Legislature(2011 - 2012)HOUSE FINANCE 519

02/28/2011 01:00 PM RESOURCES


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01:16:58 PM Start
01:17:18 PM HB110
06:43:10 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Location Change --
+= HB 110 PRODUCTION TAX ON OIL AND GAS TELECONFERENCED
Moved CSHB 110(RES) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
** Meeting will recess & continue in Finance 519
at 3:30 pm Today. **
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                       February 28, 2011                                                                                        
                           1:16 p.m.                                                                                            
                                                                                                                              
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Eric Feige, Co-Chair                                                                                             
Representative Paul Seaton, Co-Chair                                                                                            
Representative Peggy Wilson, Vice Chair                                                                                         
Representative Alan Dick                                                                                                        
Representative Neal Foster                                                                                                      
Representative Bob Herron                                                                                                       
Representative Cathy Engstrom Munoz                                                                                             
Representative Berta Gardner                                                                                                    
Representative Scott Kawasaki                                                                                                   
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative Alan Austerman                                                                                                   
Representative Mike Hawker                                                                                                      
Representative Mark Neuman                                                                                                      
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 110                                                                                                              
"An  Act relating  to  the interest  rate  applicable to  certain                                                               
amounts  due for  fees,  taxes, and  payments  made and  property                                                               
delivered to the  Department of Revenue; relating to  the oil and                                                               
gas  production   tax  rate;  relating  to   monthly  installment                                                               
payments of  estimated oil  and gas  production tax;  relating to                                                               
oil  and gas  production  tax credits  for certain  expenditures,                                                               
including    qualified   capital    credits   for    exploration,                                                               
development,  and  production;  relating  to  the  limitation  on                                                               
assessment  of oil  and  gas production  taxes;  relating to  the                                                               
determination  of  oil  and gas  production  tax  values;  making                                                               
conforming amendments; and providing for an effective date."                                                                    
                                                                                                                                
     - MOVED CSHB 110(RES) OUT OF COMMITTEE                                                                                     
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 110                                                                                                                  
SHORT TITLE: PRODUCTION TAX ON OIL AND GAS                                                                                      
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
01/18/11       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/18/11       (H)       RES, FIN                                                                                               
02/07/11       (H)       RES AT 1:00 PM BARNES 124                                                                              
02/07/11       (H)       Heard & Held                                                                                           
02/07/11       (H)       MINUTE(RES)                                                                                            
02/21/11       (H)       RES AT 1:00 PM BARNES 124                                                                              
02/21/11       (H)       Heard & Held                                                                                           
02/21/11       (H)       MINUTE(RES)                                                                                            
02/21/11       (H)       RES AT 5:15 PM BARNES 124                                                                              
02/21/11       (H)       Heard & Held                                                                                           
02/21/11       (H)       MINUTE(RES)                                                                                            
02/23/11       (H)       RES AT 1:00 PM BARNES 124                                                                              
02/23/11       (H)       Heard & Held                                                                                           
02/23/11       (H)       MINUTE(RES)                                                                                            
02/25/11       (H)       RES AT 1:00 PM BARNES 124                                                                              
02/25/11       (H)       Heard & Held                                                                                           
02/25/11       (H)       MINUTE(RES)                                                                                            
02/28/11       (H)       RES AT 1:00 PM HOUSE FINANCE 519                                                                       
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
BRYAN BUTCHER, Acting Commissioner                                                                                              
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  During the hearing on HB 110, answered                                                                   
questions.                                                                                                                      
                                                                                                                                
BRUCE TANGEMAN, Deputy Commissioner                                                                                             
Office of the Commissioner                                                                                                      
Department of Revenue                                                                                                           
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  During the hearing on HB 110, answered                                                                   
questions.                                                                                                                      
                                                                                                                                
DONALD BULLOCK JR., Attorney                                                                                                    
Legislative Legal Counsel                                                                                                       
Legislative Legal and Research Services                                                                                         
Legislative Affairs Agency                                                                                                      
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  During the hearing on HB 110, answered                                                                   
questions.                                                                                                                      
                                                                                                                                
SUSAN POLLARD, Assistant Attorney General                                                                                       
Oil, Gas & Mining Section                                                                                                       
Civil Division (Juneau)                                                                                                         
Department of Law                                                                                                               
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:   During  the hearing  on  HB 110,  answered                                                             
questions.                                                                                                                      
                                                                                                                                
JOE BALASH, Deputy Commissioner                                                                                                 
Office of the Commissioner                                                                                                      
Department of Natural Resources                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   During  the hearing  on  HB 110,  answered                                                             
questions.                                                                                                                      
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:16:58 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  PAUL   SEATON  called  the  House   Resources  Standing                                                             
Committee  meeting to  order  at 1:16  p.m.   Representatives  P.                                                               
Wilson,  Herron,  Foster,  Dick, Gardner,  Kawasaki,  Feige,  and                                                               
Seaton were present  at the call to order.   Representative Munoz                                                               
arrived as the meeting was in  progress.  Also in attendance were                                                               
Representatives Austerman, Hawker, and Neuman.                                                                                  
                                                                                                                                
              HB 110-PRODUCTION TAX ON OIL AND GAS                                                                          
                                                                                                                                
1:17:18 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON announced  that the  only order  of business  is                                                               
HOUSE  BILL  NO. 110,  "An  Act  relating  to the  interest  rate                                                               
applicable to certain  amounts due for fees,  taxes, and payments                                                               
made  and  property  delivered  to  the  Department  of  Revenue;                                                               
relating  to the  oil and  gas production  tax rate;  relating to                                                               
monthly installment payments of  estimated oil and gas production                                                               
tax; relating to  oil and gas production tax  credits for certain                                                               
expenditures,   including    qualified   capital    credits   for                                                               
exploration,  development,   and  production;  relating   to  the                                                               
limitation  on  assessment  of  oil  and  gas  production  taxes;                                                               
relating  to the  determination  of oil  and  gas production  tax                                                               
values;  making  conforming  amendments;  and  providing  for  an                                                               
effective date."                                                                                                                
                                                                                                                                
CO-CHAIR  SEATON  announced  his  intention to  get  through  the                                                               
amendments to HB 110 and then have a vote on the bill.                                                                          
                                                                                                                                
1:18:02 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON moved that the committee adopt Amendment 8,                                                                     
labeled 27-GH1007\A.17, Mischel/Bullock, 2/23/11, which read:                                                                   
                                                                                                                                
     Page 10, line 31, through page 11, line 21:                                                                                
          Delete all material and insert:                                                                                       
        "* Sec. 15. AS 43.55.023(l) is amended to read:                                                                     
          (l)  A producer or explorer may apply for a tax                                                                       
     credit  for a  well lease  expenditure incurred  in the                                                                    
     state  [SOUTH  OF  68  DEGREES  NORTH  LATITUDE]  after                                                                    
     December 31,  2011, and  before  January 1, 2021  [JUNE                                                                
     30, 2010], as follows:                                                                                                     
               (1)  notwithstanding that a well lease                                                                           
     expenditure incurred in the state  [SOUTH OF 68 DEGREES                                                                    
     NORTH LATITUDE]  may be a deductible  lease expenditure                                                                    
     for purposes  of calculating  the production  tax value                                                                    
     of oil  and gas under AS 43.55.160(a),  unless a credit                                                                    
     for  that  expenditure  is  taken  under  (a)  of  this                                                                    
     section,  AS 38.05.180(i), AS 41.09.010,  AS 43.20.043,                                                                    
     or AS 43.55.025,  a producer or explorer  that incurs a                                                                    
     well  lease  expenditure  in the  state  [SOUTH  OF  68                                                                    
     DEGREES  NORTH  LATITUDE]  may elect  to  apply  a  tax                                                                    
     credit against  a tax levied by  AS 43.55.011(e) in the                                                                    
     amount of                                                                                                                  
               (A)  40 percent of the expenditures incurred                                                                 
     in the state south of 68 degrees North latitude; and                                                                   
               (B)  30 percent of the expenditures incurred                                                                 
     in the  state north of  68 degrees North  latitude that                                                                
     exceed the  average annual well lease  expenditures for                                                                
     the second and third  calendar years preceding the year                                                                
     for which  the credit  is being determined  [40 PERCENT                                                                
     OF THAT EXPENDITURE; A TAX  CREDIT UNDER THIS PARAGRAPH                                                                    
     MAY BE APPLIED FOR A SINGLE CALENDAR YEAR];                                                                                
               (2)  a producer or explorer may take a                                                                           
     credit  for a  well lease  expenditure incurred  in the                                                                    
     state  [SOUTH   OF  68   DEGREES  NORTH   LATITUDE]  in                                                                    
     connection with  geological or  geophysical exploration                                                                    
     or in connection  with an exploration well  only if the                                                                    
     producer or explorer                                                                                                       
               (A)  agrees, in writing, to the applicable                                                                       
     provisions of AS 43.55.025(f)(2); and                                                                                      
     (B)   submits  to the  Department of  Natural Resources                                                                    
     all data that  would be required to  be submitted under                                                                    
     AS 43.55.025                                                                                                               
                                                                                                                                
REPRESENTATIVE P. WILSON objected for discussion purposes.                                                                      
                                                                                                                                
1:18:18 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON explained that Amendment  8 is essentially [House                                                               
Bill 337]  that the House  Resources Standing  Committee reported                                                               
out  of  committee  last  year,  which  was  the  change  to  the                                                               
producer/explorer  tax on  the North  Slope.   Amendment 8  would                                                               
change the capital  credit for infield well work  from 20 percent                                                               
to  30 percent,  a  50  percent increase.    Amendment 8  further                                                               
specifies that the aforementioned  will be allowed for additional                                                               
work as well.  He pointed out  that one of the keystones for many                                                               
people has  been to ensure  that increased work is  targeted, not                                                               
just paying more  or giving credits for the same  amount of work.                                                               
The language  on page 1,  line 18,  of Amendment 8,  provides the                                                               
aforementioned  credit for  the second  and third  calendar years                                                               
preceding  the year  for  which  the credit  is  determined.   He                                                               
reminded members that  last year it was determined  that the data                                                               
of the  previous year  isn't appropriate  enough to  analyze, and                                                               
therefore  the data  of  the  previous year  is  skipped and  the                                                               
average of  the two years prior  is utilized.  Amendment  8 calls                                                               
for the  aforementioned to  be performed  on a  continuous basis,                                                               
which means that  the third year prior and the  second year prior                                                               
will  be averaged  and  anything  above that  will  receive a  30                                                               
percent tax  credit rather than a  20 percent tax credit  for the                                                               
infield well  work.  The fiscal  note on this language  last year                                                               
was an estimated $150 million.   However, it's dependent upon the                                                               
amount of work that's performed.                                                                                                
                                                                                                                                
1:21:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON inquired as  to whether there was objection                                                               
to Amendments 1-7 at the prior hearing.                                                                                         
                                                                                                                                
CO-CHAIR SEATON answered that Amendments 1-7 passed unanimously.                                                                
                                                                                                                                
REPRESENTATIVE HERRON  inquired as  to what  Amendment 8  adds to                                                               
the other seven amendments or is it a totally different subject.                                                                
                                                                                                                                
CO-CHAIR SEATON  explained that Friday's amendments  were related                                                               
to [AS  43.55.024], the  small producer tax  credit that  goes to                                                               
explorers, and  [AS 43.55.025], the exploration  tax credits that                                                               
go  to explorers.   Amendment  8  refers to  [AS 43.55.023],  the                                                               
credit  for well  work from  producing fields,  such as  Kuparuk,                                                               
Alpine,  Prudhoe   Bay.    Friday  amendments   were  pluses  for                                                               
explorers and new field production,  whereas Amendment 8 provides                                                               
more credit for  well work at existing fields if  it's done above                                                               
the level of the previous years.                                                                                                
                                                                                                                                
REPRESENTATIVE HERRON surmised these are legacy incentives.                                                                     
                                                                                                                                
CO-CHAIR  SEATON  replied yes,  but  emphasized  that it  targets                                                               
additional work performed above the  current level of work [in an                                                               
existing field].   Therefore, it's  an incentive to do  more work                                                               
than previously  done in order  to obtain higher credits  for the                                                               
additional work.                                                                                                                
                                                                                                                                
1:24:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MUNOZ asked  whether  the  Department of  Revenue                                                               
(DOR) supports Amendment 8.   She also asked for the department's                                                               
fiscal analysis of the impact of Amendment 8.                                                                                   
                                                                                                                                
1:25:13 PM                                                                                                                    
                                                                                                                                
BRYAN  BUTCHER,  Acting   Commissioner,  Department  of  Revenue,                                                               
related that  DOR does not  support Amendment 8.   The department                                                               
believes  that the  current legislation  improves the  investment                                                               
climate  much  more  than  Amendment   8  would.    By  requiring                                                               
expenditures  to exceed  the average  lease  expenditures of  the                                                               
previous  two years,  perpetual growth  would be  required for  a                                                               
company  to receive  credits in  the future,  and the  department                                                               
believes  this  is  unrealistic.   Furthermore,  since  companies                                                               
wouldn't know  whether they would  qualify for the  credits until                                                               
after  they  spent the  money,  it  would create  difficulty  for                                                               
companies to plan  their budgets.  Amendment 8  would, he opined,                                                               
also  increase the  possibility of  companies working  the system                                                               
such that they minimize their spending  in the first two years in                                                               
order to lower  the threshold qualifications for  drilling in the                                                               
third year.   The companies could continue  the aforementioned to                                                               
qualify for increased credits, which  would potentially be at the                                                               
expenditure of maintenance.  With  regard to the fiscal impact of                                                               
Amendment 8,  he said that  DOR doesn't have a  specific estimate                                                               
as to what the amendment would do.                                                                                              
                                                                                                                                
1:27:09 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON  surmised that  DOR  doesn't  disagree with  the                                                               
fiscal note  it drafted for this  provision in House Bill  337 in                                                               
the Twenty-Sixth Alaska State Legislature.                                                                                      
                                                                                                                                
ACTING COMISSIONER  BUTCHER clarified that he  wasn't involved in                                                               
the  preparation of  that fiscal  note  and didn't  know how  the                                                               
department testified on  that a year ago.   Moreover, Amendment 8                                                               
is different in  that it deletes language and  then adds language                                                               
to the legislation.                                                                                                             
                                                                                                                                
1:27:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P. WILSON  commented that  not doing  maintenance                                                               
could have devastating effects.                                                                                                 
                                                                                                                                
ACTING COMISSIONER  BUTCHER agreed.   He said he  understands the                                                               
intent of  Amendment 8, but  that a lot of  potentially dangerous                                                               
issues could arise as a result of it.                                                                                           
                                                                                                                                
1:28:38 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE observed that the  provisions of Amendment 8 would                                                               
be  limited to  the next  10 years.  He inquired  as to  how this                                                               
would  impact  the  willingness of  producers  and  explorers  to                                                               
invest in Alaska.                                                                                                               
                                                                                                                                
ACTING COMISSIONER  BUTCHER, recalling testimony  and discussions                                                               
with various companies, said that  anything that has an effect in                                                               
the  future  on  their  fiscals  will be  either  a  positive  or                                                               
negative.  Although  he deferred to the industry  for comment, he                                                               
said  he believes  the limiting  provision would  be viewed  as a                                                               
negative  and  would  be  surprised  if  the  industry  supported                                                               
Amendment 8.                                                                                                                    
                                                                                                                                
1:29:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GARDNER  surmised that many Alaskans  would object                                                               
to giving large credits for  maintenance work that is expected to                                                               
be performed  on legacy fields.   Therefore, maybe that  is where                                                               
the objection to Amendment 8 should focus.                                                                                      
                                                                                                                                
ACTING  COMISSIONER BUTCHER  clarified  that he  isn't making  an                                                               
assumption the  aforementioned would  happen as one  would expect                                                               
companies operating  in the  state would  operate at  the highest                                                               
level.    He  further  clarified  that he  is  pointing  out  the                                                               
potential as it could be a net benefit to the companies.                                                                        
                                                                                                                                
1:31:14 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  pointed out that  on [2/25/11] the date  for the                                                               
other two credits  was extended from 2016 to January  1, 2021, as                                                               
requested by industry.  Those  were for exploration credits which                                                               
require  a  higher  level  of   forward  planning  and  a  longer                                                               
development  time versus  the infield  drilling that  Amendment 8                                                               
addresses, which doesn't  require as much lead  time.  Therefore,                                                               
the  extension deadline  being  coincident  with exploration  tax                                                               
incentives and  the small producers' tax  incentives makes sense.                                                               
The result  is that  everything comes  before the  legislature at                                                               
the same  time.  "On  that point, I just  would like to  say that                                                               
that doesn't ring true to me," he commented.                                                                                    
                                                                                                                                
CO-CHAIR  SEATON reminded  members  that last  year  there was  a                                                               
provision to  offer a 30  percent tax credit,  at a cost  of $350                                                               
million a  year, to all  fields for all  work, most of  which the                                                               
companies would've been  doing anyway.  The  purpose of Amendment                                                               
8 is to  incentivize additional work, not  just reducing revenues                                                               
for work that is currently being done.                                                                                          
                                                                                                                                
1:33:58 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE pointed  out that currently HB 110  leaves the tax                                                               
credit  expenditure  open-ended,  and  therefore  any  truncation                                                               
would  be  more  of  a  disincentive  compared  to  the  original                                                               
legislation.   He explained  that the language  on page  1, lines                                                               
15-16,  of Amendment  8 is  essentially existing  statute and  is                                                               
essentially  for Cook  Inlet.   The aforementioned  incentive has                                                               
been  one that  many companies  have  used and  it has  increased                                                               
exploration in  Cook Inlet.  The  effect of Amendment 8  would be                                                               
to deny  the 40 percent tax  credit and reduce it  to 30 percent.                                                               
Furthermore,  by  tying  it  to   the  previous  years'  credits,                                                               
companies are forced  to expend ever more  increasing rather than                                                               
a steady amount  of exploration every year.  He  pointed out that                                                               
a company  can only  do so  much exploration  on the  North Slope                                                               
with  environmental laws  remaining the  same and  the three-  to                                                               
four-month window.  This particular  part of Amendment 8 tries to                                                               
incentivize production  and get more  oil in the  pipeline, which                                                               
requires spending  money.  By  including the provision  that ties                                                               
it to  the previous years,  it won't be productive  for companies                                                               
to put a lot of money at the  outset.  The companies will have to                                                               
[expend] a  little each  year.   Although the  aforementioned may                                                               
lead  to  more  production  over  a  long  period  of  time,  the                                                               
production is needed  in 5-7 years not 15 years.   He opined that                                                               
the  aforementioned   provision  within  Amendment  8   does  not                                                               
encourage [production in the shorter  timeframe].  As written, HB                                                               
110  applies the  40 percent  tax credit  expenditure immediately                                                               
and allows  the company to  right it off  in one year.   Co-Chair                                                               
Feige  characterized  that  as  a  great  financial  benefit  and                                                               
incentive for  companies that  will potentially  put more  oil in                                                               
the pipeline.                                                                                                                   
                                                                                                                                
1:37:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON  inquired as to  the result if  Amendment 8                                                               
was bifurcated.                                                                                                                 
                                                                                                                                
CO-CHAIR  SEATON confirmed  that  the question  could be  divided                                                               
such that one part would be on  page 1, lines 1-6, of Amendment 8                                                               
and the  other part would  be on page 1,  line 7 through  page 2,                                                               
line 6, of Amendment 8.                                                                                                         
                                                                                                                                
REPRESENTATIVE  HERRON  asked if  there  would  be a  benefit  to                                                               
bifurcating Amendment 8.                                                                                                        
                                                                                                                                
CO-CHAIR SEATON  acknowledged that the  two parts of  Amendment 8                                                               
are  somewhat  different.    The   latter  part  of  Amendment  8                                                               
addresses a new credit for  infield drilling at 30 percent, which                                                               
is an  increase from the  existing 20 percent credit  for infield                                                               
drilling.  He related his  personal opinion that it's appropriate                                                               
to sunset things  on similar dates, and this  credit would sunset                                                               
on the  same date  as the  exploration tax  credit and  the small                                                               
producers tax  credit.  Co-Chair  Seaton announced that  he would                                                               
entertain  bifurcating  Amendment   8  if  Representative  Herron                                                               
wished.                                                                                                                         
                                                                                                                                
REPRESENTATIVE  HERRON  clarified that  he  isn't  making such  a                                                               
request.                                                                                                                        
                                                                                                                                
1:40:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  DICK related  his understanding  that passage  of                                                               
Amendment 8  would incentivize a  minimal increase  of production                                                               
each year  for fear  of spoiling  the average of  the past.   For                                                               
example, a company would receive  credit when it performs a great                                                               
deal of  production in  one year,  but it  would be  difficult to                                                               
follow that in the next year.                                                                                                   
                                                                                                                                
ACTING COMISSIONER  BUTCHER noted his agreement,  adding that the                                                               
existing language  in HB  110 specifies a  40 percent  tax credit                                                               
that  would be  replaced  by  the language  in  Amendment 8  that                                                               
specifies a 30 percent credit.   Therefore, [Amendment 8] doesn't                                                               
improve the investment climate, it makes it less attractive.                                                                    
                                                                                                                                
1:41:24 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  clarified that [Amendment  8] refers  to infield                                                               
drilling  and  producing units,  not  exploration.   Current  law                                                               
provides  a  20 percent  tax  credit  for [infield  drilling  and                                                               
producing units].   Amendment 8 would increase that  credit to 30                                                               
percent if additional  work is performed.  He  questioned why one                                                               
wouldn't want the  work to escalate rather than stay  at a steady                                                               
average.  According to producers,  infield work is from where the                                                               
additional volume will come.  Without  running a large cost of 40                                                               
percent  tax  credit  on  all current  work,  Amendment  8  would                                                               
increase the  tax credit  from 20  percent to  30 percent  on any                                                               
additional work, and  it is additional work that  the state wants                                                               
to incentivize.                                                                                                                 
                                                                                                                                
1:43:01 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE opined  that the  problem with  Co-Chair Seaton's                                                               
explanation  is in  regard to  subparagraph (B)  of Amendment  8,                                                               
which  would gut  the 40  percent  tax credit  in the  governor's                                                               
legislation.   He posed  a situation  in which  a company  does a                                                               
large amount of work in the  first year the credit is offered; so                                                               
much work is done that the company  doesn't need to do as much in                                                               
subsequent years.  Because the  company didn't exceed the average                                                               
annual  well  lease  expenditures  for the  previous  years,  the                                                               
company wouldn't  be able to  write off any of  its expenditures.                                                               
Therefore, Amendment 8  really only allows the companies  to do a                                                               
large amount  of work every  four years,  a boom and  bust cycle,                                                               
instead of a steady utilization of men and equipment.                                                                           
                                                                                                                                
