved access), while alleviating risk due to low
prices but eliminating any windfalls to industry, (the
progressive sales tax spanning a $190 price range).
Although I haven't done a precise analysis of the
total government take, I strongly suspect that these
rates would keep us below the Norwegian standard of
78% gross government take up to about $70/bbl and I
would suggest lowering the base oil sales tax and/or
raising the new class of corporate income tax until
this parity was reached. I'm sure that the Norwegians
never anticipated the blistering oil market we have
today and so did not include progressivity. The gas
problem can only be rectified with a carbon tax and
then all else will be controlled by the high, stable
gas value generated by a proper valuation of this
external cost of our hydrocarbon economy. More
stringent particulate regulation would also likely
help gas prices.
Proposed Principles and Rates for Design of an Oil Tax
Bill:
Production and Corporate Income Taxes, Royalty Rates
and Lease Provisions with
State Commitments to Exploration, Infrastructure and
Carbon Conservation
Raw Oil/Gas Sales Taxes: The gross tax on
raw/unrefined hydrocarbons sold in/from Alaska shall
be set at the value of the hydrocarbons at the Alaskan
terminus of export or point of sale within Alaska in
order to provide a market check on production costs
and pipeline tariffs in furtherance of the relative
competitiveness of Alaskan resources, (e.g. Valdez
Marine Terminal for TAPS oil, Drift River or KPL Dock
for Cook Inlet oil and gas, at the Canadian border in
the case of gas transport by pipeline, at any in-state
refinery or point of sale). This tax system would also
encourage export of value added petrochemical and
refined products. The suggested tax rates for crude
oil are as follows:
1. There shall be a minimum sales tax of 15% of gross
value for oil prices between $0 and $20/bbl;
2. At $21/bbl the sales tax increases to 15.5% and
increases by a rate of 0.5% for each $1/bbl increase
in price to $30 ;
3. At a price of $31/bbl the sales tax shall be raised to
20.2% of gross value and shall increase at a rate of
0.2% for each $1 in value per barrel until a price of
$110/bbl at which point the tax will have accumulated
increases to provide a rate of 36% of value;
4. At a price of $111/bbl the sales tax shall be assessed
at 36.1% of value and shall increase at a rate of 0.1%
for each $1 in value per barrel until a price of
$210/bbl at which point the sales tax will have
reached its maximum rate of 46% of value.
Corporate Income Tax: A distinct class of Alaskan
corporations shall include those operations that
handle substantial quantities of hydrocarbons and
other hazardous materials, as classified by the ADEC,
and be subject to a corporate income tax of 14%. The
safety and security issues presented by these
operations require significant oversight, security and
public safety assets that warrant an enhanced level of
corporate classification in such regard.
Royalty Rates: Lease bidders will proffer a signing
bonus payment and a bid above an adjustable royalty
floor/minimum established between 1% for the least
marketable hydrocarbon, (e.g. inaccessible, undefined
gas fields), to a maximum of 20% for the highest
wellhead value hydrocarbon, (e.g. well defined, light
and accessible liquids such as those at Point
Thompson). Each new lessee shall consent to an
adjustment of its royalty rate every 5 years after
production startup that reflects any increase or
decrease in the market valuation of the BTU content of
the hydrocarbon(s) under development and/or by a
substantial improvement in accessibility of leased
properties as generated by state efforts. Lessees
shall provide all necessary information needed to
assess the accessibility of lease holdings and the
relative BTU value of Alaskan hydrocarbons. The
ADNR/ADOG shall provide a report to the legislature at
the beginning of each general session all best
interest findings relative to oil and gas development
and suggest any additional statutory provisions
necessary to advance the optimal development of the
state's hydrocarbon resources from existing and
proposed leases/lease sales.
