Legislature(2011 - 2012)HOUSE FINANCE 519

04/24/2012 09:00 AM RESOURCES


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09:17:52 AM Start
09:19:48 AM HB3001
12:06:09 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
In Participation with House ENE
+= HB3001 OIL AND GAS PRODUCTION TAX TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
Presentation: Fiscal Note & Sectional Analysis
by Dept. of Revenue
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                         April 24, 2012                                                                                         
                           9:17 a.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 Anna Fairclough                                                                                                  
Representative Mike Doogan                                                                                                      
Representative Bob Lynn                                                                                                         
Representative Kurt Olson                                                                                                       
Representative Dan Saddler                                                                                                      
Representative Pete Petersen                                                                                                    
Representative Chris Tuck                                                                                                       
Representative Lance Pruitt                                                                                                     
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 3001                                                                                                             
"An Act  relating to  adjustments to oil  and gas  production tax                                                               
values  based on  a percentage  of gross  value at  the point  of                                                               
production for  oil and  gas produced  from leases  or properties                                                               
north  of   68  degrees  North  latitude;   relating  to  monthly                                                               
installment payments of the oil  and gas production tax; relating                                                               
to  the determinations  of  oil and  gas  production tax  values;                                                               
relating  to  oil  and  gas   production  tax  credits  including                                                               
qualified  capital  credits   for  exploration,  development,  or                                                               
production; making  conforming amendments;  and providing  for an                                                               
effective date."                                                                                                                
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB3001                                                                                                                  
SHORT TITLE: OIL AND GAS PRODUCTION TAX                                                                                         
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
04/18/12       (H)       READ THE FIRST TIME - REFERRALS                                                                        
04/18/12       (H)       RES, FIN                                                                                               
04/20/12       (H)       RES AT 1:00 PM HOUSE FINANCE 519                                                                       
04/20/12       (H)       Heard & Held                                                                                           
04/20/12       (H)       MINUTE(RES)                                                                                            
04/21/12       (H)       RES AT 10:00 AM HOUSE FINANCE 519                                                                      
04/21/12       (H)       Heard & Held                                                                                           
04/21/12       (H)       MINUTE(RES)                                                                                            
04/21/12       (H)       RES AT 2:00 PM HOUSE FINANCE 519                                                                       
04/21/12       (H)       Heard & Held                                                                                           
04/21/12       (H)       MINUTE(RES)                                                                                            
04/23/12       (H)       RES AT 9:00 AM HOUSE FINANCE 519                                                                       
04/23/12       (H)       Heard & Held                                                                                           
04/23/12       (H)       MINUTE(RES)                                                                                            
04/23/12       (H)       RES AT 1:00 PM HOUSE FINANCE 519                                                                       
04/23/12       (H)       Heard & Held                                                                                           
04/23/12       (H)       MINUTE(RES)                                                                                            
04/24/12       (H)       RES AT 9:00 AM HOUSE FINANCE 519                                                                       
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
SUSAN POLLARD, Assistant Attorney General                                                                                       
Oil, Gas & Mining Section                                                                                                       
Civil Division (Juneau)                                                                                                         
Department of Law (DOL)                                                                                                         
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Presented the sectional analysis of                                                                      
HB 3001.                                                                                                                        
                                                                                                                                
BRUCE TANGEMAN, Deputy Commissioner                                                                                             
Office of the Commissioner                                                                                                      
Department of Revenue (DOR)                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Participated in the sectional analysis of                                                                
HB 3001, and presented the DOR's fiscal note.                                                                                   
                                                                                                                                
LENNIE DEES, Production Audit Master                                                                                            
Anchorage Office                                                                                                                
Tax Division                                                                                                                    
Department of Revenue (DOR)                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   Answered questions  during the  hearing on                                                             
HB 3001.                                                                                                                        
                                                                                                                                
JOHN LARSEN, Production Audit Master                                                                                            
Anchorage Office                                                                                                                
Tax Division                                                                                                                    
Department of Revenue (DOR)                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   Answered questions  during the  hearing on                                                             
HB 3001.                                                                                                                        
                                                                                                                                
DAN STICKEL, Acting Chief Economist                                                                                             
Anchorage Office                                                                                                                
Tax Division                                                                                                                    
Department of Revenue (DOR)                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:    Answered questions  regarding  the  DOR's                                                             
fiscal note during the hearing on HB 3001.                                                                                      
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
9:17:52 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  PAUL   SEATON  called  the  House   Resources  Standing                                                             
Committee meeting to  order at 9:17 a.m.  Present  at the call to                                                               
order   were  Representatives   Seaton,  Feige,   Dick,  Gardner,                                                               
Kawasaki, P.  Wilson, Herron, Munoz,  and Foster.   In attendance                                                               
from the  House Special Committee on  Energy were Representatives                                                               
Pruitt, Lynn, Olson,  Saddler, Petersen, and Tuck.   Also present                                                               
were Representatives Fairclough and Doogan.                                                                                     
                                                                                                                                
