Legislature(2011 - 2012)BARNES 124
03/28/2012 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB328 | |
| Overview(s): Decoupling of Oil & Gas Taxes | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| += | HB 328 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
March 28, 2012
1:09 p.m.
MEMBERS PRESENT
Representative Eric Feige, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Peggy Wilson, Vice Chair
Representative Alan Dick
Representative Neal Foster
Representative Bob Herron
Representative Cathy Engstrom Munoz
Representative Berta Gardner
Representative Scott Kawasaki
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 328
"An Act relating to the oil and gas corporate income tax;
relating to the credits against the oil and gas corporate income
tax; making conforming amendments; and providing for an
effective date."
- HEARD & HELD
OVERVIEW(S): DECOUPLING OF OIL & GAS TAXES
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 328
SHORT TITLE: OIL AND GAS CORPORATE TAXES
SPONSOR(s): REPRESENTATIVE(s) SEATON
02/17/12 (H) READ THE FIRST TIME - REFERRALS
02/17/12 (H) RES, FIN
02/29/12 (H) RES AT 1:00 PM BARNES 124
02/29/12 (H) Heard & Held
02/29/12 (H) MINUTE(RES)
03/16/12 (H) RES AT 1:00 PM BARNES 124
03/16/12 (H) Heard & Held
03/16/12 (H) MINUTE(RES)
03/28/12 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
BRUCE TANGEMAN, Deputy Commissioner
Office of the Commissioner
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation entitled
"'Decoupling' of Oil and Gas for Production Tax Purposes," dated
3/28/12.
DAN STICKEL, Acting Assistant Chief Economist
Anchorage Office
Tax Division
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the presentation
entitled "'Decoupling' of Oil and Gas for Production Tax
Purposes," dated 3/28/12.
ACTION NARRATIVE
1:09:42 PM
CO-CHAIR PAUL SEATON called the House Resources Standing
Committee meeting to order at 1:09 p.m. Representatives Seaton,
Gardner, Kawasaki, P. Wilson, and Feige were present at the call
to order. Representatives Dick, Herron, Foster, and Munoz
arrived as the meeting was in progress.
HB 328-OIL AND GAS CORPORATE TAXES
1:10:00 PM
CO-CHAIR SEATON announced that the first order of business would
be HOUSE BILL NO. 328, "An Act relating to the oil and gas
corporate income tax; relating to the credits against the oil
and gas corporate income tax; making conforming amendments; and
providing for an effective date."
1:10:33 PM
REPRESENTATIVE P. WILSON moved to adopt the committee substitute
(CS) for HB 328, identified as Version 27-LS1142\I, Nauman,
3/27/12, as the working document. There being no objection,
Version I was before the committee.
CO-CHAIR SEATON informed the committee HB 328, Version I,
addresses issues brought forth by industry and the Department of
Revenue (DOR) relating to the regulations on depreciation
schedules, changes in the submission of industry data and the
calculation of corporate income tax, quarterly filings,
penalties for failure to file, and exemptions for companies with
less than a $1 million tax liability. He asked for future
comments on the bill to be specific to Version I.
1:12:24 PM
[Although not formally announced, HB 328 was treated as held
over.]
^OVERVIEW(S): Decoupling of Oil & Gas Taxes
OVERVIEW(S): Decoupling of Oil & Gas Taxes
1:13:44 PM
CO-CHAIR SEATON announced that the final order of business would
be an overview by the Department of Revenue (DOR) regarding the
decoupling of oil and gas taxes.
1:14:14 PM
BRUCE TANGEMAN, Deputy Commissioner, Office of the Commissioner,
DOR, said DOR was asked to present an overview on the issue of
decoupling in order to refresh the committee's knowledge on this
subject as it is expected to resurface in the future.
CO-CHAIR SEATON noted that there was no bill presently before
the committee to accomplish decoupling.
MR. TANGEMAN stated the presentation would address the following
topics:
· A brief review of how Alaska's production tax works
· What is "decoupling"?
· Why decouple?