Hydrocarbon Exploration, Production and Transport
Lease Provisions: ADNR and AOGCC, shall in their
administration of lessees operations, conduct the
necessary analyses and issue appropriate directives to
lessees to provide for the revenue optimizing
extraction rates and use of technologies with respect
to recovery of viscous and heavy oil recovery as such
extraction may be tied to concurrent availability of
lighter oils. All new leases shall have relinquishment
provisions that reflect the realistic development
timelines given the difficulty perfecting necessary
permitting and development tasks. All lessees consent
to regulation and assistance by the ADEC to
effectively utilize and otherwise abate or sequester
greenhouse gases released by exploration, production,
transport, power generation and refinery operations
associated with its leases. Lessees shall
proportionately supply all necessary fuel for state
aircraft, vessels and vehicles used to assist and
administer lessees' operations.
Exploration Commitment: In order to exact the highest
signing payments and royalty bids and to provide for a
most efficient and predictable development of Alaska's
hydrocarbon resources, the ADNR will commit to
obtaining the services of exploration experts, whether
contracted or employed, with the most advanced
geologic mapping and analysis capability to define
hydrocarbon resources to their greatest practicable
extent prior to leasing of hydrocarbon fields to
enhance "prospectivity".
Infrastructure Commitment: The ADOT in an MOU with DNR
shall employ all due diligence in coordinating
interested state and federal agencies to develop,
subsidize or otherwise facilitate transportation of
exploration and production materials to proposed
leasing areas and for access of gas by Alaskan
communities. A dedicated 4% portion of total royalty
payments shall be set aside for this Safe Transport
Development fund. The ADOT shall minimally provide
heavy lift helicopters and other low impact vehicles
to advance preservation of sensitive areas, enhance
spill response, protect wildlife and maintain security
in leasing areas as training for their primary public
safety and security duties that shall include repair
and prevention of Global Warming impacts across
Alaska. The ADOT shall also advance planning and
construction of ports, port services, rail systems and
pipelines necessary to promote efficient materials
transport along established Alaskan transport
corridors and extensions along the AGIA certified
ROW(s).
Carbon Conservation Commitment: The state shall employ
all due diligence with appropriate funding of
legislative and regulatory efforts to establish in
state and federal law establishing a transferable
carbon tax and to additionally advance CO
sequestration and secondary utilization, methane
capture and abatement, and Arctic-appropriate carbon-
neutral energy generation technologies using a
dedicated 4% portion of total royalty payments. The
ADEC shall develop regulations establishing a carbon
tax, appropriate emissions standards and/or other
carbon limiting constraints upon hydrocarbon lessees.
The ADEC shall conduct the necessary analyses to
establish abatement technology standards and pursue
advancement of the best available technologies with a
bi-annual $3 million grant funding that may accumulate
beyond the $3 million level to ensure appropriate
funding of appreciably superior and effective
technologies.
7:21:11 PM
STACY SCHUBERT, President, Anchorage Chamber of Commerce, stated
that the chamber represents 1300 business members employing a
total of 70,000 people. She spoke from the following written
statement [original punctuation provided with formatting
changes]:
The Anchorage Chamber of Commerce appreciates the
Administration's desire to revisit the Petroleum
Production Tax to ensure that the most vital component
of our State's tax regimen was the result of sound
public policy. Still, we have some significant
concerns regarding this review.
First, we are concerned that there has been a headlong
rush to prejudge the PPT as "unfair" to Alaskans. The
illegal actions of some legislators and special
interests have understandably cast a cloud of
suspicion on this legislation. It should be kept in
mind, however, that many supported the PPT who had no
involvement in any improper activities. A large
number of upstanding legislators and organizations,
including the Anchorage Chamber, supported the passage
of PPT as a sensible balance between increased state
revenues and incentives for investment; therefore, we
respectfully ask that you not start your analysis from
the standpoint that the current law of the land is
wrong or in any manner "unfair." Review the PPT
thoroughly, for all our sakes, but have an open mind
to the possibility that the PPT, in fact, is the best
option for Alaska despite the unfortunate
circumstances surrounding its original passage.