               HB3001-OIL AND GAS PRODUCTION TAX                                                                            
                                                                                                                                
9:19:48 AM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON announced  that the only order  of business would                                                               
be HOUSE  BILL NO. 3001, "An  Act relating to adjustments  to oil                                                               
and  gas production  tax values  based on  a percentage  of gross                                                               
value at  the point of production  for oil and gas  produced from                                                               
leases  or  properties  north  of   68  degrees  North  latitude;                                                               
relating  to monthly  installment  payments of  the  oil and  gas                                                               
production tax;  relating to  the determinations  of oil  and gas                                                               
production tax  values; relating  to oil  and gas  production tax                                                               
credits  including  qualified  capital credits  for  exploration,                                                               
development,  or production;  making  conforming amendments;  and                                                               
providing for an effective date."                                                                                               
                                                                                                                                
CO-CHAIR SEATON  relayed that the  committee would  be addressing                                                               
HB 3001's  sectional analysis and  fiscal note,  and acknowledged                                                               
the presence  of the commissioner  of the Department  of Revenue,                                                               
Bryan Butcher.                                                                                                                  
                                                                                                                                
9:22:39 AM                                                                                                                    
                                                                                                                                
SUSAN  POLLARD, Assistant  Attorney  General, Oil,  Gas &  Mining                                                               
Section,  Civil  Division (Juneau),  Department  of  Law (DOL)  -                                                               
referring  to  the  Department of  Revenue's  sectional  analysis                                                               
detailing HB  3001's proposed  changes to AS  43.55, Oil  and Gas                                                               
Production Tax - explained first that  Section 13 would add a new                                                               
section 162  providing for  a reduction  of production-tax-value,                                                               
sometimes referred to as a  gross-revenue exclusion, for purposes                                                               
of  calculating   the  base  tax   rate  and  what   she  termed,                                                               
"progressivity,"  under AS  43.55.011(e)  and (g),  respectively,                                                               
and  is  intended  to  apply  to production  from  both  new  and                                                               
existing fields  on the  North Slope.   Specifically, via  use of                                                               
the  language, "from  leases or  properties north  of 68  degrees                                                               
North  latitude that  were not,  as  of January  1, 2008,  either                                                               
within a  unit or  in commercial  production", subsection  (a) of                                                               
proposed  new  AS  43.55.162   addresses  new  field  production,                                                               
additionally stipulating  that its proposed 30  percent reduction                                                               
applies  to both  the base  rate  and progressivity  and that  it                                                               
would be applicable during [the  first 10 consecutive years after                                                               
the  later of  either the  start of  sustained production  or the                                                               
effective date of  this proposed new section].   It's very likely                                                               
that it's  always going  to be [for]  the first  10 [consecutive]                                                               
years  after   the  start  of  sustained   production  once  this                                                               
section's  proposed  effective  date  is  passed,  she  remarked,                                                               
surmising that the  language of subsection (a) was  written as it                                                               
was simply  "to accommodate the  possibility that there  would be                                                               
some production that would ...  qualify before the effective date                                                               
of the ... [section]."                                                                                                          
                                                                                                                                
MS. POLLARD, in response to  questions, offered her understanding                                                               
that the intention  is to ensure that all new  North Slope fields                                                               
enjoy  subsection  (a)'s proposed  30  percent  reduction for  at                                                               
least 10 consecutive years.                                                                                                     
                                                                                                                                
BRUCE TANGEMAN, Deputy Commissioner,  Office of the Commissioner,                                                               
Department of Revenue (DOR), concurred.                                                                                         
                                                                                                                                
9:28:57 AM                                                                                                                    
                                                                                                                                
MS. POLLARD,  in response to  another question, relayed  that the                                                               
term, "sustained  production" is defined under  subsection (l)(3)                                                               
of existing  AS 43.55.025  - Alternative tax  credit for  oil and                                                               
gas exploration  - as production of  oil or gas from  a reservoir                                                               
into a pipeline  or other means of transportation  to market, but                                                               
does not include testing, evaluation, or pilot production.                                                                      
                                                                                                                                
MR.  TANGEMAN,   in  response  to  a   question,  explained  that                                                               
Section 13's  proposed effective  date is  January 1,  2013; that                                                               
for  purposes of  determining  which fields  to  consider as  new                                                               
fields under  subsection (a), the  administration chose  the date                                                               
of January  1, 2008, to  be the  delineating date; and  that that                                                               
would  allow  [the  production-tax-value   of  any  oil  and  gas                                                               
produced  from such  new  fields]  over the  last  four years  to                                                               
qualify for subsection (a)'s proposed 30 percent reduction.                                                                     
                                                                                                                                
REPRESENTATIVE  SADDLER asked  whether existing  law's definition                                                               
of the term "sustained production" would apply to the bill.                                                                     
                                                                                                                                
MS. POLLARD indicated that it would.                                                                                            
                                                                                                                                
MR.  TANGEMAN,  in  response questions,  relayed  that  having  a                                                               
delineation date of  January 1, 2008, would  allow more companies                                                               
to   qualify  for   subsection   (a)'s   proposed  reduction   of                                                               
production-tax-value, and  is intended to  provide them  with the                                                               
incentive  to   accelerate  certain  projects;  and   that  there                                                               
currently are companies with projects  that could qualify for the                                                               
proposed reduction.                                                                                                             
                                                                                                                                
