Legislature(2017 - 2018)BARNES 124
03/06/2017 06:30 PM House RESOURCES
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| HB111 | |
| Adjourn |
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| += | HB 111 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
March 6, 2017
6:33 p.m.
MEMBERS PRESENT
Representative Andy Josephson, Co-Chair
Representative Geran Tarr, Co-Chair
Representative Dean Westlake, Vice Chair
Representative Harriet Drummond
Representative Justin Parish
Representative Chris Birch
Representative DeLena Johnson
Representative George Rauscher
Representative David Talerico
MEMBERS ABSENT
Representative Mike Chenault (alternate)
Representative Chris Tuck (alternate)
COMMITTEE CALENDAR
HOUSE BILL NO. 111
"An Act relating to the oil and gas production tax, tax
payments, and credits; relating to interest applicable to
delinquent oil and gas production tax; and providing for an
effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 111
SHORT TITLE: OIL & GAS PRODUCTION TAX;PAYMENTS;CREDITS
SPONSOR(s): RESOURCES
02/08/17 (H) READ THE FIRST TIME - REFERRALS
02/08/17 (H) RES, FIN
02/08/17 (H) TALERICO OBJECTED TO INTRODUCTION
02/08/17 (H) INTRODUCTION RULED IN ORDER
02/08/17 (H) SUSTAINED RULING OF CHAIR Y23 N15 E2
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WITNESS REGISTER
BRAD FAULKNER
Homer, Alaska
POSITION STATEMENT: Testified in support of HB 111.
JERA STEPHENS
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 111.
PAMELA THROOP
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 111.
ANDY BOND
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 111 and HB
133.
CAROL FRASER, Regional Director of Sales and Marketing
Aspen Hotels of Alaska
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 111.
MIKE MILLIGAN
Kodiak, Alaska
POSITION STATEMENT: Testified in support of HB 111.
BOB SHAVELSON
Homer, Alaska
POSITION STATEMENT: Testified in support of HB 111.
LUKE HOPKINS
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 111.
BRYAN CLEMENZ, Spokesman
Bristol Bay Industrial
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 111.
AVES THOMPSON, Executive Director
Alaska Trucking Association
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 111.
RANDALL AKERS
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 111.
JOHN STURGEON
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 111.
RACHEL DISMY
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 111.
PAMELA MILLER
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 111.
TERESA IMM, Director, Resource Development
Arctic Slope Regional Corporation
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 111.
PAUL D. KENDALL
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 111.
ADAM TROMBLEY
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 111.
LINDA FEILER
Anchor Point, Alaska
POSITION STATEMENT: Testified in support of HB 111.
KEN HALL
Fairbanks, Alaska
POSITION STATEMENT: Testified in opposition to HB 111.
PETE STOKES
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 111.
TOM WALSH, Managing Partner
Petrotechnical Resources of Alaska, LLC (PRA)
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 111.
ROBERT GORDON VERNON
Homer, Alaska
POSITION STATEMENT: Testified in support of HB 111.
J.R. WILCOX, Chairman
Alaska Chamber of Commerce
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 111.
SCOTT HAWKINS, President/CEO
Advanced Supply Chain International (ASCI)
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 111.
SUE CHRISTIANSEN
Homer, Alaska
POSITION STATEMENT: Testified in support of HB 111.
MERRICK PEIRCE
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 111.
MIKE SALLEE
Ketchikan, Alaska
POSITION STATEMENT: Testified in support of HB 111.
REED CHRISTENSEN, President
Dallinbach Corporation
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 111.
GEORGE PIERCE
Kasilof, Alaska
POSITION STATEMENT: Testified in support of HB 111.
DEBORAH BROLLINI
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 111.
BRENDA DOLMA
Homer, Alaska
POSITION STATEMENT: Testified in support of HB 111.
LISA HOUGHTON
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 111.
LAURIE FAGNANI
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 111.
ACTION NARRATIVE
6:33:31 PM
CO-CHAIR GERAN TARR called the House Resources Standing
Committee meeting to order at 6:33 p.m. Representatives Tarr,
Birch, Parish, Talerico, Rauscher, Drummond, Westlake and
Josephson were present at the call to order. Representative
Johnson arrived as the meeting was in progress.
HB 111-OIL & GAS PRODUCTION TAX;PAYMENTS;CREDITS
[Contains discussion of HB 133]
6:33:49 PM
CO-CHAIR TARR [announced that the only order of business would
be HOUSE BILL NO. 111, "An Act relating to the oil and gas
production tax, tax payments, and credits; relating to interest
applicable to delinquent oil and gas production tax; and
providing for an effective date."]
6:35:25 PM
BRAD FAULKNER stated support for HB 111, and explained that he
has followed the evolvement of the oil tax structure intently
since 1973, following what became known as the sellout session.
He said, "I think this is a good bill, it just doesn't go nearly
far enough." Bumping the minimum from 4 percent to 5 percent
simply isn't enough. The oil taxes in Alaska have always been
written by the oil companies, he opined, and said the bill
allows for interest free loans after three years, which is a
provision that is hard to understand. The state is in crisis
mode and the bill merely tweaks something that should have an
axe taken to it. He reviewed the credits exchange from the
Point Thomson site and said that the state spent about $1.5
billion, which, at 5 percent, represents $75 million per year of
forgone interest to the state on that project alone. He
suggested that the money would be better invested if left in the
bank.
