Legislature(2005 - 2006)CAPITOL 106

03/10/2006 12:30 PM RESOURCES


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12:36:08 PM Start
12:37:11 PM HB488
02:29:43 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 488 OIL AND GAS PRODUCTION TAX TELECONFERENCED
Heard & Held
Public Hearing
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                         March 10, 2006                                                                                         
                           12:36 p.m.                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Jay Ramras, Co-Chair                                                                                             
Representative Ralph Samuels, Co-Chair                                                                                          
Representative Jim Elkins (via teleconference)                                                                                  
Representative Gabrielle LeDoux (via teleconference)                                                                            
Representative Paul Seaton                                                                                                      
Representative Harry Crawford (via teleconference)                                                                              
Representative Mary Kapsner (via teleconference)                                                                                
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Carl Gatto                                                                                                       
Representative Kurt Olson                                                                                                       
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 488                                                                                                              
"An Act repealing  the oil production tax and  gas production tax                                                               
and providing  for a production tax  on the net value  of oil and                                                               
gas; relating to the relationship  of the production tax to other                                                               
taxes; relating to the dates  tax payments and surcharges are due                                                               
under AS  43.55; relating  to interest  on overpayments  under AS                                                               
43.55; relating  to the treatment  of oil and gas  production tax                                                               
in a  producer's settlement with  the royalty owner;  relating to                                                               
flared gas, and to  oil and gas used in the  operation of a lease                                                               
or property, under AS 43.55;  relating to the prevailing value of                                                               
oil or gas under AS 43.55;  providing for tax credits against the                                                               
tax  due under  AS 43.55  for certain  expenditures, losses,  and                                                               
surcharges; relating to statements  or other information required                                                               
to be filed  with or furnished to the Department  of Revenue, and                                                               
relating  to the  penalty for  failure to  file certain  reports,                                                               
under  AS 43.55;  relating to  the  powers of  the Department  of                                                               
Revenue, and  to the disclosure  of certain  information required                                                               
to be  furnished to  the Department of  Revenue, under  AS 43.55;                                                               
relating   to  criminal   penalties   for  violating   conditions                                                               
governing access to and use  of confidential information relating                                                               
to the  oil and gas  production tax;  relating to the  deposit of                                                               
money  collected by  the Department  of Revenue  under AS  43.55;                                                               
relating to  the calculation of the  gross value at the  point of                                                               
production of  oil or gas;  relating to the determination  of the                                                               
net value  of taxable oil  and gas  for purposes of  a production                                                               
tax on the net value of  oil and gas; relating to the definitions                                                               
of  'gas,' 'oil,'  and certain  other  terms for  purposes of  AS                                                               
43.55;  making  conforming  amendments;   and  providing  for  an                                                               
effective date."                                                                                                                
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 488                                                                                                                  
SHORT TITLE: OIL AND GAS PRODUCTION TAX                                                                                         
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
02/21/06       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/21/06       (H)       RES, FIN                                                                                               
02/22/06       (H)       RES AT 12:30 AM HOUSE FINANCE 519                                                                      
02/22/06       (H)       Heard & Held                                                                                           
02/22/06       (H)       MINUTE(RES)                                                                                            
02/23/06       (H)       RES AT 12:30 AM HOUSE FINANCE 519                                                                      
02/23/06       (H)       Heard & Held                                                                                           
02/23/06       (H)       MINUTE(RES)                                                                                            
02/24/06       (H)       RES AT 12:30 AM HOUSE FINANCE 519                                                                      
02/24/06       (H)       Heard & Held                                                                                           
02/24/06       (H)       MINUTE(RES)                                                                                            
02/25/06       (H)       RES AT 10:00 AM SENATE FINANCE 532                                                                     
02/25/06       (H)       Joint with Senate Resources                                                                            
02/27/06       (H)       RES AT 12:30 AM CAPITOL 124                                                                            
02/27/06       (H)       Heard & Held                                                                                           
02/27/06       (H)       MINUTE(RES)                                                                                            
02/28/06       (H)       RES AT 12:30 AM CAPITOL 124                                                                            
02/28/06       (H)       Heard & Held                                                                                           
02/28/06       (H)       MINUTE(RES)                                                                                            
03/01/06       (H)       RES AT 12:30 AM CAPITOL 124                                                                            
03/01/06       (H)       Heard & Held                                                                                           
03/01/06       (H)       MINUTE(RES)                                                                                            
03/02/06       (H)       RES AT 12:00 AM CAPITOL 124                                                                            
03/02/06       (H)       Heard & Held                                                                                           
03/02/06       (H)       MINUTE(RES)                                                                                            
03/03/06       (H)       RES AT 12:30 AM CAPITOL 124                                                                            
03/03/06       (H)       Heard & Held                                                                                           
03/03/06       (H)       MINUTE(RES)                                                                                            
03/04/06       (H)       RES AT 2:00 PM HOUSE FINANCE 519                                                                       
03/04/06       (H)       Heard & Held                                                                                           
03/04/06       (H)       MINUTE(RES)                                                                                            
03/06/06       (H)       FIN AT 12:30 AM HOUSE FINANCE 519                                                                      
03/06/06       (H)       Presentation by Legislative Consultant                                                                 
03/06/06       (H)       RES AT 12:30 AM HOUSE FINANCE 519                                                                      
03/06/06       (H)       Testimony by legislative consultant                                                                    
03/07/06       (H)       RES AT 12:30 AM CAPITOL 124                                                                            
03/07/06       (H)       Heard & Held                                                                                           
03/07/06       (H)       MINUTE(RES)                                                                                            
03/08/06       (H)       RES AT 12:30 AM CAPITOL 106                                                                            
03/08/06       (H)       -- Meeting Canceled --                                                                                 
03/09/06       (H)       RES AT 12:30 AM CAPITOL 106                                                                            
03/09/06       (H)       -- Meeting Canceled --                                                                                 
03/10/06       (H)       RES AT 12:30 AM CAPITOL 106                                                                            
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
ERIC DOMPELING                                                                                                                  
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Testified in support of HB 488.                                                                             
                                                                                                                                