CO-CHAIR  FEIGE   offered  his   understanding  that   some  such                                                               
companies are waiting to be  provided with some kind of incentive                                                               
before starting production, and that  that is why that particular                                                               
delineation date  was chosen for  purposes of  distinguishing new                                                               
fields from existing ones.                                                                                                      
                                                                                                                                
9:36:55 AM                                                                                                                    
                                                                                                                                
MR. TANGEMAN  added that under  the proposed delineation  date of                                                               
January 1, 2008, [the companies]  "Great Bear, Repsol, Armstrong,                                                               
Brooks  Range, [and]  anything with  new activity"  would qualify                                                               
for subsection (a)'s  proposed reduction of production-tax-value,                                                               
but the  Point Thomson, Oooguruk,  and Nikaitchuq  [fields] would                                                               
not.   In response to  comments and questions, he  clarified that                                                               
Section  13 does  not address  facilities, but  instead addresses                                                               
production related  to certain fields,  and thus  what particular                                                               
facility  the oil  or  gas  is going  through  is irrelevant  for                                                               
purposes  of  calculating  Section  13's  proposed  reduction  of                                                               
production-tax-value; if the oil or  gas is produced from a field                                                               
that qualifies under Section 13's  proposed AS 43.55.162(a), then                                                               
the production-tax-value of  that oil or gas would  be reduced as                                                               
stipulated regardless of which facility is used.                                                                                
                                                                                                                                
CO-CHAIR  SEATON asked  that information  be provided  in writing                                                               
regarding  which  North  Slope  fields  would  be  covered  under                                                               
subsection (a) and which would not.                                                                                             
                                                                                                                                
REPRESENTATIVE  HERRON asked  for the  rationale behind  choosing                                                               
30 percent for subsection (a)'s proposed reduction.                                                                             
                                                                                                                                
MR.  TANGEMAN explained  that  the  DOR ran  a  model using  that                                                               
percentage  and determined  it would  be fair,  both in  terms of                                                               
providing  an  incentive for  new  production,  and in  terms  of                                                               
providing a  starting point for  conversations between  the state                                                               
and  industry.   In  response  to a  question,  he expressed  his                                                               
belief that "fair" is what will  bring the most investment to the                                                               
state in  order to increase production.   Based on the  fact that                                                               
industry activity  is occurring elsewhere  but not in  Alaska, it                                                               
appears that  what Alaska currently has  in place is not  fair to                                                               
industry, although  it works  quite well  for bringing  cash into                                                               
the  state in  the short-term.   However,  the administration  is                                                               
looking  for  what  is  fair,   long-term,  for  industry,  while                                                               
continuing to  ensure that the  state is getting its  fair share.                                                               
He opined that the state is  "over-collecting" at this point.  In                                                               
response to comments and questions,  he indicated that Section 13                                                               
also  addresses what  would be  considered existing  fields under                                                               
its proposed  delineation date  of January 1,  2008, and  does so                                                               
because  it was  felt that  addressing only  new fields  would be                                                               
insufficient  in  terms  of providing  industry  with  meaningful                                                               
incentives.                                                                                                                     
                                                                                                                                
9:46:07 AM                                                                                                                    
                                                                                                                                
MS.  POLLARD,  continuing  with  her  explanation  of  HB  3001's                                                               
proposed  changes  to  AS 43.55,  turned  members'  attention  to                                                               
Section  13's proposed  new AS  43.55.162(b), and  explained that                                                               
for  purposes   of  calculating  progressivity,   subsection  (b)                                                               
provides for  a 40 percent reduction  of the production-tax-value                                                               
of  oil  and  gas  produced from  existing  North  Slope  fields,                                                               
described  therein  as  "oil  and gas  produced  from  leases  or                                                               
properties north  of 68  degrees North  latitude, other  than oil                                                               
and gas subject to subsection (a)" of proposed new AS 43.55.162.                                                                
                                                                                                                                
REPRESENTATIVE  HERRON asked  for the  rationale behind  choosing                                                               
40 percent for subsection (b)'s proposed reduction.                                                                             
                                                                                                                                
MR. TANGEMAN relayed that the  administration chose 40 percent as                                                               
a  good place  to  start  based on  input  from  and activity  by                                                               
industry.   In response  to another  question, he  indicated that                                                               
the administration  would be amenable to  having subsection (b)'s                                                               
proposed percentage  changed as  long as both  the administration                                                               
and industry agree  that the new percentage  would still engender                                                               
a [positive] change in Alaska's investment climate.                                                                             
                                                                                                                                
REPRESENTATIVE GARDNER,  in response  to comments  addressing the                                                               
issue  of industry  commitments,  offered  her recollection  that                                                               
without making any  actual commitments to increasing  oil and gas                                                               
activity  in Alaska,  industry  has said  only  that changes  [to                                                               
Alaska's  oil   and  gas  tax   structure]  "may  help."     Such                                                               
statements, she  pointed out,  are not  a guarantee  that passing                                                               
HB 3001 -  or any other such  bill - would result  in the sought-                                                               
after  level of  industry investment  in Alaska,  or a  guarantee                                                               
that  not passing  such a  bill would  result in  that investment                                                               
never occurring.                                                                                                                
                                                                                                                                