6:37:44 PM
REPRESENTATIVE PARISH asked why Mr. Faulkner has followed the
oil tax structure.
MR. FAULKNER answered that working on the Trans-Alaska Pipeline
System (TAPS) was how he paid his way through Harvard University
to earn a degree in economics. The elephant in the room has
been and continues to be the oil tax structure, he opined and
expressed concern that the legislature has always been for sale,
cheap. He maintained, "We're given them billions and billions
of dollars of public resource and we're being sold down the
river for bags of peanuts."
6:39:10 PM
JERA STEPHENS stated support for HB 111, and agreed with the
previous speaker that the tax measure doesn't go far enough.
It's a step in the right direction, she opined.
6:40:44 PM
PAMELA THROOP stated support for HB 111, and said the state has
never received the money that it should from oil taxes. The
credits don't make business sense, and never have. She cited
the report submitted by Robin O. Brena [titled "Presentation to
House Resources Committee (Alaskans' Fair Share)," presented to
the committee 2/3/17] and expressed 100 percent support for its
content. A tax on the gross production would be most
appropriate and would also simplify the audit process. As a
real estate broker in Fairbanks she reported that sales are down
by 30 percent. The real estate devaluation is only just
beginning, she cautioned, and said this downturn feels worse
than the last one. It feels like Alaska is a banana republic,
with the majority of the populace poor and the rich people
walking out with the state's oil resources and money dripping
out of their pockets. Underscoring that banana republic is a
derogatory term she said Alaska fits the description exactly,
and offered:
In political science, the term banana republic is a
pejorative descriptor for a servile dictatorship that
abets or supports, for kickbacks, the exploitation of
large-scale plantation agriculture, especially banana
cultivation. That's where it started. More
generally, it is a derogatory term for a country that
is considered to have a weak economy, a dishonest or
cruel government, and public services that do not
work. In economics, a banana republic is a country
operated as a commercial enterprise for private
profit, effected by a collusion between the State and
favored monopolies, in which the profit derived from
the private exploitation of public lands is private
property, [while the debts incurred thereby are a
public responsibility.]
6:44:32 PM
ANDY BOND stated opposition to HB 111 and HB 133, and said he
has worked as an engineer in the Alaska oilfields for 30 years,
but may need to relocate should the industry suffer a downturn.
The shale oilfields in the Lower 48 are in direct competition
with Alaska projects, which represent more of a challenge than
the southerly undertakings. The potential tax increases being
considered contribute to the challenge, and put a chill on
investment dollars being directed to the state. Current tax
rates should be maintained, along with the tax credit structure
that has been in place. With that type of encouragement, the
industry will remain, he opined, and said he looks forward to
his children working in Alaska's oil industry one day.
Retaining the oil industry is critical for Alaska's long term
future and viability, he finished.
6:47:28 PM
CAROL FRASER, Regional Director of Sales and Marketing, Aspen
Hotels of Alaska, stated opposition to HB 111, and said Aspen is
in the process of building its seventh hotel in the state. The
company tracks its annual clientele and, speaking specifically
about the Kenai Aspen Hotel, the oil industry has been a primary
support for the last nine years; however, the oil company
business has recently dropped by 52 percent and cannot be
supplanted by other activities such as tourism. She reported
that, for the first time in the 19 years of operation in Alaska,
the Aspen hotel chain is laying off employees. Many efficiency
measures are being taken and discount web site markets are being
utilized to offset losses; all measures save raising room rates.
Increasing oil taxes at this time would be akin to Aspen raising
room rates, with nothing gained and much lost in the
competitive, global market place. She opined that HB 111 is a
jobs bill - a jobs reduction bill.
6:49:57 PM
MIKE MILLIGAN stated support for HB 111 and said he's followed
this and other oil issues for 25 years. He pointed out that
whenever Texas and North Dakota oilfields are mentioned it is
worth remembering that most of the development in those locales
is not on government but rather private land. Thus, in addition
to a [state] tax structure there are leases [to private
landowners]. He reported that only 25 percent of areas on earth
are open to the oil companies, which should be kept in mind
whenever the topic of the companies going elsewhere is brought
up. The limiting factor to development in Alaska is access to
TAPS. If Alaskans want to develop their oil on state lands, it
would be important to ensure access to TAPS. The two most
stable places on the planet for oil development are Saudi Arabia
and Norway, he reported and suggested that Alaska adopt similar
tax structures.
6:52:23 PM
BOB SHAVELSON stated support for HB 111, and said it will save
Alaska money, help to cut the deficit, and redirect Alaska's
wealth. Alaska is still a rich state and redirecting the money
is the real problem that needs to be solved, such as support for
schools, roads, seniors, that will create jobs. He explained
that, for the last 22 years, he has observed the tax incentives
and rollbacks in the Cook Inlet area, which bring to mind the
saying, "free markets are a wonderful thing, we should try them
sometimes." The subsidies and un-level playing field created in
the inlet have distorted the free market and resulted in bad
economic outcomes for the state. Having followed the
legislative presentations provided by industry, and others, he
said that Robin Brena put it right in his report [titled
"Presentation to House Resources Committee (Alaskans' Fair
Share)," presented to the committee 2/3/17], to the effect:
"The way you know Alaska's production tax needs to be reformed
is because the industry says it's working." The industry comes
from a self-interested position and Alaska needs to move beyond
what the bill provides, as suggested by Mr. Faulkner's previous
testimony that pushing the minimum tax to 5 percent is not
enough. The bill is a start, he said, and urged passage.
