Legislature(2017 - 2018)BARNES 124

02/22/2017 01:00 PM RESOURCES

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Audio Topic
01:06:21 PM Start
01:07:37 PM Presentation(s): Ocean Acidification in Alaska: Ecosystems and Economics
01:39:02 PM SB30
02:03:13 PM HB111
02:59:58 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation: Ocean Acidification & its TELECONFERENCED
Potential Impacts to Fisheries in AK by Jessica
Cross, NOAA Ocean Acidification Expert
-- Testimony <Invitation Only> --
+ SB 30 APPROVAL: ROYALTY OIL SALE TO PETRO STAR TELECONFERENCED
Moved SB 30 Out of Committee
-- Public Testimony --
+= HB 111 OIL & GAS PRODUCTION TAX;PAYMENTS;CREDITS TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
Oil & Gas Industry Testimony
<Above Item Removed from Agenda>
Lifecycle Scenario Analysis by Colleen Glover,
Tax Division Commercial Analyst
**Streamed live on AKL.tv**
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                       February 22, 2017                                                                                        
                           1:06 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Andy Josephson, Co-Chair                                                                                         
Representative Geran Tarr, Co-Chair                                                                                             
Representative Harriet Drummond                                                                                                 
Representative Justin Parish                                                                                                    
Representative Chris Birch                                                                                                      
Representative DeLena Johnson                                                                                                   
Representative George Rauscher                                                                                                  
Representative David Talerico                                                                                                   
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Dean Westlake, Vice Chair                                                                                        
Representative Mike Chenault (alternate)                                                                                        
Representative Chris Tuck (alternate)                                                                                           
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
PRESENTATION(S):  OCEAN ACIDIFICATION IN ALASKA:  ECOSYSTEMS AND                                                                
ECONOMICS                                                                                                                       
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
SENATE BILL NO. 30                                                                                                              
"An Act approving and ratifying the sale of royalty oil by the                                                                  
State of Alaska to Petro Star Inc.; and providing for an                                                                        
effective date."                                                                                                                
                                                                                                                                
     - MOVED SB 30 OUT OF COMMITTEE                                                                                             
                                                                                                                                
HOUSE BILL NO. 111                                                                                                              
"An  Act  relating  to  the  oil  and  gas  production  tax,  tax                                                               
payments,  and  credits;  relating   to  interest  applicable  to                                                               
delinquent  oil and  gas  production tax;  and  providing for  an                                                               
effective date."                                                                                                                
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
Oil & Gas Industry Testimony                                                                                                    
                                                                                                                                
     - REMOVED FROM AGENDA                                                                                                      
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB  30                                                                                                                  
SHORT TITLE: APPROVAL: ROYALTY OIL SALE TO PETRO STAR                                                                           
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
01/20/17       (S)       READ THE FIRST TIME - REFERRALS                                                                        
01/20/17       (S)       RES, FIN                                                                                               
01/30/17       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
01/30/17       (S)       Moved  SB 30 Out of Committee                                                                          
01/30/17       (S)       MINUTE(RES)                                                                                            
02/01/17       (S)       RES RPT 7DP                                                                                            
02/01/17       (S)       DP:   GIESSEL,   WIELECHOWSKI,   HUGHES,                                                               
                         COGHILL, VON IMHOF, STEDMAN, MEYER                                                                     
02/06/17       (S)       FIN AT 9:00 AM SENATE FINANCE 532                                                                      
02/06/17       (S)       Scheduled but Not Heard                                                                                
02/08/17       (S)       FIN RPT  4DP 2NR                                                                                       
02/08/17       (S)       DP: HOFFMAN, MACKINNON, BISHOP, VON                                                                    
                         IMHOF                                                                                                  
02/08/17       (S)       NR: DUNLEAVY, OLSON                                                                                    
02/08/17       (S)       FIN AT 9:00 AM SENATE FINANCE 532                                                                      
02/08/17       (S)       Moved  SB 30 Out of Committee                                                                          
02/08/17       (S)       MINUTE(FIN)                                                                                            
02/10/17       (S)       TRANSMITTED TO (H)                                                                                     
02/10/17       (S)       VERSION: SB  30                                                                                        
02/13/17       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/13/17       (H)       RES, FIN                                                                                               
02/22/17       (H)       RES AT 1:00 PM BARNES 124                                                                              
                                                                                                                                
BILL: HB 111                                                                                                                  
SHORT TITLE: OIL & GAS PRODUCTION TAX;PAYMENTS;CREDITS                                                                          
SPONSOR(s): RESOURCES                                                                                                           
                                                                                                                                
02/08/17       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/08/17       (H)       RES, FIN                                                                                               
02/08/17       (H)       TALERICO OBJECTED TO INTRODUCTION                                                                      
02/08/17       (H)       INTRODUCTION RULED IN ORDER                                                                            
02/08/17       (H)       SUSTAINED RULING OF CHAIR Y23 N15 E2                                                                   
02/08/17       (H)       RES AT 1:00 PM BARNES 124                                                                              
02/08/17       (H)       Heard & Held                                                                                           
02/08/17       (H)       MINUTE(RES)                                                                                            
02/13/17       (H)       RES AT 1:00 PM BARNES 124                                                                              
02/13/17       (H)       Heard & Held                                                                                           
02/13/17       (H)       MINUTE(RES)                                                                                            
02/17/17       (H)       RES AT 1:00 PM BARNES 124                                                                              
02/17/17       (H)       Heard & Held                                                                                           
02/17/17       (H)       MINUTE(RES)                                                                                            
02/20/17       (H)       RES AT 1:00 PM BARNES 124                                                                              
02/20/17       (H)       Heard & Held                                                                                           
02/20/17       (H)       MINUTE(RES)                                                                                            
02/22/17       (H)       RES AT 1:00 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
JESSICA CROSS PhD, Research Associate                                                                                           
Pacific Marine Environmental Laboratory                                                                                         
National Oceanic and Atmospheric Administration                                                                                 
U.S. Department of Commerce                                                                                                     
Seattle, Washington                                                                                                             
POSITION   STATEMENT:     Provided   a  PowerPoint   presentation                                                             
entitled,  "Ocean  Acidification  in   Alaska:    Ecosystems  and                                                               
Economies," dated February 2017, and answered questions.                                                                        
                                                                                                                                