Second, we are concerned that there is insufficient
evidence concerning the actual impact of the PPT. It
is our understanding that the original PPT legislation
contained a provision whereby it would be thoroughly
reviewed at the end of five years. Thus, with less
than a full-year's worth of data to analyze, a
declaration that the PPT is not working would appear
hasty and not fully informed. It should also be noted
that during the past year the taxation landscape was
significantly altered by the temporary shut-down of a
significant component of the North Slope fields;
therefore, the available data cannot be said to
represent a typical year. From all review, the PPT
brought in significantly more revenues to the State
than the previous ELF system.
Third, we are very concerned about creating an
impression that Alaska's tax platform is volatile and
undependable. The Anchorage Chamber is not advocating
that we need 30 years of certainty in our tax
structure but we are concerned that we are faced with
the possibility of three distinct methods of taxing
petroleum within three years. Even though you will be
debating a tax that directly deals only with a certain
segment of the economy, it nonetheless, creates an
unmistakable reputation that Alaska is a location that
is more interested in taxing industry than in growing
industry. Such a reputation is harmful to all
business sectors and ultimately, to all Alaskans.
Fourth, we are concerned about the emphasis placed on
increased revenues for the State. Without the
political will to create a sensible economic plan for
the State of Alaska, the Anchorage Chamber is
concerned that we are behaving as if we are communally
addicted to "oil money." As North Slope production
invariably declines, we seem overly zealous to prop up
our standard of living by simply increasing our take.
What was a fair take 10 years ago is no longer "fair."
What was fair last year now appears to be no longer
"fair." History is devoid of instances in which a
thriving economy has been built on the model of
maximizing the government take. In contrast, history
teaches us the important lesson that vibrant and
flourishing economies spring from environments where
the government encourages investment and
entrepreneurship. It is ultimately self-defeating for
Alaska to increase its short-term revenues at the
expense of chilling long-term investment.
Finally, despite these significant concerns the
Anchorage Chamber remains optimistic. As a state, we
can prosper and we have the ability to make Alaska's
future bright. The only question is whether we have
the courage, the discipline and the will to resist the
path of least resistance and instead focus our efforts
on the hard, yet ultimately rewarding work of building
a sound economic future. Toward this end, we
respectfully ask that during this special session you
do these four things:
1. Review the PPT to ensure it is sound public
policy but do not discard it simply because of the
circumstances surrounding its passage; and
2. If there is legitimate doubt concerning the
effect of the PPT, do not be afraid to allow the PPT
to exist for sufficient time to allow reliable data to
be generated, which is consistent with the original
legislation that provided for a review at the
conclusion of five years; and
3. Take all appropriate cautions to protect
Alaska's reputation as a stable tax environment that
encourages and promotes business opportunities and
investment; and
4. Consider any revenue enhancements only in
conjunction with actually developing a fiscal plan - a
spending and savings plan - for the State of Alaska.
7:25:34 PM
MARK SHARP stated that he is representing his children and
grandchildren. He said he has reservations about referring to
the sale of the state's resources as a tax, but that it is the
word that has been given and most easily communicates fiscal
policy debate. He said the legislature has abdicated its
responsibility to assess the value of the state's oil resources
and to determine a fiscal policy that allows the state to place
its oil into the market so as to maximize the benefit. Clearly,
the oil industry wrote the PPT and submitted it through Governor
Murkowski, he said. The state is stumbling into traps the
industry inserted into the PPT legislation, thus the state is
condemned to a future of litigation. The big three have some of
the best lawyers in the world, he said, and they are throwing
monkey wrenches into the already slow moving gears of justice.
The result is dozens of cases similar to the "Exxon Valdez
damage case" now stretching into its twentieth year. The big
three love this scenario, he said, because the net profits tax
structure results in the state paying the legal bills for both
the state and industry's lawyers. "These goons write off the
cost of their hired guns against taxes owed the state, or is it
a direct credit," he asked. "Who knows!" The PPT is so flawed
and complicated, he continued, that even the state's lawyers
cannot agree. The legislature's abdication of its
responsibilities has led to a giveaway of the state's greatest
resource and has put the state in perpetual litigation.