6:54:46 PM
LUKE HOPKINS stated support for HB 111, and said many changes in
the bill will support the small explorers; although they haven't
received recent payments due to the governor's veto. A primary
concern is the outstanding obligations owed on the legacy
fields, and the effort to achieve a 5 percent tax floor, which
are important factors. The current structure, requiring large
credit and production tax payments, is not sustainable. He
opined that it's a complicated bill and urged that both bodies
concur on the proposed changes, as well as provide a workable
fiscal date. It will be important for the new, smaller
exploration companies to receive some payments in order to keep
investments leveraged, which will allow them to make new
discoveries.
6:59:18 PM
BRYAN CLEMENZ, Spokesman, Bristol Bay Industrial (BBI), stated
opposition to HB 111, and said BBI is the parent company for
five other companies across the state, operating as service
providers and contractors to the North Slope fields. Since
2015, reductions have occurred in the areas of revenues received
and employees hired, which in turn has had a significant impact
on the state economy, he reported, and said this represents a
loss of "tens of millions of dollars that would have gone into
the pockets of Alaskans." The bill has been crafted to fill a
budget gap and will not encourage responsible resource
development. It is reactionary and does not represent good
policy, he maintained, and predicted that exploration and
production will be stopped, by passage of HB 111.
7:01:34 PM
AVES THOMPSON, Executive Director, Alaska Trucking Association,
stated opposition to HB 111, and said increasing taxes will not
increase oil production. The state cannot tax away the
industries incentive to invest and still expect to have a
sustainable economy, he opined. The bill will make Alaska
ventures less competitive on the global market. Additionally,
changes this year may be a harbinger of changes next year and an
image of instability will be perceived. Alaska realizes more
dollars from a barrel of oil than do the producers, he said, and
suggested that Senate Bill 21 [passed in the 28th Alaska State
Legislature] encouraged increased oil production and has
performed as expected. He urged that the tax structure not be
changed again.
7:02:46 PM
RANDALL AKERS stated opposition to HB 111, and opined, "To take
our spending woes and simply pass them onto our most valued
business and resource is not only wrong [but] it's quite
foolish." The ongoing oil price decline has already taken a
toll on jobs and income in the state, and to consider that it
would be sound legislation to tax the oil and gas industry
further is the wrong thing to do at this juncture. He reviewed
the changes in the tax structure and found that it has been
altered 7 times in 12 years. It would be difficult for anyone
to make future plans under similarly changing conditions, he
opined. Following the passage of Senate Bill 21 [passed in the
28th Alaska State Legislature], a slight revitalization was
experienced in the oil and gas sector. Now the proposal is to
once again change the structure and it should be considered what
message that sends to prospective investors, companies looking
to enter Alaska, and those already invested in the state. It is
not the time to introduce a bill that will send such a message,
nor hamper/hinder or otherwise erode oil and gas sector
businesses. Trying to fill the deficit hole with oil is not
what is needed, he maintained, and finished by urging the
committee to reject HB 111.
CO-CHAIR TARR referred to the number of tax changes mentioned
and clarified that HB 111 is introducing the seventh
restructure.
7:06:15 PM
JOHN STURGEON stated opposition to HB 111, and said the multiple
changes made to the tax structure sends a bad signal. Such
changes can have a chilling effect on those who want to invest
in an industry, he said, and offered an analogy to banks needing
more money and invoking similar changes to mortgages; people
would be put off. Although it seems that whatever the state
does, the oil companies will remain, he said when he first
arrived in the state the timber industry was king - as the
second largest industry hosting 6,000 good paying jobs - and
today only a shell of what was remains, due to government
policy, he opined.
7:09:43 PM
RACHEL DISMY stated support for HB 111, and said it's ridiculous
to consider raising taxes on the citizens before taxing those
who take the resources out of our state and make a profit. The
state should do everything it can to hold onto the oil earnings,
she finished.
7:10:43 PM
PAMELA MILLER stated support for HB 111, and said the bill is
necessary to make changes that will allow for the development of
the most important future state resource: Alaska's children and
their education; as well as sustainable resources. The bill
doesn't go far enough, she opined, and suggested that the oil
production taxes need to be recalibrated to correct the mistakes
that were previously made and to align with the current,
relatively low oil prices. The low price scenario was neglected
and not incorporated in the early models. Under Alaska's Clear
and Equitable Share (ACES) [passed in the 25th Alaska State
Legislature] there was a straight line of oil revenue. Prudhoe
Bay and the satellite fields should not be considered as new
and, as such, require no incentives for continued development.
The 5 percent gross value tax should be a minimum regardless of
the per barrel price. Further, tax credits should not be
transferable, she noted, and said it is appalling that $35
million in tax credit certificates can be transferred to another
profitable company in order to further reduce the taxes paid to
the state. She suggested subsidies for broadband
[communications] would be a better investment for the state's
future.