JIM SHINE, Commercial Manager                                                                                                   
Division of Oil and Gas                                                                                                         
Department of Natural Resources                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   During the  hearing of  SB 30,  provided a                                                             
PowerPoint presentation  entitled, "Proposed Sale of  the State's                                                               
Royalty Oil  to Petro Star:   Senate Bill 30" dated  2/22/17, and                                                               
answered questions.                                                                                                             
                                                                                                                                
DOUG CHAPADOS, President/CEO                                                                                                    
Petro Star Inc.                                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of SB 30.                                                                           
                                                                                                                                
BRYCE WARD, Mayor                                                                                                               
North Pole, Alaska                                                                                                              
POSITION STATEMENT:  Testified during the hearing of SB 30.                                                                   
                                                                                                                                
COLLEEN GLOVER, Commercial Analyst                                                                                              
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
Anchorage, Alaska                                                                                                               
POSITION   STATEMENT:     Provided   a  PowerPoint   presentation                                                             
entitled,  "Alaska's Oil  and Gas  Taxation  - HB111\O  Lifecycle                                                               
Scenario Analysis," dated 2/17/17, and answered questions.                                                                      
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:06:21 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  ANDY  JOSEPHSON  called the  House  Resources  Standing                                                             
Committee  meeting  to  order  at   1:06  p.m.    Representatives                                                               
Josephson,  Parish, Talerico,  Rauscher, Johnson,  and Tarr  were                                                               
present  at  the  call  to  order.    Representatives  Birch  and                                                               
Drummond arrived as the meeting was in progress.                                                                                
                                                                                                                                
^PRESENTATION(S):   OCEAN  ACIDIFICATION IN  ALASKA:   ECOSYSTEMS                                                               
AND ECONOMICS                                                                                                                   
PRESENTATION(S):  OCEAN ACIDIFICATION IN ALASKA:  ECOSYSTEMS AND                                                            
                           ECONOMICS                                                                                        
                                                                                                                              
1:07:37 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOSEPHSON announced  that the  first order  of business                                                               
would  be a  presentation on  ocean acidification  in Alaska,  by                                                               
Jessica  Cross, PhD.,  of the  National  Oceanic and  Atmospheric                                                               
Administration, U.S. Department of Commerce.                                                                                    
                                                                                                                                
1:07:49 PM                                                                                                                    
                                                                                                                                
JESSICA   CROSS,   PhD,   Research  Associate,   Pacific   Marine                                                               
Environmental  Laboratory,   National  Oceanic   and  Atmospheric                                                               
Administration (NOAA),  U.S. Department  of Commerce,  provided a                                                               
PowerPoint   presentation  entitled,   "Ocean  Acidification   in                                                               
Alaska:  Ecosystems  and Economies."  She  recalled several years                                                               
ago  the   state  invested  almost   $3  million  in   the  Ocean                                                               
Acidification Research Center (OARC)  at the University of Alaska                                                               
Fairbanks (UAF) for the purpose  of research, and also to attract                                                               
matching  federal  research  funds,  which it  did.    Dr.  Cross                                                               
informed  the committee  the  phenomenon  of ocean  acidification                                                               
results from levels of global  carbon dioxide (CO2) continuing to                                                               
rise;  in 2013,  atmospheric  CO2 concentrations  rose above  400                                                               
parts per million (ppm) as  reported by the Mauna Loa Observatory                                                               
in Hawai'i.  Last year CO2  peaked at 408 ppm, leading the global                                                               
community  to  seek  limiting  the amount  of  CO2  entering  the                                                               
atmosphere  because of  global warming,  sea level  rise, coastal                                                               
erosion,  and other  problems due  to excessive  greenhouse gases                                                               
[slides 1  and 2].   The evil  twin of the  CO2 problem  is ocean                                                               
acidification,   because  as   the  CO2   is  emitted   into  the                                                               
atmosphere,  approximately one-third  is absorbed  by the  ocean.                                                               
Alaska waters are  naturally very high in CO2, and  the extra CO2                                                               
causes the  potential hydrogen (pH)  [measure of acidity]  in the                                                               
oceans to drop [slide 3].                                                                                                       
                                                                                                                                
1:10:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BIRCH asked for the  time period applicable to the                                                               
data illustrated on slide 3.                                                                                                    
                                                                                                                                
DR.  CROSS  said in  a  time  scale  of  one thousand  years  the                                                               
aforementioned  atmospheric CO2  levels  have  been seen  before;                                                               
however, the change  is happening much faster than  before in the                                                               
geological   record,  and   thus  is   unprecedented  from   that                                                               
perspective.    She  continued,  noting  since  the  oceans  have                                                               
absorbed approximately  one-third of the human-caused  CO2 in the                                                               
atmosphere, ocean acidification has caused  the pH to drop so low                                                               
that carbonate  minerals in  the Bering Sea  are dissolving.   As                                                               
many  species   use  carbonate  minerals  to   build  shells  and                                                               
biogenetic structures, since  2009 this is now a  problem for red                                                               
king  crab and  blue  king  crab populations  [slides  4 and  5].                                                               
Ocean  acidification  could  threaten  Alaska  fishing  and  food                                                               
security because 60 percent of  the commercial fish and shellfish                                                               
for the  U.S. comes  from Alaska [slide  6].   Federal laboratory                                                               
studies  reveal  impacts  to  shellfish   species  are:    slower                                                               
embryonic   development;  fewer   larvae  hatch;   high  juvenile                                                               
mortality;  stressed  adults  [slide  7].    Ocean  acidification                                                               
impacts to fish includes higher  sensory effects, which interfere                                                               
with the  ability to see  and smell  prey as observed  in pollock                                                               
[slide 8].   In  addition, ocean  acidification impacts  the food                                                               
web  and  food  sources  for shellfish  and  fish  by  disrupting                                                               
pteropods which are  a food source for Alaska  pink salmon [slide                                                               
9].   Dr.  Cross said  laboratory studies  have been  coordinated                                                               
with  state and  federal field  missions -  conducted around  the                                                               
state  -  that  measure  the surface  and  subsurface  for  ocean                                                               
acidification.     Field   missions  are   conducted  by   ships,                                                               
autonomous  vehicles, and  in-situ [slides  10-13].   All of  the                                                               
studies are  combined to generate  disaster risk  assessments for                                                               
Alaska fisheries by  census areas; areas most highly  at risk are                                                               
those that rely  on threatened fisheries as  their primary source                                                               
of protein  or jobs [slide  14].  Slide 15  illustrated predicted                                                               
increases in ocean acidification from  2012 through 2100, and she                                                               
pointed out  in 2012, on  an annual  average, most of  the waters                                                               
around the state are not highly  corrosive.  However, by 2050, on                                                               
average,  waters  will  be  corrosive  in  the  Chukchi  Sea  and                                                               
Beaufort Sea.   She stressed ocean acidification  does not happen                                                               
in a  vacuum and provided slides  of temperatures and sea  ice in                                                               
the  Arctic in  2017 [slides  16  and 17].   Ocean  acidification                                                               
occurs along with warming temperatures,  ice loss and low oxygen,                                                               
stressing organisms [slide  18].  If organisms  cannot adapt, the                                                               
populations of  important commercial fisheries will  be impacted,                                                               
and  research indicates,  without intervention  between 2035  and                                                               
2045, the red king crab fishery could collapse [slide 19].                                                                      
                                                                                                                                