REPRESENTATIVE  TUCK questioned  why  existing  fields should  be                                                               
given  a  reduction  in   production-tax-value  for  purposes  of                                                               
calculating   progressivity,   particularly    given   that   the                                                               
[legislature's  consultants]   have  declined  to   speculate  on                                                               
whether  [HB 3001]  really would  reduce the  current decline  in                                                               
production,  but  have  indicated   that  Alaska's  existing  tax                                                               
structure already adequately addresses existing fields.                                                                         
                                                                                                                                
MR. TANGEMAN relayed that the goal  is to provide industry with a                                                               
more competitive  tax structure  for existing North  Slope fields                                                               
as an incentive to increase production from them.                                                                               
                                                                                                                                
REPRESENTATIVE   TUCK  questioned   how  Section   13's  proposed                                                               
AS 43.55.162(b)  would   help  reduce  the  current   decline  in                                                               
production.                                                                                                                     
                                                                                                                                
MR. TANGEMAN reiterated  that under it, Alaska would  have a more                                                               
competitive tax structure for existing  fields - an incentive for                                                               
industry  to increase  production from  such fields.   The  state                                                               
must  decide whether  to  simply accept  the  current decline  in                                                               
production, or lower its tax rates  in some fashion so as to draw                                                               
in  more  industry  investment  in  an  attempt  to  reduce  that                                                               
decline.                                                                                                                        
                                                                                                                                
CO-CHAIR  SEATON,  in response  to  comments  regarding high  oil                                                               
prices, stressed  the importance  of ensuring  that Alaska  has a                                                               
tax  structure that's  adaptive  to  oil-price fluctuations,  and                                                               
expressed concern that with regard  to new field production under                                                               
Section 13's proposed  new AS 43.55.162(a), revenue  to the state                                                               
would be reduced and industry  could make a profit without paying                                                               
any production tax.                                                                                                             
                                                                                                                                
10:03:14 AM                                                                                                                   
                                                                                                                                
LENNIE  DEES,  Production  Audit Master,  Anchorage  Office,  Tax                                                               
Division,  Department of  Revenue (DOR),  acknowledged that  such                                                               
could   result  once   tax  credits   are  applied,   though  the                                                               
calculation  for the  [base tax  rate] would  remain the  same as                                                               
under existing law.                                                                                                             
                                                                                                                                
REPRESENTATIVE  MUNOZ  asked  whether  [the DOR]  has  a  way  to                                                               
quantify current  industry investment  addressing the  decline in                                                               
production  compared to  the  investment  anticipated [under  the                                                               
bill].                                                                                                                          
                                                                                                                                
MR. TANGEMAN indicated that [the DOR] does not.                                                                                 
                                                                                                                                
REPRESENTATIVE  TUCK,  referring  to Section  13's  proposed  new                                                               
AS 43.55.162(b),  questioned whether  anything would  ensure that                                                               
industry invested its profits in Alaska.                                                                                        
                                                                                                                                
MR. TANGEMAN  offered his belief  that the existence  of Alaska's                                                               
significant  remaining oil  and  gas reserves  would ensure  that                                                               
such  investment  occurs.   In  response  to comments,  he  again                                                               
reiterated  his belief  that in  providing industry  with a  more                                                               
competitive  tax structure  for existing  fields, subsection  (b)                                                               
would  serve  as an  incentive  to  increase investment  in,  and                                                               
production  from, such  fields.   In response  to a  question, he                                                               
explained  that existing  law already  addresses calculating  the                                                               
gross  value of  oil  and gas  at the  point  of production,  and                                                               
calculating  both the  annual and  monthly production-tax-values,                                                               
and that  nothing in the  bill would change those  calculations -                                                               
Section 13's  proposed reduction wouldn't be  applied until after                                                               
those other calculations are made.                                                                                              
                                                                                                                                
MS.  POLLARD  drew attention  to  Section  13's proposed  new  AS                                                               
43.55.162(c),  and explained  that similar  to subsection  (b) of                                                               
existing  AS 43.55.160  - under  which production-tax-values  are                                                               
calculated  -   it  stipulates  that   the  annual   and  monthly                                                               
production-tax-value   may    not   be   reduced    below   zero.                                                               
Section 13's  proposed new  AS 43.55.162(d)  stipulates that  the                                                               
tax   rate   under  AS   43.55.011(g)   -   what's  been   termed                                                               
"progressivity" -  shall be determined before  the application of                                                               
subsection (a) or (b)'s proposed reduction.                                                                                     
                                                                                                                                
MR. DEES, in response to  a question, reiterated that calculating                                                               
the  gross  value at  point  of  production and  calculating  the                                                               
annual and  monthly production-tax-values would not  change under                                                               
the   bill,  and   that  Section   13's  proposed   reduction  of                                                               
production-tax-value  wouldn't be  applied  until  after both  of                                                               
those calculations have been made,  and indicated that Section 13                                                               
in and  of itself  doesn't address operating  costs or  losses or                                                               
the impact  of those  costs/losses on the  total amount  of taxes                                                               
paid.                                                                                                                           
                                                                                                                                