LYNN JOHNSEN, President and Co-Founder                                                                                          
Dowland-Bach Corporation                                                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Testified in support of HB 488.                                                                             
                                                                                                                                
MARK HYLEN, President                                                                                                           
Kakivic Asset Management                                                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Testified in support of HB 488.                                                                             
                                                                                                                                
DAVE HAUGEN, Vice President                                                                                                     
Lynden Inc.                                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Testified in support of HB 488.                                                                             
                                                                                                                                
RANDY BRAND                                                                                                                     
Great Northwest Inc.                                                                                                            
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Testified in support of HB 488.                                                                             
                                                                                                                                
GEORGE BERRY                                                                                                                    
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT: Testified in opposition to many provisions                                                                  
of HB 488.                                                                                                                      
                                                                                                                                
MERRICK PIERCE                                                                                                                  
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT: Testified in opposition to many provisions                                                                  
of HB 488.                                                                                                                      
                                                                                                                                
TIM BECK                                                                                                                        
North Pole, Alaska                                                                                                              
POSITION STATEMENT:  Testified in  opposition to  many provisions                                                               
of HB 488.                                                                                                                      
                                                                                                                                
MIKE KOY                                                                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in  opposition to  many provisions                                                               
of HB 488.                                                                                                                      
                                                                                                                                
JANE HAIGH                                                                                                                      
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified in  opposition to  many provisions                                                               
of HB 488.                                                                                                                      
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CO-CHAIR  RALPH  SAMUELS  called  the  House  Resources  Standing                                                             
Committee  meeting  to order  at  12:36:08  PM.   Representatives                                                             
Samuels, Seaton  and Ramras  were present at  the call  to order.                                                               
Representative  LeDoux,  Elkins,  Crawford and  Kapsner  were  on                                                               
teleconference.   Representative  Kerttula was  also present  and                                                               
Representative Gara was on teleconference.                                                                                      
                                                                                                                                
HB 488-OIL AND GAS PRODUCTION TAX                                                                                             
                                                                                                                                
CO-CHAIR SAMUELS announced that the  only order of business would                                                               
be HOUSE BILL  NO. 488, "An Act repealing the  oil production tax                                                               
and gas production tax and providing  for a production tax on the                                                               
net value  of oil and  gas; relating  to the relationship  of the                                                               
production  tax  to  other  taxes;  relating  to  the  dates  tax                                                               
payments  and surcharges  are  due under  AS  43.55; relating  to                                                               
interest  on  overpayments  under   AS  43.55;  relating  to  the                                                               
treatment  of  oil  and  gas   production  tax  in  a  producer's                                                               
settlement with  the royalty owner;  relating to flared  gas, and                                                               
to oil  and gas  used in  the operation of  a lease  or property,                                                               
under AS  43.55; relating to the  prevailing value of oil  or gas                                                               
under AS  43.55; providing  for tax credits  against the  tax due                                                               
under AS 43.55 for certain  expenditures, losses, and surcharges;                                                               
relating to statements or other  information required to be filed                                                               
with or furnished  to the Department of Revenue,  and relating to                                                               
the penalty for failure to  file certain reports, under AS 43.55;                                                               
relating to the  powers of the Department of Revenue,  and to the                                                               
disclosure  of certain  information required  to be  furnished to                                                               
the Department of  Revenue, under AS 43.55;  relating to criminal                                                               
penalties for  violating conditions  governing access to  and use                                                               
of  confidential   information  relating  to  the   oil  and  gas                                                               
production tax;  relating to  the deposit  of money  collected by                                                               
the  Department  of  Revenue  under AS  43.55;  relating  to  the                                                               
calculation of the gross value at  the point of production of oil                                                               
or  gas;  relating to  the  determination  of  the net  value  of                                                               
taxable oil and  gas for purposes of a production  tax on the net                                                               
value  of oil  and gas;  relating  to the  definitions of  'gas,'                                                               
'oil,' and certain  other terms for purposes of  AS 43.55; making                                                               
conforming amendments; and providing for an effective date."                                                                    
                                                                                                                                