1:18:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON asked  if there  is evidence  of a  large                                                               
scale die-off, and  whether species are moving  north or changing                                                               
their behavior in response.                                                                                                     
                                                                                                                                
DR. CROSS  said it will not  be possible to separate  the effects                                                               
of  ocean  acidification  from the  normal  seasonal  impacts  of                                                               
colder and warmer  years until around 2020.  Further,  a shift in                                                               
population has not been confirmed at  this time and is an area of                                                               
ongoing  research.     Dr.  Cross   returned  attention   to  the                                                               
presentation  and  explained  in response  to  projections,  NOAA                                                               
seeks  to build  adaptive  capacity and  community resilience  by                                                               
bringing   communities   together   to  profile   disaster   risk                                                               
mitigation  strategies such  as  to  diversify economic  regions,                                                               
encourage  job   training  and  education,  increase   access  to                                                               
alternative  protein  sources,  and  reduce  other  environmental                                                               
stressors [slides  20 and  21].   The Alaska  Ocean Acidification                                                               
Network     connects     scientists,    stakeholders,     fishing                                                               
organizations,  and other  interested  parties  with industry  to                                                               
support ongoing  research around  the state  [slides 22  and 23].                                                               
Dr. Cross  stated awareness of ocean  acidification across Alaska                                                               
is  three times  higher than  in the  Lower 48  [slide 24].   The                                                               
interest of  Alaska's citizens and  industry has  been recognized                                                               
by the  U.S. Department of Commerce  [slide 25].  At  the federal                                                               
level,  NOAA research  covers ocean  chemistry research,  species                                                               
response  research,  and economic  modeling,  and  she urged  the                                                               
committee to contact researchers with  questions [slide 26].  Dr.                                                               
Cross stated further monitoring  throughout the state will expand                                                               
using new  technology, such as  the Saildrone vehicle,  which can                                                               
cover Alaska's  extensive coastline  [slide 27].   She summarized                                                               
the following:   ocean acidification  is already  impacting areas                                                               
in  Alaska; coastal  communities in  Southeast and  Southwest are                                                               
the  most vulnerable;  ocean acidification  is likely  to worsen;                                                               
there are  opportunities to  mitigate risk  and adapt  to changes                                                               
through economic  diversification, access to  alternative sources                                                               
of  protein, and  the reduction  of environmental  stressors; the                                                               
best  defense  against  ocean   acidification  is  the  long-term                                                               
reduction of CO2 emissions [slide 28].                                                                                          
                                                                                                                                
1:24:52 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOSEPHSON  asked  for  the name  of  the  secretary  of                                                               
commerce.                                                                                                                       
                                                                                                                                
DR.  CROSS said  Wilbur Ross.   In  further response  to Co-Chair                                                               
Josephson, she stated the mission  guidance she has received from                                                               
the agency has not yet changed  [since the beginning of the Trump                                                               
Administration].                                                                                                                
                                                                                                                                
REPRESENTATIVE   BIRCH  questioned   what  the   House  Resources                                                               
Standing Committee should do.                                                                                                   
                                                                                                                                
DR.  CROSS  advised  her  role  as a  researcher  is  to  monitor                                                               
economic  and environmental  impacts and  provide information  to                                                               
regulatory bodies.  She suggested  the committee communicate with                                                               
regulatory agencies.                                                                                                            
                                                                                                                                
REPRESENTATIVE  PARISH inquired  as  to  whether subsistence  and                                                               
commercial  fishing  as  presently  known are  projected  to  end                                                               
within his lifetime.                                                                                                            
                                                                                                                                
DR. CROSS  said that  commercial and  subsistence fishing  is not                                                               
likely to end in that time  period, but will be impacted by ocean                                                               
acidification; however,  if the  risks are  reduced, economically                                                               
viable commercial  fishing and subsistence fishing  will continue                                                               
in Alaska.                                                                                                                      
                                                                                                                                
REPRESENTATIVE PARISH  returned attention to slide  19, and asked                                                               
whether  the  red king  crab  decline  in  Bristol Bay  would  be                                                               
mirrored in other shellfish populations.                                                                                        
                                                                                                                                
DR. CROSS said, "That's possible,  it's research that's ongoing."                                                               
She added NOAA  monitors CO2 levels in  commercial hatcheries; in                                                               
fact, a shellfish hatchery it is  easier to monitor than the crab                                                               
fishery.  Further,  the projections on slide 14 are  based on the                                                               
present rate of ocean acidification and fishing.                                                                                
                                                                                                                                
CO-CHAIR TARR  referred to OARC at  UAF and asked about  its work                                                               
with NOAA.                                                                                                                      
                                                                                                                                