7:13:20 PM
TERESA IMM, Director, Resource Development, Arctic Slope
Regional Corporation (ASRC), stated opposition to HB 111,
paraphrasing from a prepared statement, which read as follows
[original punctuation provided]:
ASRC has serious concerns with the impacts this bill
will have in its current form. ASRC is the largest
Alaskan-owned company with approximately 10,000
employees nation-wide, with nearly half of those
employees in Alaska. ASRC was established pursuant to
the Alaska Native Claims Settlement Act in 1971 as a
for-profit business to utilize our natural resources
to provide for the economic and social well-being of
our Iñupiat shareholders. ASRC has a shareholder base
of approximately 13,000.Iñupiat. My testimony today
will address how ASRC sees HB 111 impacting our
businesses, investments, and shareholders.
ASRC is in a unique position as the largest locally
owned Alaskan business; we are an ANCSA Corporation,
land owner, a lessor, a producer, and an explorer.
Because of our various ties to the industry, HB 111
impacts us in several ways. Like the State of Alaska,
the majority of ASRC's revenue base and investments
are associated with the oil and gas industry. We feel
the impacts to changing oil price, production outputs,
TAPS throughput, and exploration investments just as
the State of Alaska does. These impacts ripple through
the Alaskan economy. We all know the statistics on
TAPS throughput and declining production-this is a
topic that is always on the forefront of my mind as
I'm sure it's on yours. We are at a critical time
where we must reinvigorate the industry that we all
depend on, not further burden it with taxes. This
uncertainty creates a high-risk, unstable business
environment in Alaska. . With current production boons
in the Lower 48, Alaska must remain competitive and
attractive to industry; we cannot achieve this with a
fickle tax structure and high-cost exploration and
production. It is time for us to start managing
Alaska's financial affairs like a business and not
based on emotions or misguided ideology.
If the legislature fails to take a pragmatic approach
to providing fiscal certainty for the state's dominant
industry, our financial woes will continue to conflict
spiral. This reckless behavior must stop. As an
Alaskan-based company, ASRC will always operate in
Alaska; this is our home and the home of our
shareholders. The Iñupiat thrived on the North Slope
long before the discovery on Prudhoe Bay-and ASRC will
continue to invest in Alaska and our region.
However, even companies like ASRC who are committed to
operating in Alaska will have to reconsider our
investments with the current form of HB 111 in mind.
Rather than penalizing companies committed to Alaska
who are riding out the current economic downturn, the
legislature should work to create a tax system that
stimulates investments, encourages business, and works
to brings jobs and production back up.
Alaskan companies, like ASRC, should not be
disadvantaged for our commitment to the State's
welfare and to the well-being of our shareholders.
Instead, we should work together to create a fair and
balanced structure which incentivizes companies and
spurs increased production and exploration.
Complicating and increasing the current tax structure
does nothing to benefit the State of Alaska, the
Alaskan economy, ASRC, Alaskans. Rather, it sends a
chill over the economy which reverberates across the
State.
This inconsistent, unpredictable, and ever-changing
tax structure in Alaska is incredibly short-sighted
and will result in additional lay-offs, reduced
drilling rigs, limited capital investment. Companies
with the ability to invest elsewhere will do so.
Meanwhile, nothing will be done to repair our fiscal
gap, promote increased production, and increase
throughput into TAPS-which we all rely on as the
artery of the Alaskan economy.
Simply put, it is bad policy to keep changing the oil
tax regime. There have been three changes to Alaska's
oil tax regime since 2013, seven in the last 12 years.
These frequent changes are reactionary and do not
provide the stability companies need to make long-term
investment in our State. ASRC specifically will be
impacted by yet another change to the oil tax policy
in several ways.
First, HB 111 would implement a Gross Minimum Tax of
5% for all production, this in an increase from 4%.
This 25% hike in tax will impact capital reserved for
future investments and particularly impact small
businesses. With no option for a Small Producer Credit
or credits for New Developments, this tax structure
discourages exploration, investment, small businesses,
and entrepreneurship. The erosion of these credits
does not benefit the State in the long term. It will
impact first and foremost Alaskan businesses like ASRC
who are putting money into our economy and exploring
new opportunities for the State.
Secondly, Net Operating Loss, or NOL credits will be
reduced from 35% of loss to 15% of loss and will not
be eligible against the Gross Minimum Tax. With
current oil price environment, frozen investments,
shut down rigs, and thousands of Alaskans out of work,
it is nonsensical to reform a system which alleviates
losses the industry is currently facing. For ASRC, NOL
credits can be a determining factor as to whether a
project proceeds, and with respect to the Gross
Minimum Tax-a producer could be losing money and would
still need to pay the Gross Minimum Tax. The changes
to the NOL credits eliminate the mechanism Alaskan
businesses like ASRC use to continue to invest in a
low-price environment where companies will most
certainly incur a loss. To ASRC and other companies
working in Alaska, this sends a message that when
times are tough, the State is no longer a partner.
Thirdly, the State purchase of NOL credits will be
reduced from $70 million per year to $35 million per
year, with eligibility diminished from those producers
with less than 50,000 BOPD to those that produce less
than 15,000 BOPD. With the recent influx of
independents and small businesses investing in
Alaska's oil and gas industry, as well as Native
Corporations like ASRC who are beginning to take a
more active role, the State's shift in policy is
unsustainable for small companies and will
significantly impact Alaska Native Corporations. The
lack of certainty in Alaska's tax regime is bad
business and disproportionately impacts small
businesses and companies attempting to ride out the
economic downturn in the industry.