CO-CHAIR SEATON  observed that Section 13  isn't really providing                                                               
for  an  actual gross-revenue  exclusion  regardless  of how  the                                                               
administration is  referring to  it - Section  13 is  really just                                                               
providing for a reduction of production-tax-value.                                                                              
                                                                                                                                
MS. POLLARD directed members' attention  to Section 13's proposed                                                               
new  AS  43.55.162(e),  and explained  that  it  stipulates  that                                                               
proposed  new AS  43.55.162  would not  apply  to [gas]  produced                                                               
before 2022  and used in  the state.   Section 13's  proposed new                                                               
AS 43.55.162(f) stipulates that no  adjustment under AS 43.55.162                                                               
may be made if the annual or  monthly gross value at the point of                                                               
production is zero or below.                                                                                                    
                                                                                                                                
10:19:35 AM                                                                                                                   
                                                                                                                                
MS.  POLLARD went  on to  explain that  Sections 1,  2, and  3 of                                                               
HB 3001,  respectively, provide  conforming  changes -  regarding                                                               
Section  13's proposed  reduction  of  production-tax-value -  to                                                               
AS 43.55.011(e)(1),  addressing  the  calculation of  the  annual                                                               
production-tax-value  for purposes  of calculating  the base  tax                                                               
rate;  to  AS 43.55.011(g),  addressing  the  calculation of  the                                                               
monthly production-tax-value  for purposes of  calculating what's                                                               
been termed, "progressivity"; and  to AS 43.55.020(a), addressing                                                               
monthly installment payments of estimated  taxes.  She noted that                                                               
Section 3 also provides AS  43.55.020(a) and its paragraph (1)(A)                                                               
and  (C)  with  reworded  references  to  AS  43.55.011  and  its                                                               
subsections.   Section 4 of  HB 3001 would amend  AS 43.55.023(a)                                                               
by removing  the words, "however, not  more than half of  the tax                                                               
credit may be  applied for a single calendar year;"  from the end                                                               
of existing  paragraph (1) so that  a tax credit for  a qualified                                                               
capital expenditure could be applied  for a single calendar year,                                                               
instead  of having  to  be  split and  applied  for two  calendar                                                               
years.                                                                                                                          
                                                                                                                                
The  committee  took  three  at-eases   between  10:25  a.m.  and                                                               
10:54 a.m., the last two to address technical difficulties.                                                                     
                                                                                                                                
CO-CHAIR  SEATON,   in  response  to  a   question,  offered  his                                                               
understanding that  the date of  2022 referenced in  Section 13's                                                               
proposed new  AS 43.55.162(e) is  the same date used  in existing                                                               
law regarding gas used in the state.                                                                                            
                                                                                                                                
MS. POLLARD  then explained  that Sections  5 and  6 of  HB 3001,                                                               
respectively, provide  conforming changes to AS  43.55.023(d) and                                                               
(g) - addressing tax credit  certificates - regarding Section 4's                                                               
proposed change  to AS 43.55.023(a)  and [Section  14's] proposed                                                               
repeal of  AS 43.55.023(m), a  provision addressing  the issuance                                                               
of  multiple, transferable  tax-credit  certificates.   Also,  to                                                               
address  an  oversight made  when  existing  AS 43.55.023(l)  was                                                               
enacted, Section  5 adds well  lease expenditures to the  list of                                                               
items in AS  43.55.023(d) for which a tax credit  may be claimed.                                                               
Furthermore, the changes  that would be made via  Sections 4-6 in                                                               
order  to allow  the  application of  a tax  credit  in a  single                                                               
calendar year would  similarly be made elsewhere  in AS 43.55.023                                                               
via other provisions of HB 3001.                                                                                                
                                                                                                                                
MR.  TANGEMAN,  in  response to  questions,  explained  that  tax                                                               
credit certificates are the mechanism  by which industry realizes                                                               
its tax credits, and confirmed that  under the bill, a tax credit                                                               
for  a  qualified capital  expenditure  could  be applied  for  a                                                               
single calendar year,  instead of having to be  split and applied                                                               
for two calendar years.                                                                                                         
                                                                                                                                
MS.  POLLARD turned  the committee's  attention to  Section 7  of                                                               
HB 3001, and explained that by  deleting the phrase, "south of 68                                                               
degrees  North  latitude"  throughout   AS  43.55.023(l)  and  by                                                               
replacing the date currently stipulated  therein, Section 7 would                                                               
ensure that a  producer or explorer could apply for  a tax credit                                                               
for  any  well lease  expenditure  incurred  in the  state  after                                                               
December 31,  2012; Section 7  also provides a  conforming change                                                               
regarding allowing  the application of  a tax credit in  a single                                                               
calendar year.  Section 8  of HB 3001 provides conforming changes                                                               
to  AS  43.55.023(n)  -  which  stipulates  what  constitutes  an                                                               
applicable  well  lease  expenditure   -  regarding  Section  7's                                                               
proposed changes  to subsection  (l) and [Section  14's] proposed                                                               
repeal of subsection (m).  She  indicated that Section 8 is going                                                               
to require a technical amendment  splitting it into two, separate                                                               
sections because  currently under the  bill, [both Section  7 and                                                               
Section 8 have]  an effective date of January 1,  2013, but apply                                                               
to  expenditures incurred  after  December 31,  2012, whereas  in                                                               
contrast,  [Section 14 has  an immediate  effective date  but] is                                                               
retroactive to January 1, 2012.                                                                                                 
                                                                                                                                