1:44:40 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  explained that under existing  statute a company                                                               
would receive  a 20 percent  tax credit for  capital expenditures                                                               
(capex)  and [with  the passage  of Amendment  8] a  company that                                                               
exceeds  the average  amount  of  work it  has  been doing  would                                                               
receive an additional  10 percent tax credit  [on that additional                                                               
work].   This change  is to  encourage companies  to do  more, to                                                               
incentivize  more  development  and  future  work.    He  further                                                               
explained  that a  company that  performs less  than its  average                                                               
work  [of  the prior  year]  would  continue  to receive  the  20                                                               
percent  capex.   He  opined  that  the  goal is  to  incentivize                                                               
additional work,  and thus the  [proposed] credits  [in Amendment                                                               
8] are  applied to the  additional work.  The  aforementioned was                                                               
why  [a  similar]  measure  was passed  by  the  House  Resources                                                               
Standing  Committee last  year.   He  further  opined that  there                                                               
would be no reason to delay  any maintenance work and take a huge                                                               
financial risk  by not  taking the 20  percent.   Co-Chair Seaton                                                               
stated that  before the committee  is a  choice as to  whether to                                                               
incentivize more work  than the companies are  currently doing or                                                               
paying  the  companies  more  for   the  work  they're  doing  by                                                               
increasing the capital credits across the broad spectrum.                                                                       
                                                                                                                                
1:47:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DICK surmised that  committee members all have the                                                               
intention of trying to incentivize  production, but he questioned                                                               
the intended and the unintended  consequences.  He then requested                                                               
more discussion before voting.                                                                                                  
                                                                                                                                
CO-CHAIR SEATON explained  that HB 110 says that  a company doing                                                               
"X"  amount of  work these  years receives  a 20  percent credit.                                                               
For work  done beyond the "X"  work, "Y" work, the  company would                                                               
receive  an  extra 30  percent  credit  for  the  "Y" work.    He                                                               
clarified that  the 20 percent  credit would remain and  has been                                                               
adequate to stimulate  the work.  Co-Chair Seaton  opined that if                                                               
the  desire is  to have  more  infield drilling,  then the  state                                                               
should  incentivize  drilling  above   the  level  at  which  the                                                               
companies  are  currently  producing.   He  further  opined  that                                                               
maintaining the existing  level of credits for  the current level                                                               
of work  will not stimulate  production.   Stimulating additional                                                               
work with extra tax credits  makes the state's funds targeted and                                                               
"go further as well."                                                                                                           
                                                                                                                                
1:49:38 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE,  following Co-Chair  Seaton's logic,  pointed out                                                               
that HB 110 provides a 40  percent tax credit expenditure for the                                                               
North Slope.   Amendment  8 would  reduce that  tax credit  to 30                                                               
percent.  The  governor's bill also allows that tax  credit to be                                                               
taken  in  one  year,  which business  owners  would  appreciate.                                                               
However, Amendment 8 would eliminate  the allowance to apply that                                                               
tax credit in a single calendar year.                                                                                           
                                                                                                                                
CO-CHAIR SEATON interjected that the  producers write off the tax                                                               
credits  in  the  month  in  which  the  expenditures  are  made.                                                               
Therefore, he  said he is  unsure why the governor  included that                                                               
provision given the aforementioned.                                                                                             
                                                                                                                                
1:51:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARDNER  recalled   hearing  explorers  say  that                                                               
Alaska   has   the  best   incentive   program   in  the   world.                                                               
Furthermore,  there has  been no  testimony that  more incentives                                                               
are  needed to  encourage  infield drilling.    Tax credits,  tax                                                               
incentives, and tax rates are only  part of the many factors that                                                               
go into decisions  to invest.  She opined that  the big incentive                                                               
is  the price  of  oil.   She announced  that  she is  supporting                                                               
Amendment 8, although she isn't sure it's needed.                                                                               
                                                                                                                                
1:52:27 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON,  in wrap up,  reminded members that  Amendment 8                                                               
targets the  credits at additional  work.  If no  additional work                                                               
is done, it doesn't cost  the state anything or increase existing                                                               
credits.  Increasing the credits  for [non-additional] work would                                                               
cost the  state and  wouldn't ensure  that any  higher production                                                               
would take place.                                                                                                               
                                                                                                                                
REPRESENTATIVE P. WILSON maintained her objection.                                                                              
                                                                                                                                
1:53:15 PM                                                                                                                    
                                                                                                                                
A roll  call vote was  taken.  Representatives  Kawasaki, Herron,                                                               
Gardner,  and Seaton  voted  in favor  of  adopting Amendment  8.                                                               
Representatives P.  Wilson, Munoz, Foster, Dick,  and Feige voted                                                               
against it.   Therefore, Amendment  8 failed  to be adopted  by a                                                               
vote of 4-5.                                                                                                                    
                                                                                                                                
1:54:07 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  then directed attention  to the  memorandum from                                                               
Legislative  Legal Services  with the  subject "Amendments  to HB                                                               
110   (Work  Order   Nos.  27-GH1007\A.39-A.42)."     From   that                                                               
memorandum he paraphrased from the following:                                                                                   
                                                                                                                                
     Amendment 27-GH1007\A.39                                                                                               
                                                                                                                                
     This amendment  removes the sections  of the  bill that                                                                    
     change  the   tax  rates,  installment   payments,  and                                                                    
     determination of  the production  tax value of  the oil                                                                    
     and gas.   The effect of this amendment is  to have the                                                                    
     current   tax   rates,    installment   payments,   and                                                                    
     determination of production tax value continue.                                                                            
                                                                                                                                
CO-CHAIR  SEATON  moved that  the  committee  adopt Amendment  9,                                                               
labeled 27-GH1007\A.39, Bullock, 2/26/11, which read:                                                                           
                                                                                                                                
     Page 1, lines 2 - 3:                                                                                                       
          Delete "relating to the oil and gas production                                                                      
     tax rate; relating to monthly installment payments of                                                                    
     estimated oil and gas production tax;"                                                                                   
                                                                                                                                
     Page 1, line 7:                                                                                                            
          Delete "relating to the determination of oil and                                                                    
     gas production tax values;"                                                                                              
                                                                                                                                
     Page 3, line 3, through page 8, line 8:                                                                                    
          Delete all material.                                                                                                  
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 13, line 8, through page 15, line 15:                                                                                 
          Delete all material.                                                                                                  
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 16, line 8:                                                                                                           
          Delete "Sections 11, 12, 15, and 16"                                                                                  
          Insert "Sections 7, 8, 11, and 12"                                                                                    
                                                                                                                                
     Page 16, lines 10 - 11:                                                                                                    
          Delete all material.                                                                                                  
                                                                                                                                
     Reletter the following subsection accordingly.                                                                             
                                                                                                                                
     Page 16, line 12:                                                                                                          
          Delete "Section 19"                                                                                                   
          Insert "Section 15"                                                                                                   
                                                                                                                                
     Page 16, line 20:                                                                                                          
          Delete "Sections 11, 12, 14 - 18, 24, and 25(a)"                                                                      
         Insert "Sections 7, 8, 10 - 14, 19, and 20(a)"                                                                         
                                                                                                                                
     Page 16, line 21:                                                                                                          
          Delete all material.                                                                                                  
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 16, line 22:                                                                                                          
          Delete "Sections 19 and 25(c)"                                                                                        
          Insert "Sections 15 and 20(b)"                                                                                        
                                                                                                                                
     Page 16, line 23:                                                                                                          
          Delete "secs. 27 - 29"                                                                                                
          Insert "secs. 22 and 23"                                                                                              
                                                                                                                                
REPRESENTATIVE P. WILSON objected for discussion purposes.                                                                      
                                                                                                                                
1:55:24 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON,  referring  to  a  PowerPoint  handout  in  the                                                               
committee packet, informed the committee  that the tax provisions                                                               
in HB 110 would cause a  $1.7 to $2.2 billion annual reduction in                                                               
revenue  to Alaska  once the  legislation  is fully  implemented.                                                               
The basic assumption behind this  reduction in revenue is that it                                                               
will lead  to increased  drilling activity to  get more  oil into                                                               
the Trans-Alaska  Pipeline System (TAPS).   However, much  of the                                                               
information  the  committee  has received  doesn't  support  that                                                               
assumption.   Representatives  from several  companies have  said                                                               
they  must  compete in  the  boardroom.    He then  directed  the                                                               
committee's attention to the  slide entitled "ConocoPhillips 2011                                                               
Corporate  Profit Distribution  Decision  Flow  Chart (from  News                                                               
Reports)."   The  flow chart  illustrates an  approximately 50:50                                                               
breakdown   between  shareholder   return  and   exploration  and                                                               
production.    ConocoPhillips,  he related,  has  announced  that                                                               
approximately 50 percent [of its  2010 profits], $6 billion, will                                                               
go  toward  international  while  $6 billion  will  go  to  North                                                               
America of which $3.3  billion will go to the U.S.   Of that $3.3                                                               
billion going to the U.S., about  $900 million will go to Alaska.                                                               
Although the $900  million sounds like a lot, it's  only a slight                                                               
increase from last year's $858 million.                                                                                         
                                                                                                                                
1:58:33 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE  recalled reading news  reports that part  of that                                                               
$900 million is  conditional with regard to  what the legislature                                                               
does.                                                                                                                           
                                                                                                                                
CO-CHAIR SEATON acknowledged that may  be the case, and clarified                                                               
that the  $900 million was  the best  case scenario.   Last year,                                                               
ConocoPhillips  spent  almost $858  million  in  Alaska, but  not                                                               
quite  because  $120  million  less was  actually  spent  due  to                                                               
projects  that  didn't  come  to fruition.    He  suggested  that                                                               
normally, if the  projection is for $850 million and  there was a                                                               
glitch that held back $120  million, that $120 million would roll                                                               
forward and thus  there would be about $970  million in expenses.                                                               
However,  ConocoPhillips  has  announced  only  $900  million  in                                                               
expenses.                                                                                                                       
                                                                                                                                
CO-CHAIR FEIGE interjected that  Co-Chair Seaton's scenario seems                                                               
like a lot  of speculation.  Therefore, he  expressed interest in                                                               
having someone from ConocoPhillips to explain its numbers.                                                                      
                                                                                                                                
CO-CHAIR SEATON pointed out that  the committee packet includes a                                                               
news story  in which ConocoPhillips  projects it will  spend $900                                                               
million in Alaska and $4.4 billion in the U.S.                                                                                  
                                                                                                                                
2:00:10 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON,  referring to the  slide entitled  "$1B Decrease                                                               
in Alaska's oil tax Where will it go?," said:                                                                                   
                                                                                                                                
     Now what we're  going to do is look at  when our people                                                                    
     from ConocoPhillips  Alaska go  back to the  board room                                                                    
     and  have  to  negotiate  for  projects;  what  are  we                                                                    
     looking at?   If we decrease by a  billion dollars what                                                                    
     would go into  the corporate board room  as a decision.                                                                    
     The question  is would it  be a billion dollars  in one                                                                    
     year?  Not quite.   If it was a billion-and-a-half each                                                                    
     year over a  two-year period, that's $3  billion and we                                                                    
     say  each one  of  those companies  represents about  a                                                                    
     third that would  mean $1 billion could  be spread over                                                                    
     two years.  But what happens  to that $1 billion of our                                                                    
     taxes money that we say  we're going to give tax relief                                                                    
     under the  provisions of House  Bill 110.   Thirty-five                                                                    
     percent of it goes  directly to the federal government,                                                                    
     IRS tax  rate: $350  million goes  there.   That leaves                                                                    
     Conoco with $650 million.   Their boardroom has already                                                                    
     decided about  50 percent  goes to  stockholder shares,                                                                    
     buy  backs,  and  increased  dividends;  the  other  50                                                                    
     percent   exploration,   half    of   that   going   to                                                                    
     international, half of  it going to North  America.  If                                                                    
     we look  at the 15  percent of North America,  the $900                                                                    
     million,  and relate  to the  $165 million,  that means                                                                    
     there's only $25 million.   So for a reduction in taxes                                                                    
     of $1 billion,  it comes back to Alaska  as $25 million                                                                    
     if  the  proportions  of   everything  stay  the  same.                                                                    
     Remember,  they've  testified repeatedly  that  they're                                                                    
     having  to  go to  the  boardroom  and negotiate  these                                                                    
     projects; it's  not money from Alaska  stays in Alaska,                                                                    
     even though we've attempted to do that.                                                                                    
                                                                                                                                
2:02:22 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON   then  turned   to  the  desire   to  stimulate                                                               
exploration, which  leads to  reviewing what  corporate decisions                                                               
are being made by the producers.   He reminded the committee that                                                               
well over 90 percent of all of  the taxes will be returned to the                                                               
[top] three producers.   He related that  approximately 2 million                                                               
of the  5 million acres  released on  the North Slope  since 2007                                                               
was  released by  ConocoPhillips.   Therefore, the  discussion is                                                               
about the producers not the explorers.   He noted that Alaska has                                                               
been compared  most directly  to North  Dakota, which  results in                                                               
the  question  of  where  a   company  would  place  its  assets.                                                               
However,  neither BP  nor ConocoPhillips  is  investing in  North                                                               
Dakota and thus the comparison  isn't applicable if the companies                                                               
aren't investing there.                                                                                                         
                                                                                                                                
CO-CHAIR SEATON noted that [the  state] has been told that Canada                                                               
has  a  tax  system  with   particular  fields.    However,  when                                                               
reviewing  the  applicable  part  in the  Canadian  Arctic,  it's                                                               
apparent that  the Canadian  Arctic has  suffered much  more than                                                               
Alaska.   Therefore, tax rate  between Alaska and  Canada doesn't                                                               
seem to be the driver of  the downward exploration in both Alaska                                                               
and Arctic Canada.                                                                                                              
                                                                                                                                
2:05:28 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  acknowledged that  there has been  argument that                                                               
the upside  projections are  causing companies  not to  invest in                                                               
Alaska.   The slide  entitled "Single well  flow rate  over time"                                                               
relates  Whiting Petroleum's,  the  fourth  largest investor  and                                                               
producer in  North Dakota's Bakken  Formation, targeted  price of                                                               
oil  when  making its  decisions.    He  recalled that  when  the                                                               
legislature  was addressing  Alaska's Clear  and Equitable  Share                                                               
(ACES),  the state  was  looking at  about  $42.50 [per  barrel],                                                               
which  was rounded  off  to $45  as the  mid-point  target.   The                                                               
information on the aforementioned  slide illustrates that current                                                               
petroleum companies are  making their decisions on  $60, $70, and                                                               
$80 per barrel, not the stress price.                                                                                           
                                                                                                                                
2:07:58 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON   directed  attention  to  the   chart  entitled                                                               
"Exploration  Well   Permits  (1996-2010)"   on  slide  8.     He                                                               
highlighted  the  permit   designation  for  ConocoPhillips  that                                                               
illustrated the  decrease in  that company's  activity.   He said                                                               
the  chart  illustrates  that  even before  ACES  the  number  of                                                               
exploratory wells  was decreasing as  ConocoPhillips transitioned                                                               
from the  exploration business  to the  production business.   He                                                               
then pointed  out the designation  for BP which  illustrated that                                                               
BP had essentially  stopped exploration after 2002.   He said the                                                               
discussion    of    exploration   therefore    doesn't    include                                                               
ConocoPhillips   or  BP   and  thus   those   companies  had   no                                                               
relationship when  ACES and the petroleum  production profits tax                                                               
(PPT) were enacted.                                                                                                             
                                                                                                                                
2:09:17 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON,  in response to  Co-Chair Feige,  confirmed that                                                               
the  aforementioned  chart  is  from   the  Alaska  Oil  and  Gas                                                               
Conservation Commission (AOGCC), dated February 22, 2011.                                                                       
                                                                                                                                
CO-CHAIR FEIGE directed attention to  the bar specifying the five                                                               
companies  with exploratory  well  permits in  2010,  the top  of                                                               
which is  Cook Inlet  Region, Incorporated  (CIRI).   He recalled                                                               
that CIRI  is drilling an  underground coal  gasification project                                                               
in  Cook Inlet,  which has  nothing  to do  with oil.   The  next                                                               
company is ORMAT Nevada, which  he recalled was core drilling for                                                               
test holes  on the  side of  Mt. Spur  for a  geothermal project.                                                               
The  next down  from that  is  the City  of Akutan,  which was  a                                                               
geothermal  project in  the Aleutians.    The next  down is  Linc                                                               
Energy that drilled  off one well off the Knik-Goose  Bay Road in                                                               
the Matanuska-Susitna  Borough.  The  final well permit  was from                                                               
Armstrong.   He  pointed out  that none  of the  exploratory well                                                               
permits in 2010 resulted in wells on the North Slope.                                                                           
                                                                                                                                
CO-CHAIR  SEATON clarified  that is  exactly what  he was  saying                                                               
when he  pointed out  that ConocoPhillips  and BP  are producers,                                                               
not explorers.  He reminded  members that ConocoPhillips released                                                               
2 million  of the 5 million  acres and BP stopped  exploration in                                                               
2002.                                                                                                                           
                                                                                                                                
2:11:31 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE recalled  that in the 2003-2005  timeframe, BP had                                                               
to take  rigs off  exploratory wells and  deploy them  to perform                                                               
field maintenance.   Therefore,  it's somewhat misleading  to say                                                               
that BP stopped exploration.                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON   reiterated  that  BP  didn't   apply  for  any                                                               
exploration  well permits  in the  2003-2005 timeframe,  which is                                                               
well before PPT or ACES.   With regard to whether that relates to                                                               
tax, Co-Chair Seaton  said it doesn't relate to tax  or the price                                                               
of oil.                                                                                                                         
                                                                                                                                
2:12:27 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON moved  on to the chart  entitled "Development and                                                               
Service  Wells/Laterals  Completed   (1996-2010)"  on  slide  10.                                                               
Although  the  bar from  ConocoPhillips  illustrates  that it  is                                                               
about  at   the  highest  level   in  2010,  the   chart  overall                                                               
illustrates a  steady state.   Furthermore, the chart  shows that                                                               
the  corporate decision  isn't based  on taxes  as there  weren't                                                               
changes  after  PPT,  ACES,  or  with  aggregation.    The  chart                                                               
illustrates that the producer has  a constant field from which it                                                               
moves forward.   Therefore, if there  is a change in  taxes and a                                                               
company is given  $1 billion, there shouldn't  be any expectation                                                               
of a change in their long-term  strategy.  He reiterated that the                                                               
chart illustrates that the tax  regime wasn't a consideration for                                                               
ConocoPhillips.    He  noted that  unlike  most  joint  operating                                                               
agreements, the  joint operating  agreement for the  North Slope,                                                               
Prudhoe, and  Kuparuk is that any  one of the three  can veto the                                                               
project.  Generally,  if a partner does not  wish to participate,                                                               
it  just  loses a  percentage  of  the  extra that  is  produced.                                                               
Therefore, the  [actions of ConocoPhillips]  could be  the result                                                               
of one  of the  other partners  saying it  won't invest  and thus                                                               
[exploration/development] stops.                                                                                                
                                                                                                                                
2:15:20 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE opined  that  Co-Chair  Seaton's arguments  don't                                                               
take into  consideration that drill  rigs are necessary  to drill                                                               
wells  and that  companies  have limited  equipment available  to                                                               
them on  the North Slope.   He further opined that  there isn't a                                                               
surplus of drill  rigs.  In fact, during "that  time period" most                                                               
of  the   drill  rigs  on   the  North  Slope   were  contracted.                                                               
Therefore, even  if the  companies wanted  to drill  more, unless                                                               
drill rigs  were imported at  great expense from  other locations                                                               
in the  Lower 48  there would  not have been  any to  contract to                                                               
drill more  wells.  With regard  to the years in  which BP didn't                                                               
explore,  Co-Chair  Feige opined  that  BP's  drill activity  was                                                               
constrained by the number of rigs  that it had and these rigs had                                                               
to  be taken  off of  exploration  and put  into development  and                                                               
service wells to correct some down hole issues.                                                                                 
                                                                                                                                
CO-CHAIR  SEATON  remarked  that  these are  companies  that  can                                                               
decide on their capital investment;  however, these slides depict                                                               
what the companies  actually did.  Furthermore,  during the years                                                               
2003-2006  BP   was  on  a   general  downward  trend   that  has                                                               
stabilized.   The low amount of  production/development wells for                                                               
BP  isn't  related  to  the  enactment of  PPT  or  ACES  because                                                               
decisions were made before PPT or ACES were enacted.                                                                            
                                                                                                                                
2:17:59 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON,  referring  to  the slide  entitled  "State  Of                                                               
Alaska If We Have A Surplus What  Do We Do With It?", pointed out                                                               
that if the state has a  surplus it places some funds in savings.                                                               
The state  uses funds for  things such as revenue  sharing, power                                                               
cost equalization  (PCE), and  the capital  budget.   The capital                                                               
budget  from 2006-2010  averaged  $983 million  in general  funds                                                               
(GF).   That GF is used  for things such as  the renewable energy                                                               
fund   and  transportation,   safety,   medical,  and   education                                                               
infrastructure, all  of which  yield Alaska  jobs.   Referring to                                                               
the slide "State Of Alaska If We  Have a Deficit What Do We Do?",                                                               
explained that when the state has  a deficit, money is taken from                                                               
the  savings to  run government.    During the  deficit years  of                                                               
2001-2005, the  capital budget  was small at  $239 million  in GF                                                               
and  there  was no  renewable  energy  fund  and there  was  less                                                               
infrastructure and  jobs.  He  pointed out that in  those deficit                                                               
years  the  capital budget  averaged  $274  million less.    That                                                               
capital  budget is  spread  across the  state  and funds  various                                                               
things in the  different communities.  He opined  that the reason                                                               
Alaska didn't have a construction job  crash like the rest of the                                                               
Lower 48 is because Alaska saved  an average of $744 million from                                                               
the surplus  in order  to create  jobs to  keep the  state going.                                                               
With regard  to the difference  between surplus and  deficit, Co-                                                               
Chair Seaton  opined that enactment  of HB 110 will  place Alaska                                                               
in deficit for years to come.                                                                                                   
                                                                                                                                
2:20:28 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  turned to another  aspect of the  situation, the                                                               
Public   Employees  Retirement   System   (PERS)  and   Teachers'                                                               
Retirement  System (TRS)  liability as  illustrated on  the chart                                                               
entitled   "State   Assistance   to  Retirement   ($   billions).                                                               
Currently, the  PERS and  TRS liability  amounts to  $350 million                                                               
while in  five years  the liability will  reach $850  million per                                                               
year.  Four  years later, the liability will rise  to $1 billion.                                                               
That hit on  the budget is not included in  any of these figures.                                                               
He  reiterated  that  the  state  will be  in  deficit  if  these                                                               
provisions of  HB 110 are enacted.   Amendment 9 says  that there                                                               
hasn't been  any indication  that more wells  will be  drilled or                                                               
more production will occur if [HB 110 is passed].                                                                               
                                                                                                                                