DR. CROSS advised the funding from  the state for OARC was almost                                                               
$3 million  in a one-time  investment that went directly  to UAF.                                                               
At this time, NOAA maintains  the infrastructure built with those                                                               
funds,  including  the time-series  moorings.    There were  four                                                               
mooring sites,  but due  to the  limitations of  federal funding,                                                               
only two of the four sites are operational.                                                                                     
                                                                                                                                
1:31:05 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  TARR  asked  to  be informed  if  federal  funding  for                                                               
maintenance on the functioning two sites is threatened.                                                                         
                                                                                                                                
DR. CROSS  added the  two sites that  are maintained  are regular                                                               
time-series sites  used by other research  organizations; the two                                                               
sites that were eliminated were in Southeast and near Kodiak.                                                                   
                                                                                                                                
REPRESENTATIVE  DRUMMOND questioned  why Alaska's  coastal waters                                                               
are naturally high in CO2.                                                                                                      
                                                                                                                                
DR. CROSS  explained this  is because cold  water holds  more CO2                                                               
and the  global circulation  process moves  CO2 toward  the North                                                               
Pacific via  the global  conveyor belt:   phytoplankton  bloom on                                                               
the  surface of  the  world's  oceans, sink  to  the bottom,  are                                                               
respired by bacteria,  releasing CO2, which moves  from the North                                                               
Atlantic south  and north, and  is upwelled in the  North Pacific                                                               
and  Alaska  waters.    In  further  response  to  Representative                                                               
Drummond,  she  said  recruitment  failure in  shellfish  is  the                                                               
inability to  replenish the shellfish population  to its previous                                                               
level.                                                                                                                          
                                                                                                                                
REPRESENTATIVE  RAUSCHER  returned  attention to  slide  19,  and                                                               
asked why  the Bristol Bay  red king  crab fishery fell  and rose                                                               
sharply from 2005 to 2015.                                                                                                      
                                                                                                                                
DR. CROSS said the chart  on slide 19 emphasizes physical impacts                                                               
on certain populations.   Eventually, ocean acidification impacts                                                               
overwhelm the  normal climatic cycles  expected for  a particular                                                               
population.  In further response  to Representative Rauscher, she                                                               
explained  without  a  change  in the  status  quo,  "the  battle                                                               
continues."                                                                                                                     
                                                                                                                                
REPRESENTATIVE  RAUSCHER questioned  whether types  of CO2  other                                                               
than human-caused are a factor.                                                                                                 
                                                                                                                                
1:36:09 PM                                                                                                                    
                                                                                                                                
DR. CROSS  restated the natural  concentrations of CO2  in Alaska                                                               
are about 65  micro mil per kilogram of anthropogenic  CO2 in the                                                               
water;  the   remainder  is  natural   as  a  result   of  cooler                                                               
temperatures, and  global circulation  processes.   The ecosystem                                                               
has adapted  to the natural  level of CO2, but  additional human-                                                               
caused CO2  may suddenly  push the organisms  in the  system past                                                               
"the  tipping  point."   In  further  response to  Representative                                                               
Rauscher, Dr.  Cross will provide the  percentage of human-caused                                                               
CO2 as compared to the percentage of naturally-occurring CO2.                                                                   
                                                                                                                                
REPRESENTATIVE  PARISH  returned  attention to  slide  14,  which                                                               
indicated  Southeast is  at  high to  medium  disaster risk,  and                                                               
asked what timescale and severity of disaster is forecast.                                                                      
                                                                                                                                
DR. CROSS said  the timescale illustrated is about  50 years, and                                                               
the disaster is the loss of income and the loss of protein.                                                                     
                                                                                                                                
        SB  30-APPROVAL: ROYALTY OIL SALE TO PETRO STAR                                                                     
                                                                                                                                
1:39:02 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOSEPHSON announced  that  the next  order of  business                                                               
would be SENATE BILL NO. 30,  "An Act approving and ratifying the                                                               
sale of  royalty oil by the  State of Alaska to  Petro Star Inc.;                                                               
and providing for an effective date."                                                                                           
                                                                                                                                
1:39:45 PM                                                                                                                    
                                                                                                                                
JIM  SHINE,   Commercial  Manager,  Division  of   Oil  and  Gas,                                                               
Department   of   Natural   Resources,  provided   a   PowerPoint                                                               
presentation entitled, "Proposed Sale  of the State's Royalty Oil                                                               
to Petro  Star:  Senate Bill  30," and informed the  committee SB                                                               
30  is similar  to last  year's legislation  enabling a  contract                                                               
with Tesoro for  a royalty-in-kind (RIK) sale.   He said royalty-                                                               
in-value  (RIV) occurs  when a  producer  ships, transports,  and                                                               
sells the state's  royalty share, along with its  own, and remits                                                               
the  royalty  value to  the  state;  RIK  occurs when  the  state                                                               
assumes ownership of  its royalty barrels of oil  and disposes of                                                               
them  through  statutory  sales  procedures.   The  bill  is  the                                                               
culmination of a long  process including commercial negotiations,                                                               
a best interest  finding, a public review,  and other procedures.                                                               
Mr.  Shine  said   the  state  has  participated   in  RIK  sales                                                               
procedures  since  1979,  and  directed   attention  to  a  chart                                                               
provided in the committee packet  that illustrated the history of                                                               
RIK sales  [chart not  provided].  The  contract with  Petro Star                                                               
Inc. (Petro Star) in SB 30  will yield the state from $22 million                                                               
to $28 million  more over RIV revenue.  Currently,  the state has                                                               
a one-year  contract with  Petro Star that  would be  followed by                                                               
the  four-year   contract  within   SB  30,   commencing  1/1/18.                                                               
Together,  the  two  contracts  will yield  the  state  from  $29                                                               
million to  $37 million  more over  RIV revenue  [slide 2].   The                                                               
best  interest finding  has determined  SB 30  is in  the state's                                                               
best interest,  and the  Alaska Royalty  Oil and  Gas Development                                                               
Advisory Board,  Department of Natural Resources,  recommends the                                                               
legislature approve the sale by  its Resolution 2016-2, a copy of                                                               
which  was  provided in  the  committee  packet  [slide 3].    In                                                               
addition,  the  commissioner  of  DNR  considered  the  following                                                               
decision criteria [slide 4]:                                                                                                    
                                                                                                                                