Citizens said to keep it simple - a gross tax, a point of
production tax - but [the legislature] decided otherwise. These
"admitted crooks" were rewarded, he said, with "sweeteners
layered with deductions, wrapped with credits, and topped with
claw backs." Five years of rebate for investment in
infrastructure is a giveaway of state funds to perhaps the most
profitable industry in the history of the world, he argued, and
this is indefensible. He said he would like to see the state
receive its fair share as follows: increasing from 2.5 percent
of every dollar starting at $50 a barrel, 5 percent from $60 per
barrel, 7.5 percent from $70, topping out at 10 [percent] for
every dollar when the price bests $80.
7:30:47 PM
CO-CHAIR JOHNSON inquired whether Mr. Sharp disliked the
governor's plan [HB 2001, as introduced] as well as [CSHB
2001(O&G)] since they are both a net tax.
MR. SHARP responded that anything coming out of the House
Resources Standing Committee should have a gross tax facet to it
and it should be on the upper windfall end based on an oil per
barrel dollar amount.
7:31:25 PM
MERRICK PIERCE said he is representing himself. He stated that
maximum benefit for the state's oil is not being returned to the
people as required by state constitution. There has been
minimal public participation due to the special session being
held in Juneau and there are no public hearings being held
around the state. He urged that discussions be framed in a more
meaningful way, such as talking about actual dollar values
rather than percentages. For example, he said, there is $23.5
billion worth of oil shipped out of Alaska at the current prices
and production levels annually and the state's take of that is
only about $3.5 billion to $4.5 billion. Presenting it like
this lends perspective to what is at stake and leads to the
question, "Why does the oil industry get a gross of $20 billion
or so, and we, the owners of the resource, are getting only $3.5
to $4 billion?" He requested that there be legislative
discussions explaining why a net profits scheme is better for
both the state and development than a gross profits tax with a
simple price escalator in capital credits. He also requested
discussions about TAPS tariffs. Those tariffs increased
substantially after PPT was passed, he said, thus reducing big
oil's tax burden to the state while simultaneously diminishing
the incentive for other independent oil companies to develop on
the North Slope due to the higher tariffs. It does not make
sense to give away production taxes before correcting this
disincentive for independent oil companies. Additionally, he
requested legislative debate on how the state will diversify its
economy and create good paying jobs as the state stops giving
away millions of dollars annually by underselling and
undertaxing its oil. There are only a handful of drill rigs in
operation on the North Slope, he said, despite the creation of a
virtual tax-free environment by the economic limit factor (ELF)
and the corporate welfare of PPT. However, there are hundreds
of drilling rigs working right now in Texas and Louisiana. He
quoted from a statement by Bob Bartlett advising that the state
not allow resources to be acquired and then not developed in
order to preclude competing with resource extraction being
conducted elsewhere in the world by those same companies.
7:36:07 PM
CO-CHAIR GATTO said his understanding is that there are 21 rigs
on the North Slope.
MR. MERRICK responded that the number is less than five,
according to the most recent oil and gas journals that he has
seen.
7:36:32 PM
MICHAEL MELIELO, President, Chugiak-Eagle River Chamber of
Commerce, noted that the chamber is composed of small
businesses, community members, and large corporations from an
area with a population of 35,000. His discussion focused on
three points from a 10/19/07 resolution that the chamber
provided to the legislature. He specified:
First, we understand the special session is necessary
to restore the public trust in light of the
[corruption] investigations. However, we know a lot
of you personally and we are confident that your
debate did occur in good faith and that you absolutely
continue to deserve the public trust. Second, from
our perspective, we feel Alaska's oil supply is
precipitously declining and we cannot stress strongly
enough that your decisions during this special session
need to favor continuing reinvestment. Recovery of
heavy oil and creating new oil requires significant
dollars every single year and without those ...
reinvestment dollars the entire economy and job market
for Alaska is in serious trouble. Our message to you
is, "Please, do not go for short-term financial gain
at the cost of long-term investment." Third, we
honestly believe that the five-year review for PPT,
which is now down to four years, will give you the
time and the data you need to do a good assessment.