12:37:11 PM                                                                                                                   
                                                                                                                                
ERIC DOMPELING,  Anchorage, said  he is employed  in the  oil and                                                               
gas industry and  he understand the critical  role that continued                                                               
investment by  the industry plays  in Alaska's economy.   He said                                                               
the tax  credits and  annual allowance contained  in HB  488 will                                                               
achieve  their  goal of  continued  development  of fields  under                                                               
production and  of stimulating  increased development  by current                                                               
and new investors in Alaska.   The legislation may be a necessary                                                               
step in  providing fiscal  stability the  companies will  need to                                                               
build  a  multi-million  dollar  gas  project.   He  said  he  is                                                               
concerned about the significant tax  increase to an industry that                                                               
already provides  roughly 90 percent of  Alaska's state revenues.                                                               
He  said it  may  have  a negative  impact  on attracting  future                                                               
investment.   He spoke of  global competition.   It was  not that                                                               
long  ago that  Alaska  experienced  a down  swing  from low  oil                                                               
prices,  he added.    The  down cycle  will  be  repeated in  the                                                               
future.   He  said  getting a  fair share  of  oil profits  means                                                               
growing the size of state government.   He urged the committee to                                                               
consider how the bill will  affect the growth of Alaska's economy                                                               
and getting  a fair share of  private sector jobs that  will only                                                               
come from new oil and gas investments.                                                                                          
                                                                                                                                
12:39:09 PM                                                                                                                   
                                                                                                                                
LYNN    JOHNSEN,   President    and   Co-Founder,    Dowland-Bach                                                               
Corporation, said  he is a  past president of the  Alaska Support                                                               
Industry Alliance and he is  concerned about the ramifications of                                                               
any additional  tweaking of  HB 488.   The additional  revenue to                                                               
Alaska  is close  to $1  billion,  above and  beyond the  current                                                               
revenue.  He said  he heard no mention of the  yield to the state                                                               
from encouraging  investments, which  is possible if  taxation is                                                               
competitive  with  other  oil  producing  areas.    He  said  oil                                                               
producers will  react to the  incentives over  the next 30  to 40                                                               
years.   These are  additional revenues  to businesses  like his,                                                               
and  employees  of  those  businesses  pay  property  taxes,  buy                                                               
groceries and automobiles,  and send their kids to  college.  The                                                               
proposed  profit-based petroleum  production tax  (PPT) increases                                                               
the effective  tax rate to between  14.5 and 15 percent,  and the                                                               
risk of raising that rate may  cause the industry goose that lays                                                               
the golden eggs to fly away.                                                                                                    
                                                                                                                                
12:41:41 PM                                                                                                                   
                                                                                                                                
MARK HYLEN,  President, Kakivic Asset  Management, said  his firm                                                               
provides inspection and  engineering services to the  oil and gas                                                               
industry.   He noted that he  employs nearly 200 people,  and 100                                                               
percent of  his company's revenues  are derived from the  oil and                                                               
gas industry.   He said he has been actively  involved in the oil                                                               
industry for ten years and  has seen significant reduction in oil                                                               
production with oil prices  from $8 to $65 a barrel.   He said he                                                               
sees an ever-increasing  need to be efficient  and competitive as                                                               
a contractor.   He noted a significant improvement  in safety and                                                               
technology,  such as  directional drilling,  which minimizes  the                                                               
impacts on the environment.  He  said the oil companies have been                                                               
respectful of  Alaskans' concerns, "and  I believe it is  time we                                                               
showed them the  same respect."  He said HB  488 increases taxes.                                                               
There has  been a tremendous  amount of  new jobs that  have been                                                               
created in  the oil and  gas industry this  last year, and  he is                                                               
concerned  about the  impact  higher taxes  will  have on  future                                                               
Alaskan jobs.  The new tax is the  first step in getting to a gas                                                               
pipeline, he opined.   The oil and gas industry  already funds 90                                                               
percent  of  state government,  and  he  is disappointed  in  the                                                               
ability  of the  state to  create a  long-term fiscal  plan.   He                                                               
asked what  would be achieved by  adding more money to  the state                                                               
treasury.   He said that  in an  effort of getting  Alaska's fair                                                               
share, there  could be a  loss of future  jobs for Alaskans.   He                                                               
said  he supports  the bill  because it  is a  stepping-stone for                                                               
investors to  build a  multi-billion dollar  gas project,  but he                                                               
encouraged  the  committee  to consider  the  ramifications  that                                                               
changing the bill would have on jobs.                                                                                           
                                                                                                                                