11:02:38 AM                                                                                                                   
                                                                                                                                
JOHN  LARSEN,  Production  Audit Master,  Anchorage  Office,  Tax                                                               
Division, Department of Revenue (DOR),  in response to a question                                                               
regarding  language  in  Section   8,  explained  that  operating                                                               
expenses would  not be eligible for  a well-lease-expenditure tax                                                               
credit because the  language of AS 43.55.023(n)  - [both existing                                                               
and under  the bill] -  stipulates that  to be considered  a well                                                               
lease  expenditure eligible  for  a tax  credit, the  expenditure                                                               
must  be  directly related  to  certain  types of  wells,  listed                                                               
therein,  and be  both  a qualified  capital  expenditure and  an                                                               
intangible  drilling   and  development  cost   authorized  under                                                               
certain   provisions  of   federal  law,   listed  therein,   and                                                               
stipulates that an  expenditure directly related to  a well could                                                               
include  an expenditure  for  certain  activity, listed  therein.                                                               
With regard  to the  term, "well  workover" -  one of  the listed                                                               
activities in  Section 8  - he  added that  a well  workover that                                                               
merely  repaired a  well  or maintained  a well  would  not be  a                                                               
qualifying activity,  but a well  workover that  either increased                                                               
production or  added what  he called, "rate"  would be,  and that                                                               
this  [interpretation]  is consistent  with  how  federal law  is                                                               
applied with regard to federal tax.                                                                                             
                                                                                                                                
CO-CHAIR SEATON  expressed interest in obtaining  a written legal                                                               
opinion  regarding  the  language  in  Section  8's  proposed  AS                                                               
43.55.023(n).                                                                                                                   
                                                                                                                                
MR. LARSEN,  in response to  another question, ventured  that the                                                               
purpose  of  the bill's  proposed  changes  regarding well  lease                                                               
expenditures  and associated  tax  credits is  to encourage  more                                                               
industry investment on the North Slope.                                                                                         
                                                                                                                                
MR.  TANGEMAN, in  response to  a further  question, offered  his                                                               
understanding that  existing AS  43.55.023(n) did result  in more                                                               
industry investment in other parts of the state.                                                                                
                                                                                                                                
MR.  LARSEN,  in  response  to a  question  regarding  the  term,                                                               
"intangible   drilling  and   development   cost"   as  used   in                                                               
Section 8's  proposed  AS  43.55.023(n)(1), explained  that  such                                                               
costs are generally  those associated with things  that cannot be                                                               
salvaged/reused, such as labor, cement, lubricants.                                                                             
                                                                                                                                
11:13:27 AM                                                                                                                   
                                                                                                                                
MS.  POLLARD  then  directed members'  attention  to  Sections  9                                                               
and 10 of  HB 3001,  and explained  that they  provide conforming                                                               
changes  to  AS  43.55.028(e) and  (g),  respectively,  regarding                                                               
[Section 14's]  proposed repeal of AS  43.55.023(m); AS 43.55.028                                                               
addresses the  oil and gas tax  credit fund and purchases  of tax                                                               
credit certificates,  and would not  otherwise be changed  by the                                                               
bill.  Section 11 of HB  3001 repeals and reenacts AS 43.55.160 -                                                               
which  stipulates how  annual  and monthly  production-tax-values                                                               
shall be  calculated for  the various  "subsets" of  production -                                                               
providing clarification  as well as conforming  changes regarding                                                               
Section  13's  proposed new  AS  43.55.162.   Under  Section  11,                                                               
proposed AS 43.55.160(a)(1)(A) would  address production from new                                                               
North  Slope fields,  and  proposed  AS 43.55.160(a)(1)(B)  would                                                               
address  production  from  existing  North  Slope  fields;  these                                                               
subparagraphs  (A)   and  (B)   contain  the   applicability  and                                                               
delineation-date language used in Section  13.  There would be no                                                               
change, however,  to how the  annual and  monthly production-tax-                                                               
values are calculated.                                                                                                          
                                                                                                                                
MS. POLLARD  noted that  recently-passed legislation  also amends                                                               
AS   43.55.160(a),   and   explained    that   that's   why   the                                                               
administration has chosen  to repeal and reenact  that section of                                                               
statute via  HB 3001:   so  as to ensure  the readability  of the                                                               
changes  being  made   by  the  two  bills   to  that  provision.                                                               
Additionally, HB 3001 contains a  provision directing the revisor                                                               
of statutes  to give  preference to HB  3001 should  any conflict                                                               
arise  when those  two Acts  are consolidated  into statute.   In                                                               
response  to a  question, she  touched on  aspects of  that other                                                               
legislation.  In  conclusion, she reiterated that  the way annual                                                               
and  monthly production-tax-values  are calculated  is not  being                                                               
changed  via  HB  3001's  proposed   repeal  and  reenactment  of                                                               
AS 43.55.160(a).                                                                                                                
                                                                                                                                