And the question that you need to continually ask is,
"Are the producers continuing to reinvest at an
acceptable level?" And then juxtapose that with, "Are
we seeing significant and positive increase in the
state's financial position?"
7:38:45 PM
PAT TOLSON stated that he is representing himself. He said he
is a laborer with Laborers Local 942 which has members in
Southeast Alaska, Fairbanks, and throughout the Bush. He
explained that one area of labor supplied by union members is
line maintenance of the Trans-Alaska Pipeline System, plus pump
stations and all of the Prudhoe Bay oilfield developments. He
testified as follows:
People like myself that live in remote areas - I, for
instance, live in Hydaburg on Prince of Wales Island,
Southeast Alaska - have very few opportunities to come
and work a job where I can make the kind of money I do
in these oil related jobs. I come from a very
economically depressed community. The people that
live in these communities need these oil industry jobs
for its people to have that opportunity to leave the
villages and be able to get themselves ahead with the
jobs the oil industry provides. What is common
knowledge among people who studied our victory at
World War II is that it was won by our unlimited
amount of oil provided to our forces and allies from
the states of Texas, Oklahoma, and Louisiana. ...
Right now, if Alaska is given the chance to be able to
develop its oil and gas resources, our country can be
the strongest power in the world and the safest. It
has been said that Russia has the most undeveloped oil
resources, but I would like to think Alaska does. I
say let's find out. ... Our country needs the oil and
gas now, before we become vulnerable to the onslaught
of other world powers that don't have our best
interests at heart.
7:41:58 PM
JIM UDELHOVEN, Owner, Udelhoven Oilfield System Services (UOSS),
stated that he has been a business owner in Alaska since 1970
and that he has about 500 employees. He said UOSS is a
diversified company that does military, oilfield, commercial,
and industrial work. He testified as follows:
I'd like to point out that life is a series of
decisions and they are just basic yes and no
decisions. You people there in Juneau have before you
a very important and a very, very difficult decision
to make. It is difficult from the standpoint that you
have to make the decision collectively through
committees, through people from different walks of
life, and in conjunction with the governor's office.
The decisions that come out of this special session
have to propel the oil industry forward. And, I
really hope that you are granted the wisdom to
accomplish that because the decisions that follow
after this session is over will be made by
individuals, and they are just yes and no decisions as
simple as me having a job opening and ... I need to
fill it and I ask somebody to fill it. ... The large
industries, the small industries, the individuals in
the homes, and everyone will be making business
decisions based on what you people do in Juneau during
this period of time that will either propel Alaska
forward or stall it. I'm not saying what those are,
because you people are swamped with numbers and facts
and I'm not privy to all that, so I'm not prejudging
what kind of a decision you need to make. But I ask
you to do it with vision. I ask you to do it in a
manner that will propel the oil industry forward
because there is nothing in Alaska at this point in
time, based on the budgets that Alaska government has,
that can propel us forward. So, the only thing that
can happen if the oil industry pulls back is you will
have to turn to the Permanent Fund. Any other private
income tax, fishing industry, or anything else to try
and raise this kind of money would completely
devastate them.
7:47:48 PM
BILL ZORB said he is testifying on behalf of himself. He stated
that he is concerned Alaskans are being left out of the debate
because the legislature is sequestered in Juneau along with the
lobbyists of the oil companies. Interior residents get very
scant and sometimes non-existent news and information about what
is going on in Juneau, he said, and this hearing was not well
publicized in Fairbanks. He just happened to be listening to
the local radio station and heard about tonight's hearing. He
said he was disappointed to read in his local newspaper that
both the Senate Resources Standing Committee and House Special
Committee on Oil and Gas had gutted the ACES bill [HB 2001, as
introduced,] by removing the 25 percent net profits tax and
other unspecified changes which he did not fully understand. He
urged that the 25 percent net profits tax be restored to the
bill.