12:44:14 PM                                                                                                                   
                                                                                                                                
CO-CHAIR SAMUELS said creating a  long-term fiscal plan should be                                                               
done now,  when the  state doesn't  need money.   It will  be the                                                               
perfect opportunity to  look at how the state  will handle things                                                               
over a wide range of prices, including $20 a barrel oil.                                                                        
                                                                                                                                
12:44:54 PM                                                                                                                   
                                                                                                                                
DAVE  HAUGEN, Vice  President, Lynden  Inc, said  he supports  HB
488.   He  said his  company  is a  transportation and  logistics                                                               
company  and  knows  the  importance  of  fair  taxes  and  their                                                               
relation  to  investment  decisions.    Lynden  supports  the  20                                                               
percent tax  rate, which  will raise over  $1 billion  in revenue                                                               
and  double severance  tax revenues  overnight.   He said  Lynden                                                               
staff  believe that  the administration  has  considered all  the                                                               
factors for the  bill and has done an excellent  job in balancing                                                               
revenue,  future  development,  and other  long-term  effects  on                                                               
Alaska.   "We need to  keep in mind  that the final  objective we                                                               
are all striving for is a  gas pipeline project that will require                                                               
an  investment  in  excess  of  $20  billion."    The  investment                                                               
required  to  produce  undeveloped   resources  will  require  an                                                               
additional  $100  billion  beyond  the  pipeline  investment,  he                                                               
added.   He  said all  of the  investments will  certainly impact                                                               
Lynden's business.   He said  Lynden is concerned about  the lack                                                               
of  a state  fiscal plan  for  managing surpluses  in high  price                                                               
environments  and for  balancing budgets  when revenues  are low.                                                               
He said the  state budget may go  as high as $3.8  billion in two                                                               
years.  He  added that the PPT will add  an additional $1 billion                                                               
on top  of the  projected surplus.   The state  needs to  be very                                                               
careful in determining  the right strategy to  ensure a long-term                                                               
healthy  economy, he  opined.   High oil  prices have  hidden the                                                               
impact of low production.   He said Alaska should encourage large                                                               
investments in  new and expanded production  and the construction                                                               
of a gas pipeline.                                                                                                              
                                                                                                                                
12:48:15 PM                                                                                                                   
                                                                                                                                
RANDY BRAND,  Great Northwest Inc,  said he was  representing his                                                               
company and the  Oil Support Industry Alliance.  He  said any tax                                                               
increase can be a disincentive to  investment.  He asked what the                                                               
state will  do with the current  surplus.  "Are we  just building                                                               
the hungry elephant?   How will we get by when  prices are low or                                                               
when the  petroleum is gone?"   He asked if the  state will price                                                               
itself out of the market.                                                                                                       
                                                                                                                                
12:50:00 PM                                                                                                                   
                                                                                                                                
GEORGE  BERRY, Fairbanks,  said this  is the  most important  tax                                                               
legislation since statehood.  He  requested taking a similar tack                                                               
"as our 55 constitutional delegates did  some 50 years ago and to                                                               
look for what  is best for Alaska overall."   He said to consider                                                               
the oil  tax legislation  by itself and  not allow  the producers                                                               
and governor to  sway the legislature's commitment  to uphold the                                                               
state  constitution as  it applies  to  natural resources,  which                                                               
must be  managed for  the maximum  benefit of  all Alaskans.   He                                                               
recommended a  documentary called  "The Forty-Ninth  Star," which                                                               
could  help  the legislature  feel  the  energy the  55  Alaskans                                                               
brought to  the table to  do what was  best for all  Alaskans and                                                               
not just one segment of the state.                                                                                              
                                                                                                                                