· Decoupling Issues
· History: Senate Bill 305 in 2010
MR. TANGEMAN displayed slide 3 entitled "Review: How Alaska's
Production Tax Works," and explained the tax is a company-
specific tax based on the Production Tax Value (PTV), which is
calculated by taking market price less transportation costs to
determine the gross value at point of production (GVPP), and
then deducting operating and capital lease expenditures from
GVPP to determine PTV. As illustrated, other factors are the
base tax rate of 25 percent, which is affected by progressivity
when PTV is over $30 per barrel of oil equivalent (/BOE), and
increases by 0.4 percent for each $1 of PTV over $30/BOE. For
example, at PTV of $50/BOE, the tax rate is 33 percent. In
response to Co-Chair Seaton, he confirmed that PTV of $50/BOE is
based on Alaska North Slope (ANS) West Coast price of $80 per
barrel (/bbl), and PTV of $92.50/BOE is based on ANS West Coast
price of $120/bbl.
1:17:59 PM
MR. TANGEMAN displayed slide 4 entitled "FY 11 Production Tax
Calculation," noting the slide is from the DOR Fall 2011 Revenue
Sources Book (RSB) and depicts the tax calculation on a "high
level." Slide 5, entitled "What is 'decoupling'," illustrated
the following: under current law, gas production from major gas
sales would be converted to "barrel of oil equivalent" [BOE] and
taxed in the same calculation as oil; current law equates six
million British thermal units (Btu) to one barrel of oil; and
decoupling would calculate oil and gas tax for major gas sales
separately. Slide 6 compared the calculation of oil and gas tax
liability coupled with the calculation of tax liability of oil
and gas decoupled. Slide 7 began to answer the question of why
decouple:
· Oil is different than gas (different uses, resource
endowments, and substitutes)
· Decoupling allows tax policy to be crafted specific to oil
or gas production
· Oil is currently worth more than gas (per unit of energy)
· Gas value as it relates to oil (parity) varies greatly over
time. Currently oil costs about $120/bbl and gas costs
about $2.20 per million Btu.
1:20:41 PM
CO-CHAIR SEATON asked whether gas prices in Cook Inlet or on the
North Slope are tied to the Henry Hub natural gas pricing point
for North America and if not, what price indices are used to
compare prices on a worldwide basis.
MR. TANGEMAN expressed his belief that the prevailing price of
gas in Alaska is based on the local market.
CO-CHAIR SEATON observed about 240 million cubic feet per day
(MMcf/d) of gas pumps into the Southcentral electrical grid.
However, Alaska gas is not marketed in the Lower 48 thus the
Henry Hub price is not appropriate. He said he would like to
see a price comparison for exporting gas to Asia, which is a
market in which Alaska would participate if AGIA does not
complete a route to Alberta, Canada.
MR. TANGEMAN assured the committee that if a bill were proposed
more realistic numbers would be generated. For any major gas
sale to occur in the future, a price a lot higher than $2.18 per
Mcf must be assumed.
REPRESENTATIVE P. WILSON asked for the indices currently being
used by DOR for its forecasts.
MR. TANGEMAN said DOR is using ANS West Coast for oil and the
Henry Hub index for gas.
CO-CHAIR SEATON turned the gavel over to Co-Chair Feige.
1:25:00 PM
MR. TANGEMAN displayed slide 8 and pointed out that oil price is
not 6:1 of gas price. In the past, 6:1 oil and gas prices may
have been parity; however, since 1/06, the price of oil has
climbed to its present value. Because oil is worth so much more
than gas, decoupling has become a big issue. Slide 9 continued
to answer the question of why decouple:
· Including lower value gas in the same tax calculation as
higher value oil reduces the average value per BOE and
therefore reduces the progressive tax rate on oil. This is
known as the dilution effect
· By taxing oil and gas together, gas production reduces oil
taxes even through oil operations are unaffected
· This has been called the flip the switch problem; as soon
as major gas sales begin, state tax revenue could drop
significantly, under certain price scenarios
REPRESENTATIVE KAWASAKI asked for a rough estimate of the
current economic impact to the state of the present tax system,
and the possible impact of opening a 4.5 billion cubic feet per
day (bcf/d) gas pipeline.