MS. POLLARD went  on to explain that Section 12  of HB 3001 would                                                               
provide conforming changes to  AS 43.55.160(e) regarding [Section                                                               
11's]  proposed changes  to AS  43.55.160(a)(1).   Section 14  of                                                               
HB 3001 would  repeal AS  43.55.023(m), the  provision addressing                                                               
the [issuance of  multiple, transferable tax-credit certificates.                                                               
Section  15 of  HB 3001  would  add an  applicability section  to                                                               
uncodified   law]   stipulating   which  production   and   which                                                               
expenditures the various sections of HB  3001 would apply to.  In                                                               
conclusion,  she  noted that  [Section  13  of  HB 3001]  has  an                                                               
effective date of January 1,  2013, and would apply to production                                                               
occurring after [December 31, 2012].                                                                                            
                                                                                                                                
MR. DEES, in  response to questions, spoke  briefly about [other,                                                               
now-failed]  legislation  previously   heard  in  committee,  and                                                               
surmised  that  industry   won't  have  difficulty  understanding                                                               
HB 3001's effects.                                                                                                              
                                                                                                                                
11:31:34 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  SEATON then  turned the  committee's  attention to  the                                                               
DOR's fiscal note for HB 3001.                                                                                                  
                                                                                                                                
MR. TANGEMAN explained that page 2  of the fiscal note lists five                                                               
points  addressing HB  3001's main  proposed changes.   Points  1                                                               
and 2,   respectively,   address   Section  13's   proposed   new                                                               
AS 43.55.162(a)  and  (b),  which, respectively,  provide  for  a                                                               
30 percent  [reduction  in  production-tax-value] for  new  North                                                               
Slope  fields  and a  40  percent  [reduction in  production-tax-                                                               
value] for existing  North Slope fields.  He referred  to point 3                                                               
on page  2 of  the DOR's  fiscal note,  and said:   "This  is the                                                               
'cap' provision, where we're lowering  the cap from 75 percent to                                                               
60  percent  -  currently,  the  75  percent  cap  applies  to  a                                                               
production-tax-value of  $342.50 - the  new 60 percent  cap would                                                               
... 'cap  out' at  a production-tax-value of  $192.50."   Point 4                                                               
addresses [Sections 4  and 5's proposed changes  to AS 43.55.023]                                                               
allowing a tax  credit for a qualified capital  expenditure to be                                                               
applied  for a  single calendar  year instead  of two.   Point  5                                                               
addresses   [Sections  5   through   8's   proposed  changes   to                                                               
AS 43.55.023]  adding well  lease expenditures  incurred anywhere                                                               
in the state to  the list of items for which a  tax credit may be                                                               
claimed.                                                                                                                        
                                                                                                                                
MR.  TANGEMAN  referred to  page  3  of  the DOR's  fiscal  note,                                                               
containing  two  tables,  illustrating   for  fiscal  years  2013                                                               
through 2018 the estimated changes  in production-tax revenue and                                                               
royalty  revenue  anticipated  under  [Section 13  of]  HB  3001,                                                               
compared  to estimated  changes in  such revenues  under existing                                                               
law  coupled with  increases in  forecasted production  amounts -                                                               
specifically, forecasted  amounts plus either  a 5 percent,  a 10                                                               
percent, a 15 percent, or a  20 percent increase.  In response to                                                               
questions, he  indicated that none  of the information on  page 3                                                               
of  the DOR's  fiscal  note addresses  the  estimated decline  in                                                               
production, and  indicated that the  DOR's production  forecast -                                                               
outlined  in  [the  DOR's  Fall  2011  Revenue  Sources  Book]  -                                                               
addresses   [fields]   currently    producing,   [fields]   under                                                               
development, and  [fields] under evaluation, with  the latter two                                                               
types  [of fields]  that  are coming  "on  line" still  requiring                                                               
significant capital investment.                                                                                                 
                                                                                                                                
11:36:50 AM                                                                                                                   
                                                                                                                                
DAN  STICKEL,  Acting  Chief  Economist,  Anchorage  Office,  Tax                                                               
Division, Department of Revenue  (DOR), added that in calculating                                                               
the estimated changes  in revenues in the  columns reflecting the                                                               
forecast  increased  by  a certain  percentage,  both  forecasted                                                               
production amounts  and lease expenditures were  increased by the                                                               
same  percentage.     For  example,  in   the  column  reflecting                                                               
forecasted production  plus a 5 percent  increase, the forecasted                                                               
production amounts  were increased  by 5  percent, and  the lease                                                               
expenditure amounts were also increased by 5 percent.                                                                           
                                                                                                                                
CO-CHAIR  SEATON   observed  that  information   provided  during                                                               
previous presentations on HB 3001  addressed the anticipated rate                                                               
of decline in production.                                                                                                       
                                                                                                                                