MR. BERRY said the 25/20  [tax/credit ratio] is a better approach                                                               
for HB  488.  Exemptions,  credits and deductions should  be kept                                                               
to a  minimum and  include only those  expenses that  occurred in                                                               
the  state.   He  said that  farming out  work  across the  globe                                                               
should not  be billable  as tax  deductions in  Alaska.   He said                                                               
separate  accounting was  "lobbied  away."   Separate  accounting                                                               
gave a  fair tax  on the  industry, he added.   He  said Alaska's                                                               
path  with the  producers is  only parallel,  with many  items in                                                               
common, but  the interest of  the producer's  shareholders should                                                               
not be above  the citizens of Alaska.  "We  own the resource," he                                                               
stated.   "You can  bargain from  a position  of strength  if you                                                               
decide to do  so.  The people  of this state will  support you on                                                               
this issue."   He said the  state lost five percent  by one phone                                                               
call  in one  afternoon.    "I hope  the  governor  will let  the                                                               
answering machine take the next call."                                                                                          
                                                                                                                                
MR.  BERRY said,  having worked  in  the industry  for almost  30                                                               
years, it  can be a  sound relationship but should  be negotiated                                                               
from a  position of  strength.   "Will you  be remembered  as the                                                               
legislature  that   buckled  to  the  governor   and  the  secret                                                               
negotiations on the gasline, or the  one that stood tall with the                                                               
support of the fellow Alaskans  to protect our common interest on                                                               
our natural resources as our state constitution mandates?"                                                                      
                                                                                                                                
12:54:25 PM                                                                                                                   
                                                                                                                                
CO-CHAIR RAMRAS asked why he is suggesting a 25/20 ratio.                                                                       
                                                                                                                                
MR. BERRY said it  is fair.  If he were a  legislator he would be                                                               
pushing for  30 percent and  negotiate down.   He noted  that the                                                               
overall  tax burden  on  the industry  in Alaska  put  it at  the                                                               
bottom of the barrel across the globe.   He stated that he is not                                                               
against credits  and some of  the incentives,  but at least  a 25                                                               
percent [tax rate] is appropriate.                                                                                              
                                                                                                                                
CO-CHAIR RAMRAS  said the  state is  trying to  balance a  lot of                                                               
things and  stay competitive.   He wants to attract  companies to                                                               
get the last barrel of oil--not just the next barrel.                                                                           
                                                                                                                                
12:56:19 PM                                                                                                                   
                                                                                                                                
MERRICK  PIERCE,   Fairbanks,  said   he  appreciated   that  the                                                               
legislature  has  resisted   the  administration  and  industry's                                                               
desire  to fast  track HB  488.   He  encouraged the  committee's                                                               
process and  asked for more  public input, "and you're  likely to                                                               
get a lot of  input from a lot of really  bright Alaskans on this                                                               
issue."   He said HB  488 is a  disaster and should  be scrapped.                                                               
It appears to have been written  or influenced by "those who view                                                               
Alaska as a simple colony to be raped and pillaged."                                                                            
                                                                                                                                
MR.   PIERCE  said   the  tax   is  not   progressive,  and   all                                                               
eventualities  must be  addressed,  including times  of high  oil                                                               
prices.  He noted that if oil  went up to $100 per barrel, Alaska                                                               
citizens  will suffer  immense hardships  from the  high cost  of                                                               
fuel, while the oil companies  would enjoy windfall profits.  And                                                               
yet,  he  noted,  there  is   no  progressivity  built  into  the                                                               
proposal.  The effective date  is wrong, "even industry partisans                                                               
have acknowledged that we have  lost billions by not revising oil                                                               
tax  structures years  ago."   Why  should  we deliberately  lose                                                               
additional hundreds  of millions by  going with the July  1 date?                                                               
he asked.  "It just adds insult to injury."                                                                                     
                                                                                                                                
MR. PIERCE  said his third  concern is  big.  The  legislation is                                                               
highly complex, and  he would like to see  alternative methods of                                                               
taxation  presented  with  more  simplicity.   He  said  Governor                                                               
Murkowski  is unconcerned  with the  complexities that  have cost                                                               
the state hundreds of millions  of dollars in numerous litigation                                                               
settlements over  the past few  decades.  He said  tax incentives                                                               
should try and  address forces that may be at  work to manipulate                                                               
the price  of North Slope  crude.  He  noted an article  from the                                                               
Fairbanks News Miner about antitrust  litigation between the port                                                               
authority,  BP and  ExxonMobil  Corporation.   He  read from  the                                                               
article about allegations of mergers  and acquisitions by two oil                                                               
companies conspiring  to restrict development on  the North Slope                                                               
to keep  the price of natural  gas at record highs.   The article                                                               
also  accuses the  companies of  boycotting  the authorities  and                                                               
other groups' proposals to build a  gas pipeline.  "What if these                                                               
allegations are true?  If there  is a conspiracy at work involved                                                               
in  natural   gas,  does  it   reasonably  follow   that  similar                                                               
arrangements might be  at work with regard to  oil production and                                                               
pricing?" he  asked.  If that  is the case, he  suggested that an                                                               
oil reserve  tax might be  better than  various tax credits.   He                                                               
said he  would like to see  it discussed.  He  said the effective                                                               
tax rates  are too low,  and the state  will lose money  when the                                                               
price of oil  is below $27 a barrel.   "This legislation does not                                                               
address all future eventualities acceptably."   He noted that the                                                               
governor told the  legislature that it must pass HB  488 in order                                                               
to get a gas  pipeline, but he won't tell the  body or the public                                                               
what the  key details  are.   If this is  the deal  that Alaskans                                                               
must accept  to get a gas  pipeline, forget it-we don't  need it,                                                               
he said.   He promoted passing  a gas reserves tax,  like HB 223,                                                               
because then  the state  will be negotiating  from a  position of                                                               
strength to make sure it gets maximum benefit.                                                                                  
                                                                                                                                