DAN STICKEL, Acting Assistant Chief Economist, Anchorage Office,
Tax Division, DOR, said DOR looked at numbers from 2011 and
found that the reduction in state revenue from oil - due to
including gas from Cook Inlet and North Slope sales in the
progressivity calculation - would have been about $80 million
dollars, and could rise to $100-$150 million per year going
forward.
1:27:47 PM
MR. TANGEMAN displayed slide 10 which laid out the assumptions
for the four scenarios on slides 11-14. The assumptions are:
· One year income statement model
· DOR 2012 profiles: 450 thousand bbl/d of oil; 4.5 bcf/d of
gas
· Conversion: 6 Mcf = 1BOE
· Costs allocation: $2.5 billion in operating expenses; $2.5
billion in capital expenses; costs split on the basis of
gross value at the point of production (PoP)
· Transportation costs: $11/bbl for oil; $4.5/MMBtu for gas
REPRESENTATIVE DICK asked for a further explanation of the BOE
conversion factor.
MR. TANGEMAN explained that in the conversion factor BOE has
nothing to do with where it falls in the income statement, only
that six thousand feet [6 Mcf] of gas is the thermal equivalent
to one barrel of oil [1 bbl].
CO-CHAIR FEIGE in further response to Representative Dick,
pointed out one thousand cubic feet (Mcf) of gas is also roughly
the thermal equivalent to one million Btu (MMBtu).
1:30:04 PM
REPRESENTATIVE DICK said, "So BOE is not referring to cost ...
are we comparing dollars or ... Btus?"
1:30:28 PM
MR. STICKEL explained the purpose of putting the conversion on
slide 10 was just to state a modeling simplification that DOR
used for the purpose of preparing the scenarios on slides 11-14.
A factor of each scenario is that the tax is assessed - and
progressivity is calculated - on a BOE basis; this was the
conversion factor that was used to calculate the "4.5 bcf a day
of gas, two barrels of oil equivalent, and we simply used the
6:1 ratio.... It's a modeling simplification."
REPRESENTATIVE DICK further asked whether the 6:1 ratio
comparison was of the dollar ratio or the Btu ratio.
CO-CHAIR FEIGE returned attention to slide 5, restating that
current law equates [the heating value of] six million Btu to
one barrel of oil, and that one Mcf of gas and one million Btu
are about the same.
MR. TANGEMAN displayed slide 11 entitled "At high parity,
Decoupled Revenue > Status Quo," explaining that an oil price of
$120/bbl and a gas price of $8/MMBtu equates to a 15:1 parity.
REPRESENTATIVE GARDNER asked for the difference between the "Oil
Stand Alone and Gas Stand Alone" and the "Decoupled" bars
illustrated on the slide 11 bar graph.
MR. STICKEL responded that in this slide presentation they are
essentially the same. In designing the slides, DOR has provided
the ability for a comparison between three different scenarios.
REPRESENTATIVE P. WILSON asked for an explanation of parity.
MR. TANGEMAN answered that parity is the comparison of how oil
and gas relate, which was 6:1 years ago but, as oil prices have
increased and gas prices have decreased, the parity has grown.
Mr. Tangeman returned attention to slide 11, noting that the
revenue was based on 450 Mbbl/d of oil production and 4.5 bcf/d
of gas production. If revenue from both were calculated
together - which is the status quo - state revenue would be $4.1
billion; if decoupled, and calculated separately, state revenue
would be $5.9 billion, making a difference of $1.8 billion.
1:35:26 PM
REPRESENTATIVE P. WILSON presumed the oil companies prefer oil
and gas taxed together.
REPRESENTATIVE KAWASAKI inquired as to the reason the scenario
was based on 450 Mbbl/d of oil production, instead of the
current rate.
MR. STICKEL said 450 Mbbl/d of oil production represents the
rate of production DOR expects 10 years from now, based on its
Fall forecast.