Lastly, HB 111 impacts the per-barrel tax credits
which were designed to be a progressive "credit" tied
to oil price. HB 111 would not allow the per-barrel
tax credit against the Gross
Minimum Tax and would alter the current structure for
"Old Oil." Previously, the per barrel tax credit was
linked to the price of oil in order to provide relief
for industry in low-price environment. By altering
this credit, the State is eliminating mechanisms which
encourage production and investments at any price.
More instability to the oil tax regime, more
burdensome taxes to the oil and gas industry, and
reduction in credits to Small Businesses, Net
Operating Loss, and other credits will not result in
more jobs, more investment, increase production,
increased throughput to TAPS, or offset Alaska's
fiscal deficit. On the contrary, it will most
certainly result in continued job loss, reduced
investment, production, and exploration, and further
suffocate an already struggling industry-an industry
we ALL rely on. For these reasons, ASRC does not
support HB 111. We support sound tax policy and a
healthy industry which promote responsible
exploration, production and incentives to spur
additional investment throughout the State.
ASRC encourages the Committee and the legislature to
consider our concerns and engage with ASRC and others
in the industry to construct a fair and balanced tax
structure that works for all Alaskans. Through
collaboration with Alaska businesses, we can address
the fiscal deficit and stimulate growth without
sacrificing the lifeblood of our economy. HB 111 does
not accomplish this, it would be one step forward and
five steps back for Alaska's economy, at the expense
of Alaskan businesses and industry partners. We cannot
control the price of oil, but we can determine what
kind of business environment Alaska will have and
what kind of partner the State of Alaska will be-both
of these factors are significant considerations that
will drive investment regardless of the price
environment.
7:17:06 PM
CO-CHAIR TARR pointed out that the bill doesn't address small
producer credits.
7:17:25 PM
PAUL D. KENDALL stated opposition to HB 111, and suggested what
measures need to occur, opining: seal up the Permanent Fund and
dividends; move the state capital from Juneau; and invite the
companies to be the state's partners in revenue generation.
Situating the state capital in Anchorage will provide
opportunities for productive discussions he suggested, and said
that state management of other resources would also be better
served by a legislative relocation.
7:23:50 PM
ADAM TROMBLEY stated opposition to HB 111, and said companies
need stability in order to do business. There are two major
factors by which companies abide: the price at which they can
sell their product or service, and the cost of doing business.
Oil is based on world markets which makes the cost of doing
business the important factor. The oil taxes have changed 6
times in 12 years, causing a difficulty, especially for smaller
companies endeavoring to obtain capital on the open market for
exploration and production purposes. By continually changing
the game for industry, we're damaging the ability for smaller
companies to push their projects to those who provide funding.
Not all oilfields are created equal, he said, and large
companies don't produce particular fields because it may not
prove profitable. However, it may be profitable for the smaller
oil and gas companies to develop the same field and fill TAPS.
7:25:33 PM
LINDA FEILER stated support for HB 111 and said the reforms are
important, and although the changes won't solve the state
deficit they make sense. Passing comprehensive oil tax reforms
will bolster other fiscal reform efforts. She said, "How can
you ask Alaskans to pay an income tax, or a statewide sales tax,
or lose their dividend, so that they can help pay for millions
of dollars in direct cash payments to a for-profit company,
undertaking normal, for-profit business operations." All
Alaskans have a right and duty to "tweak the instruments of oil
taxation." The laws count and must be constantly adapted to
changing prices and political situations. Further, she noted
that not too many oil companies have gone out of business in
Alaska, if they were initially well-established prior to
arrival. The bill will help to decrease the existing fiscal
liabilities and is a step in the right direction. The bill
could be made stronger she suggested. As a business owner,
there were times when she took a cut in her salary or borrowed
money from employees, but the oil companies are not taking
similar measures.
7:28:20 PM
KEN HALL stated opposition to HB 111, and said it will not help
to increase oil production. The bill is totally baffling, he
opined, and said it only serves to create instability. The
current government take of about 50 percent appears to be
appropriate, he opined, based on the numbers he calculated; the
state may be the greedy party. A radical change in the price of
oil may not be forthcoming but oil needs to be in TAPS, which HB
111 will not accomplish. He agreed the subject is complicated
and credits do work, as demonstrated in Cook Inlet.-
7:32:08 PM
PETE STOKES stated opposition to HB 111, and reported that, as a
licensed petroleum engineer, he's worked for 30 years in the
global oil and gas industry. Currently, he works for an
Alaskan-owned consulting firm, which has had to lay off about 40
percent of its professional staff, due to the downturn in oil
prices. The trend can be turned around, if the oil prices turn
around and a stable oil tax environment is available. The
number of fiscal changes made to Alaska's oil tax structure is
unprecedented, he opined. Increasing the taxes and eliminating
the credits, given the current economic climate, will serve to
drive away investments and major new developments. The
possibilities for future projects needs to be ensured, as they
represent jobs for the next generations of Alaskans. The
passage of Senate Bill 21 [passed in the 28th Alaska State
Legislature] provided attractive fiscal terms and resulted in a
period of increased production in 2016.