2:21:31 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON then  directed  attention to  the Department  of                                                               
Revenue's revenue  forecast, Figure  4-2, which relates  that the                                                               
2010 production  tax was 2.8 and  is projected to be  2.6 in 2011                                                               
and 2.7 in  2012.  When HB 110 is  implemented the production tax                                                               
would decrease  by $1.7  to $2.2  billion.   He opined  that it's                                                               
fairly  obvious the  situation in  which that  leaves the  state.                                                               
Co-Chair Seaton said  he believes the committee  is attempting to                                                               
increase  oil  production  in  Alaska,  but  there  has  been  no                                                               
commitment  that lowering  progressivity or  taxes will  directly                                                               
result in more  oil in the pipe.   However, it is  known that the                                                               
impact of the tax on  progressivity will be an enormous reduction                                                               
in  the state's  capital  budget, revenue  sharing, and  savings.                                                               
The  resource  consequences  of  not  adopting  Amendment  9  are                                                               
significant  because  placing  the  state in  a  deficit  by  not                                                               
adopting  Amendment  9  will  result in  the  state  missing  the                                                               
resource  implications,  roads to  resources,  which  is the  top                                                               
issue of the  smaller explorers.  If the state  is in deficit, it                                                               
will not be building those  roads to the resources.  Furthermore,                                                               
projects will  only be  done if  the state  has funds.   Co-Chair                                                               
Seaton reiterated  that there have  been no commitments  for work                                                               
nor  more  wells  drilled  when  there  was  a  lower  tax  rate.                                                               
Therefore, Amendment  9 addresses [the  aforementioned] concerns.                                                               
If the producers  want to come forward at  subsequent hearings in                                                               
other  committees and  offer work  commitments, those  committees                                                               
can  reinstitute  provisions  based   on  those.    However,  the                                                               
industry has  related that the  $1.7-$2.2 billion in  taxes would                                                               
be a good  start.  Co-Chair Seaton pointed out  that it's obvious                                                               
when one reviews what the state  did when it had a surplus versus                                                               
a  deficit  that when  there's  a  surplus  the state  funds  its                                                               
resource issues.  There's no  assurance that if these changes are                                                               
made that Alaska  will have any surpluses in the  future based on                                                               
the actual well  data, the industry's responses,  and the history                                                               
of what the industry did under  lower taxes.  He reminded members                                                               
that ACES  was predicated  on making more  money and  that Alaska                                                               
needed  to give  people  an  incentive to  leave  their money  in                                                               
Alaska.   Lowering  the taxes  makes it  cheaper for  industry to                                                               
take their money from Alaska rather than investing in it.                                                                       
                                                                                                                                
2:26:00 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE referenced  the  slide  entitled "Arctic  Canada-                                                               
exploration  wells completed  2000 to  2010."   He  asked if  the                                                               
decrease in exploration  wells shown in the slide has  to do with                                                               
the high tax rate that Alberta imposed in about 2006.                                                                           
                                                                                                                                
CO-CHAIR SEATON acknowledged that  statements have been made that                                                               
Canada  is  booming  because  of  changes  to  their  tax  rates.                                                               
However, the  number of  exploration wells  decreased to  zero by                                                               
2010.   Therefore,  it would  seem that  Canada experienced  even                                                               
more of a downturn than in Alaska.                                                                                              
                                                                                                                                
CO-CHAIR  FEIGE related  his understanding  that Alberta  imposed                                                               
its tax increase  after Alaska did.  He then  inquired as to when                                                               
Alberta repealed its tax increase.                                                                                              
                                                                                                                                
REPRESENTATIVE P.  WILSON recalled that  within the next  year or                                                               
so after Alaska increased its  tax rate, Canada increased its tax                                                               
rate but then quickly changed it back.                                                                                          
                                                                                                                                
CO-CHAIR  SEATON added  that the  point of  these slides  is that                                                               
comparing wells  that are close  to the  Lower 48 is  a different                                                               
story  than  comparing   to  Arctic  Canada.     The  pattern  of                                                               
exploration wells in  Arctic Canada looks the same  as in Alaska.                                                               
The response, he opined, is to something other than tax rates.                                                                  
                                                                                                                                
2:28:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MUNOZ  surmised that Amendment 9  preserves the 25                                                               
and 15  percent production  tax rates  by deleting  the materials                                                               
and retaining the progressivity focus of ACES.                                                                                  
                                                                                                                                
CO-CHAIR   SEATON  explained   that  Amendment   9  leaves   ACES                                                               
predominantly intact.   With regard  to the 15 percent  tax rate,                                                               
none of the  explorers approached him regarding the  need to have                                                               
half  the  tax  rate  of  the  producers.    However,  there  was                                                               
testimony  from Brooks  Range Petroleum  that the  progressivity,                                                               
the  tax rate,  and another  portion of  the tax  weren't needed.                                                               
Brooks Range said  that it needed the exploration  tax credits to                                                               
be  issued in  one year.   Brooks  Range also  testified that  it                                                               
wanted an  extension of the tax  credits, which "we did"  as well                                                               
as increasing the small producer tax credits.                                                                                   
                                                                                                                                
2:30:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MUNOZ  surmised then that Amendment  9 deletes the                                                               
bulk of HB 110 and retains the ACES structure.                                                                                  
                                                                                                                                
CO-CHAIR SEATON  responded yes, adding  that Amendment  9 retains                                                               
the  ACES   structure,  the  interest   rate  changes,   and  the                                                               
exploration changes.  However, Amendment  9 does not maintain the                                                               
language that  would give away all  the money for the  things for                                                               
which  no  commitment  from  industry  has  been  received.    He                                                               
clarified that Amendment 9 addresses  the taxes that would all go                                                               
to the producers.  He  then directed the committee's attention to                                                               
slide  10  with  the  chart  entitled  "Development  and  Service                                                               
Wells/Laterals,"  which  he   interpreted  as  illustrating  that                                                               
corporate  decisions are  long-term decisions  that haven't  been                                                               
changed by  tax rates and  prices.  Therefore, he  questioned why                                                               
one would expect a  change in tax rates to make  a change when it                                                               
didn't  do  so  in  the  past.   Furthermore,  the  reduction  BP                                                               
experienced occurred  prior to enactment of  ACES, although after                                                               
ACES  was  enacted BP  experienced  a  rise [in  development  and                                                               
service  wells].     There  have  been  no   indication  or  work                                                               
commitments from BP or from  ConocoPhillips, the operators of the                                                               
fields that reducing the state's  surplus to a deficit will place                                                               
more oil into the pipe.                                                                                                         
                                                                                                                                
2:32:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HERRON related  his  understanding from  Co-Chair                                                               
Seaton's  explanation to  Representative Munoz  that Amendment  9                                                               
does one thing and that any  debate on rates would be relevant to                                                               
the following amendment.                                                                                                        
                                                                                                                                
CO-CHAIR SEATON replied no, and  clarified that Amendment 9 takes                                                               
into account all of the big  ticket items for which the committee                                                               
has received no information that  it would increase production or                                                               
drilling.  Drawing  attention to the chart  he presented earlier,                                                               
he  said drilling  is  independent of  the tax  rate  and of  the                                                               
price.   He opined  that these companies  have a  corporate model                                                               
that  they're following  to develop  these fields  and it  hasn't                                                               
changed since ACES  was enacted.  He reiterated that  there is no                                                               
correlation that can  be shown between the tax rate  or price and                                                               
the development  of these fields.   He explained that  he's using                                                               
ConocoPhillips as an  example because it's required  to file with                                                               
the Securities Exchange  Commission (SEC) and thus  more is known                                                               
about ConocoPhillips  from those filings as  well as publications                                                               
in  various distributions  regarding their  decisions related  to                                                               
distribution   of  their   income.     ConocoPhillips'  corporate                                                               
decisions of  how their income  is distributed were  then applied                                                               
to a  situation in which  Alaska gives  them $1 billion  over two                                                               
years.   On the  other hand,  BP is  selling assets  worldwide to                                                               
accumulate about  $40 billion  for the liability  in the  Gulf of                                                               
Mexico.   Therefore,  it seems  that one  could assume  that BP's                                                               
corporate board  has decided  where its assets  will go  for some                                                               
time to  come because BP  has only raised  a little over  half of                                                               
the amount it wants to raise.                                                                                                   
                                                                                                                                
2:36:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HERRON   related  his  understanding   then  that                                                               
members  are  allowed to  introduce  amendments  that change  the                                                               
rate.                                                                                                                           
                                                                                                                                
CO-CHAIR  SEATON   responded  yes,  adding  that   amendments  to                                                               
amendments will be allowed.   However, he maintained that at this                                                               
point  in the  discussion the  committee won't  receive any  work                                                               
commitments from  the industry.   As the legislation  proceeds to                                                               
other  committees, Co-Chair  Seaton expressed  the hope  that the                                                               
industry would  offer work commitments  in order to have  the tax                                                               
concessions  included in  the legislation.   At  this point,  the                                                               
committee  has  been unable  to  leverage  any work  commitments,                                                               
which are made all the time  when a company leases acreage, makes                                                               
a plan  of development,  or when companies  unitize.   There just                                                               
hasn't  been an  incentive for  work  commitments to  be made  in                                                               
Alaska   because  the   legislation  already   includes  language                                                               
providing free money.                                                                                                           
                                                                                                                                
2:37:44 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE, referring  to Co-Chair  Seaton's chart,  pointed                                                               
out that  in 2002 the price  of oil dipped below  $20 per barrel.                                                               
He submitted  that perhaps that had  more to do with  the deficit                                                               
Governor Murkowski faced in the first  two years of his term.  He                                                               
then asked if Whiting Petroleum has any leases in Alaska.                                                                       
                                                                                                                                
CO-CHAIR SEATON informed the committee  that Whiting Petroleum is                                                               
the fourth  largest investor in  the Bakken Play, which  has been                                                               
said to be  Alaska's "big competition."  He  further informed the                                                               
committee that  BP and ConocoPhillips  aren't even listed  in the                                                               
top 10  companies in  the Bakken.   Therefore, he  suggested that                                                               
[BP  and ConocoPhillips]  aren't putting  their money  [in places                                                               
such as the  Bakken] rather than Alaska, but 50  percent of their                                                               
funds  are  going   overseas.    The  testimony   of  Great  Bear                                                               
Petroleum,  the Department  of Natural  Resources (DNR),  and the                                                               
U.S. Geologic Services has said  that Alaska has a great resource                                                               
coming  on line,  maybe  200  wells per  year  starting in  2010.                                                               
Under ACES there  has been no indication  that the aforementioned                                                               
resource  can't go  forward.   The biggest  concern of  those who                                                               
want to  drill wells is  that the  state does roads  to resources                                                               
such  that [these  companies] can  develop.   However, if  Alaska                                                               
runs itself into  a deficit, it will be very  difficult to invest                                                               
into roads  to resources  or transportation funds.   He  said the                                                               
aforementioned  is  why  he discussed  the  surplus  and  deficit                                                               
situations  of   the  state.     That  information,   he  opined,                                                               
illustrates that  it didn't matter  whether the deficit  was from                                                               
$20  oil,  it was  what  Alaska  did when  it  was  in a  deficit                                                               
situation.  When the state was  in a deficit it didn't spend much                                                               
capital funds, which  impacts the economy and  the resource plays                                                               
in which the state can participate.                                                                                             
                                                                                                                                
CO-CHAIR FEIGE submitted that Whiting  Petroleum, if it has money                                                               
to invest, could invest in Alaska  if the tax regime were better.                                                               
He suggested that perhaps DOR should comment on Amendment 9.                                                                    
                                                                                                                                
2:41:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARDNER related  her belief  that the  slide with                                                               
the chart  entitled "Development  and Service  Wells/Laterals" is                                                               
the single  most important  visual the  committee has  been given                                                               
since the start of this discussion.   She surmised that the chart                                                               
illustrates that regardless  of taxes or the price  of oil, there                                                               
are  clearly other  factors that  are the  large determinants  in                                                               
investment decisions.                                                                                                           
                                                                                                                                
CO-CHAIR  SEATON   interjected  that  the   slide  Representative                                                               
Gardner referenced is a slide  from AOGCC that relates the number                                                               
of actual  wells completed from  1996-2010.  He offered  that the                                                               
slide illustrates  that corporations  have their  own timetables,                                                               
developmental schedules, and corporate mix  that are not based on                                                               
the  relationship with  Alaska's taxes.   "Everything  we see  is                                                               
that  the  production is  not  related  to  our tax  system,"  he                                                               
emphasized.   He clarified, however,  that he wasn't  saying that                                                               
2010  is  responsible  because  of  ACES,  but  rather  that  the                                                               
companies have  a separate corporate  strategy and  a development                                                               
plan  for the  fields on  the North  Slope and  that hasn't  been                                                               
influenced   when  Alaska   had   zero  production   tax.     The                                                               
aforementioned  is  why the  tax  was  changed  to a  percent  of                                                               
profits;  the companies  were investing  in  foreign lands  since                                                               
there  was no  difference in  the price  of investing  in Alaska.                                                               
Whether the larger [development] by  ConocoPhillips in 2010 is in                                                               
relation  to  [the change  in  tax  in Alaska],  Co-Chair  Seaton                                                               
opined that it's  a development strategy that  Alaska isn't going                                                               
to influence.   Those who  can be influenced, he  further opined,                                                               
are the explorers,  which were addressed with  the amendments the                                                               
committee dealt with last Friday.                                                                                               
                                                                                                                                
2:44:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DICK requested comments  from DOR regarding slides                                                               
2 and 3.                                                                                                                        
                                                                                                                                
ACTING  COMISSIONER  BUTCHER  first  directed  attention  to  the                                                               
[analysis] that  accompanies DOR's fiscal note,  which projects a                                                               
total revenue  impact from HB  110 of $1.6-$1.8 billion  in 2017.                                                               
He pointed  out that it's only  half of the equation  because the                                                               
other half  of the  equation is  possible production  that hasn't                                                               
been forecast coming on line.   The expectation is for the [total                                                               
revenue impact] to be smaller.                                                                                                  
                                                                                                                                
2:45:31 PM                                                                                                                    
                                                                                                                                
ACTING COMISSIONER  BUTCHER, regarding slides  2 and 3,  began by                                                               
relating that  ConocoPhillips or  another company could  speak to                                                               
those slides in  more detail than he could.   However, he related                                                               
his  understanding  from  the  conversations   he  has  had  with                                                               
industry  that companies  don't make  their investment  decisions                                                               
based on percentages,  rather they make those  decisions based on                                                               
where the companies see the  opportunity at a particular point in                                                               
time.  The  aforementioned is the point  of HB 110:   to create a                                                               
better  investment climate  in Alaska  so that  the companies  do                                                               
decide to make  a large investment in the state.   With regard to                                                               
the  slide  that  addresses  the  acreage  in  North  Dakota,  he                                                               
reminded the  committee that  when DOR  spoke to  HB 110  it said                                                               
Alaska  competes  nationally as  well  as  globally.   Certainly,                                                               
that's the  case with the  multinational companies.  Many  of the                                                               
companies that  have been in or  are in Alaska are  listed on the                                                               
slide.    In  fact,  some   of  the  smaller  producers  consider                                                               
[opportunities] on a  more national basis.  "So,  we compete with                                                               
those companies, but we also compete  on a more global scale with                                                               
the multinationals,"  he said.  Acting  Commissioner Butcher said                                                               
that from the comparison with  North Dakota he derived that North                                                               
Dakota  is  looking  at  a few  years  of  out-producing  Alaska.                                                               
Therefore, North  Dakota would be  producing more oil on  a daily                                                               
basis than  the State of  Alaska, which would've been  unheard of                                                               
five years ago.                                                                                                                 
                                                                                                                                
2:47:53 PM                                                                                                                    
                                                                                                                                
ACTING COMISSIONER  BUTCHER, referring to slide  6 which compares                                                               
Arctic Canada with Alaska, said  the point of Alberta's increased                                                               
royalty  percentages  to  government   plays  a  role.    Another                                                               
important  role  is  that  many   of  these  are  gas  wells  and                                                               
exploration will drop in the years  that the price of natural gas                                                               
drops.   Furthermore, many  of these gas  wells are  stranded gas                                                               
wells, which  resulted in an increase  in the pull back  in terms                                                               
of  the  number of  exploration  wells  drilled in  the  McKenzie                                                               
Delta.  It appears that the  jam in the regulations for wells has                                                               
been broken, and thus he expects  an increase in those numbers in                                                               
2011 and 2012.   He acknowledged that there are  a lot of reasons                                                               
that play  into the  aforementioned, including  the low  price of                                                               
gas and that the wells were stranded.                                                                                           
                                                                                                                                
2:48:55 PM                                                                                                                    
                                                                                                                                
ACTING  COMISSIONER BUTCHER,  returning  to the  comparison of  a                                                               
North Dakota well  and an Alaska well, pointed out  that the cost                                                               
of  doing  business in  Alaska  is  extremely  high.   Alaska  is                                                               
competing  for business  with other  companies, but  it's not  an                                                               
even playing  field as  prospects in Texas  and North  Dakota are                                                               
often located  on flat areas and  on private land with  plenty of                                                               
available manpower versus the geography  of Alaska with its state                                                               
and  federal land  ownership and  limited  manpower.   Therefore,                                                               
Alaska has to do more than North  Dakota or Texas and as a result                                                               
the amount of money that needs to  be made is more because of the                                                               
increased cost  of business in Alaska.   The cost of  business in                                                               
Alaska  will only  increase as  infrastructure will  be an  issue                                                               
because the [development] is further away from TAPS.                                                                            
                                                                                                                                
2:49:56 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON asked if North  Dakota gives a tax credit similar                                                               
to what Alaska gives.                                                                                                           
                                                                                                                                
ACTING  COMISSIONER BUTCHER  answered  that he  isn't aware  that                                                               
North Dakota offers such.                                                                                                       
                                                                                                                                
CO-CHAIR   SEATON  surmised   then  that   Alaska's  tax   credit                                                               
significantly  reduces   the  capital  costs  of   the  industry.                                                               
Furthermore,  the industry  has to  depreciate its  expenses over                                                               
time and hold them on the  books.  He asked if Alaska depreciates                                                               
the industry's expenses over time.                                                                                              
                                                                                                                                
ACTING  COMISSIONER  BUTCHER,  in further  response  to  Co-Chair                                                               
Seaton,   explained  that   Alaska  depreciates   the  industry's                                                               
expenses immediately, but  not over a long number of  years as do                                                               
many other states.                                                                                                              
                                                                                                                                
CO-CHAIR SEATON  clarified that Alaska  gives an  immediate write                                                               
off as well as a capital credit back.                                                                                           
                                                                                                                                
2:51:05 PM                                                                                                                    
                                                                                                                                
ACTING  COMISSIONER BUTCHER  highlighted  that  when one  reviews                                                               
where companies  put their  money, the  two biggest  ticket items                                                               
are the  price of  oil and  the tax  they must  pay.   He further                                                               
highlighted that  during the years  of the economic  limit factor                                                               
(ELF) industry experienced  low taxes and an  extremely low price                                                               
of oil, while  the passage of PPT and ACES  has corresponded with                                                               
extremely  high oil  prices.   In other  states, high  oil prices                                                               
corresponded  with  a  tremendous  increase  in  exploration  and                                                               
ultimately  an increase  in  the amount  of  production as  well.                                                               
However, that  is not  happening in  Alaska.   The aforementioned                                                               
arrives at  the discussion  of the capital  budget and  where the                                                               
money is  going.  He opined  that no one in  the capitol building                                                               
understands  what it's  like  to  fund a  state  budget with  the                                                               
extremely limited  number of  funds the  state had  when Governor                                                               
Parnell was the co-chair of  the Finance Committee when the price                                                               
of oil was  $9 per barrel.   The aforementioned is why  HB 110 is                                                               
the governor's priority.  "He  sees the dollar amounts that we've                                                               
been spending and the dollar amounts  that are of benefit to this                                                               
state to ...  grow the private sector economy and  he can see out                                                               
not that  many years  and see  the amount of  oil going  down the                                                               
pipeline  is going  to be  diminishing," he  opined.   Therefore,                                                               
Governor Parnell  would say these  slides are the reasons  why he                                                               
is bringing HB 110 forward.                                                                                                     
                                                                                                                                
2:53:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DICK observed that according  to slide 3 if Alaska                                                               
gives  up  $1  billion,  it  receives $25  million  in  terms  of                                                               
development.  "Something has to be wrong here," he remarked.                                                                    
                                                                                                                                
ACTING  COMISSIONER  BUTCHER explained  that  the  flow chart  on                                                               
slide  3 is  trying to  isolate what  potential amount  of money,                                                               
based on  a reduction in  oil taxes, would go  to ConocoPhillips.                                                               
He noted  that there is  much more  that plays into  that amount,                                                               
including the  price of oil,  the amount of  money ConocoPhillips                                                               
makes in that particular year, and  each year is different in and                                                               
of itself based  on the environment, and the  percentage of funds                                                               
that should go into exploration  and production or be returned to                                                               
the shareholders.   When  [ConocoPhillips] determines  the amount                                                               
of exploration production dollars, it  reviews the situation at a                                                               
global  scale.   In conversations  with the  department, industry                                                               
has  said  that  HB  110  makes a  material  change  in  how  the                                                               
boardrooms  would  view  Alaska   in  terms  of  development  and                                                               
exploration  funds.   He acknowledged  that  the industry  hasn't                                                               
related a  quid pro  quo scenario, but  that never  was expected.                                                               
Great  Bear and  Armstrong  have given  specific testimony  about                                                               
where they think  it would go if HB 110  passes, while the bigger                                                               
industry guys have said they believe  HB 110 is a material change                                                               
that  will make  a difference.   He  allowed that  such testimony                                                               
isn't a  promise of a  specific amount  of dollars, but  they are                                                               
saying there will be an effect  from HB 110.  Acting Commissioner                                                               
Butcher  stressed   that  Governor  Parnell   wouldn't  introduce                                                               
legislation  that he  would expect  to cost  the state  billions.                                                               
Governor  Parnell views  HB 110  as a  short-term investment  for                                                               
long-term gain for the state.                                                                                                   
                                                                                                                                
2:57:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GARDNER  recalled that Acing  Commissioner Butcher                                                               
said that  the two critical  factors in investment  decisions for                                                               
the  industry are  the  price of  oil and  the  amount of  taxes.                                                               
However,  she said  that in  the six  years she's  been following                                                               
this  issue, she's  never heard  anyone else  cite the  amount of                                                               
taxes as a critical factor.   Therefore, she questioned where the                                                               
data is regarding the impacts of the tax rate.                                                                                  
                                                                                                                                
ACTING COMISSIONER BUTCHER pointed out  that he isn't speaking as                                                               
an employee of an oil company,  something that he has never been,                                                               
but rather  as a [state  employee] who reviews where  the largest                                                               
chunks of money  are going.  The largest chunks  of money come in                                                               
based on  the price  of oil  and the biggest  chunk going  out is                                                               
production tax,  which is more  than credits, more  than property                                                               
tax, more than anything.                                                                                                        
                                                                                                                                
REPRESENTATIVE  GARDNER  agreed that's  the  case  for the  state                                                               
perspective, but  these are  mostly multinational  companies with                                                               
larger  volumes than  the State  of Alaska.   She  said that  she                                                               
hasn't seen  the data [to  support Acting  Commissioner Butcher's                                                               
statements].  However, she said she  has seen data that under ELF                                                               
when  there  was  virtually  zero severance  tax,  there  was  no                                                               
investment.   Therefore,  she questioned  drawing the  conclusion                                                               
that  an increase  in severance  tax  has caused  the slowing  of                                                               
investment.                                                                                                                     
                                                                                                                                
ACTING  COMISSIONER BUTCHER  noted that  the point  at which  the                                                               
state's  taxes  increased  is  the  point  at  which  oil  prices                                                               
increased.  Of  course, one won't know what the  state would look                                                               
like  had  that  not  occurred.   He  said  [the  administration]                                                               
doesn't  view  HB 110  as  completely  changing ACES  but  rather                                                               
making changes  to ACES that  are in the best  long-term interest                                                               
of the state.                                                                                                                   
                                                                                                                                