   • cash value offered                                                                                                         
 • projected effects of the sale on the economy of the state                                                                    
   • the ability to provide refined products for distribution                                                                   
      and sale within the state                                                                                                 
                                                                                                                                
1:44:04 PM                                                                                                                    
                                                                                                                                
MR. SHINE  restated the approval  process for the RIK  sale began                                                               
with  the  preliminary  best interest  finding  issued  in  2016,                                                               
followed  by  public review,  review  and  recommendation by  the                                                               
royalty advisory  board, the contract, and  SB 30 [slide 5].   He                                                               
provided slide  6 which listed  the statutory criteria  that must                                                               
be considered by the royalty  advisory board.  Mr. Shine provided                                                               
details of the  contract enabled by SB 30 such  as projections of                                                               
royalty  volume  over a  five-year  period  of 50,000  to  55,000                                                               
barrels per  day of  royalty oil  in 2017,  and 36,000  to 50,000                                                               
barrels available from 2018 through  2021.  He recalled last year                                                               
a Tesoro  RIK contract was  approved that is providing  20,000 to                                                               
25,000 barrels  of royalty  oil over a  five-year period  and was                                                               
used as a guide in the state's projections [slide 7].                                                                           
                                                                                                                                
REPRESENTATIVE PARISH questioned whether  the state will have the                                                               
ability  to  pick up  additional  capacity  in  the event  of  an                                                               
increase  in  throughput  [in the  Trans-Alaska  Pipeline  System                                                               
(TAPS)].                                                                                                                        
                                                                                                                                
MR.  SHINE said  the contract  has built-in  quantity flexibility                                                               
that allows  the state  to offer additional  oil on  equal terms.                                                               
He returned  to contract terms  and pointed  out in the  event of                                                               
default  the state  is  exposed  in two  scenarios:   a  complete                                                               
default  -  in which  the  state  does  not receive  payment  for                                                               
barrels produced  and sold,  and a denomination  risk -  in which                                                               
the  buyer  defaults after  a  certain  volume  of oil  has  been                                                               
nominated.  In  order to protect the state against  either of the                                                               
aforementioned  events, the  contract  has  a security  provision                                                               
clause for a $46 million surety  bond.  In addition, the contract                                                               
urges  Petro  Star  to use  commercially  reasonable  efforts  to                                                               
manufacture  refined  products  in  the state  and  employ  local                                                               
residents  [slide  7].   In  regard  to  RIK contract  price,  he                                                               
explained  the contract  begins  with  the monthly/daily  average                                                               
U.S. West Coast price for Alaska  North Slope (ANS) oil.  The RIK                                                               
differential of  $1.95 is a  reduction of the price  to determine                                                               
the value  of an in-state barrel  of oil, thus in  an RIV context                                                               
the state  is subject to  marine transportation costs  of between                                                               
$3.30  and $3.50  per barrel;  however, in  an RIK  contract, the                                                               
state uses a $1.95 RIK  location differential that represents the                                                               
value of  a barrel of  oil sold within  the state.   The location                                                               
differential is determined  by the Department of  Revenue and DNR                                                               
to ensure the oil remains  competitive, and to maximize the value                                                               
of the resource to the state.                                                                                                   
                                                                                                                                
CO-CHAIR JOSEPHSON  asked how the  differential compares  to that                                                               
of last year's royalty oil sale.                                                                                                
                                                                                                                                
MR.  SHINE  said the  differential  is  the  same.   In  2014,  a                                                               
previous  contract with  Flint Hills  carried  a differential  of                                                               
$2.15 per barrel.   He advised the other deductions  are the same                                                               
as found in an RIV formula as follows [slide 8]:                                                                                
                                                                                                                                
   • TAPS tariff allowance and tariffs for oil transported                                                                      
     upstream of Pump Station 1                                                                                                 
   • quality bank adjustments required by regulation by the                                                                     
     Federal Energy Regulatory Commission                                                                                       
   • line loss calculated at an industry standard amount for                                                                    
     metering in and metering out                                                                                               
                                                                                                                                
MR. SHINE summarized as follows [slide 9]:                                                                                      
                                                                                                                                
   • the contract is in the state's best interest                                                                               
   • the contract will yield $29 million to $37 million in                                                                      
      additional revenue over what the state would receive if the                                                               
      volume of royalty oil is taken RIV                                                                                        
   • location differential is a static number and marine                                                                        
      transportation   costs   are   expected   to   exceed   the                                                               
      differential                                                                                                              
   • Petro Star employs 44 Alaskans in refining operations and                                                                  
      others statewide                                                                                                          
                                                                                                                                
MR. SHINE presented slide 10 which  was a short comparison of the                                                               
contract within SB 30 and last year's contract with Tesoro.                                                                     
                                                                                                                                
REPRESENTATIVE BIRCH expressed his support.                                                                                     
                                                                                                                                
REPRESENTATIVE   DRUMMOND   questioned    why   DNR   needs   the                                                               
legislature's permission to sell royalty oil.                                                                                   
                                                                                                                                
MR. SHINE explained for royalty oil  sold in excess of a one-year                                                               
contract,  there is  a statutory  requirement for  DNR to  obtain                                                               
legislative approval.                                                                                                           
                                                                                                                                
1:54:56 PM                                                                                                                    
                                                                                                                                
DOUG CHAPADOS,  President/CEO, Petro Star Inc.,  acknowledged the                                                               
efforts of the commissioners of DNR  to support the contract.  He                                                               
said after long negotiations, the contract is a fair agreement.                                                                 
                                                                                                                                