MR. TANGEMAN further explained it would not be realistic to use
today's oil production rate, so DOR factored in the forecasted
oil production decline over the next 10 years, which is about
the length of time needed to develop gas production to 4.5
bcf/d.
REPRESENTATIVE KAWASAKI asked if DOR also anticipates that the
price of oil would be $120/bbl and the price of gas would be
$8/MMBtu.
MR. TANGEMAN clarified that DOR could have used its Fall
forecast; however, the purpose of this presentation was to show
revenue from several different scenarios. As an aside, he said
the DOR forecast for ANS West Coast in 2021 is $117.31. Slide
12 indicated that an oil price of $120/bbl and a gas price of
$15/MMBtu equates to a parity of 8:1. In this example, total
revenue is significantly higher, however, the difference between
Status Quo, Oil Stand Alone and Gas Stand Alone, and Decoupled
is much less because the price of oil and gas are approaching a
parity of 6:1. Slide 13 illustrated an oil price of $90/bbl and
a gas price of $15/MMBtu, which are the breakeven levels and
parity of 6:1. At this ratio, revenue is nearly the same for
Oil Stand Alone and Gas Stand Alone, Status Quo, and Decoupled.
Slide 14 illustrated revenues at today's oil price of $120/bbl,
gas price of $2.18/MMBtu, and parity of 55:1, yielding an
increase in revenue of about $2.7 billion.
1:39:55 PM
REPRESENTATIVE HERRON asked whether DOR has a slide that depicts
oil prices at $150-$160/bbl.
MR. TANGEMAN offered to provide that information.
REPRESENTATIVE HERRON asked whether the high forecasts presented
during the discussion of Alaska's Clear and Equitable Share
(ACES) were based on oil prices of $100-$120/bbl.
MR. TANGEMAN said he did not recall, but could provide that
information.
REPRESENTATIVE HERRON understood during the ACES debates no one
dreamed of an oil price of $150/bbl; however, speculators are
now depending on a price of $150/bbl in the future. He
questioned why the models presented today do not include high
prices.
MR. TANGEMAN agreed, saying at that time the price of oil was
$60/bbl, but gas prices were higher than they are today, so
parity really was close to the breakeven ratio of 6:1. He noted
that DOR has learned that oil prices can go up exponentially and
seeks to incorporate models of a wide range of prices.
1:42:56 PM
REPRESENTATIVE P. WILSON requested that DOR provide bar graphs
depicting an oil price of $150/bbl and gas prices of $3/MMBtu
and $8/MMBtu, and an oil price of $175/bbl and gas prices of
$3/MMBtu and $8/MMBtu.
MR. TANGEMAN agreed to do so. In response to Co-Chair Feige, he
said he would determine whether DOR could provide the committee
with a model, so each member could run desired scenarios. He
turned attention to slide 15, which illustrated the following
observations:
· Decoupling provides for a state share similar to the status
quo when gas prices are relatively high (less dilution of
progressivity under status quo)
· Decoupling imposes a higher state share compared to the
status quo when gas prices are relatively low
· Decoupling generates revenue equal to or greater than Oil
Stand Alone revenue in all cases.
1:45:20 PM
MR. TANGEMAN displayed slide 16 which illustrated the following
decoupling issues on cost allocation:
· How costs are allocated between oil and gas has a
significant impact on overall taxes owed
· Because oil and gas are generally produced together, it is
not easy or straight forward to determine the costs
applicable to the gas or oil produced
· The cost allocation method could result in uncertainty,
disputes, and delays
· Cost allocation should be specified in the statute, and is
a very important policy decision
REPRESENTATIVE KAWASAKI asked how other states such as Texas and
North Dakota, deal with cost allocation between oil and gas,
given the disparity of prices.
MR. STICKEL advised in some ways this is a unique issue faced by
jurisdictions that tax on a net basis; in fact, when taxing on a
gross basis, lease expenditures are not included in the
calculation. However, DOR has found that for jurisdictions that
do tax on a net basis and have a separate tax system for oil and
gas, GVPP is the most common way to allocate costs between oil
and gas production, although not the only way.