1:01:00 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  RAMRAS said  he  just  got a  copy  of  the News  Miner                                                               
article.   He said he  is working on  the issues that  Mr. Pierce                                                               
addressed.                                                                                                                      
                                                                                                                                
1:01:41 PM                                                                                                                    
                                                                                                                                
TIM BECK, North Pole, said he  is speaking for himself, but he is                                                               
on  the Fairbanks  Northstar Borough  Assembly.   He  said he  is                                                               
concerned with  HB 488 given  the all-time  high oil prices.   He                                                               
said  oil  is   only  half  the  equation.  "Do   not  pass  this                                                               
legislation without  seeing the other  piece of the  puzzle which                                                               
is the  gasline contract."  He  said he has asked  how much money                                                               
the  oil companies  have taken  out of  Alaska compared  to their                                                               
investments, but  the oil industry  has continued to say  that is                                                               
proprietary  information.    The  industry  is  probably  already                                                               
counting their money, he said.                                                                                                  
                                                                                                                                
1:03:09 PM                                                                                                                    
                                                                                                                                
CO-CHAIR RAMRAS  asked how Mr.  Beck thinks the process  is going                                                               
after three  weeks of  working on  HB 488, and  if he  thinks the                                                               
legislature is giving it a good look.                                                                                           
                                                                                                                                
MR. BECK  said if  the bill passed  without the  gasline contract                                                               
being  disclosed, there  will  be  a lot  of  people looking  for                                                               
Representative Ramras's seat this fall.                                                                                         
                                                                                                                                
CO-CHAIR  RAMRAS said  he  wants to  make  sure this  legislation                                                               
stands on its own.                                                                                                              
                                                                                                                                
MR. BECK said the governor has  made it very clear that these two                                                               
pieces, the  contract and  the oil tax  change, are  integral and                                                               
one  supports the  other.   He  said he  likes to  see the  whole                                                               
picture before  approving half  of it.   He said  the legislature                                                               
should see  the entire  proposal, "because what  you may  gain in                                                               
this  oil  tax  change,  you   may  well  lose  in  your  gasline                                                               
proposal."                                                                                                                      
                                                                                                                                
CO-CHAIR RAMRAS said  he doesn't work for the  governor; he works                                                               
for District  10 and Alaskans.   This legislation needs  to stand                                                               
on its own, and the state is sorely  in need of a revision of the                                                               
ELF program,  he stated.   "I have tried  to consider this  as if                                                               
there is no gasline  rather than to try to look  to see the other                                                               
piece of the  equation."  An overhaul of our  severance tax which                                                               
is old  and sagging  is the  way he  is approaching  HB 488.   "I                                                               
assure  you it  has  been dismissed  by myself  and  many of  our                                                               
colleagues that this is connected to a gasline."                                                                                
                                                                                                                                
1:06:05 PM                                                                                                                    
                                                                                                                                
MR. BECK said  he appreciates that, and he is  concerned that the                                                               
industry had a private council  with the governor and they gained                                                               
five percent from one afternoon.  "I  would love to be able to do                                                               
that when  I'm negotiating a  contract."  He said  that indicates                                                               
to him that somebody got a good deal.                                                                                           
                                                                                                                                
1:06:35 PM                                                                                                                    
                                                                                                                                
CO-CHAIR RAMRAS noted that he has  seen the borough "do that with                                                               
the governor."  He said, "We've got  to be careful not to run the                                                               
industry out  of the state  of Alaska by  taxing them to  the nth                                                               
degree."  He  said he is not saying that  the governor's proposal                                                               
is the  right one.   He said his  economics class in  high school                                                               
taught  him that  there is  no such  thing as  a free  lunch, and                                                               
people need  to learn  how to live  in the real  world.   He said                                                               
given a  choice of shooting  low or shooting high  [on taxation],                                                               
he would  rather shoot low  and lose  some state money  and leave                                                               
the  vibrant oil  industry intact.   That  will be  his take,  he                                                               
said.                                                                                                                           
                                                                                                                                