1:56:06 PM                                                                                                                    
                                                                                                                                
BRYCE  WARD, Mayor,  City of  North Pole,  opined the  ability to                                                               
sell  RIK is  beneficial to  the  state and  Petro Star  provides                                                               
benefits to  the City of  North Pole.   He expressed  his concern                                                               
related to the  differential in the RIK contract  and pointed out                                                               
the product is  state oil provided to state residents  by a state                                                               
producer, but  at a  differential price that  is higher  than the                                                               
spot market price.   He acknowledged the contract  is bringing in                                                               
an additional  $30 million to  the state, however,  he questioned                                                               
whether this  is a benefit for  all residents of the  state since                                                               
Interior residents will  be paying the differential  cost.  Mayor                                                               
Ward  encouraged the  committee  to  look at  the  intent of  the                                                               
differential as  the oil is  not being exported, but  is provided                                                               
solely to state residents.                                                                                                      
                                                                                                                                
1:58:12 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOSEPHSON  opened the hearing for  public testimony, and                                                               
after  ascertaining  no  one wished  to  testify,  closed  public                                                               
testimony.                                                                                                                      
                                                                                                                                
1:59:18 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  TARR  moved to  report  SB  30  out of  committee  with                                                               
individual  recommendations  and  the accompanying  fiscal  note.                                                               
There being  no objection, SB  30 was  reported out of  the House                                                               
Resources Standing Committee.                                                                                                   
                                                                                                                                
2:00:12 PM                                                                                                                    
                                                                                                                                
[Co-Chair Josephson passed the gavel to Co-Chair Tarr.]                                                                         
                                                                                                                                
The committee took an at ease from 2:00 p.m. to 2:03 p.m.                                                                       
                                                                                                                                
        HB 111-OIL & GAS PRODUCTION TAX;PAYMENTS;CREDITS                                                                    
                                                                                                                                
2:03:13 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TARR  announced that the  final order of  business would                                                               
be  HOUSE BILL  NO. 111,  "An  Act relating  to the  oil and  gas                                                               
production tax,  tax payments, and credits;  relating to interest                                                               
applicable  to  delinquent  oil   and  gas  production  tax;  and                                                               
providing for an effective date."                                                                                               
                                                                                                                                
2:03:48 PM                                                                                                                    
                                                                                                                                
COLLEEN GLOVER,  Commercial Analyst, Tax Division,  Department of                                                               
Revenue  (DOR),  provided  a  PowerPoint  presentation  entitled,                                                               
"Alaska's  Oil  and Gas  Taxation  -  HB111\O Lifecycle  Scenario                                                               
Analysis," dated  2/17/17.  Ms.  Glover gave the  committee brief                                                               
personal  background  information.     She  noted  the  sectional                                                               
analysis   for  HB   111  was   previously  presented,   and  her                                                               
presentation would focus  on lifecycle modeling that  is based on                                                               
two hypothetical  North Slope  fields and  which will  reveal the                                                               
impacts  of  any tax  policy  on  a  large  or small  new  field,                                                               
including the present  tax policy, identified as  status quo, and                                                               
the potential impacts  of HB 111 [slide 2].   On slide 3, impacts                                                               
by HB  111 such  as the  net operating  loss (NOL)  credit change                                                               
from 35 percent to 15  percent, changes to sliding scale credits,                                                               
the  elimination of  cash  repurchases on  the  North Slope,  the                                                               
change  in the  minimum  tax from  4 percent  to  5 percent,  and                                                               
provisions to harden the floor, were highlighted in green.                                                                      
                                                                                                                                
REPRESENTATIVE BIRCH directed attention to  page 4 of fiscal note                                                               
Identifier:     HB111-DOR-TAX-02-10-17  that  indicated   HB  111                                                               
"raises  $300 million."   He  asked whether  the presenter  would                                                               
characterize the net effect of HB 111 as a major tax increase.                                                                  
                                                                                                                                
MS. GLOVER  clarified the model  is a hypothetical field  and the                                                               
fiscal  note is  based on  the  Fall [2016  Revenue Sources  Book                                                               
(RSB)]  forecast  of  projected  revenues  to  the  state.    She                                                               
acknowledged it  is an  increase and  the modeling  would present                                                               
the impact of HB 111 on each of five scenarios.                                                                                 
                                                                                                                                
2:07:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BIRCH  asked whether the Fall  forecast recognizes                                                               
the recent increased  quantity of oil flowing  through the Trans-                                                               
Alaska Pipeline System (TAPS).                                                                                                  
                                                                                                                                
MS. GLOVER deferred to the director of the Tax Division, DOR.                                                                   
                                                                                                                                
CO-CHAIR TARR stated  the $300 million referred to  in the fiscal                                                               
note are fiscal year 2025 (FY 25) and FY 26 estimates.                                                                          
                                                                                                                                
MS. GLOVER explained the model  assumptions are as follows [slide                                                               
4]:                                                                                                                             
                                                                                                                                
   • development begins 1/1/18                                                                                                  
   • designed for the period of development through production                                                                  
      not including exploration costs or abandonment costs                                                                      
   • uses inflation of 2.25 percent per year                                                                                    
   • for status quo, producers move to non-gross value reduction                                                                
      (non-GVR) status and cannot go below minimum tax                                                                          
   • for status quo, producers apply for $35 million repurchase                                                                 
      sliding scale credits                                                                                                     
   • assumes North Slope only                                                                                                   
                                                                                                                                
MS. GLOVER,  in response to Representative  Johnson, restated the                                                               
model does  not include exploration  costs or  abandonment costs.                                                               
She  explained the  field lifecycle  modeling assumptions  are as                                                               
follows [slide 6]:                                                                                                              
                                                                                                                                
   • one 50 million barrel oil field over the life of production                                                                
   • one 750 million barrel oil field over the life of                                                                          
      production                                                                                                                
   • price points of $40, $60, $80, and Fall 2016 forecast price                                                                
   • status quo tax provisions with one or four partners                                                                        
   • HB 111                                                                                                                     
   • each scenario has a dashboard with four quadrants [slide                                                                   
      7]:   1.  production  tax; 2.  state  revenue; 3.  producer                                                               
      revenue; 4. summary economics:  a. total cash flows, b. net                                                               
      present value (NPV) analysis; c. split of profits; d. split                                                               
      of gross                                                                                                                  
                                                                                                                                
2:13:41 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BIRCH asked whether  [quadrants] 1-4 include state                                                               
royalty share.                                                                                                                  
                                                                                                                                