2:59:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON observed that the  summary of Amendment                                                               
9 from  Legislative Legal and Research  Services mentions revenue                                                               
sharing,  an issue  that hasn't  been  mentioned during  previous                                                               
deliberations  of HB  110.   She requested  clarification on  the                                                               
[impact] to revenue sharing under HB 110 versus Amendment 9.                                                                    
                                                                                                                                
ACTING COMISSIONER BUTCHER estimated that  an oil price of $59 or                                                               
more  per  barrel would  be  necessary  to maintain  the  revenue                                                               
sharing fund  at full  level.  The  DOR's long-term  forecast for                                                               
oil price is  far in excess of $59 per  barrel; thus, DOR doesn't                                                               
expect it to be an issue.   In further response to Representative                                                               
P. Wilson,  he clarified that the  price of oil would  need to be                                                               
$59  per barrel  to  fully fund  the revenue  sharing  fund.   He                                                               
further  clarified   that  the  revenue  sharing   fund  isn't  a                                                               
dedicated  fund  but rather  a  designated  fund from  which  the                                                               
legislature appropriates funds.   Therefore, if the  price of oil                                                               
dropped to  $20 per  barrel, the  fund's balance  would decrease.                                                               
Still the legislature could appropriate money from the GF.                                                                      
                                                                                                                                
REPRESENTATIVE  P. WILSON  then inquired  as to  how Amendment  9                                                               
would affect the revenue sharing fund.                                                                                          
                                                                                                                                
ACTING COMISSIONER BUTCHER answered  that in real terms Amendment                                                               
9  wouldn't affect  the revenue  sharing fund  at all.   Although                                                               
Amendment  9 would  eliminate the  15 percent  interest rate  for                                                               
outside  exploration,  the brackets,  and  the  cap, it  wouldn't                                                               
impact revenue sharing.                                                                                                         
                                                                                                                                
3:02:24 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  interjected that HB  110 dedicates all  the tax,                                                               
the  base and  the progressivity,  to community  revenue sharing.                                                               
Therefore, under  HB 110 the  price per barrel  of oil has  to be                                                               
$59  and 20  percent of  the entire  amount of  the base  tax and                                                               
progressivity  has to  be  taken just  to  fund revenue  sharing.                                                               
However, ACES funds revenue sharing  with progressivity only.  He                                                               
maintained that  there is quite  a difference  between [Amendment                                                               
9] and HB 110.                                                                                                                  
                                                                                                                                
ACTING COMISSIONER BUTCHER  stated that HB 110 includes  a cap of                                                               
$60 million  for the revenue  sharing fund.  Therefore,  once the                                                               
revenue sharing  fund reaches  $60 million  that's all  the funds                                                               
that are placed in the fund.                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  disagreed, adding that  the structure of  HB 110                                                               
requires  that 20  percent  of  all oil  taxes,  whether base  or                                                               
progressivity,  be   placed  into   the  revenue   sharing  fund.                                                               
However,  ACES  is  structured  such   that  20  percent  of  the                                                               
progressivity,  and none  of the  base, is  used to  fund revenue                                                               
sharing.                                                                                                                        
                                                                                                                                
3:04:18 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON [recessed] the meeting until 3:30 p.m.                                                                          
                                                                                                                                
3:51:40 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON called  the House  Resources Standing  Committee                                                               
meeting back  to order.   Representatives Seaton,  Feige, Herron,                                                               
P.  Wilson,  Dick,  Kawasaki, Gardner,  Foster,  and  Munoz  were                                                               
present at the call back to order.                                                                                              
                                                                                                                                
3:51:59 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON continued  with addressing Amendment 9.   He drew                                                               
attention to the Department of  Revenue's 2/28/11 response to the                                                               
committee's question  on the  oil price that  would be  needed to                                                               
generate $60 million for community  revenue sharing under HB 110.                                                               
He read the last two paragraphs of page 1 which state:                                                                          
                                                                                                                                
     Under  current   law,  AS  43.55.011(g)   contains  the                                                                    
     progressivity surcharge  for the  production tax,  so a                                                                    
     progressivity surcharge of  at least $300,000,000 after                                                                    
     application of credits would be  required to fully fund                                                                    
     community  revenue  sharing  with the  maximum  of  $60                                                                    
     million ($300,000,000 x 20% = $60,000,000).                                                                                
                                                                                                                                
     Under  HB  110,  the   "base  tax"  and  "progressivity                                                                    
     surcharge" are replaced with a  series of bracket which                                                                    
     are all  contained in AS  43.55.011(g).  Since  all tax                                                                    
     revenue under  HB 110 is  included in .011(g),  a total                                                                    
     tax   liability   of   at  least   $300,000,000   after                                                                    
     application of credits would be  required to fully fund                                                                    
     community  revenue  sharing  with the  maximum  of  $60                                                                    
     million.                                                                                                                   
                                                                                                                                
CO-CHAIR SEATON said the aforementioned  means it would take $300                                                               
million of all of the state's  taxes to generate this $60 million                                                               
under HB  110.   However, the information  he has  indicates that                                                               
under HB 110  an oil price of  $89 a barrel would  be required to                                                               
generate the $60 million from only the progressivity.                                                                           
                                                                                                                                
3:54:11 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  directed attention  to page 1  of an  article in                                                               
Petroleum  News  provided  by   Representative  Hawker  [week  of                                                             
2/27/11, Vol.  16, No.  9] which  reports that  ConocoPhillips is                                                               
proposing  to increase  its capital  budget to  $900 million  for                                                               
Alaska this year,  up from the $854 million that  it budgeted for                                                               
2010.   He further noted that  page 2 of the  article states that                                                               
ConocoPhillips is increasing  its spending for the  Lower 48 from                                                               
$1.8 billion  spent in  2010 to  a budget of  $3.3 billion.   For                                                               
overseas  exploration and  projects, ConocoPhillips  is budgeting                                                               
$7.1 billion, up from $5.9 billion spent in 2010.                                                                               
                                                                                                                                
3:55:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON requested the Department  of Revenue to                                                               
explain the  three bulleted items  on page 2 of  the department's                                                               
aforementioned 2/28/11 response.                                                                                                
                                                                                                                                
ACTING  COMISSIONER BUTCHER  explained that  these items  are the                                                               
assumptions  the  department  made   to  answer  the  committee's                                                               
revenue sharing  question.   One assumption was  a total  cost of                                                               
$30 per barrel for transportation,  operating, and capital costs,                                                               
which is the  cost that it has been  for the last year or  so.  A                                                               
second   assumption  was   that  100   percent  of   the  capital                                                               
[expenditures] are  eligible for  the 20 percent  capital credit.                                                               
A third  assumption was  that 50 percent  of the  [total] capital                                                               
expenditures  are  eligible for  an  additional  20 percent  well                                                               
credit.  When looking at  these assumptions based on today, about                                                               
$57 per barrel would  be needed to fill the fund  to a maximum of                                                               
$60 million.   Anything above $60  million would not go  into the                                                               
fund because it is capped at $60 million.                                                                                       
                                                                                                                                
3:57:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P. WILSON  asked  how that  compares  to what  it                                                               
takes right now.                                                                                                                
                                                                                                                                
ACTING  COMISSIONER  BUTCHER   replied  that  the  aforementioned                                                               
assumptions were  provided by the  chairmen.  Under  current law,                                                               
the funding  comes only from  the progressivity piece of  the tax                                                               
as opposed  to the entire tax,  but it is capped  at $60 million.                                                               
Whether under HB 110 or current  law, the revenue has been far in                                                               
excess of the money needed to fill the fund to its maximum.                                                                     
                                                                                                                                
3:58:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P.  WILSON  surmised it  is  Acting  Commissioner                                                               
Butcher's opinion that HB 110  would not affect community revenue                                                               
sharing.                                                                                                                        
                                                                                                                                
ACTING COMISSIONER BUTCHER responded  that, based upon its future                                                               
forecasts, the department foresees no effect.                                                                                   
                                                                                                                                
CO-CHAIR FEIGE  said it is  apparent to  him that there  would be                                                               
$60 million in revenue sharing either way.                                                                                      
                                                                                                                                
ACTING COMISSIONER BUTCHER concurred.                                                                                           
                                                                                                                                
CO-CHAIR  SEATON agreed  that is  correct, but  pointed out  that                                                               
when the revenue sharing formula  was established the legislature                                                               
specified that it be from progressivity,  not all of the oil tax,                                                               
and if the  progressivity did not fill up the  fund then it would                                                               
need to  come as an allocation  from the general fund.   Under HB                                                               
110 the progressivity and the base  oil tax would be put together                                                               
to fund the revenue sharing.                                                                                                    
                                                                                                                                
3:59:55 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE drew attention to the  bottom of page 2 and top of                                                               
page  3 of  the aforementioned  Petroleum News  article in  which                                                             
ConocoPhillips  spokeswoman   Natalie  Lowman  stated   that  her                                                               
company's actual  2010 spending  was the lowest  since 2007.   He                                                               
read a further statement by  Ms. Lowman: "The 2011 capital budget                                                               
includes  contingency funding  if  we are  successful in  getting                                                               
improvements  in State  fiscal  terms,  and resolving  permitting                                                               
issues  with Alpine  satellites."   He interpreted  this to  mean                                                               
that if  ConocoPhillips gets  better fiscal  terms it  will spend                                                               
all of  that $900  million, but if  it does not  then it  will be                                                               
more like last year's number of $730 million.                                                                                   
                                                                                                                                
CO-CHAIR SEATON agreed  that Co-Chair Feige is  correct, and that                                                               
the budgeted amount  of $854 million was probably  not spent last                                                               
year because of permitting issues with the Alpine satellites.                                                                   
                                                                                                                                
CO-CHAIR FEIGE  noted that ConocoPhillips also  said state fiscal                                                               
terms.                                                                                                                          
                                                                                                                                
4:01:38 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KAWASAKI  remarked  that Ms.  Lowman's  statement                                                               
sounds more like extortion to him.   He related that according to                                                               
the  Fraser  [Institute's  "Global Petroleum  Survey  2010"]  the                                                               
jurisdiction of  Libya has corruption, hostile  environment, very                                                               
high  taxation,  employment   laws,  unfavorable  profit  sharing                                                               
agreement terms and conditions,  no stability, and much political                                                               
interference.  The  survey puts Libya in the  4th quintile, which                                                               
is  worse than  Alaska,  yet between  2008 and  2010  BP spent  a                                                               
billion dollars  in Libya; additionally, ConocoPhillips  also has                                                               
significant  investment in  that  area.   He therefore  requested                                                               
that  the  acting commissioner  explain  what  he meant  when  he                                                               
stated that  the price of  oil and  taxes are the  primary things                                                               
that a company looks at when investing in a jurisdiction.                                                                       
                                                                                                                                
ACTING COMISSIONER  BUTCHER reiterated  that he has  never worked                                                               
for an oil  company and said his statement was  his opinion based                                                               
on his view from a State  of Alaska perspective.  He agreed there                                                               
are numerous things that are major  factors at play.  However, he                                                               
was making the  point that in his opinion the  two biggest pieces                                                               
are the cost of  oil and the cost of production  tax in the state                                                               
of  Alaska, which  is a  cost far  higher than  any of  the other                                                               
taxes that are levied on the industry.                                                                                          
                                                                                                                                
4:04:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI  said he would  like to have more  than a                                                               
personal  opinion, given  that the  state  would be  taking a  $2                                                               
[billion] hit.   He further related that according  to the Fraser                                                               
survey, Alaska's  quality of infrastructure  is better  than that                                                               
of Libya and only nominally less than Egypt's infrastructure.                                                                   
                                                                                                                                
ACTING  COMISSIONER BUTCHER  allowed  that Alaska  is  in a  good                                                               
position in  terms of  infrastructure.   However, he  pointed out                                                               
that  much of  the  oil yet  to be  discovered  and developed  is                                                               
farther  and  farther  away from  infrastructure,  so  Alaska  is                                                               
becoming  more  challenged in  its  infrastructure  as time  goes                                                               
along.   He deferred to industry  to answer this question  from a                                                               
global perspective.                                                                                                             
                                                                                                                                
REPRESENTATIVE KAWASAKI  contended that  using the $2  billion to                                                               
instead build  roads across the  NPR-A and ports in  northern and                                                               
southwest Alaska  would be a  more sound investment and  make the                                                               
state more competitive with the rest of the world.                                                                              
                                                                                                                                
ACTING   COMISSIONER  BUTCHER   agreed   those   would  be   wise                                                               
investments  and said  that is  the main  reason the  governor is                                                               
pursuing this  legislation.  It  is unknown what  specific amount                                                               
of oil  will shut  down the  Trans-Alaska Pipeline  System (TAPS)                                                               
and when  that will  be, but  the entire  focus of  HB 110  is to                                                               
increase investment, increase  production, and get to  a point in                                                               
the long term where everything discussed  can be funded.  He said                                                               
the fear is  that the state may  not have the funds  to take care                                                               
of these needs in 10-15 years.                                                                                                  
                                                                                                                                
4:07:01 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE  related that he was  told the state would  lose a                                                               
little over $600 million the  first year because the proposed tax                                                               
change would go into effect halfway  through a fiscal year and in                                                               
the second year it  would be a little over $1  billion.  He asked                                                               
for an  explanation of  the figure of  $1.7-$2.2 billion  in loss                                                               
and why it  is different than what was presented  in the original                                                               
briefing.                                                                                                                       
                                                                                                                                
ACTING COMISSIONER BUTCHER  answered that the figures  are in the                                                               
department's fiscal  note, but they  are not added together  as a                                                               
total in  the fiscal note.   However, the committee  was provided                                                               
with a  spreadsheet last week  that does  add them together.   He                                                               
said the  department estimates [a  loss of] $100-$200  million in                                                               
FY 2012, which would be from  shifting the credits from two years                                                               
to one year,  and while this would  be a hit in FY  2013 it would                                                               
be that much  less of a hit  in FY 2013.  The  reductions seen by                                                               
the department  are:  $500-$782  million in FY  2013, $1.16-$1.36                                                               
billion in FY  2014, $1.32-$1.52 billion in  FY 2015, $1.54-$1.74                                                               
billion in  FY 2016,  and $1.62-$1.8  billion in  2017.   He said                                                               
this is  half of the equation  because it does not  factor in the                                                               
amount of  new production that  the department believes  would be                                                               
coming on  in the latter half  of those fiscal years  as a result                                                               
of increased investment and increased production.                                                                               
                                                                                                                                
CO-CHAIR FEIGE inquired whether those numbers are high.                                                                         
                                                                                                                                
ACTING  COMISSIONER BUTCHER  said those  are numbers  higher than                                                               
the Department of Revenue computed for its fiscal note.                                                                         
                                                                                                                                
4:09:48 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON  asked  whether  the fiscal  note  includes  the                                                               
difference that would  be seen in the  windfall profit volatility                                                               
given that HB  110 would be annual and current  law under ACES is                                                               
monthly.                                                                                                                        
                                                                                                                                
BRUCE TANGEMAN, Deputy Commissioner,  Office of the Commissioner,                                                               
Department  of Revenue,  responded  that the  department uses  an                                                               
annual oil price  projection in its Revenue  Sources Book, rather                                                             
than  taking  into account  a  month-to-month  volatility in  oil                                                               
price.   In 2008, oil  prices varied from  high to low  in price,                                                               
but that volatility  was not there in 2009 and  2010.  He allowed                                                               
the co-chair is correct that there  can be huge swings in a year,                                                               
but said the department does not forecast or project that.                                                                      
                                                                                                                                
CO-CHAIR  SEATON  inquired   whether  the  acting  commissioner's                                                               
statement was  accurate that the monthly  calculation of windfall                                                               
profits under ACES ranged from $100-$400 million.                                                                               
                                                                                                                                
MR. TANGEMAN answered he thinks that  was a snapshot and could be                                                               
a possibility, just  like those swings would not be  seen in 2009                                                               
and 2010 because the price of  oil was steady from month to month                                                               
throughout the year.                                                                                                            
                                                                                                                                
4:12:32 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  said that if  the $100  million is added  to the                                                               
$1.6 billion and  the $400 million is added to  the $1.8 billion,                                                               
the  range  would be  $1.7-$2.2  billion,  which encompasses  the                                                               
range  being  talked about  when  comparing  the proposed  annual                                                               
calculation of progressivity under HB  110 to the current monthly                                                               
calculation of  progressivity under ACES which  captures windfall                                                               
profits.                                                                                                                        
                                                                                                                                
MR.  TANGEMAN  replied the  co-chair  is  correct.   He  said  he                                                               
believes that the year for  which the $400 million was calculated                                                               
had a  price per barrel of  $140 at the  high end and a  price of                                                               
$40 at the low end five months later.                                                                                           
                                                                                                                                
CO-CHAIR  SEATON  added  that  he   does  not  think  anyone  can                                                               
speculate whether  the price of oil  is going to surge  to $200 a                                                               
barrel or dive  to $70; therefore, a range must  be looked at and                                                               
this is where the aforementioned numbers come from.                                                                             
                                                                                                                                
CO-CHAIR FEIGE  said he thinks  it unusual  to use the  year that                                                               
had probably the greatest fluctuation  of oil price in history as                                                               
a basis for adding to what  the Department of Revenue has already                                                               
considered to be a much lower reduction in revenue to the state.                                                                
                                                                                                                                
CO-CHAIR SEATON  related that the  Department of Revenue  said it                                                               
was going to leave the volatility  of oil out of the calculation.                                                               
However, price volatility is what  is seen in the state's history                                                               
and  is why  calculation of  windfall  profit over  the range  of                                                               
volatility should  be included.   The aforementioned  numbers are                                                               
based on the ranges from past history.                                                                                          
                                                                                                                                
4:15:47 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON,  wrapping up  the  discussion  on Amendment  9,                                                               
submitted that the reality of  past history is the most important                                                               
thing to  look at.   In the past  the companies have  never taken                                                               
the expected  responses to  oil price or  to the  three different                                                               
tax regimes,  so it  cannot be  expected that  they would  have a                                                               
different response to  HB 110.    He said it appears  to him that                                                               
there was a  corporate model for development of  these fields and                                                               
the data [on  AOGCC slide 10] show that this  corporate model was                                                               
being followed  regardless of  price or tax.   The  resource risk                                                               
must be  looked at.  The  resource issues that will  be addressed                                                               
if the state has surpluses  are roads to resources, bullet lines,                                                               
community  revenue sharing,  and the  transportation fund.   Past                                                               
history shows that  these things will not be done  if there is no                                                               
surplus  and  that is  where  the  state will  be  if  HB 110  is                                                               
enacted.                                                                                                                        
                                                                                                                                
4:18:15 PM                                                                                                                    
                                                                                                                                
A roll call  vote was taken.   Representatives Gardner, Kawasaki,                                                               
and  Seaton  voted in  favor  of  Amendment 9.    Representatives                                                               
Herron, Munoz, Foster, Wilson, Dick,  and Feige voted against it.                                                               
Therefore, Amendment 9 failed by a vote of 3-6.                                                                                 
                                                                                                                                
4:19:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON  noted that  he likes  the idea  of putting                                                               
incentives  into  the  portion  of  the  bill  related  to  small                                                               
exploration  companies.   Of course,  he allowed,  the production                                                               
side of the  bill is where the  debate is.  He  said his concerns                                                               
with HB  110 are  that the [15  percent tax rate]  is too  low to                                                               
give  his constituents  a fair  share of  the income  and the  25                                                               
percent tax rate  is too high to encourage production.   He urged                                                               
that  at some  point the  committee instead  consider a  base tax                                                               
rate of 20 percent.                                                                                                             
                                                                                                                                
4:20:58 PM                                                                                                                    
                                                                                                                                
The committee took an at-ease from 4:20 p.m. to 4:25 p.m.                                                                       
                                                                                                                                
4:25:45 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON moved  that the  committee  adopt Amendment  10,                                                               
labeled 27-GH1007\A.45, Bullock, 2/28/11, which read:                                                                           
                                                                                                                                
     Page 1, lines 3 - 4:                                                                                                       
          Delete "relating to monthly installment payments                                                                    
     of estimated oil and gas production tax;"                                                                                
                                                                                                                                
     Page 1, line 7:                                                                                                            
          Delete "relating to the determination of oil and                                                                    
     gas production tax values;"                                                                                              
                                                                                                                                
     Page 3, lines 3 - 19:                                                                                                      
          Delete all material and insert:                                                                                       
        "* Sec. 6. AS 43.55.011(e) is amended to read:                                                                      
          (e)  There is levied on the producer of oil or                                                                        
     gas a  tax for all  oil and gas produced  each calendar                                                                    
     year from  each lease  or property  in the  state, less                                                                    
     any  oil and  gas the  ownership or  right to  which is                                                                    
     exempt  from  taxation  or  constitutes  a  landowner's                                                                    
     royalty  interest. Except  as otherwise  provided under                                                                    
     (f),  (j), (k),  and (o)  of this  section, the  tax is                                                                    
     equal to the sum of                                                                                                        
               [(1)]  the annual production tax value of                                                                        
     the taxable oil and gas produced from                                                                                  
               (1)  a lease or property containing land                                                                     
     that, as  of December 31,  2010, was or  had previously                                                                
     been  within  a unit  or  in  commercial production  as                                                                
     calculated  under AS 43.55.160(a)(1)  multiplied by  25                                                                    
     percent, and the sum, over all months of the calendar                                                                  
     year, of the tax amounts determined under (g) of this                                                                  
     section; and                                                                                                           
               (2)  a lease or property not described in                                                                    
     (1)   of   this   subsection,   as   calculated   under                                                                
     AS 43.55.160(a)(1)  multiplied by  15 percent,  and the                                                                
     sum, over all  months of the calendar year,  of the tax                                                                    
     amounts determined under (g) of this section."                                                                             
                                                                                                                                
     Page 4, line 11, through page 8, line 8:                                                                                   
          Delete all material.                                                                                                  
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 13, line 8, through page 15, line 15:                                                                                 
          Delete all material.                                                                                                  
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 16, line 8:                                                                                                           
          Delete "Sections 11, 12, 15, and 16"                                                                                  
          Insert "Sections 9, 10, 13, and 14"                                                                                   
                                                                                                                                
     Page 16, line 10:                                                                                                          
          Delete "Sections 6 - 9 and 20"                                                                                        
          Insert "Sections 6 and 7"                                                                                             
                                                                                                                                
     Page 16, line 12:                                                                                                          
          Delete "Section 19"                                                                                                   
          Insert "Section 17"                                                                                                   
                                                                                                                                
     Page 16, line 20:                                                                                                          
          Delete "Sections 11, 12, 14 - 18, 24, and 25(a)"                                                                      
          Insert "Sections 9, 10, 12 - 16, 21, and 22(a)"                                                                       
                                                                                                                                
     Page 16, line 21:                                                                                                          
          Delete "Sections 6 - 9, 20, and 25(b)"                                                                                
          Insert "Sections 6, 7, and 22(b)"                                                                                     
                                                                                                                                
     Page 16, line 22:                                                                                                          
          Delete "Sections 19 and 25(c)"                                                                                        
          Insert "Sections 17 and 22(c)"                                                                                        
                                                                                                                                