7:34:52 PM
TOM WALSH, Managing Partner, Petrotechnical Resources of Alaska,
LLC (PRA), stated opposition to HB 111, paraphrasing from a
prepared statement, which read as follows [original punctuation
provided]:
I am a geophysicist and managing partner of
Petrotechnical Resources of Alaska, or PRA, an Alaskan
oil and gas consulting company founded 20 years ago in
Anchorage. PRA employs a broad cross section of very
talented and respected oil and gas experts, and our
clients include major oil companies, independent oil
companies, small E&P companies, federal, state and
local agencies, and Alaska native corporations. Early
last year, PRA employed over 100 consultants, and
since early 2016 we have downsized 40-50% due to low
oil prices, and diminished activity.
While the oil and gas industry in the lower 48 is
rapidly recovering, with rig count climbing, and
production on the rise, we Alaskans are still in the
grip of a recession. Our major fields are naturally
declining, and our exploration and development
opportunities are far more expensive than those of our
competitors in the lower 48 and elsewhere. We have
rejoiced in the welcome news of new discoveries on the
North Slope this year, but development of those
resources is extremely expensive, and commercial
decisions regarding their development require tight
cost controls at every level of planning and
development. Changes in tax structure are not
typically treated as variables in commercial modeling,
but perhaps they should be, based on the history of
our ever-changing taxation of the oil industry.
We Alaskans are extremely dependent on the revenue
from oil production, and we act as though these
resources and the revenue they generate are dials we
can turn up when we need cash. Unfortunately, we are
now at a decision point at which we can turn the
screws tighter on the oil industry and drive ourselves
out of business, or we can think longer term and take
action to accelerate our recovery from the price
collapse. Please ask yourselves if we really want to
be the only government in the world foolish enough to
increase taxes on a challenged industry, one which has
provided 80-90% of our general fund revenue for
decades.
7:37:26 PM
ROBERT GORDON VERNON stated support for HB 111, and said the oil
companies spent $200 million to get the tax structure they
wanted passed under Senate Bill 21 [passed in the 28th Alaska
State Legislature], but still one-third of oil industry workers
are out of work, which can be attributed to the price of oil not
the tax structure. He maintained that there are negative
outcomes often created by tax credits, when fly-by-night
operations are attracted to the state, which can easily fold to
the detriment of all involved, and he provided an example of an
Australian firm. Companies should be carefully vetted before
being allowed entrance, he said and suggested that the tax
credit money could be better spent by hiring public safety
officers, medical workers, and other areas of employ that
contribute directly to the needs of Alaskan communities.
7:42:48 PM
J.R. WILCOX, Chairman, Alaska Chamber of Commerce, stated
opposition to HB 111, and acknowledged the hard times that the
state is under and the difficulties being faced by the 30th
Alaska State Legislature regarding the need to find ways and
means for stabilizing the budget. Oil tax raises are a uniquely
destructive way to raise revenue, he opined, and said the
production tax method should not be changed, as future
production is directly based on today's tax structure. He
suggested that a punitive tax structure was adopted under
Alaska's Clear and Equitable Share (ACES)[passed in the 25th
Alaska State Legislature], resulting in less oil in TAPS today
and contributing to the dire fiscal situation. Continuing to
raise or adjust the production tax system is likely to
discourage investment decisions and mark Alaska as a risky place
to do business. The business community in general is suffering
under the current economic climate and injecting uncertainty
into the production tax structure is the last thing that should
happen; investments need to be encouraged to turn the situation
around and fill TAPS. He urged the committee to leave the tax
system in place and close the fiscal gap by other measures.
7:45:47 PM
SCOTT HAWKINS, President/CEO, Advanced Supply Chain
International (ASCI), stated opposition to HB 111, and said ASCI
provides services to the oil and gas sector. Like many other
companies, significant reductions are being experienced both in
service activity and employment numbers; perhaps 20 percent down
in Alaska operations and continuing to decline. The only recent
industry growth has been in the regions of North Dakota, Texas,
and Pennsylvania. Despite previous comments, he opined, oil and
gas companies have many options for optimal operation locations
outside of Alaska. Alaska's economy is in a recession,
experiencing a loss of 10,000 jobs in the last 18 months. The
bill will exacerbate all of Alaska's economic issues, he said
and urged rejection of HB 111 in order to send a positive
message to industry.
7:48:24 PM
SUE CHRISTIANSEN stated support for HB 111, and said she has
worked in Alaska's oilfields for many years. She underscored
the need to stop paying millions of dollars in direct cash
payments to businesses operating with losses. Oil companies
make big profits and can afford to be taxed, she assured the
committee. The average oilfield worker making $150,000 per year
generally lives Outside, and the average working Alaska resident
makes about $50,000. The bill leaves a generous tax structure
in place, she opined and suggested that, if anything needs to do
more and be stronger.