2:14:09 PM                                                                                                                    
                                                                                                                                
MS.  GLOVER  said  royalty  is  a  component  of  state  revenue,                                                               
[quadrant] 2.   Slide  8 illustrated  a hypothetical  small field                                                               
over 30 project years.  There  was no activity in the first years                                                               
and under  the current  tax system  cash credits  were generated.                                                               
Cash repurchases paid to the producer  by the state were shown in                                                               
red.   In later years,  production tax  paid by the  producer was                                                               
shown in green, and the gold line was the minimum tax.                                                                          
                                                                                                                                
REPRESENTATIVE  BIRCH questioned  whether the  model assumes  the                                                               
state honored  its commitment  to the explorer  in the  amount of                                                               
$150 million.                                                                                                                   
                                                                                                                                
MS. GLOVER said  the model assumes $35 million per  year would be                                                               
paid by the  state.  She turned attention to  the four components                                                               
of state  revenue:  production  tax shown in green,  property tax                                                               
shown  in  red, royalties  shown  in  blue, and  state  corporate                                                               
income tax shown  in purple.  On the North  Slope, the state gets                                                               
a 7.5 percent share of property tax [slide 9].                                                                                  
                                                                                                                                
REPRESENTATIVE  BIRCH recalled  the  state collects  20 mills  in                                                               
property  tax statewide,  and  reimburses  communities along  the                                                               
pipeline for their  share.  He opined property tax  for the state                                                               
is a significant amount.                                                                                                        
                                                                                                                                
2:17:27 PM                                                                                                                    
                                                                                                                                
MS.  GLOVER  explained   the  property  tax  shown   is  for  the                                                               
hypothetical   field.      However,    92.5   percent   goes   to                                                               
municipalities.     She  returned  attention  to   slide  9  that                                                               
illustrated income  tax is paid  after producers begin to  make a                                                               
profit.  Slide  10 illustrated cash flows for  producers over the                                                               
duration of the  field, beginning with huge  net operating losses                                                               
and  followed  by  production.   Slide  11  summarized  economics                                                               
during the life  of the project:  lifecycle totals  with rates of                                                               
return; split  of profits based  on entity  such as the  state or                                                               
municipalities; split of gross by  entity.  She pointed out state                                                               
net present value (NPV} is 6.95  percent and producer cash NPV is                                                               
10  percent.   Ms.  Glover  presented  the small  field  modeling                                                               
assumptions, noting  that any changes can  be easily accommodated                                                               
[slide 13].                                                                                                                     
                                                                                                                                
CO-CHAIR TARR questioned why the  state corporate income tax rate                                                               
is lower than in statute.                                                                                                       
                                                                                                                                
MS. GLOVER  said the rate  is 6.5 percent of  the net.   Slide 14                                                               
illustrated  the  production profile  curve  for  a small  field,                                                               
showing  almost   $200  million  in  capital   investment  before                                                               
production begins at year four.   However, operating expenditures                                                               
correspond with the production curve.                                                                                           
                                                                                                                                
2:24:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON  asked what  taxes are  being paid  at the                                                               
beginning of development.                                                                                                       
                                                                                                                                
MS. GLOVER said none.                                                                                                           
                                                                                                                                
REPRESENTATIVE BIRCH  noted total  capital expenditures  shown on                                                               
slide 14 are $500 million before production.                                                                                    
                                                                                                                                
MS.  GLOVER  agreed.   Slide  15  illustrated the  four  modeling                                                               
components for  a small field  under the current tax  regime that                                                               
were previously  discussed on  slides 8-11.   In the  small field                                                               
model  it was  assumed there  would be  no production  until year                                                               
four, and  thus no production tax  or royalty revenue is  due the                                                               
state until year four.  Total net  gain to the state for the life                                                               
of the hypothetical  field was $870 million and net  cash flow to                                                               
the producer was $815 million.                                                                                                  
                                                                                                                                
REPRESENTATIVE BIRCH  returned attention  to slide 15,  and asked                                                               
for  clarification on  the total  amount of  credits and  capital                                                               
spend.                                                                                                                          
                                                                                                                                
2:29:37 PM                                                                                                                    
                                                                                                                                
MS. GLOVER  responded slide 14  was a representative  profile and                                                               
slide 15  illustrated the actual  scenario.  In  further response                                                               
to Representative Birch, she said  in the aforementioned scenario                                                               
the  lifecycle  total  credits   that  were  purchased  are  $161                                                               
million.   Ms. Glover  presented slide  16 which  illustrated the                                                               
small  field model  under the  proposed HB  111 tax  regime.   As                                                               
shown in the upper left graph,  there are no cash repurchases and                                                               
the producer  pays the minimum tax;  as shown in the  upper right                                                               
graph, there is no revenue  to the state until production begins;                                                               
as shown  in the  lower left  graph, there  is little  change; as                                                               
shown in  the lifecycle totals,  production tax remains  the same                                                               
as adjusted for net present value.                                                                                              
                                                                                                                                
REPRESENTATIVE RAUSCHER  asked whether  royalty was  increased in                                                               
slide 16.                                                                                                                       
                                                                                                                                
MS. GLOVER answered royalty is not  impacted by HB 111.  Slide 17                                                               
illustrated  cash   flows  for  the  small   field,  one  partner                                                               
scenario, at $40, $60, $80,  and Fall 2016 forecast prices, under                                                               
the status quo and HB 111.                                                                                                      
                                                                                                                                
2:35:01 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TARR surmised at $40  companies have higher losses under                                                               
HB 111 due to the price of oil [from the point of development].                                                                 
                                                                                                                                