     Page 16, line 23:                                                                                                          
          Delete "secs. 27 - 29"                                                                                                
          Insert "secs. 24 - 26"                                                                                                
                                                                                                                                
REPRESENTATIVE P. WILSON objected for discussion purposes.                                                                      
                                                                                                                                
4:25:59 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON   stated  that  the  conceptual   amendment  for                                                               
Amendment 10 in  the committee packet is replaced  by this formal                                                               
amendment  from  Legislative Legal  and  Research  Services.   He                                                               
explained  that Amendment  10 would  leave the  base rates  of 25                                                               
percent for old oil and 15  percent for new oil, but would delete                                                               
the  bracketed progressivity  so that  it remains  as in  current                                                               
statute.   Amendment 10 would  also delete the annual  payment of                                                               
progressivity so that it remains  as in current statute, which is                                                               
a  monthly  calculation.   The  purpose  of keeping  the  monthly                                                               
calculation is to capture windfall profits.   A few years ago the                                                               
state captured  a lot of windfall  profits when the price  of oil                                                               
went  to  $144  a  barrel,  but  Alaska's  economy  was  severely                                                               
affected by  the huge escalation in  fuel prices.  If  oil prices                                                               
peak again,  Alaska's economy will  be affected again, too.   The                                                               
windfall  profit  tax  would  cushion   the  Alaska  economy  and                                                               
preclude  the  state from  having  to  dip  into its  savings  to                                                               
address rural and urban problems arising from that price spike.                                                                 
                                                                                                                                
4:28:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON requested that Amendment  10 be divided                                                               
so that the provision for  deleting the annual average payment of                                                               
progressivity could be a separate question.                                                                                     
                                                                                                                                
CO-CHAIR SEATON agreed this could be  done but said it may not be                                                               
beneficial because if  the committee were to  leave the bracketed                                                               
progressivity  there would  be very  little difference  between a                                                               
monthly and  annual calculation  of the  progressivity.   This is                                                               
because bracketed  progressivity would  generate much  less money                                                               
than does the  [current] method of calculation which  is based on                                                               
the entire price of a barrel of oil.                                                                                            
                                                                                                                                
REPRESENTATIVE  P.  WILSON  withdrew  her  request  and  inquired                                                               
whether the  co-chair is saying  that the  tax would be  the same                                                               
all the way along rather than bracketed.                                                                                        
                                                                                                                                
CO-CHAIR SEATON responded  that it is not all the  way along.  It                                                               
is not like  income tax where there are different  rates, it is a                                                               
sales tax  based on the  price of  a barrel of  oil.  So,  if the                                                               
price per barrel is $60, one rate  is paid, if the barrel is $90,                                                               
another rate  is paid; thus  it is  a single rate  throughout the                                                               
barrel.    Amendment  10 would  keep  the  current  progressivity                                                               
system so that it would not  be changed to the proposed bracketed                                                               
system.                                                                                                                         
                                                                                                                                
REPRESENTATIVE  P.  WILSON  concluded  that  the  answer  to  her                                                               
question was yes.                                                                                                               
                                                                                                                                
CO-CHAIR SEATON agreed.                                                                                                         
                                                                                                                                
4:32:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KAWASAKI,  in  regard  to the  debate  on  annual                                                               
versus monthly  calculation, asked  how other taxing  regimes and                                                               
countries capture windfall profits.                                                                                             
                                                                                                                                
ACTING COMISSIONER BUTCHER  answered that he is not  aware of any                                                               
countries  and  states  that   have  anything  that  approximates                                                               
Alaska's progressivity windfall tax.   Many have a gross tax; for                                                               
example, North Dakota  has a 10 percent gross  tax, which factors                                                               
lower in effective tax.                                                                                                         
                                                                                                                                
REPRESENTATIVE KAWASAKI inquired which  countries use a month-to-                                                               
month payment versus an annualized payment.                                                                                     
                                                                                                                                
ACTING COMISSIONER  BUTCHER replied that  Alaska is the  only one                                                               
he knows of.                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON interjected that  many of the other jurisdictions                                                               
have  a  profit  sharing  type  of  arrangement.    For  example,                                                               
Indonesia  receives  85 percent  of  each  barrel of  oil,  Libya                                                               
receives  88 percent  from Petro-Canada,  and Norway  receives 78                                                               
percent regardless of  the price per barrel.  So,  in those cases                                                               
it is a gross tax rather than a  tax on the profit.  All of these                                                               
tax regimes  have very different  structures, so it  is extremely                                                               
difficult to  compare just  one item between  them.   He presumed                                                               
that all of  the countries with profit sharing do  not wait until                                                               
the  end of  the year  to  receive the  taxes and  that they  are                                                               
probably paid  on a daily  basis since a  share of the  oil stays                                                               
with the company and a share with the country.                                                                                  
                                                                                                                                
4:35:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI  said he  wants more information  to know                                                               
why a  change in Alaska's current  law is necessary and  what the                                                               
comparisons are to  other countries.  He inquired  why the change                                                               
is  being  proposed if  there  is  uncertainty about  what  other                                                               
countries do.                                                                                                                   
                                                                                                                                
ACTING  COMISSIONER BUTCHER  responded that  in discussions  with                                                               
the  larger producers  in Alaska  as well  as the  companies that                                                               
were once in  Alaska, essentially every one  complained about the                                                               
high  marginal tax  rate -  the  high progressivity  rate -  that                                                               
exists  in   Alaska.    Those  discussions   indicated  no  other                                                               
jurisdictions, but since  he does not know if that  is really the                                                               
case he  will not  say it.   There  is a  tremendous cost  in the                                                               
number  of dry  wells.    For example,  Shell  is approaching  $4                                                               
billion  of investment  into the  outer continental  shelf (OCS),                                                               
which  it hopes  will become  something.   Industry looks  at the                                                               
high end as  an opportunity to recoup  some of what is  lost in a                                                               
very  speculative business  and that  is one  of the  main pieces                                                               
industry  points to  when  saying  that it  is  difficult to  get                                                               
partners and exploration dollars for Alaska.                                                                                    
                                                                                                                                
4:36:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KAWASAKI  proffered  then  that  the  source  for                                                               
making this significant  change to Alaska's tax code  is that the                                                               
industry has said so.                                                                                                           
                                                                                                                                
ACTING  COMISSIONER  BUTCHER  said  that   is  not  true.    [The                                                               
department] has looked across many  jurisdictions and each one is                                                               
different and everything involved must  be weighed.  For example,                                                               
Alberta has  only a royalty and  no production tax, and  has been                                                               
going  through  something  similar  to  Alaska.    It  becomes  a                                                               
recurring theme  when more than  just one company is  letting its                                                               
leases go.  With these high oil  prices, look at what is going on                                                               
with exploration almost everywhere but in Alaska.                                                                               
                                                                                                                                
REPRESENTATIVE  KAWASAKI understood  that it  is unknown  whether                                                               
any  other jurisdiction  has monthly  payment that  would capture                                                               
windfall profit.                                                                                                                
                                                                                                                                
ACTING COMISSIONER BUTCHER answered correct.                                                                                    
                                                                                                                                
4:37:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HERRON asked  whether  20 percent  would work  on                                                               
[page  1] line  20, of  Amendment 10.   In  response to  Co-Chair                                                               
Seaton, he  confirmed that this  suggestion would lower  the base                                                               
tax rate from 25 percent to 20 percent.                                                                                         
                                                                                                                                
ACTING  COMISSIONER  BUTCHER  responded that  the  administration                                                               
likes this particular aspect of the bill as currently written.                                                                  
                                                                                                                                
4:38:59 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE understood  that  Amendment 10  would remove  the                                                               
proposed bracketed progressive  tax so that the tax  would be the                                                               
base rate plus progressivity in a straight line.                                                                                
                                                                                                                                
CO-CHAIR SEATON  replied that the progressivity  would be exactly                                                               
as it is  currently calculated, except there would be  a new base                                                               
rate  of  15 percent  for  new  oil.    In further  response,  he                                                               
confirmed that  the progressivity under  Amendment 10 would  be a                                                               
smooth line instead of a bracketed amount.                                                                                      
                                                                                                                                
CO-CHAIR FEIGE  asked whether the  proposed cap  on progressivity                                                               
would  remain  under Amendment  10.    He reminded  members  that                                                               
several companies  and the Department  of Revenue  testified that                                                               
the current  increase in progressivity  as the price of  oil goes                                                               
higher severely limits Alaska's  competitiveness because it makes                                                               
for no profit at higher oil prices.                                                                                             
                                                                                                                                
CO-CHAIR SEATON answered  he does not think  anyone has testified                                                               
that there  is no  profit in  it, but rather  that there  is less                                                               
profit than can be made in  certain other jurisdictions.  He said                                                               
there  may  be a  declining  profit  margin,  but that  there  is                                                               
increasing amount  of profit throughout  the entire range,  as he                                                               
understands it.                                                                                                                 
                                                                                                                                
4:40:20 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE  maintained that the current  smooth progressivity                                                               
curve  has essentially  no cap  on it,  so at  higher oil  prices                                                               
there  is far  less profit  to be  made in  Alaska than  in other                                                               
places.    The  proposed  cap under  the  governor's  bill  would                                                               
provide  more  profit at  higher  oil  prices, which  would  make                                                               
Alaska more competitive.                                                                                                        
                                                                                                                                
CO-CHAIR SEATON responded that there is a cap at 75 percent.                                                                    
                                                                                                                                
ACTING  COMISSIONER BUTCHER  explained  that the  75 percent  cap                                                               
kicks in  at $342.  He  said he believes that  Amendment 10 would                                                               
keep progressivity  exactly as it  exists under current  law, but                                                               
the 15 percent  [tax rate for new oil] would  remain in the bill.                                                               
The administration  opposes Amendment 10 because  it would remove                                                               
the bracketing, which is a central piece of HB 110.                                                                             
                                                                                                                                
4:41:49 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE  noted that Amendment  1, passed by  the committee                                                               
on 2/25/11, amended the date and  changed some of the language in                                                               
the current  version of  the bill.   He  offered his  belief that                                                               
Amendment  10 would  remove those  changes as  well, thus  taking                                                               
away  some of  the  exploration incentives  for  lands that  were                                                               
unitized on 12/31/08 but did not have any production.                                                                           
                                                                                                                                
CO-CHAIR  SEATON  said   that  was  not  what   was  directed  of                                                               
Legislative Legal and Research Services.                                                                                        
                                                                                                                                
CO-CHAIR FEIGE  observed that  [line 8  of Amendment  10] directs                                                               
that all material  on page 3, lines 3-19, of  the bill be deleted                                                               
and that  the section [beginning on  line 10 of Amendment  10] be                                                               
inserted.   Thus, he believes  it would delete an  amendment that                                                               
the committee has already put in.                                                                                               
                                                                                                                                
CO-CHAIR SEATON replied that Amendment  10 would delete a section                                                               
in the  original version of  the bill,  not the original  bill as                                                               
amended.                                                                                                                        
                                                                                                                                
CO-CHAIR  SEATON,  concluding  the discussion  on  Amendment  10,                                                               
reiterated  that the  effect of  Amendment 10  would be  to leave                                                               
progressivity as  it is under  the current law of  Alaska's Clear                                                               
and Equitable  Share (ACES), and  the base rates would  remain at                                                               
25 percent and 15 percent.                                                                                                      
                                                                                                                                
4:43:52 PM                                                                                                                    
                                                                                                                                
A roll call  vote was taken.   Representatives Gardner, Kawasaki,                                                               
and  Seaton voted  in  favor of  Amendment  10.   Representatives                                                               
Foster, Dick, P.  Wilson, Herron, Munoz, and  Feige voted against                                                               
it.  Therefore, Amendment 10 failed by a vote of 3-6.                                                                           
                                                                                                                                
4:44:36 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON withdrew Amendment 11.                                                                                          
                                                                                                                                
CO-CHAIR  SEATON moved  that the  committee  adopt Amendment  12,                                                               
labeled 27-GH1007\A.40, Bullock, 2/26/11, which read:                                                                           
                                                                                                                                
     Page 3, lines 3 - 19:                                                                                                      
          Delete all material and insert:                                                                                       
        "* Sec. 6. AS 43.55.011(e) is amended to read:                                                                      
          (e)  There is levied on the producer of oil or                                                                        
     gas a  tax for all  oil and gas produced  each calendar                                                                    
     year from  each lease  or property  in the  state, less                                                                    
     any  oil and  gas the  ownership or  right to  which is                                                                    
     exempt  from  taxation  or  constitutes  a  landowner's                                                                    
     royalty  interest. Except  as otherwise  provided under                                                                    
       (f), (j), (k), and (o) of this section, the tax is                                                                       
     equal to the sum of                                                                                                        
               (1)  the annual production tax value of the                                                                      
    taxable    oil   and    gas    as   calculated    under                                                                     
     AS 43.55.160(a)(1) multiplied by 25 percent; and                                                                           
               (2) the annual production tax value of the                                                                   
     taxable    oil   and    gas    as   calculated    under                                                                
     AS 43.55.160(a)(1)   multiplied   by   the   tax   rate                                                                
     calculated [THE  SUM, OVER ALL  MONTHS OF  THE CALENDAR                                                                
     YEAR, OF THE TAX AMOUNTS  DETERMINED] under (g) of this                                                                    
     section."                                                                                                                  
                                                                                                                                
     Page 4, line 13:                                                                                                           
          Delete "(1) purposes of (e)(1)"                                                                                       
          Insert "purposes of (e)(2)"                                                                                           
                                                                                                                                
     Page 4, line 15:                                                                                                           
          Delete "(A)"                                                                                                          
          Insert "(1)"                                                                                                          
                                                                                                                                
     Page 4, line 17:                                                                                                           
          Delete "subject to (e)(1) of this section"                                                                            
                                                                                                                                
     Page 4, line 18:                                                                                                           
          Delete "(B)"                                                                                                          
          Insert "(2)"                                                                                                          
                                                                                                                                
     Page 4, line 21:                                                                                                           
          Delete "(D) of this paragraph"                                                                                        
          Insert "(4) of this subsection"                                                                                       
                                                                                                                                
     Page 4, line 22:                                                                                                           
          Delete "(C)"                                                                                                          
          Insert "(3)"                                                                                                          
                                                                                                                                
     Page 4, line 23:                                                                                                           
          Delete "(D) of this paragraph"                                                                                        
          Insert "(4) of this subsection"                                                                                       
                                                                                                                                
     Page 4, line 24:                                                                                                           
          Delete "(D)"                                                                                                          
          Insert "(4)"                                                                                                          
          Delete "(C) of this paragraph"                                                                                        
          Insert "(3) of this subsection"                                                                                       
                                                                                                                                
     Page 4, line 28:                                                                                                           
          Delete all material.                                                                                                  
                                                                                                                                
     Page 5, lines 4 - 25:                                                                                                      
          Delete all material.                                                                                                  
                                                                                                                                
     Page 6, line 2:                                                                                                            
          Delete "(A) - (D)"                                                                                                    
          Insert "(A) - (C)"                                                                                                    
                                                                                                                                
     Page 6, line 6:                                                                                                            
          Delete "sum"                                                                                                          
          Insert "total"                                                                                                        
                                                                                                                                
     Page 6, line 8, following "by":                                                                                            
          Insert "the sum of 25 percent and"                                                                                    
                                                                                                                                
     Page 6, line 9:                                                                                                            
          Delete "AS 43.55.011(g)(1)"                                                                                           
          Insert "AS 43.55.011(g)"                                                                                              
                                                                                                                                
     Page 6, line 13, following "by":                                                                                           
          Insert "the sum of 25 percent and"                                                                                    
                                                                                                                                
     Page 6, lines 15 - 19:                                                                                                     
          Delete all material.                                                                                                  
          Insert "AS 43.55.011(g); or"                                                                                          
                                                                                                                                
     Page 6, line 28, following "due";":                                                                                        
          Insert "and"                                                                                                          
                                                                                                                                
     Page 7, lines 5 - 14:                                                                                                      
          Delete all material.                                                                                                  
          Insert "the sum of 25 percent and the tax rate                                                                        
      calculated for the calendar year of production under                                                                      
     AS 43.55.011(g);"                                                                                                          
                                                                                                                                
     Page 13, lines 21 - 22:                                                                                                    
         Delete "and are subject to AS 43.55.011(e)(1)"                                                                         
                                                                                                                                
     Page 13, line 25:                                                                                                          
         Delete "subject to AS 43.55.011(e)(1) and are"                                                                         
                                                                                                                                
     Page 14, line 5:                                                                                                           
         Delete "and are subject to AS 43.55.011(e)(1)"                                                                         
                                                                                                                                
     Page 14, line 15, through page 15, line 5:                                                                                 
          Delete all material.                                                                                                  
                                                                                                                                
REPRESENTATIVE P. WILSON objected for discussion purposes.                                                                      
                                                                                                                                
4:45:22 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON explained  that Amendment 12 would  remove the 15                                                               
percent  base tax  rate  for  new oil,  but  would  leave the  25                                                               
percent rate  and the bracketed  progressivity as proposed  in HB                                                               
110.  He said  the reason for Amendment 12 is  that over time the                                                               
state's production tax would  decrease very significantly because                                                               
HB 110 has no sunset for  the 15 percent provision.  For example,                                                               
Great  Bear Petroleum  is projecting  that it  will be  producing                                                               
300,000 barrels, over half of the  state's oil, by 2017.  He said                                                               
the committee  has not  heard testimony  from new  explorers that                                                               
the 15 percent provision is essential.                                                                                          
                                                                                                                                
REPRESENTATIVE HERRON  asked what  Amendment 12  would do  to the                                                               
Department of Revenue's fiscal note.                                                                                            
                                                                                                                                
CO-CHAIR  SEATON answered  that he  believes it  would have  very                                                               
little impact on  the fiscal note because the  department did not                                                               
analyze much new oil coming on by 2017.                                                                                         
                                                                                                                                
ACTING COMISSIONER  BUTCHER said Co-Chair Seaton  is correct; the                                                               
department's fiscal note  looks only at revenue  reduction in the                                                               
short term, not  further out.  However, the  department is unsure                                                               
whether  Amendment 12,  as  worded,  would do  as  intended.   He                                                               
deferred to the Department of Law for further comment.                                                                          
                                                                                                                                
4:49:06 PM                                                                                                                    
                                                                                                                                
The committee took an at-ease from 4:49 p.m. to 4:59 p.m.                                                                       
                                                                                                                                
4:59:04 PM                                                                                                                    
                                                                                                                                
ACTING  COMISSIONER  BUTCHER,  in response  to  Co-Chair  Seaton,                                                               
related that  the Department of  Law is suggesting  the committee                                                               
hear from  the drafter  of the amendment  to determine  where the                                                               
disagreement may be.                                                                                                            
                                                                                                                                
4:59:59 PM                                                                                                                    
                                                                                                                                
The committee took an at-ease from 4:59 p.m. to 5:02 p.m.                                                                       
                                                                                                                                
5:02:03 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON put  Amendment 12 aside until the  drafter of the                                                               
amendment could be present to answer questions.                                                                                 
                                                                                                                                
REPRESENTATIVE KAWASAKI moved that the committee adopt Amendment                                                                
13, labeled 27-GH1007\A.30, Mischel/Bullock, 2/24/11, which                                                                     
read:                                                                                                                           
                                                                                                                                
     Page 1, lines 3 - 4:                                                                                                       
          Delete "relating to monthly installment payments                                                                    
     of estimated oil and gas production tax;"                                                                                
                                                                                                                                
     Page 5, line 26, through page 8, line 8:                                                                                   
          Delete all material.                                                                                                  
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 15, line 10:                                                                                                          
          Delete "1/12 of"                                                                                                      
                                                                                                                                
     Page 15, line 11:                                                                                                          
          Delete "year"                                                                                                         
          Insert "month"                                                                                                        
                                                                                                                                
     Page 15, line 13:                                                                                                          
          Delete "year"                                                                                                         
          Insert "month"                                                                                                        
                                                                                                                                
     Page 16, line 8:                                                                                                           
          Delete "Sections 11, 12, 15, and 16"                                                                                  
          Insert "Sections 10, 11, 14, and 15"                                                                                  
                                                                                                                                
     Page 16, line 10:                                                                                                          
          Delete "Sections 6 - 9 and 20"                                                                                        
          Insert "Sections 6 - 8 and 19"                                                                                        
                                                                                                                                
     Page 16, line 12:                                                                                                          
          Delete "Section 19"                                                                                                   
          Insert "Section 18"                                                                                                   
                                                                                                                                
     Page 16, line 20:                                                                                                          
          Delete "Sections 11, 12, 14 - 18, 24, and 25(a)"                                                                      
          Insert "Sections 10, 11, 13 - 17, 23, and 24(a)"                                                                      
                                                                                                                                
     Page 16, line 21:                                                                                                          
          Delete "Sections 6 - 9, 20, and 25(b)"                                                                                
          Insert "Sections 6 - 8, 19, and 24(b)"                                                                                
                                                                                                                                
     Page 16, line 22:                                                                                                          
          Delete "Sections 19 and 25(c)"                                                                                        
          Insert "Sections 18 and 24(c)"                                                                                        
                                                                                                                                
     Page 16, line 23:                                                                                                          
          Delete "secs. 27 - 29"                                                                                                
          Insert "secs. 26 - 28"                                                                                                
                                                                                                                                
REPRESENTATIVE P. WILSON objected for discussion purposes.                                                                      
                                                                                                                                
5:02:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI explained that  Amendment 13 would delete                                                               
the  language  in  HB  110 dealing  with  annualized  payment  of                                                               
progressivity,  thus  keeping  the  current  monthly  payment  of                                                               
progressivity.    Given  the   uncertainty  about  whether  other                                                               
jurisdictions use [annualized or monthly  payment], he said he is                                                               
unsure  why  this   particular  provision  of  the   bill  is  so                                                               
important.   Additionally,  the annualized  provision could  cost                                                               
the  state between  $150 million  and $450  million based  on the                                                               
2009 returns of ACES.  That  is too much volatility, and the half                                                               
billion  dollars  under windfall  profits  could  better be  used                                                               
within the state.                                                                                                               
                                                                                                                                
REPRESENTATIVE  HERRON inquired  whether this  could be  done any                                                               
other way besides monthly or yearly.                                                                                            
                                                                                                                                
REPRESENTATIVE KAWASAKI motioned that he did not know.                                                                          
                                                                                                                                
ACTING  COMISSIONER  BUTCHER  suggested  that it  could  be  done                                                               
quarterly, but related that the  department's auditors do not see                                                               
where  there would  be a  direct benefit  to this  because it  is                                                               
trued  up at  the end  of the  year and  the auditors  think that                                                               
ultimately it would be the same  number.  He further related that                                                               
the auditors  said it would  be much  more difficult for  them to                                                               
administer and  it could potentially start  statute of limitation                                                               
clocks every month as opposed to every year.                                                                                    
                                                                                                                                
5:04:34 PM                                                                                                                    
                                                                                                                                
ACTING  COMISSIONER  BUTCHER,  in response  to  Co-Chair  Seaton,                                                               
confirmed that  the companies  are required to  pay monthly.   He                                                               
further  confirmed that  the companies  make the  calculations of                                                               
their oil taxes on a monthly basis.                                                                                             
                                                                                                                                