1:07:48 PM                                                                                                                    
                                                                                                                                
MR. BECK said he applauds  Representative Ramras for his efforts.                                                               
It is  clear to  the industry they  are working  with comparative                                                               
safety on the  North Slope without anyone shooting at  them.  "If                                                               
they  are  not   willing  to  give  us  a  fair   price  for  our                                                               
product...leave it  in the ground  and let our kids  develop it."                                                               
He added,  "Let's not  sell ourselves short.   This  contract has                                                               
some strong  implications with  regard to  the proposed  gas line                                                               
contract,  and  to  disconnect  those   two,  I  think  would  be                                                               
irresponsible."                                                                                                                 
                                                                                                                                
1:08:43 PM                                                                                                                    
                                                                                                                                
CO-CHAIR RAMRAS said the oil  companies are the engine of Alaska.                                                               
He said the option of leaving  the resource in the ground implies                                                               
there  is no  urgency, and  that is  not an  approach Alaska  can                                                               
take.   He  said the  state can't  posture belligerently,  and it                                                               
must be  mindful of the  global economy and  the need to  get our                                                               
hydrocarbons to  market.   He noted that  89 percent  of Alaska's                                                               
economy is  derived from hydrocarbons.   He wants to  ensure that                                                               
future Alaskans won't pay a state sales or income tax.                                                                          
                                                                                                                                
1:10:48 PM                                                                                                                    
                                                                                                                                
MIKE KOY, Anchorage, said he has  worked for BP for over 11 years                                                               
in  various  capacities,  including business  development,  which                                                               
includes strategy and  economic evaluation of gas  sales from the                                                               
North Slope.   He  has also worked  on mergers,  acquisitions and                                                               
finance.  He noted  that he is on a leave of  absence and is free                                                               
to speak with "all the  knowledge and perspective of someone from                                                               
within the industry without any  of the associated limitations or                                                               
constraints."  He  said most oil companies use  fixed prices when                                                               
making investment decisions,  and those prices have  tended to be                                                               
in the $20 to  $30 per barrel range.  Within  this price range is                                                               
where the tax  regime needs to look attractive  relative to other                                                               
places in the world in order  to attract investment, he said, and                                                               
what  happens outside  of that  range is  important, but  largely                                                               
immaterial in  making investment  decisions.  This,  coupled with                                                               
the  state's  objectives,  is  important  in  determining  a  tax                                                               
structure.   He added  that he  believes the  basis for  HB488 is                                                               
reasonable, and basing  the tax on profits is a  good thing.  But                                                               
he said it  misses the mark because it increases  the risk to the                                                               
state  by  reducing the  aggressive  nature  of the  current  tax                                                               
without  sufficiently allowing  the state  to participate  in the                                                               
upside.    He opined  that  the  legislature should  implement  a                                                               
graduated  profit  tax  structure   that  increases  the  state's                                                               
proportional share as the price goes  up.  He said it should kick                                                               
in at  a price  high enough not  to impact  investment decisions,                                                               
and he  thinks it should  kick in at  $30 per barrel.   Secondly,                                                               
the 20 percent  tax incentive is reasonable in and  of itself, he                                                               
stated.  Most  oil companies use fixed prices  to make investment                                                               
decisions,  and  providing  a   tax  incentive  outside  of  this                                                               
investment  range  is  a  concession by  the  state  without  any                                                               
outstanding benefit.   High  oil price  is incentive  enough, and                                                               
the  state should  consider  tapering off  the  tax incentive  as                                                               
prices increase,  he said.   He suggested  allowing a  higher tax                                                               
incentive on  viscous oil to bring  it on line faster.   The claw                                                               
back is  a negotiating ploy by  the oil companies, and  should be                                                               
removed, he  stated.  Finally, he  said oil fiscal terms  have no                                                               
bearing on the economics of a  gas pipeline; they are not related                                                               
at  all except  for  negotiating.   He said  it  is important  to                                                               
consider  oil  tax legislation  apart  from  a gas  pipeline  and                                                               
ensure oil fiscal terms are not included in a gas contract.                                                                     
                                                                                                                                
1:16:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON asked  what Mr.  Koy would  suggest for  a                                                               
more aggressive tax when oil was low-priced.                                                                                    
                                                                                                                                
MR. KOY said he would suggest  a tax basis that isn't necessarily                                                               
tied as much to oil price.   The current severance tax is tied to                                                               
revenues, and it can be set to  have a fixed component, such as a                                                               
minimum severance  tax rate that is  in place no matter  what oil                                                               
prices are,  and that will provide  cover to the state  if prices                                                               
go down, and then as the price of  oil goes up, there should be a                                                               
graduated system to get more and more as prices go up.                                                                          
                                                                                                                                