REPRESENTATIVE GARDNER asked how complicated it would be to use
gross value at point of production for the purpose of allocating
costs, but retain the net profits tax system.
MR. STICKEL observed that any form of allocation under
decoupling adds a layer of complexity to the tax, and would
require new statutes, staff, and regulations, but that is a
hurdle DOR can overcome.
MR. TANGEMAN displayed slide 17 which illustrated three cost
allocation scenarios. Each scenario was based on GVPP and
parity of 15:1. Scenario 1 splits the cost based on BOE, which
means 38 percent of the cost goes to oil for a total allocation
of $1,875, and 63 percent to gas for a total of $3,125.
Scenario 2 splits the cost based on GVPP, which means 76 percent
of costs are attributable to oil, and 24 percent are
attributable to gas. Scenario 3 splits the cost based on
assumed actual costs of 90 percent to oil and 10 percent to gas.
He stressed that how the state will allocate and split costs is
a big question in regards to decoupling. Slide 18 was a bar
graph which illustrated the impact of the allocation methods
shown on slide 17. Scenario 1 [bar 1], decoupled with taxable
barrels BOE cost allocation, indicated the oil was worth $6.8
billion, and the gas was worth $0.2 billion, for a total of $7
billion. Scenario 2 [bar 2] decoupled with GVPP cost
allocation, indicated the oil was worth $5.1 billion, and the
gas was worth $0.8 billion, for a total of $5.9 billion.
Scenario 3 [bar 3], decoupled with oil costs of 90 percent and
gas costs of 10 percent, indicated the oil was worth $4.5
billion, and the gas was worth $1.1 billion, for a total of $5.5
billion. Mr. Tangeman pointed out that this is revenue
generated to the state and as more deductible costs are directed
toward the higher priced product [oil], the PTV - on which the
tax and progressivity are calculated - and state revenue, are
driven down.
1:52:22 PM
REPRESENTATIVE DICK asked whether there is a realistic way to
calculate what is attributable to oil and what is attributable
to gas.
MR. TANGEMAN explained that starting from the GVPP and then
deducting lease expenditures gets very complicated, because
wells differ greatly in their mix of oil and gas. So, when
taxes are calculated on a gross level, the tax is based on the
value of the product, and costs are distributed by value.
However, under the net system there is no end to how the costs
could be applied, so the difficulty is for the state to decide
how to allocate the costs in a fair manner. In response to
Representative P. Wilson, he said the price of oil is held
constant in the scenarios presented by DOR.
MR. STICKEL further explained the basic principle illustrated on
slide 18 is that the price of oil is high and there is a
significant progressivity surcharge resulting in a higher tax
rate on oil. There is no progressivity on gas thus the more
costs that are shifted to oil reduce the tax rate on oil. For
example, the bar depicting decoupled with taxable barrels BOR
Cost Allocation has 38 percent of the costs shifted to oil and a
total of $7 billion in state revenue, and the bar depicting
decoupled with oil costs has 90 percent of the total cost
shifted to oil and totals $5.5 billion in state revenue;
therefore, more costs shifted towards the "oil side" reduce the
overall tax liability. Mr. Stickel clarified that there are
some instances where costs will be clearly an oil cost or
clearly a gas cost; the allocation language only applies to
situations where the type of cost is not clear.
REPRESENTATIVE P. WILSON presumed that the state would want to
calculate which scenario is best for it, but the oil companies
want what is best for them.
REPRESENTATIVE GARDNER said the decision is made by the state.
CO-CHAIR FEIGE assumed that depending on where a particular
field is in its production cycle, the revenue from each of the
scenarios will vary.
MR. TANGEMAN agreed, saying the state is looking at each
scenario at a point in time, but a producer is looking at higher
costs during the natural decline of a well.
CO-CHAIR FEIGE asked for a review of each method.