CO-CHAIR  SEATON  maintained  that   if  the  companies  pay  the                                                               
progressivity  on the  month they  know what  it is  because they                                                               
made the calculations.   He asked how paying the  known amount is                                                               
more  complicated than  estimating the  volatility twelve  months                                                               
ahead of time.                                                                                                                  
                                                                                                                                
ACTING COMISSIONER  BUTCHER replied  he believes it  is difficult                                                               
to  estimate   what  actual  lease  expenditures   will  be  when                                                               
determining on a month-to-month basis.                                                                                          
                                                                                                                                
CO-CHAIR SEATON  said he thinks  it is payments  of progressivity                                                               
that are being talked about, not lease expenditures.                                                                            
                                                                                                                                
ACTING  COMISSIONER  BUTCHER  responded that  the  Department  of                                                               
Revenue  reads Amendment  13 as  requiring  monthly deduction  of                                                               
expenses to actuals.  In  further response to Co-Chair Seaton, he                                                               
concurred  that   Amendment  13  is  expenses   to  actuals,  not                                                               
progressivity.                                                                                                                  
                                                                                                                                
5:06:41 PM                                                                                                                    
                                                                                                                                
ACTING  COMISSIONER BUTCHER,  in  response  to Representative  P.                                                               
Wilson, agreed  that Amendment  13 does not  have anything  to do                                                               
with  the  windfall  profits.    That  is  why  the  department's                                                               
auditors do not see how there  would be any difference other than                                                               
the negative of  administering it and the  difficulty of starting                                                               
multiple statutes of limitations.                                                                                               
                                                                                                                                
REPRESENTATIVE  GARDNER contended  that Amendment  13 deals  only                                                               
with  the  monthly  fluctuations,  not with  the  cost  of  lease                                                               
expenditures, and that it does address the windfall profits.                                                                    
                                                                                                                                
5:08:35 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON  requested  the  drafter  of  the  amendment  to                                                               
clarify what it does.                                                                                                           
                                                                                                                                
DONALD   BULLOCK  JR.,   Attorney,  Legislative   Legal  Counsel,                                                               
Legislative  Legal  and  Research Services,  Legislative  Affairs                                                               
Agency, noted that  line 10 of Amendment 13 would  amend page 15,                                                               
line  10,  of  HB 110,  which  is  a  section  in the  bill  that                                                               
describes how the production tax  value is determined for each of                                                               
the months  that installment payment is  due.  The effect  of the                                                               
amendment is  to compartmentalize the lease  expenditures for the                                                               
month,  month by  month, rather  than saying  one-twelfth of  the                                                               
producer's lease expenditures over the year.                                                                                    
                                                                                                                                
5:10:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARDNER inquired  whether  it has  the effect  of                                                               
retaining the windfall profits, which  allow the state to receive                                                               
benefit  participation in  severe price  spikes and  profits that                                                               
are the result  of things happening around the  world rather than                                                               
of effort and investment.                                                                                                       
                                                                                                                                
MR.  BULLOCK read  from page  15, lines  6-10, of  HB 110,  which                                                               
state:   "... the  monthly production tax  value of  taxable oil,                                                               
gas, or oil and gas produced by  a producer during a month ... is                                                               
equal to the gross value at  the point of production of that oil,                                                               
gas, or  oil and gas,  respectively...."  He explained  that that                                                               
would be  the gross value  starting out for  that month.   So, if                                                               
prices are  high during that month  that gross value is  going to                                                               
be  high; if  production is  high during  that month  at a  lower                                                               
price, there  may still be a  higher gross value at  the point of                                                               
production.  Once  the gross value at the point  of production is                                                               
determined for that month, Amendment  13 would - instead of using                                                               
one-twelfth  of the  lease expenditures  for the  year -  allow a                                                               
deduction  for  the  lease  expenditures for  that  month.    The                                                               
production tax  value is the  gross value minus  authorized lease                                                               
expenditures, and that is the value  that the tax rate is applied                                                               
to, both on the progressive rate and the base rate.                                                                             
                                                                                                                                
5:12:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GARDNER asked  whether implementation of Amendment                                                               
13  would start  the  clock  on a  statute  of  limitations on  a                                                               
monthly basis.                                                                                                                  
                                                                                                                                
MR. BULLOCK  replied he does  not believe  that it would  make it                                                               
any  more  the start  of  the  statute  of limitations  than  any                                                               
installment payment  because there is  still the true-up  that is                                                               
required  the year  following the  calendar year  in which  these                                                               
installment payments are  made.  One of the purposes  of going to                                                               
the system in ACES  was to make a final report  for the year that                                                               
included all the expenditures and all  the gross values.  He said                                                               
he  has always  looked  at  that as  having  a  single point  for                                                               
starting the  statute of limitations for  making the assessments,                                                               
rather than twelve  monthly returns like the state  had under the                                                               
Economic  Limit   Factor  (ELF)  law.     These  are  installment                                                               
payments, not a monthly return.                                                                                                 
                                                                                                                                
5:13:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P. WILSON surmised  that Amendment 13 would remove                                                               
Section 9 of HB 110.                                                                                                            
                                                                                                                                
MR.  BULLOCK responded  that the  effect of  Amendment 13  is "to                                                               
continue to  do the installment  payments as they  are determined                                                               
now,  with  the addition  that  the  lease expenditures  will  be                                                               
determined  on a  monthly basis  rather than  one-twelfth of  the                                                               
annual lease expenditures."                                                                                                     
                                                                                                                                
5:14:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P. WILSON  surmised that  Amendment 13  would, in                                                               
essence, allow the state to pick up the windfall profits.                                                                       
                                                                                                                                
MR. BULLOCK answered he does not  know because he has not run the                                                               
numbers.   At the  end, the following  year, everything  is trued                                                               
up, so  ultimately what is  looked at is  the gross value  at the                                                               
point of  production for  the year  minus the  lease expenditures                                                               
for  the year.    He deferred  to the  Department  of Revenue  to                                                               
discuss the actual effect of the month-to-month calculation.                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON asked  which part of  HB 110  would get                                                               
rid of the state being able to pick up windfall profits.                                                                        
                                                                                                                                
MR. BULLOCK  replied that under  current law  the levy of  the 25                                                               
percent  tax and  the progressive  rate  on a  monthly basis  are                                                               
located in  [AS 43.55.011](e).   The  governor's bill  would move                                                               
all of  the rates into [AS  43.55.011](g) and (e) would  only say                                                               
that for one set of fields it is  (g)(1) and for the other set it                                                               
is (g)(2).   He deferred  to the acting commissioner  for further                                                               
explanation.                                                                                                                    
                                                                                                                                
ACTING COMISSIONER  BUTCHER said  Mr. Bullock explained  it well.                                                               
The moving of  progressivity to brackets under HB  110 narrows to                                                               
a  very  small number  any  sort  of  windfall that  would  occur                                                               
between  a high  month and  a  low month  over the  course of  an                                                               
annual  calculation.   This provision  would  enable industry  to                                                               
recoup a lot  of its expenses on  the high end as  opposed to the                                                               
state taking  a majority  of the  funds like  it does  now, which                                                               
would  make  the  state more  attractive  investment-wise.    The                                                               
department's  reading   of  Amendment  13  is   that  the  actual                                                               
deduction of  expenses would  be taken  monthly.   The department                                                               
believes  that  over the  course  of  a  year  there would  be  a                                                               
negligible difference  in tax  between the  two, so  Amendment 13                                                               
would be particularly  burdensome to both industry  and the state                                                               
given the state would really not get anything out of it.                                                                        
                                                                                                                                
REPRESENTATIVE P. WILSON  surmised the brackets in  ACES are what                                                               
give [the state] the windfall profits.                                                                                          
                                                                                                                                
ACTING COMISSIONER BUTCHER nodded yes.                                                                                          
                                                                                                                                
5:17:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HERRON  inquired  whether the  governor  and  the                                                               
producers prefer to  sweep the money monthly.   He understood the                                                               
acting commissioner  to be  saying that  in the  end it  will all                                                               
wash out.                                                                                                                       
                                                                                                                                
ACTING COMISSIONER  BUTCHER responded  that he  does not  think a                                                               
lot is accomplished by Amendment 13  and it would create a lot of                                                               
additional work  that does  not ultimately  benefit the  state or                                                               
industry.                                                                                                                       
                                                                                                                                
REPRESENTATIVE HERRON said he thinks  removing it does get rid of                                                               
a lot of work.                                                                                                                  
                                                                                                                                
5:19:14 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GARDNER  asked how often the  leaseholders true up                                                               
with each other and how often  do they do their reports and their                                                               
payments when they are partners in a lease.                                                                                     
                                                                                                                                
ACTING COMISSIONER  BUTCHER answered that  it is done at  the end                                                               
of March for  the state.  He deferred to  Mr. Dees for addressing                                                               
the question about partners inside a lease.                                                                                     
                                                                                                                                
REPRESENTATIVE GARDNER, in response  to Co-Chair Seaton, said her                                                               
question  is applicable  to Amendment  13  because testimony  has                                                               
said it  would be  a lot of  work.  She  presumed that  like most                                                               
business owners, the industry keeps  meticulous records and knows                                                               
exactly where  it is at any  given time; thus, the  data is there                                                               
and it is just a matter of running the reports.                                                                                 
                                                                                                                                
REPRESENTATIVE KAWASAKI withdrew Amendment 13.                                                                                  
                                                                                                                                
5:20:51 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  returned to Amendment  12 and asked  Mr. Bullock                                                               
to review  what the amendment would  do.  He understood  that the                                                               
amendment would remove  the 15 percent base rate,  leaving the 25                                                               
percent base rate and leaving the bracketed progressivity.                                                                      
                                                                                                                                
MR.  BULLOCK said  he believes  Amendment 12  would bring  HB 110                                                               
closer to  current law, which is  the 25 percent tax  rate in [AS                                                               
43.55.011](e)  plus  the  progressive  rate  that  is  determined                                                               
monthly under  [AS 43.55.011](g).   The effect  is that  it would                                                               
not duplicate  the tax.  The  initial 25 percent would  be pulled                                                               
out where  the changes  have been  made in  the brackets,  so the                                                               
effect would be  that the remaining part of  [AS 43.55.011](g) is                                                               
the  new   progressive  rate  that  would   replace  the  current                                                               
progressivity rate.  Thus, the  25 percent would remain the same,                                                               
but there would be a new table to determine the monthly tax.                                                                    
                                                                                                                                
5:23:12 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON inquired whether the  bracketed rate would be the                                                               
same as calculated when they were both together.                                                                                
                                                                                                                                
MR.  BULLOCK replied  that  the  25 percent  base  rate would  be                                                               
brought back  into [AS 43.55.011](e)  just like it is  in current                                                               
law, and [AS  43.55.011](e) is reworded similarly  to the current                                                               
law  to say  that  the  additional tax  is  determined under  [AS                                                               
43.55.011](g).  On  page 8 of the bill, starting  on line 28, the                                                               
25 percent  would be deleted  by Amendment  12, so what  would be                                                               
left is the  amount above $30 to which these  different rates are                                                               
applied under  the table.   Instead of  the ranges  under current                                                               
law, which  are $30-$92.50 and  $92.50 and above, there  would be                                                               
these stair-stepped rates.   The next part of  Amendment 12 would                                                               
delete  lines 4-25  on page  5 of  the bill  since the  amendment                                                               
would go back to  only a 25 percent rate and  the 15 percent rate                                                               
would not continue.   Thus, [AS 43.55.011](e)(1) would  be the 25                                                               
percent plus the  stair-step rates on page 4  that are determined                                                               
on a monthly  basis; the stair-steps would start with  what is on                                                               
line 29 because line 28 would be deleted.                                                                                       
                                                                                                                                
5:25:35 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  requested the Department  of Law to  address the                                                               
issue.                                                                                                                          
                                                                                                                                
SUSAN  POLLARD, Assistant  Attorney  General, Oil,  Gas &  Mining                                                               
Section, Civil Division (Juneau),  Department of Law, stated that                                                               
the Department of  Law had had some question  about how Amendment                                                               
12 would  work to assure  that the  25 percent rate  was separate                                                               
and  the bracketed  incremental progressivity  was kept  for that                                                               
part of  the annual production tax  value that did not  get taxed                                                               
under the  25 percent rate.   She  said the technical  issue that                                                               
she was  concerned about was  the doubling  up of the  25 percent                                                               
rate.   However,  this  concern was  addressed  when Mr.  Bullock                                                               
explained that line 28 on page 4 of the bill would be deleted.                                                                  
                                                                                                                                
5:27:02 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  reiterated that the  purpose of Amendment  12 is                                                               
removal of the 15 percent base  rate, leaving the 25 percent base                                                               
rate and the bracketed progressivity proposed by the governor.                                                                  
                                                                                                                                
REPRESENTATIVE MUNOZ understood the  change proposed by Amendment                                                               
12 would apply to new fields,  which in the governor's bill would                                                               
be taxed  at 15 percent  plus the bracketed  progressivity; under                                                               
Amendment 12  new fields would have  the same 25 percent  rate as                                                               
existing fields.                                                                                                                
                                                                                                                                
CO-CHAIR SEATON  responded correct,  all fields  would have  a 25                                                               
percent  base  tax  rate  and   would  have  the  same  bracketed                                                               
progressivity as proposed by HB 110.                                                                                            
                                                                                                                                
MR. BULLOCK  interjected that Amendment 12  basically removes the                                                               
distinction between fields.                                                                                                     
                                                                                                                                
ACTING COMISSIONER BUTCHER  said Amendment 12 would  take out the                                                               
15 percent  tax rate  for fields that  are outside  and currently                                                               
not being  explored, which  is a  key provision of  HB 110.   The                                                               
administration feels this provision  is important to motivate the                                                               
small explorers  to explore and  develop areas of the  state that                                                               
are   not   currently   being  developed,   and   therefore   the                                                               
administration opposes Amendment 12.                                                                                            
                                                                                                                                
5:28:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON  suggested that  the 25 percent  be changed                                                               
to 20  percent, knowing  that adjustments would  also be  made to                                                               
the  brackets.    He  asked  whether 20  percent  would  work  in                                                               
Amendment 12.                                                                                                                   
                                                                                                                                
CO-CHAIR SEATON answered  that Amendment 12 is  offered to remove                                                               
the new  fields.  He said  he is unsure whether  changing the tax                                                               
rate  from  25  percent  to  20  percent  would  accomplish  what                                                               
Representative Herron  is proposing  or whether  it would  take a                                                               
different amendment.  He requested Mr. Bullock to address this.                                                                 
                                                                                                                                
MR. BULLOCK  said there  are several  places throughout  AS 43.55                                                               
where this base  rate is located; for example, the  rate for loss                                                               
carry   forward  provisions   in  AS   43.55.023(b)  has   always                                                               
paralleled this rate.   An amendment could be  offered to replace                                                               
the 25 percent  with 20 percent on page 1,  line 10, of Amendment                                                               
12,  but there  would  be other  sections of  law  where that  25                                                               
percent would  need to  be changed to  20 percent,  so conforming                                                               
amendments would also be needed.                                                                                                
                                                                                                                                
REPRESENTATIVE HERRON said he understands  but will keep pitching                                                               
20 percent.                                                                                                                     
                                                                                                                                
5:30:47 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE recalled that during  previous hearings on HB 110,                                                               
the committee heard from several  explorers.  For example, page 6                                                               
of   Great  Bear   Petroleum's  [2/13/11]   presentation  states,                                                               
"Reduction  of  production  tax burden  improves  our  commercial                                                               
model reducing  the risk to critically  needed capital investment                                                               
for  full development."    He reminded  members  that Great  Bear                                                               
Petroleum's leases  are essentially  south of  currently existing                                                               
units and represent  a region of great potential for  a shale oil                                                               
play.    He related  that  Great  Bear  is optimistic  about  its                                                               
ability to develop that location and  if the 15 percent base rate                                                               
is  eliminated on  those  places outside  of  unitized areas,  it                                                               
would remove  what he considers  a critical incentive to  get new                                                               
explorers out in the field to put more oil in the pipeline.                                                                     
                                                                                                                                
5:32:10 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON, wrapping  up the  discussion  on Amendment  12,                                                               
again reiterated  that the purpose  of Amendment 12 is  to remove                                                               
the  15 percent  base  rate,  leaving the  25  percent base  rate                                                               
applying  across  all  oil  fields  and  leaving  the  governor's                                                               
bracketed progressivity.                                                                                                        
                                                                                                                                
CO-CHAIR FEIGE objected to Amendment 12.                                                                                        
                                                                                                                                
5:32:37 PM                                                                                                                    
                                                                                                                                
A roll call  vote was taken.   Representatives Gardner, Kawasaki,                                                               
and  Seaton voted  in  favor of  Amendment  12.   Representatives                                                               
Herron, Munoz, Foster, Dick, Wilson,  and Feige voted against it.                                                               
Therefore, Amendment 12 failed by a vote of 3-6.                                                                                
                                                                                                                                
5:33:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GARDNER withdrew Amendment 14.                                                                                   
                                                                                                                                
REPRESENTATIVE GARDNER  moved that the committee  adopt Amendment                                                               
15, labeled 27-GH1007\A.14, Bullock, 2/23/11, which read:                                                                       
                                                                                                                                
     Page 1, line 6:                                                                                                            
          Delete "relating to the limitation on assessment                                                                    
     of oil and gas production taxes;"                                                                                        
                                                                                                                                
     Page 13, lines 5 - 7:                                                                                                      
          Delete all material.                                                                                                  
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 16, line 10:                                                                                                          
          Delete "Sections 6 - 9 and 20"                                                                                        
          Insert "Sections 6 - 9 and 19"                                                                                        
                                                                                                                                
     Page 16, lines 12 - 13:                                                                                                    
          Delete all material.                                                                                                  
                                                                                                                                
     Page 16, line 20:                                                                                                          
          Delete "Sections 11, 12, 14 - 18, 24, and 25(a)"                                                                      
          Insert "Sections 11, 12, 14 - 18, 23, and 24(a)"                                                                      
                                                                                                                                
     Page 16, line 21:                                                                                                          
          Delete "Sections 6 - 9, 20, and 25(b)"                                                                                
          Insert "Sections 6 - 9, 19, and 24(b)"                                                                                
                                                                                                                                
     Page 16, line 22:                                                                                                          
          Delete all material.                                                                                                  
                                                                                                                                
     Renumber the following bill section accordingly.                                                                           
                                                                                                                                
     Page 16, line 23:                                                                                                          
          Delete "secs. 27 - 29"                                                                                                
          Insert "secs. 26 and 27"                                                                                              
                                                                                                                                
CO-CHAIR FEIGE objected.                                                                                                        
                                                                                                                                
5:33:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GARDNER  said Amendment  15 relates to  an element                                                               
of HB  110 that  she does  not disagree with,  which is  having a                                                               
more reasonable  timeline than  six years.   However,  moving the                                                               
timeline to four years is  premature because the regulations have                                                               
yet to be completed,  let alone a single audit of  a full year of                                                               
ACES taxes.   This should be looked  at in a year or  two, but it                                                               
is premature because right now  the potential impact on the state                                                               
is unknown.                                                                                                                     
                                                                                                                                
REPRESENTATIVE P. WILSON observed  that Amendment 15 would delete                                                               
and insert several sections and requested further explanation.                                                                  
                                                                                                                                
REPRESENTATIVE  GARDNER said  the intent  of Amendment  15 is  to                                                               
keep the tax  look-back period at six years  rather than changing                                                               
it  to  four  years  as  proposed  by  HB  110.    She  said  her                                                               
understanding is  that if the  state does not complete  the audit                                                               
within four  years and  the audit  finds that  the state  is owed                                                               
more money, the state would lose  that money.  Thus, she wants to                                                               
ensure that the state does not lose anything it is due.                                                                         
                                                                                                                                
MR.  BULLOCK addressed  Representative  P.  Wilson's question  by                                                               
drawing attention to  page 16, line 8, of HB  110 where reference                                                               
begins  to  a number  of  sections,  those sections  being  about                                                               
applicability  and  different effective  dates.    By deleting  a                                                               
section of  the bill,  and in  other amendments  adding sections,                                                               
these section numbers  at the end of the bill  need to be changed                                                               
to conform to the new numbering in the bill.                                                                                    
                                                                                                                                
5:36:05 PM                                                                                                                    
                                                                                                                                
MR. BULLOCK,  in response to  more questions  from Representative                                                               
P. Wilson, explained  that HB 110 proposes to  shorten the period                                                               
for auditing  the production tax  returns from six years  to four                                                               
years.   Amendment 15 would leave  in place the current  six year                                                               
period.                                                                                                                         
                                                                                                                                
ACTING COMISSIONER  BUTCHER added that the  Department of Revenue                                                               
used to have  three years to audit production taxes.   Passage of                                                               
ACES  extended  this  time  period  to  six  years  to  give  the                                                               
department the time to deal with going  from a gross tax to a net                                                               
tax and to  deal with the two different changes  in law [ACES and                                                               
PPT]  that  occurred  within  a  very short  time  period.    The                                                               
department  is  now  at  about  three  years  and  improving  and                                                               
therefore feels  comfortable with moving  from six years  to four                                                               
years.   However,  to be  on the  safe side,  the effective  date                                                               
proposed in  HB 110 for this  provision is not until  2014, which                                                               
would  give the  department another  three years  to make  sure a                                                               
four year time  period will work.  The department  would not have                                                               
proposed four years if it did not think it could be done.                                                                       
                                                                                                                                
5:37:29 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KAWASAKI read  from  item six  [of the  executive                                                               
summary]  in the  Department  of Revenue's  1/18/11  Oil and  Gas                                                             
Production Tax Status Report to the Legislature which states:                                                                 
                                                                                                                                
     Tax  Administration  and  Compliance -  The  department                                                                  
     continues to write regulations for  the new tax system,                                                                    
     and the  first audits  under the  net profits  tax have                                                                    
     been  completed.  The  department  has,  however,  been                                                                    
     hampered in  its tax  reporting and  compliance efforts                                                                    
       by the lack of a centralized database to house and                                                                       
        manage the large volumes of oil and gas data it                                                                         
     receives.                                                                                                                  
                                                                                                                                
REPRESENTATIVE  KAWASAKI interpreted  the aforementioned  to mean                                                               
that the  Department of  Revenue is  having difficulty  as things                                                               
stand now.   He recollected that under the  Economic Limit Factor                                                               
(ELF) the  state had  a much  simpler standard  deduction system,                                                               
yet the  department was unable  to meet the three  year timeline.                                                               
He asked why the department thinks this can be done now.                                                                        
                                                                                                                                
ACTING COMISSIONER  BUTCHER allowed the department  clearly still                                                               
has  challenges and  is playing  catch-up; however,  a couple  of                                                               
master  auditors   have  been  hired   since  that  time.     The                                                               
department's auditors believe that  the most difficult audit year                                                               
was 2006 when the state moved from  gross to net.  It is believed                                                               
that with each  increasing year it will get  simpler and simpler,                                                               
and that is  where the comfort with four years,  not three years,                                                               
comes in.                                                                                                                       
                                                                                                                                