7:50:15 PM
CO-CHAIR GATTO stated that [the House Resources Standing
Committee] went to 90 news outlets to advertise the hearing. He
apologized that Mr. Zorb did not see any of the ads. He said
the committee had not yet taken any action on the bill and would
be convening for the next several days with the plan to finish a
final committee version on Sunday [November 4, 2007].
MR. ZORB reiterated that he would like to see the 25 percent net
profits tax restored. He said there are many other owner states
that take a far larger share of their oil profits than that and
the major oil companies are still doing business there.
Alaska's constitution mandates a maximum return on its
resources. It is unacceptable that ExxonMobil Corporation
("Exxon") is refusing to divulge its oil profits from Alaska, he
said.
7:53:01 PM
CO-CHAIR GATTO stated that it is Exxon's company policy to
report only worldwide earnings and that the legislature has
asked them for the Alaska portion.
MR. ZORB responded that this is unacceptable because if the
state is considering a net profits tax then it needs to know
what the profits are. Further, if Exxon is unwilling to share
that information then the state should not do business with
them. It is the job of legislators to look out for the best
interests of Alaskans by getting the best return on the state's
resources. The oil does not belong to the oil companies, he
said, it belongs to the state.
7:54:59 PM
FAY VON GEMMINGEN said she is a lifelong Alaskan whose
grandparents arrived in Alaska in 1917 and 1918. She stated
that as a CPA she supports a gross method of calculation, not a
net method, because there are too many places to hide expenses.
Expenses are from fields in Alaska as well as all over the
world, she pointed out, and it is very difficult to determine
and separate all the expenses that are not Alaskan expenses.
Skyrocketing gas and oil prices will affect public safety, she
said, such as state trooper vehicles and airplanes, maintenance
vehicles, heating state and school buildings, and student
transportation. She urged that municipal revenue sharing be
considered for the same reasons - public safety, road
maintenance, and education. She said the state cannot afford to
keep going backwards like it is doing right now with the take
from its oil. She thanked the previous two speakers for saying
much of what she wanted to say. We must get a share from the
state's oil that will help this state for generations to come,
she said. It should not leave the state.
7:57:47 PM
DARYL NELSON supported a tax of at least 25 percent off of the
gross. He was concerned that the oil companies would sit on the
resource as was done at Point Thomson. He suggested that if the
oil companies do not produce at a [tax rate] of 25 percent, then
the rate should go to 30 percent or higher. The oil companies
need to disclose their profits so Alaska can get its fair share,
he stated. Oil companies are making way too much profit - it is
the state's oil, not theirs. He agrees with Ms. Von Gemmingen's
statements, he said, because he is also worried about the next
generation.
8:01:19 PM
PAUL D. KENDALL stated that he is representing himself. The
testimony before the committee is flawed, he said, because a
standard is not being established and met by having the
principals sworn in. Everybody means well, but there is no
substance because those principals have not come before you in a
sworn-in and committed partnership. He said the state needs to
declare 100,000 homes in Alaska and that each home should be
1000 square feet with a two car garage, a tool shed, a 25 foot
by 25 foot greenhouse, and be on a 100 foot by 100 foot lot.
That particular home should get all of its energy at no charge
if all of those energies are converted to natural gas formulas
and they are all derived from that particular feedstock. He
said he is suggesting this because it is the only way to break
this cycle of being at loggerheads. The energy companies are
the ones who are perturbing the economy, he said, by adding huge
amounts of costs overnight. They cannot keep up this cost
because when a cost gets higher the percentages begin to
increase geometrically on society. This results in having to
drop the economy and ending up at a price per barrel of oil that
will not have an increased tax, or end up with a loaded net loss
and zero tax. He supported a gross tax. His point, he said, is
that in order to have a solution, the solution must have a
foundation that is premised along the way, but that there is
never time to have that dialogue. It is not taxes, it is the
legislature's obligation to find a formula that is viable and
brings the state a fair trade for its resources. He said he is
staggered to see so few people gather to discuss such a huge
issue. ExxonMobil Corporation should be served an eviction
notice, he said.