7:51:00 PM
MERRICK PEIRCE stated support for HB 111, and said it's a good
start in reforming Senate Bill 21 [passed in the 28th Alaska
State Legislature] to provide a fair return on the state oil
resources. The state budget cannot be fixed as long as a fair
return is not required and corporate welfare continues. The 5
percent floor is not nearly enough, especially for legacy fields
where the infrastructure is established and TAPS costs have been
paid. The myth of oil prices can be countered by recalling that
at one time a barrel of oil was worth $10.00. Having oil prices
at $50.00 per barrel represents $28 million of oil leaving the
state every day, $800 million per month, and $10 billion per
year. He pointed out Norway has very high oil and gas taxes and
has almost $900 billion in its sovereign wealth fund. The bill
provisions regarding interest on delinquent taxes is an
important reform aspect to allow a higher rate than the
currently imposed zero percent rate. Alaska's long term
obligations, such as retirement fund liabilities, will not be
met if the decision is to continue to give away the oil, he
maintained, and urged passage of HB 111.
7:53:40 PM
MIKE SALLEE stated support for HB 111, and said it could be made
stronger. The oil companies and subcontractors make profits off
of Alaska's oil resources that are among the highest in the
world and obtained under safe conditions. A recent British
Petroleum (BP) promotional video highlighted that the company
operates happily in Iraq, where the proceeds are divided at a
rate of 2 percent and 98 percent, respectively. Seeing that
type of contrast, he said doesn't instill confidence in the
complex, confusing, and convoluted explanations by the oil
industry in Alaska. The oil belongs to all Alaskans, and all
Alaskans have the right to see appropriate rates collected on
sales. Lucrative profits should not be provided to any company.
He suggested that there is no harm in allowing TAPS to slow to a
trickle until oil prices improve, as the oil is safe in the
ground. There are costs held by the public common that remain
unaddressed by the oil companies, which include: growing CO2
levels in the atmosphere, the health cost of pollution, and
climate change. He urged passage of HB 111.
7:56:39 PM
REED CHRISTENSEN, President, Dallinbach Corporation, stated
opposition to HB 111, and said two years ago Dallinbach had 32
employees but today there are only 26. Due to the current
economic situation some are now part-time workers, while others
are on a reduced work week of 32 hours. Now is not the time to
increase taxes on the oil industry as it doesn't make economic
sense, he said. It's expected that the new federal
administration will reduce regulation, promote responsible
resource development, and reduce taxes to bolster the economy
across America, he pointed out and said Alaska should be
following that example to bring optimism and jobs back to the
state. The focus should be to identify means for increasing oil
production and to align with the producers and developers, in
order to ensure economic health.
8:00:18 PM
GEORGE PIERCE stated support for HB 111, and said the
legislature changed the oil tax structure at the request of the
oil industry. He said, "When is enough, enough?" Further, he
thanked the current members for authoring the bill, rather than
allowing it to be written by the oil industry. It represents a
good start, but it's not enough. The last tax policy was
modeled on oil selling at $100 per barrel and doesn't reflect
the current situation. Even though the price began falling in
2013, nothing's been done to curb the "giveaways." The current
production tax and large cash payments have crippled the state,
representing nothing more than a redistribution of money, rather
than gains. Raising the tax from 4 to 5 percent will actually
only serve to recoup lost revenue accrued under the stackable
credits, which, he opined should be removed. He suggested that
the tax floor be set at a minimum of at least 8 percent.
Alaska's oil industry has become a welfare recipient with the
state paying 35 percent to 85 percent of costs for new
exploration and development, respectively. The state tax
director estimates that the credits equal at least $24.00 per
barrel, making the state better off if funds were invested in
the stock market.
8:05:37 PM
DEBORAH BROLLINI stated opposition to HB 111, and opined that
Alaska's future is in increased oil production. She related a
history of testifying on the past oil tax reform bills, before
the various committees. Following the previous oil crash, her
career entailed foreclosing on homes and in today's economic
downturn, the situation is beginning to be repeated. Alaska is
still a world class oil producing area, she said and urged
partnering with the oil producers. The proposed bill will lead
to more layoffs in the oil industry and end the six figure
salaries that are currently flowing into Alaska's economy.
Alaska needs more oil flowing through TAPS, she finished.
8:07:37 PM
BRENDA DOLMA stated support for HB 111, and said, "It is time
that oil pays their fair share." She opined that Alaska
industry should be further diversified, renewable energy sources
explored, and the oil kept in the ground with the expectation
that its value will increase in the future. The bill will end
corporate welfare, and serve to protect the state, she said and
urged passage of HB 111. She restated her support for
diversifying the economy to create more jobs in other
industries.
8:10:55 PM
LISA HOUGHTON stated opposition to HB 111, pointing out that
Prudhoe Bay is celebrating 40 years of operation, which is 10
years beyond the lifespan predicted at startup. The major
fiscal problem Alaska is facing requires more than the short
term fix that the bill represents via imposing taxes. Higher
taxes will not increase oil production, jobs, or create an
economic boost. She suggested passage of the bill would derail
a number of economic possibilities, such as additional oil
discoveries, and business startups. People will lose jobs, and
families will be forced to leave the state, she predicted. The
preservation of continued oil investment and a good working
climate for doing business is important through a stable price
environment. Alaska needs to be viewed as the best place for
oil companies to invest, she stressed, and urged rejection of HB
111.
8:13:59 PM
LAURIE FAGNANI stated opposition to HB 111, and said the company
she owns employs 23 Alaskans whose jobs dependent on a healthy
oil and gas economy. The company is down about 20 percent this
year, and the profit margins have been drastically reduced in
the oil and gas sector. The bill will jeopardize the recent up-
tick in production levels to TAPS, and discourage investment by
producers in the North Slope, she opined. This is an important
time to partner with and incentivize companies, and not to
impose punitive taxes, she said, and urged rejection of HB 111.