1:58:25 PM
MR. STICKEL advised the first method allocates costs based on
BOE, which would be the energy equivalent ratio of the
production of oil and the production of gas. The second method
allocates costs based on GVPP, which would allocate the costs
based not on the energy equivalent, but on the value of the oil
and the gas. The third method allocates costs based on an
assumed actual, thus a company would declare its expenses
divided between gas and oil; this is the most complicated of the
three methods and would require extensive regulation. In
general, oil production is inherently more expensive than gas
production, which is the rationale for the 90:10 split. He
suggested that a straight percentage could also be used. In
response to Co-Chair Feige, he said the first method would be
easiest for DOR to administer because it is currently in
statute, and the third method is the most complex.
REPRESENTATIVE GARDNER asked whether the first method is also
easiest for the producers.
MR. STICKEL, although not speaking for industry, pointed out
that the data necessary is the same for DOR and industry. In
response to Co-Chair Feige, he agreed that the third method
could be controversial.
REPRESENTATIVE DICK returned attention to slide 3 and asked
whether transportation costs are the costs of getting the gas
out of the ground.
MR. TANGEMAN explained the transportation cost would be the
Trans-Alaska Pipeline System (TAPS) tariff and the marine
transportation costs to get the gas to market. In further
response to Representative Dick, he said the cost of getting the
gas to the wellhead would fall under lease expenditures.
MR. STICKEL clarified that the cost allocations referred to in
the presentation include only lease expenditures.
MR. TANGEMAN displayed slide 19 which reviewed some other
decoupling issues to consider:
· Potential impact on current gas production: Cook Inlet
gas; gas used in-state; small quantities of other gas
production, as in outer continental shelf (OCS)
· Complexity of administration for the state and taxpayers
· Specify gas tax now or save for another session
· Balance between desire for revenue and making a major gas
project attractive
· Treatment of net operating loss for gas
2:04:25 PM
MR. STICKEL, in response to Co-Chair Feige, further explained
that the treatment of net operating loss for gas issue comes
into play in a situation similar to current prices, because
selling gas for $2-$3 with a $4.50 tariff results in a GVPP of
zero, and money is lost just by shipping the gas. Currently, a
loss due to transportation cost is not eligible for a carry-
forward annual loss credit.
CO-CHAIR FEIGE surmised this would happen if a company expected
a higher price, but after entering a contract for delivery, the
market price dropped.
MR. STICKEL said correct.
REPRESENTATIVE P. WILSON presumed that the reason the companies
want to own the pipeline is "because they can pay that to
themselves ... write-off the loss that way, and still make
money."
MR. TANGEMAN advised that the transportation cost is a real
cost; it is the cost of building and maintaining the pipeline.
In further response to Representative Wilson, he said the cost
of transportation may be $4.50 for gas that can be sold for $2,
and "regardless of who owns it, somebody's going to be paying
that $4.50." This is the overriding discussion around the gas
pipeline now, because building a gas pipeline assumes the market
price for gas will increase. In response to Co-Chair Feige, he
agreed that allowing a write-off of a net operating loss against
other production would vastly change the economics of a gas
pipeline project.
REPRESENTATIVE P. WILSON observed that other states do not have
the problem of transporting gas over long distances.
REPRESENTATIVE DICK opined that gas and oil flow from a well
simultaneously thus the cost of getting gas out of the ground is
negligible.
MR. TANGEMAN deferred to DNR or the industry.
2:09:06 PM
CO-CHAIR FEIGE provided an example.
REPRESENTATIVE DICK suggested that in the interest of fairness,
if the gas is coming out of the ground anyway, all of the costs
at the wellhead should be subscribed to oil.
MR. TANGEMAN advised that not all wells are created equal and
the same percentage of oil and gas do not come from each well;
in addition, there is a very wide range of mix over a period of
time. In the early years of production on the North Slope, most
of the flow was oil, but today more of the flow is water and
gas, which adds to the cost of production. He turned attention
to slide 20 which illustrated the history of Senate Bill 305 in
2010:
· Decoupled oil and gas for purposes of a major gas sale
· Held harmless most current gas production
· Provided one tax calculation for oil, Cook Inlet gas, and
gas used in-state
· Provided a separate tax calculation for non-Cook Inlet gas
that is exported out of state
· Specified GVPP cost allocation to the extent possible
· Extensive analysis by the legislature, administration, and
consultants
· Numerous technical issues raised and addressed
· Final bill is the basis of this year's decoupling in SB 167
and SB 192
CO-CHAIR FEIGE asked how GVPP cost allocations "to the extent
possible" fit into the three aforementioned methods of cost
allocation.