8:09:01 PM
GLORIA DESROCHERS stated that she is testifying as a private
citizen with no affiliation. She said it appears that lawmakers
have been sweet talked by the oil industry to benefit the
industry above the interests of Alaskans and the state. The
legislature has been given the duty to be faithful to the best
interests of the state and Alaskans, she said, not the best
interests of oil companies. Legislators need to keep in mind
that Alaska is the parent and the oil companies are the child.
However, she said, it appears that lawmakers have historically
been associated with oil companies as though the lawmakers are
the child, and it is now time to mature. She said she has been
listening to Fairbanks resident Frank DeLong on the radio and
that he has been involved with oil companies throughout the
world and that he built the North Pole refinery. She related
Mr. DeLong's experience in Indonesia where the Indonesians were
offered minimum profits for their oil by the big oil companies
until they demanded a much higher profit, which they received.
Oil companies have no patriotic allegiance to anyone but their
own profits, she submitted. Alaskans should have this same
desire and go for the highest immediately. In response to
Representative Fairclough, she related that Frank DeLong's
former job with oil companies around the world was to negotiate
with countries to get the highest profit for the companies, and
that Mr. DeLong's advice to the state is to get the highest that
it can.
8:14:40 PM
LISA PEGER testified as follows:
I believe you should pass ACES ungutted or we'll know
who the enemies of the state are. As oil prices go
higher and pass $100 per barrel and start their climb
toward $200 everyone is going to make it their
business to point the fingers back and know who to
dump because of misplaced allegiances. You can
pretend that you don't know the following but then we
just have to figure that you're too stupid for the
job: The big three are playing Alaska. A few
percentage points up or down are not going to make
much difference to the exact order of agenda for the
big three as to where their investment dollars go
first - unstable countries first, Alaska and the rest
of America last. They've had PPT for about 14 months
and they haven't filled up the pipe. We may as well
take our due off the table now and in the future
because what we need to work on is the bottleneck of
the access. When the courts and you and the
regulatory commissions have fixed the tariffs and
access and pass ACES you will have a flood of new
explorers because of secure access, tariff control,
and net profits so they can all afford to explore.
When the competition - which can help bust the
monopolistic grip on America's energy costs - comes
then if there is still too much money on the table we
can do a cost per barrel and tighten up the scheme.
The ACES plan is good in all respects, except I would
also like to see the progressivity stay at 2.5 instead
of being reduced to 2. Aside from that I think you
need to give Sarah Palin her head. She has a plan.
She has a lot of political capital and if you go
against that it's at your own peril. And she hasn't
let us down yet and I think people who are in there
monkeying with it are showing their true colors.
8:17:43 PM
JERRY DIXON stated that he is representing himself and two
teenage sons. He supported an increase in the oil tax. He said
it concerns him that the State of Alaska, on a per capita basis,
has cut the number of state troopers in half. He read the
following from a letter from the director of the Division of
Alaska State Troopers: "Since 1987 authorized staffing for
Alaska troopers has dropped from 310 to 215 ... If we move
another state trooper to Seward we have to take a trooper from
somewhere else." He related several incidents in which he
called for trooper assistance but received no response due to
the shortage in the number of troopers. If the state received
more revenue, then more troopers could be hired, he said.
8:20:06 PM
CO-CHAIR GATTO noted that there have been lots of television ads
for state troopers and it is his understanding that recruiting
troopers is difficult.
MR. DIXON stated that he was a smoke jumper in his first career
and that he taught gifted students for the next 30 years. He
related that some of his students became troopers, but that one
of them recently quit because he was unable to get backups when
he was called out to dangerous situations. In response to Co-
Chair Gatto, he said he would mail copies of several articles
[regarding state trooper issues] to the committee.
8:22:01 PM
CO-CHAIR GATTO closed the public testimony.
[HB 2001 was held over.]
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 8:23 p.m.
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