8:15:49 PM
CO-CHAIR TARR announced HB 111 was held over, with public
testimony open.
8:17:08 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 8:17 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB111 ver O 2.8.17.PDF |
HRES 2/13/2017 1:00:00 PM HRES 2/17/2017 1:00:00 PM HRES 2/20/2017 1:00:00 PM HRES 2/22/2017 1:00:00 PM HRES 2/22/2017 6:30:00 PM HRES 2/24/2017 1:00:00 PM HRES 2/27/2017 1:00:00 PM HRES 3/1/2017 1:00:00 PM HRES 3/1/2017 6:00:00 PM HRES 3/6/2017 6:30:00 PM HRES 3/8/2017 1:00:00 PM |
HB 111 |
| HB111 Fiscal Note DOR-TAX 2.12.17.pdf |
HRES 2/13/2017 1:00:00 PM HRES 2/17/2017 1:00:00 PM HRES 2/22/2017 1:00:00 PM HRES 2/22/2017 6:30:00 PM HRES 2/24/2017 1:00:00 PM HRES 2/27/2017 1:00:00 PM HRES 3/1/2017 1:00:00 PM HRES 3/1/2017 6:00:00 PM HRES 3/6/2017 6:30:00 PM HRES 3/8/2017 1:00:00 PM HRES 3/13/2017 1:00:00 PM |
HB 111 |
| HB111 Sectional Analysis 2.12.17.pdf |
HRES 2/13/2017 1:00:00 PM HRES 2/17/2017 1:00:00 PM HRES 2/20/2017 1:00:00 PM HRES 2/22/2017 1:00:00 PM HRES 2/22/2017 6:30:00 PM HRES 2/24/2017 1:00:00 PM HRES 2/27/2017 1:00:00 PM HRES 3/1/2017 1:00:00 PM HRES 3/1/2017 6:00:00 PM HRES 3/6/2017 6:30:00 PM HRES 3/8/2017 1:00:00 PM |
HB 111 |
| HB111 Sponsor Statement 2.12.17.pdf |
HRES 2/13/2017 1:00:00 PM HRES 2/17/2017 1:00:00 PM HRES 2/20/2017 1:00:00 PM HRES 2/22/2017 1:00:00 PM HRES 2/22/2017 6:30:00 PM HRES 2/24/2017 1:00:00 PM HRES 2/27/2017 1:00:00 PM HRES 3/1/2017 1:00:00 PM HRES 3/1/2017 6:00:00 PM HRES 3/6/2017 6:30:00 PM HRES 3/8/2017 1:00:00 PM HRES 3/13/2017 1:00:00 PM |
HB 111 |
| HB111 Supporting Document - Letters in Support 3.1.17.pdf |
HRES 3/1/2017 6:00:00 PM HRES 3/6/2017 6:30:00 PM |
HB 111 |
| HB111 Supporting Document - Support Letter 2.22.17.pdf |
HRES 2/22/2017 6:30:00 PM HRES 3/6/2017 6:30:00 PM |
HB 111 |
| HB111 Opposing Document - Letters in Opposition 3.1.17.pdf |
HRES 3/1/2017 6:00:00 PM HRES 3/6/2017 6:30:00 PM |
HB 111 |
| HB111 Supporting Document - Letters in Support 3.3.17.pdf |
HRES 3/6/2017 1:00:00 PM HRES 3/6/2017 6:30:00 PM |
HB 111 |
| HB111 Opposing Document - Letters in Opposition 3.3.17.pdf |
HRES 3/6/2017 1:00:00 PM HRES 3/6/2017 6:30:00 PM |
HB 111 |
| HB111 Opposing Document - Letter in Opposition 3.2.17.pdf |
HRES 3/6/2017 1:00:00 PM HRES 3/6/2017 6:30:00 PM |
HB 111 |
| HB111 Opposing Document - Letter in Opposition NANA 3.2.17.pdf |
HRES 3/6/2017 1:00:00 PM HRES 3/6/2017 6:30:00 PM |
HB 111 |
| HB111 Opposing Documents - Letter of Oppostion- North Slope Borough 3.3.17.pdf |
HRES 3/6/2017 1:00:00 PM HRES 3/6/2017 6:30:00 PM |
HB 111 |
| HB111 Opposing Document - Letters in Opposition 3.3.17.pdf |
HRES 3/6/2017 1:00:00 PM HRES 3/6/2017 6:30:00 PM |
HB 111 |
| HB111 Opposing Document - Letters in Opposition 3.6.17.pdf |
HRES 3/6/2017 6:30:00 PM |
HB 111 |
| HB111 Opposing Document - Letter in Opposition ARSC 3.6.17.pdf |
HRES 3/6/2017 6:30:00 PM |
HB 111 |
| HB111 Opposing Document - Letters in Opposition 3.6.17 Part Two.pdf |
HRES 3/6/2017 6:30:00 PM |
HB 111 |
| HB111 Supporting Document - Letters in Support 3.6.17.pdf |
HRES 3/6/2017 6:30:00 PM |
HB 111 |