REPRESENTATIVE KAWASAKI noted that  the look-back period for most                                                               
businesses is six years and asked  why the oil industry should be                                                               
treated differently.                                                                                                            
                                                                                                                                
ACTING COMISSIONER  BUTCHER replied that the  department works on                                                               
the information as  it comes in and the audit  is for putting the                                                               
final  numbers to  rest.   He said  the department  believes that                                                               
four years is  reasonable, given that it is 33  percent more time                                                               
than what was in place prior to five years ago.                                                                                 
                                                                                                                                
5:39:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GARDNER said it can  be agreed that the department                                                               
is four years  behind on the audits right now,  and she therefore                                                               
thinks  it prudent  for the  legislature to  wait until  one full                                                               
year is completed before changing the look-back period.                                                                         
                                                                                                                                
REPRESENTATIVE  HERRON inquired  about  putting a  sunset on  the                                                               
four  years such  that it  would go  back to  six years  if in  a                                                               
couple of years it is found that  four years is not a long enough                                                               
time period.                                                                                                                    
                                                                                                                                
ACTING COMISSIONER BUTCHER responded  that the proposed effective                                                               
date of three years from  now provides the department with enough                                                               
time to  determine whether this  length of time is  adequate and,                                                               
if it is  not, the department would have enough  time to bring it                                                               
back to the legislature.                                                                                                        
                                                                                                                                
REPRESENTATIVE  GARDNER agreed  that an  effective date  of three                                                               
years out would  provide the department the time to  come back to                                                               
the legislature.   By  the same token,  however, she  argued that                                                               
the effective date  of three years out allows  the legislature to                                                               
wait until at least  one is done and see how close  it is at true                                                               
up, at which point a decision can  be made on whether a change to                                                               
existing statute is needed.                                                                                                     
                                                                                                                                
CO-CHAIR FEIGE maintained his objection to Amendment 15.                                                                        
                                                                                                                                
5:41:29 PM                                                                                                                    
                                                                                                                                
A  roll call  vote  was taken.    Representatives Herron,  Munoz,                                                               
Foster, Dick,  Gardner, Kawasaki,  and Seaton  voted in  favor of                                                               
Amendment 15.  Representatives P.  Wilson and Feige voted against                                                               
it.  Therefore, Amendment 15 passed by a vote of 7-2.                                                                           
                                                                                                                                
5:42:21 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GARDNER withdrew Amendments 16 and 17.                                                                           
                                                                                                                                
REPRESENTATIVE GARDNER  moved that the committee  adopt Amendment                                                               
18, labeled 27-GH1007\A.35, Kirsch/Bullock, 2/24/11, which read:                                                                
                                                                                                                                
     Page 1, line 7, following "values;":                                                                                     
          Insert "relating to oil and gas or gas only                                                                         
     leasing and the shared use of a production facility;"                                                                    
                                                                                                                                
     Page 2, following line 5:                                                                                                  
     Insert a new bill section to read:                                                                                         
        "* Sec. 3.  AS 38.05.180 is amended by  adding a new                                                                
     subsection to read:                                                                                                        
          (hh)  The commissioner shall include a provision                                                                      
     in  a  lease or  the  renewal  of  a lease  under  this                                                                    
     section  to  require the  shared  use  of a  production                                                                    
     facility owned or operated by  the lessee by a producer                                                                    
     of  oil  or gas  from  land  outside  of the  lease  or                                                                    
     outside of  a unit that  includes the lease.  The lease                                                                    
     must  describe   the  circumstances  under   which  the                                                                    
     production facility  shall be shared and  the means for                                                                    
     determining  the   extent  of   the  shared   use,  the                                                                    
     reasonable compensation  to be paid to  the lessee, and                                                                    
     other terms  and conditions the commissioner  finds are                                                                    
     in   the  best   interests  of   the  state.   In  this                                                                    
     subsection,   "production   facility"  means   a   flow                                                                    
     station, a gathering center, a  pump station, a storage                                                                    
     tank, and  related appurtenances, and  other facilities                                                                    
     that  gather,  clean,  dehydrate, condition,  or  store                                                                    
     crude oil, natural gas,  or associated hydrocarbons and                                                                    
     are  located on  a lease  or property  leased from  the                                                                    
     state."                                                                                                                    
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 16, line 8, following "APPLICABILITY.":                                                                               
          Insert "(a)  AS 38.05.180(hh), enacted by sec. 3                                                                      
     of this Act, applies to a lease or the renewal of a                                                                        
     lease entered into on or after the effective date of                                                                       
     sec. 3 of this Act."                                                                                                       
                                                                                                                                
     Reletter the following subsections accordingly.                                                                            
                                                                                                                                
     Page 16, line 8:                                                                                                           
          Delete "Sections 11, 12, 15, and 16"                                                                                  
          Insert "Sections 12, 13, 16, and 17"                                                                                  
                                                                                                                                
     Page 16, line 10:                                                                                                          
          Delete "Sections 6 - 9 and 20"                                                                                        
          Insert "Sections 7 - 10 and 21"                                                                                       
                                                                                                                                
     Page 16, line 12:                                                                                                          
          Delete "Section 19"                                                                                                   
          Insert "Section 20"                                                                                                   
                                                                                                                                
     Page 16, line 20:                                                                                                          
          Delete "Sections 11, 12, 14 - 18, 24, and 25(a)"                                                                      
          Insert "Sections 12, 13, 15 - 19, 25, and 26(b)"                                                                      
                                                                                                                                
     Page 16, line 21:                                                                                                          
          Delete "Sections 6 - 9, 20, and 25(b)"                                                                                
          Insert "Sections 7 - 10, 21, and 26(c)"                                                                               
                                                                                                                                
     Page 16, line 22:                                                                                                          
          Delete "Sections 19 and 25(c)"                                                                                        
          Insert "Sections 20 and 26(d)"                                                                                        
                                                                                                                                
     Page 16, line 23:                                                                                                          
          Delete "secs. 27 - 29"                                                                                                
          Insert "secs. 28 - 30"                                                                                                
                                                                                                                                
REPRESENTATIVE P. WILSON objected for discussion purposes.                                                                      
                                                                                                                                
5:43:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARDNER related  that  a concern  heard over  the                                                               
years from new  explorers is that they have  trouble getting into                                                               
the facilities.  She noted that  this is a controversial issue so                                                               
people are  reluctant to speak on  the record when they  are also                                                               
in the  midst of negotiating.   While that bottleneck may  now be                                                               
shifting a  bit, Amendment 18  would provide ways to  have shared                                                               
facilities.   She  noted  that  Mr. Ken  Alper  is available  for                                                               
questions.                                                                                                                      
                                                                                                                                
ACTING  COMMISSIONER BUTCHER,  in  response  to Co-Chair  Seaton,                                                               
deferred comment on Amendment 18 to  Mr. Joe Balash given that it                                                               
relates to Department of Natural Resources statutes.                                                                            
                                                                                                                                
5:45:21 PM                                                                                                                    
                                                                                                                                
JOE  BALASH, Deputy  Commissioner,  Office  of the  Commissioner,                                                               
Department  of  Natural  Resources, cautioned  that  "the  issues                                                               
surrounding facilities access,  facility sharing, are complicated                                                               
and very  important to  the state's future,  and require  a great                                                               
deal  of thought  and precision  in  language if  [the state  is]                                                               
going to venture down  the road of using the force  of law to tip                                                               
the scales in  the balance of one party or  another when it comes                                                               
to these  commercial transactions."   He  said the  Department of                                                               
Natural Resources  is concerned  that Amendment 18  could broaden                                                               
the subject of HB 110, which  is currently oil and gas taxes, and                                                               
potentially  violate  the single  subject  rule.   The  amendment                                                               
purports to amend  AS 38.05.180, which is the  section of statute                                                               
that  deals with  oil  and gas  leases  and has  to  do with  the                                                               
management  and rights  for  a  party to  the  subsurface of  the                                                               
state's mineral wealth.                                                                                                         
                                                                                                                                
5:47:04 PM                                                                                                                    
                                                                                                                                
The committee took an at-ease from 5:47 p.m. to 5:49 p.m.                                                                       
                                                                                                                                
5:49:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GARDNER  specified that  Amendment 18 is  not part                                                               
of another bill that has been introduced.   She said she is a co-                                                               
sponsor of  a bill that  deals with facilities sharing,  but that                                                               
bill is completely different.                                                                                                   
                                                                                                                                
MR. BALASH  said other  concerns that  the Department  of Natural                                                               
Resources  has  with  Amendment  18   relate  to  the  roles  and                                                               
responsibilities of the three parties  in question:  the original                                                               
lessee,  the  new  lessee  seeking  to  gain  capacity,  and  the                                                               
commissioner.   The amendment  does not  answer who  carries what                                                               
burden in  this set  of circumstances.   The  one area  that does                                                               
appear  to be  clear  and  sets at  least  one  standard is  that                                                               
reasonable compensation  shall be paid  to the lessee.   However,                                                               
there are certain  questions surrounding whether or  not there is                                                               
a burden on  the new entrant to identify how  much capacity it is                                                               
seeking, whether or not the incumbent  has to meet that demand or                                                               
whether  [the   incumbent]  can  only  make   available  what  is                                                               
available within the  facility.  Another question  is whether the                                                               
list  here  is of  "related  facilities,  other facilities,"  and                                                               
whether this list is inclusive, illustrative, or exhaustive.                                                                    
                                                                                                                                
5:51:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARDNER  stated  that this  critically  important                                                               
issue  has never  really been  addressed by  the legislature  and                                                               
looms in the  future if the state  does not get a  handle on what                                                               
needs  to  be   done  to  ensure  that  new   explorers  are  not                                                               
disadvantaged by  the bigger companies  that own  the facilities.                                                               
She offered  her appreciation of  Mr. Balash's comments  and said                                                               
they illustrate  how important this  issue is and how  complex it                                                               
is.   She withdrew  Amendment 18  and urged  members to  keep the                                                               
issue in mind.                                                                                                                  
                                                                                                                                
5:52:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GARDNER  moved that the committee  adopt Amendment                                                               
19, labeled 27-GH1007\A.37, Bullock, 2/25/11, which read:                                                                       
                                                                                                                                
     Page 13, following line 4:                                                                                                 
          Insert new bill sections to read:                                                                                     
        "* Sec. 19. AS 43.55.030(a) is amended to read:                                                                     
          (a)  A producer that produces oil or gas from a                                                                       
     lease or property in the  state during a calendar year,                                                                    
     whether   or  not   any  tax   payment  is   due  under                                                                    
     AS 43.55.020(a) for  that oil  or gas, shall  file with                                                                    
     the  department on  March 31 of  the  following year  a                                                                    
     statement,  under oath,  in a  form  prescribed by  the                                                                    
     department, giving, with  other information required by                                                                
     the  department  under  a  regulation  adopted  by  the                                                                
     department, the following:                                                                                             
               (1)  a description of each lease or property                                                                     
     from  which oil  or gas  was produced,  by name,  legal                                                                    
     description,   lease   number,  or   accounting   codes                                                                    
     assigned by the department;                                                                                                
               (2)  the names of the producer and, if                                                                           
     different, the person paying the tax, if any;                                                                              
               (3)   the gross amount  of oil and  the gross                                                                    
     amount  of gas  produced from  each lease  or property,                                                                    
     and the percentage  of the gross amount of  oil and gas                                                                    
     owned by the producer;                                                                                                     
               (4)    the  gross   value  at  the  point  of                                                                    
     production  of the  oil and  of the  gas produced  from                                                                    
     each lease  or property owned  by the producer  and the                                                                    
     costs of transportation of the oil and gas;                                                                                
               (5)  the name of  the first purchaser and the                                                                    
     price  received for  the oil  and for  the gas,  unless                                                                    
     relieved from this  requirement in whole or  in part by                                                                    
     the department;                                                                                                            
               (6)     the   producer's  qualified   capital                                                                    
     expenditures, as  defined in AS 43.55.023,  other lease                                                                    
     expenditures  under  AS 43.55.165, and  adjustments  or                                                                    
     other payments or credits under AS 43.55.170;                                                                              
               (7)   the  production tax  values of  the oil                                                                    
     and gas under AS 43.55.160;                                                                                                
               (8)    any  claims  for  tax  credits  to  be                                                                    
     applied; [AND]                                                                                                             
               (9)   calculations  showing  the amounts,  if                                                                    
     any,  that were  or are  due under  AS 43.55.020(a) and                                                                    
     interest on any underpayment or overpayment; and                                                                       
               (10)  for each expenditure  that is the basis                                                                
     for a  credit claimed under AS 43.55.023  or 43.55.025,                                                                
     a   description   of   the  expenditure,   a   detailed                                                                
     description of  the purpose of  the expenditure,  and a                                                                
     description  of the  lease or  property  for which  the                                                                
     expenditure      was     incurred;      notwithstanding                                                                
     AS 43.05.230(a),   information  submitted   under  this                                                                
     paragraph may be  disclosed to the public  and shall be                                                                
     disclosed  to the  legislature  in  a report  submitted                                                                
     within 10 days after the  convening of the next regular                                                                
     legislative session  following the date a  statement is                                                                
     filed under this section.                                                                                              
        * Sec. 20. AS 43.55.030(e) is amended to read:                                                                        
          (e)  An explorer or producer that incurs a lease                                                                      
     expenditure  under AS 43.55.165  or receives  a payment                                                                    
     or  credit under  AS 43.55.170 during  a calendar  year                                                                    
     but  does  not produce  oil  or  gas  from a  lease  or                                                                    
     property in  the state during  the calendar  year shall                                                                    
     file with  the department on March 31  of the following                                                                    
     year a statement,  under oath, in a  form prescribed by                                                                    
     the   department,   giving,  with   other   information                                                                    
     required by  the department under a  regulation adopted                                                                
     by the department, the following:                                                                                      
               (1)  the producer's qualified capital                                                                            
     expenditures, as  defined in AS 43.55.023,  other lease                                                                    
     expenditures  under  AS 43.55.165, and  adjustments  or                                                                    
     other payments or credits under AS 43.55.170; [AND]                                                                        
               (2)  if the explorer or producer receives a                                                                      
     payment  or  credit  under  AS 43.55.170,  calculations                                                                    
     showing whether the explorer or  producer is liable for                                                                    
     a  tax under  AS 43.55.160(d) or  43.55.170(b) and,  if                                                                    
     so, the amount; and                                                                                                    
               (3)  for each expenditure that is the basis                                                                  
     for a credit claimed  under this chapter, a description                                                                
     of  the  expenditure,  a detailed  description  of  the                                                                
     purpose of  the expenditure,  and a description  of the                                                                
     lease  or  property  for   which  the  expenditure  was                                                                
     incurred; notwithstanding  AS 43.05.230(a), information                                                                
     submitted under this paragraph may  be disclosed to the                                                                
     public and shall  be disclosed to the  legislature in a                                                                
     report submitted within 10 days  after the convening of                                                                
     the  next  regular  legislative session  following  the                                                                
     date a statement is filed under this section."                                                                         
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 16, line 10:                                                                                                          
          Delete "Sections 6 - 9 and 20"                                                                                        
          Insert "Sections 6 - 9 and 22"                                                                                        
                                                                                                                                
     Page 16, line 12:                                                                                                          
          Delete "Section 19"                                                                                                   
          Insert "Section 21"                                                                                                   
                                                                                                                                
     Page 16, line 20:                                                                                                          
          Delete "Sections 11, 12, 14 - 18, 24, and 25(a)"                                                                      
          Insert "Sections 11, 12, 14 - 20, 26, and 27(a)"                                                                      
                                                                                                                                
     Page 16, line 21:                                                                                                          
          Delete "Sections 6 - 9, 20, and 25(b)"                                                                                
          Insert "Sections 6 - 9, 22, and 27(b)"                                                                                
                                                                                                                                
     Page 16, line 22:                                                                                                          
          Delete "Sections 19 and 25(c)"                                                                                        
          Insert "Sections 21 and 27(c)"                                                                                        
                                                                                                                                
     Page 16, line 23:                                                                                                          
          Delete "secs. 27 - 29"                                                                                                
          Insert "secs. 29 - 31"                                                                                                
                                                                                                                                
CO-CHAIR FEIGE objected for discussion purposes.                                                                                
                                                                                                                                
5:52:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GARDNER  noted that testimony from  the Department                                                               
of Revenue indicates  that it does not always have  a good handle                                                               
on what the state's generous  credits and incentives are used for                                                               
and what the  companies did to receive them.   Amendment 19 would                                                               
attempt  to let  Alaskans know  who is  getting the  credits, how                                                               
much,  and  why.   Data  submitted  with  a request  for  capital                                                               
credits would be collected and a  report would be provided to the                                                               
legislature, but  the data would  not include test results.   She                                                               
reminded  members  that  the  committee  had  previously  debated                                                               
whether collecting this information  would require a statutory or                                                               
regulatory change.                                                                                                              
                                                                                                                                
5:53:57 PM                                                                                                                    
                                                                                                                                
The committee took an at-ease from 5:53 p.m. to 5.55 p.m.                                                                       
                                                                                                                                
5:55:38 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON asked  how Amendment  19  and Representative  P.                                                               
Wilson's   amendment   [Amendment  7,   labeled   27-GH1007\A.38,                                                               
Bullock, 2/25/11, adopted as amended  on 2/25/11] would relate to                                                               
each other.                                                                                                                     
                                                                                                                                
ACTING  COMISSIONER BUTCHER  replied  that  [Amendment 7],  along                                                               
with what can be done  by regulation, provide the department with                                                               
all of  the tools necessary  to collect the information  it needs                                                               
as well  as the information  requested by the legislature.   Over                                                               
the past five years the  department has developed its regulations                                                               
by holding workshops  that include industry and the  public.  The                                                               
department  would  enjoy  the  participation  of  legislators  or                                                               
legislative  staff  at  the  workshops  that  will  be  held  for                                                               
development  of the  regulation  on this  particular  issue.   He                                                               
offered to keep members updated on when those will occur.                                                                       
                                                                                                                                
5:56:34 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  offered his belief  that Amendment 19 has  a lot                                                               
of  overlap  with  [Amendment 7];  however,  Amendment  19  would                                                               
require an annual report to the legislature.                                                                                    
                                                                                                                                
REPRESENTATIVE GARDNER  said it  would be  good enough  if Acting                                                               
Commissioner  Butcher  could  confirm   that  the  Department  of                                                               
Revenue intends to collect and  release the name of the taxpayer,                                                               
a description  of what the  taxpayer did  to get the  credit, and                                                               
how  much credit  so  that  the public  and  the legislature  can                                                               
easily access that information.                                                                                                 
                                                                                                                                
ACTING   COMISSIONER  BUTCHER   responded  that   the  department                                                               
absolutely wants to include all  of the information possible that                                                               
it  collects.    However,  that  information  would  have  to  be                                                               
aggregated  because  it would  be  confidential  to "isolated  by                                                               
taxpayer."                                                                                                                      
                                                                                                                                
REPRESENTATIVE  GARDNER said  this  is exactly  her  point.   She                                                               
maintained that  while a taxpayer's  taxes are  confidential, the                                                               
State  of Alaska's  contribution in  the form  of credits  is not                                                               
confidential.    She  said  she  wants  Alaskans  to  know  which                                                               
taxpayers by name have how much  credit and what it is for, which                                                               
is the intent of Amendment 19.                                                                                                  
                                                                                                                                
5:58:10 PM                                                                                                                    
                                                                                                                                
ACTING COMISSIONER  BUTCHER offered  his belief that  legally the                                                               
Department of  Revenue is not  allowed to  do that.   However, he                                                               
said he believes  the department could provide  a good aggregated                                                               
view of whether  the credits are doing what  was intended without                                                               
isolating specific companies.                                                                                                   
                                                                                                                                
REPRESENTATIVE GARDNER argued that  there can be regulations that                                                               
the  taxpayers waive  their right  for confidentiality  in return                                                               
for receiving these  very significant tax credits  from the State                                                               
of  Alaska.   The  only  thing that  would  be  disclosed is  the                                                               
credits being claimed and received, not the taxes.                                                                              
                                                                                                                                
5:59:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P. WILSON  inquired whether  the State  of Alaska                                                               
can  legally give  out  the information  that  would be  required                                                               
under Amendment 19.                                                                                                             
                                                                                                                                
MS. POLLARD answered that Amendment 19  would make a change to AS                                                               
43.05.230.   This cannot  be done because  disclosure of  what is                                                               
considered  taxpayer information,  which would  include something                                                               
that would  be on a  return or a report,  such as tax  credit, is                                                               
not currently  allowed under Alaska  law.  Willful  disclosure of                                                               
taxpayer information can  be punished by a fine of  not more than                                                               
$5,000 and imprisonment of not more than two years.                                                                             
                                                                                                                                
6:01:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARDNER  asked whether  it  is  possible to  have                                                               
statute  that  requires  regulations  be  drafted  in  which  the                                                               
taxpayer  applying  for  a  credit   agrees  to  release  of  the                                                               
information about  the application,  the amount, the  reason, and                                                               
the taxpayer's name.                                                                                                            
                                                                                                                                
MS.  POLLARD   replied,  "No,  not  without   amendments  to  the                                                               
statutes."                                                                                                                      
                                                                                                                                
REPRESENTATIVE GARDNER  said Amendment 19  is an effort  to amend                                                               
the  statute, but  perhaps  the  right statute  to  amend is  not                                                               
before the  committee.   However, the  request for  drafting this                                                               
amendment was to get the  statutory change needed for making this                                                               
information available to legislators and  the public, given it is                                                               
the  state's money  that is  being applied  for.   She reiterated                                                               
that  in exchange  for this  money  the taxpayer  would agree  to                                                               
release of its name and the information about its application.                                                                  
                                                                                                                                
6:02:10 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  requested that Amendment  19 be  withdrawn given                                                               
the  complications  and  its  overlap with  [Amendment  7].    He                                                               
suggested it be  redrafted and offered through  the House Finance                                                               
Committee or on the House floor.                                                                                                
                                                                                                                                
REPRESENTATIVE  GARDNER stated  that Amendment  19 is  the single                                                               
most  important amendment  she wants  to see  passed, aside  from                                                               
some of  the amendments offered  by Co-Chair Seaton.   She agreed                                                               
to  withdraw the  amendment as  a courtesy  to the  co-chair, but                                                               
said that  when the amendment is  offered on the House  floor she                                                               
does not  want to hear  that it should  have been offered  in the                                                               
House Resources Standing Committee.                                                                                             
                                                                                                                                
6:04:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MUNOZ recollected that  the purpose of Amendment 7                                                               
was  to  allow  the  Department   of  Revenue  to  aggregate  the                                                               
information of the  three top taxpayers so  the legislature would                                                               
have  that  information  in  one   form,  but  it  would  not  be                                                               
designated by company.                                                                                                          
                                                                                                                                
CO-CHAIR SEATON replied correct.                                                                                                
                                                                                                                                
REPRESENTATIVE   GARDNER,  in   response   to  Co-Chair   Seaton,                                                               
confirmed that she had withdrawn Amendment 19.                                                                                  
                                                                                                                                
REPRESENTATIVE GARDNER withdrew Amendment 20.                                                                                   
                                                                                                                                
REPRESENTATIVE KAWASAKI elected not to offer Amendments 21, 22,                                                                 
23, and 24.                                                                                                                     
                                                                                                                                