2:12:13 PM
MR. STICKEL said the initial version of Senate Bill 305 directed
that the lease expenditure allocation was left up to the
discretion of DOR through regulation; however, in the final
version, GVPP was specified as the preferred method of lease
expenditure allocation, including the language "to the extent
possible," which left open the possibility for another method of
allocation to be specified.
CO-CHAIR FEIGE presumed it was up to DOR to assign another
method.
MR. STICKEL said right. He added that the language in the bill
directed DOR to develop regulations for the allocation of lease
expenditures in those situations where it was necessary, and
also directed DOR to allocate lease expenditures based on GVPP
to the extent possible. In response to Co-Chair Feige, he
agreed that the language gave DOR more flexibility.
REPRESENTATIVE DICK understood that currently the gas and water
coming from the well are treated and the gas is re-injected; so,
where is the cost if instead of re-injecting the gas, it is put
in a pipeline.
MR. TANGEMAN deferred to an expert in oil and gas engineering.
REPRESENTATIVE P. WILSON referred to the flexibility provided in
Senate Bill 305 and asked how DOR would determine which cost
allocation to utilize.
MR. TANGEMAN recalled that at the time Senate Bill 305 was
passed, DOR was dealing with a complex tax system and
implementing changes in regulations from the Petroleum Profits
Tax (PPT) to Alaska's Clear and Equitable Share (ACES) tax
system. He opined Senate Bill 305 "wasn't quite right," but
now, two years later, DOR is in a better position to talk about
an eventual gas sale.
2:19:16 PM
MR. TANGEMAN, in response to Representative P. Wilson, displayed
slide 21 which continued the history of Senate Bill 305 in 2010:
· Passed Senate and House, vetoed by governor
· Reasons cited in veto message:
· 1. Decoupling, on its own, represents an overall
tax increase
· 2. Changing the tax during the pipeline open
seasons (AGIA, Denali) creates uncertainty
· 3. Change not needed at this time because
legislature retains ability to make changes to tax
laws ... any tax locked in for firm commitments at
the first AGIA open season only applies to gas, not
oil.
MR. TANGEMAN opined the timing was not right for decoupling at
that time, and - although the governor still regards these
issues as problems - DOR today feels it was appropriate to
incorporate language from Senate Bill 305 into SB 192.
REPRESENTATIVE P. WILSON reiterated her question of whether it
is better to decouple now before the start of open season, in
order to be fair to the oil companies. She clarified that she
was talking about the open season that starts in October 2012.
MR. TANGEMAN stated that stability and an awareness of the gas
tax structure will be very important to the oil companies down
the road. At this time, the administration is willing to put a
structure in place that will regulate how gas and oil will be
decoupled in the future. Legislation proposed this session
would establish a structure for how to deal with a tax on gas
next year, or whenever appropriate. He acknowledged that the
language in SB 192 would not solve all of the issues surrounding
gas.
2:24:28 PM
CO-CHAIR FEIGE returned the gavel to Co-Chair Seaton.
REPRESENTATIVE P. WILSON inferred the bill would decouple the
oil and gas tax without detail.
MR. TANGEMAN restated that the language in HB 192 is the
language that was in Senate Bill 305, which was vetoed by the
governor. He declined to speculate on future changes to HB 192.
CO-CHAIR SEATON asked whether the administration anticipates
that open season bids would be highly contingent upon taxes and
other factors.
MR. TANGEMAN declined to speculate.
2:29:40 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:30 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 12.03.28 HseRes Decoupling Overview.pdf |
HRES 3/28/2012 1:00:00 PM |