MR.  STICKEL, in  response to  questions, relayed  that [for  all                                                               
three  types of  fields together,]  the aforementioned  Fall 2011                                                               
Revenue Sources Book indicates a  [total] anticipated 3.3 percent                                                               
decline in FY  13, a [total] anticipated 1.0  percent increase in                                                               
FY 14,  and a [total] anticipated  4.1 percent decline in  FY 15;                                                               
that  the  second table  on  page  3  of  the DOR's  fiscal  note                                                               
reflects only  the estimated  changes in  production-tax revenue,                                                               
whereas the  first table reflects  the estimated changes  in both                                                               
production-tax revenue  and royalty  revenue; that  the estimates                                                               
in both  of those tables pertain  only to Section 13  of HB 3001;                                                               
that the oil  prices used in the tables'  calculations were based                                                               
on those  forecasted in  the Fall 2011  Revenue Sources  Book and                                                               
varied between $108  per barrel of oil (/bbl)  and $109/bbl; that                                                               
as used on  page 3 of the  DOR's fiscal note, the  phrase "PF and                                                               
SF contributions"  refers to  "permanent fund"  contributions and                                                               
"school  fund" contributions;  and  that in  the  first table  on                                                               
page 3  of the  DOR's fiscal  note, the  column illustrating  the                                                               
forecasted  production   amounts  plus  a  20   percent  increase                                                               
reflects  an estimated  increase in  revenues of  $25 million  in                                                               
year 2015 and  no estimated change in revenues in  years 2016 and                                                               
2017.                                                                                                                           
                                                                                                                                
11:45:25 AM                                                                                                                   
                                                                                                                                
MR. TANGEMAN went  on to explain that page 4  of the DOR's fiscal                                                               
note contains  a table illustrating the  estimated fiscal impacts                                                               
of the  main provisions of HB  3001 in fiscal years  2013 through                                                               
2018  based  on  information  in  the  aforementioned  Fall  2011                                                               
Revenue  Sources Book.   The  first  row of  information on  that                                                               
table corresponds with  points 1 and 2 from page  2 of the fiscal                                                               
note  and   pertains  to  Section  13's   proposed  reduction  in                                                               
production-tax-value.      The    second   row   of   information                                                               
[corresponds with  point 3 from  page 2  of the fiscal  note and]                                                               
pertains  to  what   he'd  earlier  referred  to   as  the  "cap"                                                               
provision.                                                                                                                      
                                                                                                                                
MR.  STICKEL   explained  that  the  third   row  of  information                                                               
[corresponds with  point 4 from  page 2  of the fiscal  note and]                                                               
pertains  to  tax credits  for  a  qualified capital  expenditure                                                               
being applied  for a  single calendar year  instead of  two; this                                                               
information is  intended to illustrate that  [the change effected                                                               
by Sections 4 and 5 of the  bill] would be revenue neutral in the                                                               
long run.                                                                                                                       
                                                                                                                                
MR. TANGEMAN, in response to  questions, recommended that members                                                               
read  the DOR's  Fall  2011 Revenue  Sources  Book, available  on                                                               
line,   adding   that   it   provides   information   about   the                                                               
aforementioned   three  types   of  fields   -  those   currently                                                               
producing, those under development,  and those under evaluation -                                                               
and  anticipated declines  in production;  and -  referring to  a                                                               
table on page 39 of the  Fall 2011 Revenue Sources Book - relayed                                                               
that for  currently producing fields  only, the  anticipated rate                                                               
of decline  is 11.6 percent  in FY 13, 6.9  percent in FY  14, 10                                                               
percent in FY 15,  and 9.1 percent in FY 16,  adding that for all                                                               
three types of fields together,  there is a total anticipated 2.1                                                               
percent increase in  FY 16.  For currently  producing fields, the                                                               
aforementioned anticipated rates of  decline do take into account                                                               
the  fact  that  significant  investment is  occurring  in  those                                                               
fields.                                                                                                                         
                                                                                                                                
11:53:45 AM                                                                                                                   
                                                                                                                                
MR. STICKEL,  in response  to questions, referred  to a  table on                                                               
page 91 of  the Fall 2011 Revenue Sources Book,  and relayed that                                                               
total  unrestricted  general  fund (GF)  [petroleum]  revenue  is                                                               
projected  to be  $8.2177 billion  in FY  13, $7.7428  billion in                                                               
FY 14,  $7.0434 billion  in  FY  15, $7.0655  billion  in FY  16,                                                               
$6.7389 billion in  FY 17, and $7.125 billion in  FY 18; and that                                                               
the  information provided  on page  4  of the  DOR's fiscal  note                                                               
reflects  the bill's  estimated  fiscal impact  on the  projected                                                               
total revenue amounts  outlined in the Fall  2011 Revenue Sources                                                               
Book.                                                                                                                           
                                                                                                                                
MR. TANGEMAN,  in response to  questions regarding pages 3  and 4                                                               
of  the DOR's  fiscal note,  explained that  the information  the                                                               
administration  is  providing   the  committee  addresses  annual                                                               
figures, not  monthly ones; and  offered his belief  that because                                                               
there are  still significant  resources to  extract, it  would be                                                               
reasonable  to see  increases in  production  beyond what's  been                                                               
forecast.                                                                                                                       
                                                                                                                                
[HB 3001 was held over.]                                                                                                        
                                                                                                                                
12:06:09 PM                                                                                                                   
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Resources Standing Committee meeting was adjourned at 12:06 p.m.                                                                

Document Name Date/Time Subjects