6:05:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI moved that the committee adopt Amendment                                                                
25, labeled 27-GH1007\A.25, Bullock, 2/24/11, which read:                                                                       
                                                                                                                                
     Page 12, following line 5:                                                                                                 
          Insert a new bill section to read:                                                                                    
        "* Sec. 17. AS 43.55.023 is  amended by adding a new                                                                
     subsection to read:                                                                                                        
          (p)  A producer that incurs more than 80 percent                                                                      
     of  its wage  and compensation  expenditures for  wages                                                                    
     and compensation  paid to Alaska  residents may  take a                                                                    
     tax    credit   against    the    tax   levied    under                                                                    
     AS 43.55.011(e) equal  to the  percentage by  which the                                                                    
     wages  and   compensation  paid  to   Alaska  residents                                                                    
     exceeds 80  percent of all wages  and compensation paid                                                                    
     by  the  producer  in the  state.  The  department,  in                                                                    
     consultation   with  the   Department   of  Labor   and                                                                    
     Workforce   Development,    shall   adopt   regulations                                                                    
     necessary to  administer the credit authorized  by this                                                                    
     subsection.  Notwithstanding (c)  of this  section, the                                                                    
     unused amount  of credit under this  subsection may not                                                                    
     be  carried  forward  for more  than  two  years,  and,                                                                    
     notwithstanding (d),  (e), and  (g) of this  section, a                                                                    
     producer  may not  transfer a  tax credit  or obtain  a                                                                    
     transferable  tax  credit   certificate  for  a  credit                                                                    
     authorized under  this subsection. In  this subsection,                                                                    
     "Alaska   resident"   has    the   meaning   given   in                                                                    
     AS 43.82.230."                                                                                                             
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 16, line 8:                                                                                                           
          Delete "Sections 11, 12, 15, and 16"                                                                                  
          Insert "Sections 11, 12, and 15 - 17"                                                                                 
                                                                                                                                
     Page 16, line 10:                                                                                                          
          Delete "Sections 6 - 9 and 20"                                                                                        
          Insert "Sections 6 - 9 and 21"                                                                                        
                                                                                                                                
     Page 16, line 12:                                                                                                          
          Delete "Section 19"                                                                                                   
          Insert "Section 20"                                                                                                   
                                                                                                                                
     Page 16, line 20:                                                                                                          
          Delete "Sections 11, 12, 14 - 18, 24, and 25(a)"                                                                      
          Insert "Sections 11, 12, 14 - 19, 25, and 26(a)"                                                                      
                                                                                                                                
     Page 16, line 21:                                                                                                          
          Delete "Sections 6 - 9, 20, and 25(b)"                                                                                
          Insert "Sections 6 - 9, 21, and 26(b)"                                                                                
                                                                                                                                
     Page 16, line 22:                                                                                                          
          Delete "Sections 19 and 25(c)"                                                                                        
          Insert "Sections 20 and 26(c)"                                                                                        
                                                                                                                                
     Page 16, line 23:                                                                                                          
          Delete "secs. 27 - 29"                                                                                                
          Insert "secs. 28 - 30"                                                                                                
                                                                                                                                
CO-CHAIR FEIGE objected for discussion purposes.                                                                                
                                                                                                                                
6:06:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI  explained that Amendment 25  would offer                                                               
a  tax  credit for  local  hire  and  was similar  to  provisions                                                               
included in  a portion of  [House Bill  308] that was  heard last                                                               
year by  the House  Resources Standing  Committee.   Amendment 25                                                               
would guarantee jobs for Alaskans  through a "carrot approach" to                                                               
investing  in  Alaska.    Without  Amendment  25  companies  will                                                               
continue to hire non-resident workers.   At a level of 80 percent                                                               
[Alaska resident  hire] a  company would be  rewarded with  a tax                                                               
credit.  He allowed that regulations  would need to be drafted to                                                               
implement the provisions.                                                                                                       
                                                                                                                                
6:07:35 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE  requested  the  Department  of  Law  to  address                                                               
whether the provision in Amendment 25 is constitutional.                                                                        
                                                                                                                                
MS.  POLLARD  responded that  there  are  definitely issues  when                                                               
trying   to   incentivize   one   thing   that   is   potentially                                                               
disincentivizing to  something else.  There  have been successful                                                               
cases  under   the  "privileges  and  immunities   clause"  where                                                               
somebody claims  that a  credit designed  to increase  local hire                                                               
disincentivizes the ability  to cross state lines.   For example,                                                               
Alaska had the 1978 Hicklin v.  Orbeck case [437 U.S. 518, United                                                             
States  Supreme Court].    There  can be  some  benefit to  local                                                               
residents,  such as  tuition for  local residents,  if a  certain                                                               
kind  of  problem  is  perceived   and  some  incentive  is  very                                                               
carefully drafted.                                                                                                              
                                                                                                                                
6:09:05 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE inquired  whether  the adoption  of Amendment  25                                                               
could potentially  be used  by other  industries to  require more                                                               
Alaska hire in those other industries, such as fishing.                                                                         
                                                                                                                                
MS.  POLLARD asked  whether the  co-chair is  meaning that  other                                                               
industries  would want  a credit  similar to  this or  that other                                                               
industries would be concerned about it.                                                                                         
                                                                                                                                
CO-CHAIR FEIGE said  it seems that this  proposed provision would                                                               
be  difficult to  enforce and  to define.   He  asked whether  it                                                               
would  force  people who  are  currently  nonresidents to  become                                                               
residents.                                                                                                                      
                                                                                                                                
MS. POLLARD concurred  that quite a few details would  have to be                                                               
worked out.   She said she thinks  of the 80 percent  in terms of                                                               
lease expenditures  because that  is where most  deductible wages                                                               
are  taken;  however,  she  presumed   that  Amendment  25  would                                                               
actually be  a broader determination  of wages  and compensation,                                                               
such as office workers.                                                                                                         
                                                                                                                                
6:11:10 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON understood  that the statute cited on  line 15 of                                                               
Amendment 25,  AS 43.82.230,  defines a  resident as  someone who                                                               
either qualifies  for the  permanent fund  dividend (PFD)  or has                                                               
lived in the state continuously for  an entire year.  He inquired                                                               
whether  this definition  would  be problematic  for  use in  job                                                               
status.                                                                                                                         
                                                                                                                                
MS. POLLARD replied that she is unsure.                                                                                         
                                                                                                                                
CO-CHAIR SEATON  understood that the  statute cited on line  6 of                                                               
Amendment 25, AS 43.55.011(e), relates to lease expenditures.                                                                   
                                                                                                                                
MS. POLLARD  clarified that AS  43.55.011(e) is where the  tax is                                                               
levied; lease expenditures is in AS 43.55.165.                                                                                  
                                                                                                                                
CO-CHAIR  SEATON noted  that when  the committee  considered this                                                               
provision previously  [in House Bill  308] there was  the problem                                                               
of deciding  who determined whether  a company had to  declare an                                                               
employee  as a  lease expense.    He asked  whether Amendment  25                                                               
includes a requirement that every  employee must be declared as a                                                               
lease expense  or is this tied  to lease expenses.   For example,                                                               
during consideration [of House Bill  308] it was pointed out that                                                               
a company could  simply not declare its  nonresident employees as                                                               
a lease expense as a means to qualify.                                                                                          
                                                                                                                                
MS.  POLLARD replied  she thinks  it is  more the  latter because                                                               
Amendment 25 just looks at 80 percent of wages and compensation.                                                                
                                                                                                                                
CO-CHAIR  SEATON understood  that  Amendment 25  is  not tied  to                                                               
lease expenditures.                                                                                                             
                                                                                                                                
MS.  POLLARD  answered, "No;  wages  and  compensation to  Alaska                                                               
residents."                                                                                                                     
                                                                                                                                
6:14:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON inquired whether the  Department of Law                                                               
would be able  to write regulations that would  prevent a lawsuit                                                               
if Amendment 25 was passed.                                                                                                     
                                                                                                                                
MS.  POLLARD  responded she  cannot  answer  one way  or  another                                                               
because the potential issue is  constitutional and the regulation                                                               
process cannot fix constitutional concerns.                                                                                     
                                                                                                                                
REPRESENTATIVE DICK commented that if  the committee was going to                                                               
error,  it could  error  on  the side  of  bringing the  proposed                                                               
provision into  the bill  because it  could be  cut out  later if                                                               
necessary.                                                                                                                      
                                                                                                                                
CO-CHAIR  SEATON  said people  can  vote  however they  want  for                                                               
whatever reasons.                                                                                                               
                                                                                                                                
REPRESENTATIVE HERRON  surmised that  if Amendment 25  became law                                                               
and a  problem was found,  this part of  the law could  be struck                                                               
and the rest of the legislation would be fine.                                                                                  
                                                                                                                                
MS. POLLARD  replied correct, there  is generally  a severability                                                               
in statute.                                                                                                                     
                                                                                                                                
6:16:58 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  asked whether the administration  has a position                                                               
on Amendment 25.                                                                                                                
                                                                                                                                
ACTING  COMISSIONER BUTCHER  said the  concerns mentioned  by Ms.                                                               
Pollard make  the administration uncomfortable with  the language                                                               
from a constitutional standpoint.                                                                                               
                                                                                                                                
CO-CHAIR  FEIGE recalled  that years  ago BP  had an  Alaska hire                                                               
requirement, but  he believes it  was overturned in a  court case                                                               
on  the   basis  that  the   requirement  for  Alaska   hire  was                                                               
unconstitutional.  He suggested that  the case law in this regard                                                               
be investigated.                                                                                                                
                                                                                                                                
ACTING COMISSIONER  BUTCHER allowed  that a higher  percentage of                                                               
Alaskans being  hired in all  areas of the state's  economy would                                                               
be appreciated, but  the issue is how  to do so in a  way that is                                                               
constitutional.                                                                                                                 
                                                                                                                                
6:18:48 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE  inquired  whether adopting  Amendment  25  would                                                               
result in a fiscal issue.                                                                                                       
                                                                                                                                
ACTING   COMISSIONER  BUTCHER   responded  there   may  be   some                                                               
difficulties in  verifying credit and  companies.  It is  hard to                                                               
say what the Department of Revenue  and the Department of Labor &                                                               
Workforce Development would have to do to police these credits.                                                                 
                                                                                                                                
CO-CHAIR  FEIGE surmised  that the  acting commissioner  believes                                                               
this type of rule would be problematic to enforce.                                                                              
                                                                                                                                
ACTING COMISSIONER  BUTCHER answered  that it would  require some                                                               
additional work but he cannot say how much.                                                                                     
                                                                                                                                
6:19:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MUNOZ understood  the credit  would apply  to the                                                               
percent of the  company's workforce that is over  80 percent; for                                                               
example, a workforce  of 90 percent residents would  receive a 10                                                               
percent credit.                                                                                                                 
                                                                                                                                
MR. BULLOCK agreed the intent of  Amendment 25 is to do as stated                                                               
by Representative  Munoz.  The  credit would be anywhere  from no                                                               
credit  to  up to  a  maximum  of 20  percent.    The 80  percent                                                               
establishes  a threshold  for  triggering  the eligibility,  then                                                               
once  eligible it  would be  1  percent credit  for each  percent                                                               
above 80.                                                                                                                       
                                                                                                                                
MR. BULLOCK, in  response to Co-Chair Seaton,  explained that the                                                               
credit  would be  a percentage  of  the tax  because the  statute                                                               
referred  to in  Amendment 25  is AS  43.55.011(e), which  is the                                                               
statute that levies the production tax.                                                                                         
                                                                                                                                
6:21:21 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MUNOZ  asked whether Amendment 25  would result in                                                               
a  double  deduction  since  employee  expenses  can  already  be                                                               
deducted from state and federal taxes.                                                                                          
                                                                                                                                
MR. BULLOCK replied that, as  an example, there are capital lease                                                               
expenditures under  AS 43.55.023  that would already  be eligible                                                               
for  a credit.    This  would be  similar  in  that the  employee                                                               
compensation may  be a lease  expenditure that is a  deduction to                                                               
determine the production tax value,  which is the number that the                                                               
tax is based on, and then this  is a credit in addition for those                                                               
same wages, provided the threshold is met.                                                                                      
                                                                                                                                
CO-CHAIR SEATON presumed  Amendment 25 would be  a good incentive                                                               
because  a company  could reduce  its tax  from 25  percent to  5                                                               
percent.                                                                                                                        
                                                                                                                                
MR.  BULLOCK allowed  it  has  the potential  to  reduce the  tax                                                               
significantly, but clarified  that it would be 20  percent of the                                                               
tax due that is reduced, not the tax rate that is reduced.                                                                      
                                                                                                                                
6:22:49 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE related  that a recent document  by the Department                                                               
of Labor &  Workforce Development reports that 26  percent of the                                                               
people  currently  employed  in  the oil  and  gas  industry  are                                                               
nonresidents, but  of the  new hires into  that industry  only 11                                                               
percent [are nonresident].   He used his experience  on the North                                                               
Slope to  surmise what happens  with the  other 15 percent:   the                                                               
work schedule of  two weeks on and two weeks  off, along with the                                                               
excellent  salary, allows  slope  workers and  their families  to                                                               
live in the  Lower 48 where it is warmer,  cheaper, and closer to                                                               
other family  members.  Thus,  an Alaska resident working  on the                                                               
slope can become a nonresident  while still keeping the same job.                                                               
He said he therefore sees Amendment 25 as a problem.                                                                            
                                                                                                                                
6:25:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI,  concluding the discussion  on Amendment                                                               
25,  opined  that  the  amendment   would  provide  a  credit  to                                                               
companies  that hire  Alaskans and  would therefore  be a  carrot                                                               
approach,  not  a  punitive  approach.     Regulations  would  be                                                               
promulgated  and,  if  found unconstitutional,  the  severability                                                               
clause would disconnect the provision from the rest of HB 110.                                                                  
                                                                                                                                
A roll  call vote was  taken.  Representatives  Kawasaki, Herron,                                                               
Foster,  Dick,  and  Gardner  voted in  favor  of  Amendment  25.                                                               
Representatives Wilson,  Munoz, Feige,  and Seaton  voted against                                                               
it.  Therefore, Amendment 25 was adopted by a vote of 5-4.                                                                      
                                                                                                                                
6:27:19 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON stated that Amendment 26 would not be offered.                                                                  
                                                                                                                                
CO-CHAIR SEATON  explained that  Amendment 27  relates to  the 40                                                               
percent tax credit.   It would roll in the  second and third year                                                               
prior  year average  and if  that value  is exceeded  the company                                                               
would  receive the  40 percent  enhanced credit  on the  enhanced                                                               
work,  rather  than basing  the  40  percent  tax credit  on  the                                                               
average amount of infield drilling  that the company did over the                                                               
past several years.   He said Amendment 27  would incentivize new                                                               
and higher amounts  of expenditures instead of  just doubling the                                                               
tax credit for the current amount of infield drilling.                                                                          
                                                                                                                                
CO-CHAIR  SEATON moved  that the  committee  adopt Amendment  27,                                                               
labeled 27-GH1007\A.44, Bullock, 2/24/11, which read:                                                                           
                                                                                                                                
     Page 11, line 11:                                                                                                          
          Delete "that expenditure; [A"                                                                                         
          Insert "a well lease expenditure incurred in the                                                                  
     state north  of 68 degrees North  latitude that exceeds                                                                
     the  average annual  well  lease  expenditures for  the                                                                
     second and third calendar years  preceding the year for                                                                
     which the credit is being  determined and 40 percent of                                                                
     a well  lease expenditure  incurred in the  state south                                                                
     of 68 degrees North latitude [THAT EXPENDITURE; A"                                                                     
                                                                                                                                
     Page 11, line 13:                                                                                                          
          Delete ";]"                                                                                                           
          Insert "];"                                                                                                           
                                                                                                                                
6:30:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P. WILSON  objected for  discussion purposes  and                                                               
requested the Department of Revenue to address the Amendment 27.                                                                
                                                                                                                                
ACTING  COMISSIONER  BUTCHER  responded that  the  Department  of                                                               
Revenue has  the same concerns with  Amendment 27 as it  did with                                                               
Amendment 8, which is that it  could result in a company spending                                                               
less over  a couple-of-year period  to qualify in  that preceding                                                               
year  for  the  40  percent and  potentially  be  detrimental  to                                                               
maintenance.  Additionally, Amendment  27 would require perpetual                                                               
growth that  might not be  sustainable when a company  is looking                                                               
long term at qualifying for  the credit.  The department believes                                                               
that the  amendment would make  Alaska's investment  climate less                                                               
attractive rather than more attractive.   In further response, he                                                               
elaborated that if  the expenditures have to exceed  those of the                                                               
preceding years, then  every year the expenditures  would have to                                                               
be more than the previous year  to qualify for the credit.  Thus,                                                               
over the long term a company  would be required to spend more and                                                               
more money on a year-by-year basis to qualify for the credit.                                                                   
                                                                                                                                
CO-CHAIR SEATON  pointed out that  this would not detract  from a                                                               
company receiving  the 20  percent capital  credits that  it gets                                                               
currently.                                                                                                                      
                                                                                                                                
ACTING COMISSIONER BUTCHER answered correct.                                                                                    
                                                                                                                                
6:32:23 PM                                                                                                                    
                                                                                                                                
A roll call  vote was taken.   Representatives Gardner, Kawasaki,                                                               
and  Seaton voted  in  favor of  Amendment  27.   Representatives                                                               
Wilson, Herron, Munoz, Foster, Dick,  and Feige voted against it.                                                               
Therefore, Amendment 27 failed by a vote of 3-6.                                                                                
                                                                                                                                
6:33:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON  reiterated his earlier testimony  that the                                                               
25 percent  provision in HB 110  is too high.   He suggested that                                                               
the next committee  consider a change to 20 percent  as well as a                                                               
change to the  progressive brackets.  However, he  stated that he                                                               
won't  offer  an  amendment  to change  the  provision  and  will                                                               
support  moving   HB  110  from  the   House  Resources  Standing                                                               
Committee.                                                                                                                      
                                                                                                                                
6:34:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KAWASAKI   related  that  he  spent   four  years                                                               
studying this bill,  but charged that the committee  has not done                                                               
its due  diligence on HB  110.  He characterized  HB 110 as  a $2                                                               
billion gamble, a leap of  faith that doesn't necessarily get the                                                               
state what  it wants.   Furthermore, HB  110 places the  state in                                                               
fiscal risk in the future.   With regard to his earlier statement                                                               
that he doesn't trust Exxon Mobil,  he clarified that he means he                                                               
doesn't trust it to  do what is good for the  state.  However, he                                                               
expected the legislature to do what  is good for the state and to                                                               
have the state's  fiscal house in order.   This legislation gives                                                               
away  $2  billion  on  the offset  and  only  opinion,  anecdotal                                                               
evidence, and  industry testimony  has been  heard.   Although he                                                               
said he had full faith in  the Department of Law and [DOR] staff,                                                               
he opined  that they  are outnumbered  and outgunned.   Moreover,                                                               
there have been  many questions that have not been  answered.  In                                                               
conclusion, Representative Kawasaki opined  that moving HB 110 is                                                               
premature  and until  the answers  are received  he said  he will                                                               
oppose HB 110.                                                                                                                  
                                                                                                                                
6:36:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GARDNER  agreed with Representative  Kawasaki that                                                               
the committee  hasn't seen data  to support the premise  that the                                                               
tax  deductions and  credits  of up  to $2  billion  a year  will                                                               
result in a change in the  investment decisions of the majors who                                                               
stand to  benefit by  90 percent or  more of these  funds.    She                                                               
said that to  the extent HB 110 encourages small  companies it is                                                               
good, but  that is  only a  small portion.   She  questioned what                                                               
would happen if one year's fiscal  impact from HB 110 was offered                                                               
to whoever was able to get new  wells on line the fastest or used                                                               
those   funds   to   build   roads   to   wells   or   prospects.                                                               
Representative Gardner  opined that HB  110 isn't a good  or well                                                               
constructed gamble with  Alaska's future.  She  related she'll be                                                               
voting against HB 110.                                                                                                          
                                                                                                                                
6:38:18 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON  opined  that  the adopted  amendments  for  the                                                               
explorers, producers, and increasing  the exploration tax credits                                                               
will be valuable  because they are targeted.   Unfortunately, the                                                               
majority of the [tax credit  funds] will detract from the state's                                                               
budget and  prevent development of the  state's resources because                                                               
there  are  other schedules  at  work  that  are not  related  to                                                               
Alaska's tax scheme.  Therefore,  the wrong lever is being pulled                                                               
and it will  be very costly for the state  and the development of                                                               
the state's resources.                                                                                                          
                                                                                                                                
6:39:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  DICK  remarked that  if  he  thought HB  110  was                                                               
leaving  the  House Resources  Standing  Committee  and going  to                                                               
reality,  he   wouldn't  move  to  forward   it  from  committee.                                                               
However,  he  said   that  since  he  has   confidence  that  the                                                               
legislation will be worked on  in the next committee of referral,                                                               
and in the  Senate, and possibly in the interim,  he will vote to                                                               
forward it from committee today.                                                                                                
                                                                                                                                
6:40:04 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE told  the committee  that  when he  ran for  this                                                               
position, the  top priority he had  was the reform of  ACES.  The                                                               
work on HB 110  will go far to put more oil in  the pipeline.  He                                                               
characterized the legislation as  a good start, particularly with                                                               
the  amendments   that  will  add  incentives   to  the  original                                                               
legislation.    He  opined  that  the  House  Resources  Standing                                                               
Committee has  done its  job.  Co-Chair  Feige then  reminded the                                                               
committee of  the testimony  it heard  regarding that  if nothing                                                               
was done  the flow  of oil in  TAPS would stop,  which has  to be                                                               
balanced  with the  hit on  the revenue  side.   This process  of                                                               
determining what to  cut, he said, is all part  of being fiscally                                                               
responsible.                                                                                                                    
                                                                                                                                
6:41:51 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE  moved to  report  HB  110,  as amended,  out  of                                                               
committee  with individual  recommendations  and the  forthcoming                                                               
fiscal notes.                                                                                                                   
                                                                                                                                
REPRESENTATIVE KAWASAKI objected.                                                                                               
                                                                                                                                
6:42:23 PM                                                                                                                    
                                                                                                                                
A roll  call vote  was taken.   Representatives Dick,  P. Wilson,                                                               
Herron,  Munoz,  Foster, Feige,  and  Seaton  voted in  favor  of                                                               
reporting HB  110, as amended,  from committee.   Representatives                                                               
Gardner and Kawasaki voted against  it.  Therefore, CSHB 110(RES)                                                               
was reported out  of the House Resources Standing  Committee by a                                                               
vote of 7-2.                                                                                                                    
                                                                                                                                
6:43:10 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Resources Standing Committee meeting was adjourned at 6:43 p.m.                                                                 

Document Name Date/Time Subjects
HB 110 Amendments.PDF HRES 2/28/2011 1:00:00 PM
HRES HB 110 Amendments adopted 2.25.11.PDF HRES 2/28/2011 1:00:00 PM
HB 110
House Resources Amendment.pptx HRES 2/28/2011 1:00:00 PM
Public Testimony on HB 110 through 3.7.11.PDF HRES 2/28/2011 1:00:00 PM
HB 110