1:17:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON said  testimony from  economists suggested                                                               
keeping the  ELF system when prices  are low so taxes  don't drop                                                               
off as fast.                                                                                                                    
                                                                                                                                
MR.  KOY  said  yes,  there  are  other  systems  that  are  more                                                               
appropriate, and  what he would  consider would be  starting from                                                               
the current  structure with  a minimal severance  tax rate  for a                                                               
fixed lower boundary when prices are  low.  When prices are high,                                                               
create an excess  rent tax or windfall tax to  allow the state to                                                               
capture more  and more rent.   That  would preserve the  low side                                                               
and allow  the state to participate  in the high side.   It would                                                               
create a band where the tax structure still attracts investors.                                                                 
                                                                                                                                
The committee took an at-ease from 1:19:26 PM to 1:31:00 PM.                                                                
                                                                                                                                
The committee took an at-ease from 1:31:47 PM to 1:34:40 PM.                                                                
                                                                                                                                
JANE HAIGH,  Fairbanks, said  she has  recently read  about Soapy                                                               
Smith,  the famous  con man  of Skagway,  Alaska.   She said  the                                                               
negotiations resemble a  shell game.  "If you  believe that these                                                               
oil companies have set up this shell  game so that you can win in                                                               
a basically  blind negotiation,  I think you  should go  back and                                                               
study your  history of  con men."   She said  she objects  to the                                                               
process  that   the  legislature  has  been   given  by  Governor                                                               
Murkowski and  the oil  companies.   She noted  that the  new tax                                                               
could  be  in  force  for  the  next 20  to  40  years,  and  the                                                               
legislature is  not given  the information on  the gasline.   She                                                               
suggested  the  legislature  wait   for  another  opportunity  to                                                               
negotiate a gasline and oil tax in an open process.                                                                             
                                                                                                                                
1:36:38 PM                                                                                                                    
                                                                                                                                
CO-CHAIR RAMRAS  said he would  recommend the book "100  Years of                                                               
Solitude" because  "if we  continue to press  this point  that is                                                               
what Alaska will  be experiencing."  He said the  objective is to                                                               
work with the oil  companies, and it is not a shell  game.  It is                                                               
complex and serious he stated.                                                                                                  
                                                                                                                                
MS. HAIGH said  it is serious and needs to  have an open process.                                                               
She said it could never be open  when the decision on the oil tax                                                               
must  be done  before seeing  the deal  with the  gas line.   She                                                               
noted that  the resources will be  there and are not  going away,                                                               
"whether  we get  them  in  time to  build  our  dream houses  or                                                               
whether the resources are developed  for our children, I think it                                                               
is important for us to get a fair deal."                                                                                        
                                                                                                                                
1:38:32 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  RAMRAS said  the legislature  had a  caucus, which  Ms.                                                               
Haigh probably considers to be a  secret caucus.  The caucus went                                                               
over  the future  budget of  Alaska,  and there  are many  parts,                                                               
particularly in  health, education and social  services, that are                                                               
growing  at  such an  enormous  rate  that  they will  swamp  the                                                               
current surplus  in the near  future.  He  said that it  has been                                                               
ginned up in  the press and by  the governor that HB  488 is tied                                                               
to the  gasline deal.   He  stated that HB  488 is  a stand-alone                                                               
piece  of legislation.   The  ELF is  no longer  working and  the                                                               
legislature has  an opportunity to  fix it,  he opined.   He said                                                               
there  have been  meetings that  have been  attended by  24 house                                                               
members out of  40, and the legislature has  been meeting nonstop                                                               
with everything  else nearly grinding  to a  halt.  He  said that                                                               
whether Alaska gets a gasline or  not, this is an opportunity for                                                               
the open  process of reviewing oil  taxation.  He said  the state                                                               
may or may  not get a gasline deal, and  the legislature does not                                                               
have the luxury of waiting.  He  said the state can't tax the oil                                                               
companies to death.                                                                                                             
                                                                                                                                
1:41:21 PM                                                                                                                    
                                                                                                                                
MS. HAIGH  said she agrees it  is an amazing opportunity  to redo                                                               
the oil taxes, but it is  important to keep them separate.  There                                                               
is an  overtone that  it better be  something that  oil companies                                                               
like.   She  said  she saw  PR  ads on  television  from the  oil                                                               
companies suggesting that this is part of the debate.                                                                           
                                                                                                                                
The committee took an at-ease from 1:42:57 PM to 2:29:22 PM.                                                                
                                                                                                                                
[HB 488 was held over]                                                                                                          
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Resources Standing Committee meeting was adjourned at 2:29 PM.                                                                

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