2:35:19 PM                                                                                                                    
                                                                                                                                
MS.  GLOVER provided  additional data  on the  eight small  field                                                               
scenarios  under the  status  quo and  HB 111  [slide  18].   Ms.                                                               
Glover  presented the  large  field  modeling assumptions  [slide                                                               
20].  She explained the  production profile differs as production                                                               
for a  large field  is assumed  to begin  at year  five, however,                                                               
similarly to the  development of a small field, there  is a large                                                               
capital  investment   in  the  first  years,   followed  by  peak                                                               
production  and declining  production [slide  21].   Modeling for                                                               
the large  field included  three scenarios:   current  tax policy                                                               
[status  quo],  one  partner  with  annual  $35  million  maximum                                                               
repurchase; status  quo, four partners;  HB 111 with one  to four                                                               
partners.   As  shown  on the  slide 22  upper  left graph,  cash                                                               
repurchases are received  for the first seven  years, minimum tax                                                               
is paid to  about year twelve or thirteen,  and higher production                                                               
tax is paid in the following  years; because of early losses, the                                                               
producer  carried   forward  tax  credits  to   use  against  tax                                                               
liability,  and when  the NOL  credits are  exhausted, production                                                               
tax greatly increases.  As shown  in the upper right graph, state                                                               
revenue also  peaks around year  twelve.   As shown in  the lower                                                               
left graph, positive cash flow begins around year eight.                                                                        
                                                                                                                                
CO-CHAIR TARR  observed in the  foregoing scenario,  the producer                                                               
chose  to  use  its  $35  million in  credits,  and  carried  the                                                               
remaining credits forward.                                                                                                      
                                                                                                                                
MS.  GLOVER said  DOR assumed  the producers  would opt  to carry                                                               
forward  credits  for their  full  value  rather than  taking  75                                                               
percent cash value.                                                                                                             
                                                                                                                                
REPRESENTATIVE RAUSCHER  asked whether the  model is based  on an                                                               
average historical lifecycle of a production field.                                                                             
                                                                                                                                
MS. GLOVER said the model is  based on a production profile curve                                                               
developed by DOR  and the Department of  Natural Resources (DNR),                                                               
looking  at natural  field production  profiles and  working with                                                               
tax consultants.   She further explained the  large field assumes                                                               
750 million  barrels over the life  of the field, so  the profile                                                               
curve estimates percent  of production by year.   She returned to                                                               
the  presentation, noting  slide 23  illustrated the  large field                                                               
with  four partners,  which qualifies  the project  for the  $140                                                               
million  per  year  cash  repurchase   maximum  and  impacts  GVR                                                               
credits.   As  shown  on the  slide 23  upper  left graph,  state                                                               
repurchased  credits  are  bigger,  and production  tax  is  paid                                                               
earlier, however, the total tax paid to the state is unaffected.                                                                
                                                                                                                                
2:42:14 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TARR  directed attention to  the amount of  $1.6 billion                                                               
in repurchased  tax credits,  based on  the large  field scenario                                                               
with four partners.                                                                                                             
                                                                                                                                
MS.  GLOVER presented  slide 24  that illustrated  a large  field                                                               
scenario with  one or four  partners under HB  111.  As  shown on                                                               
the upper left graph, there  are no tax repurchases, tax payments                                                               
begin at year  five at production, the producer  pays minimum tax                                                               
until exhausting  NOL credits, and  pays the full  production tax                                                               
for the  remainder of  the life of  the field.   As shown  on the                                                               
upper  right graph,  the  state does  not  receive revenue  until                                                               
production begins.                                                                                                              
                                                                                                                                
CO-CHAIR  JOSEPHSON  returned  attention  to  slide  23  -  which                                                               
illustrated a partner  or joint venture with a large  field - and                                                               
noted the lifecycle of tax  credits repurchased under current law                                                               
is $1.6 billion and the state nets $22 billion.                                                                                 
                                                                                                                                
MS. GLOVER said correct.                                                                                                        
                                                                                                                                
CO-CHAIR JOSEPHSON  acknowledged this  is a  high rate  of return                                                               
albeit over  a long period of  time.  Considering the  all of the                                                               
variables such  as price,  the state should  know the  quality of                                                               
its investment.  He questioned how  residents of the state can be                                                               
assured of a worthy investment.                                                                                                 
                                                                                                                                
MS. GLOVER said that is not her expertise.                                                                                      
                                                                                                                                
REPRESENTATIVE RAUSCHER asked what part  of the model incents the                                                               
production of an oil field.                                                                                                     
                                                                                                                                
MS. GLOVER advised the model is  designed to show the impact made                                                               
by HB 111 on a hypothetical  field, and does not predict activity                                                               
or decisions by producers.                                                                                                      
                                                                                                                                
CO-CHAIR TARR said  the upper left graphs on [slides  15, 16, 22,                                                               
23,  and 24]  show the  changes  in "incentives"  because of  the                                                               
changes  to the  repurchase cash  credits, which  are one  of the                                                               
current incentives in tax policy.                                                                                               
                                                                                                                                
MS. GLOVER  advised there  are analyses in  this regard  later in                                                               
the  presentation.   Slide  26 provided  additional  data on  the                                                               
eight large  field scenarios  under the  status quo  one partner,                                                               
status  quo four  partners,  and  HB 111,  and  slide  27 was  an                                                               
outline of  all of the scenarios  that were modeled on  the large                                                               
field.                                                                                                                          
                                                                                                                                
2:48:57 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON  pointed out  the  economics  of a  large                                                               
field  are  better  than  those  of a  small  field,  and  opined                                                               
increased  exploration  on  smaller  fields was  the  purpose  of                                                               
Senate Bill 21 [passed in the 28th Alaska State Legislature].                                                                   
                                                                                                                                
CO-CHAIR TARR compared  the summary on slide 18  for small fields                                                               
to the  summary on  slide 26  for large  fields, and  pointed out                                                               
producer cash flow  at $40 is negative for small  fields - but is                                                               
not for larger fields - due to economies of scale.                                                                              
                                                                                                                                
MS. GLOVER  noted from  the results  of the  model DOR  sought to                                                               
determine how  the five  components of the  tax drive  changes to                                                               
the state  and to the producers.   For example, DOR  completed an                                                               
analysis on  the five components  using Fall 2016  forecast price                                                               
on a  large field  with one  partner, compared  to HB  111 [slide                                                               
27].   Slide 28  illustrated the  tax changes made  by HB  111 in                                                               
state  net  cash flows.    The  biggest  difference was  made  by                                                               
changing the NOL credit from 35  percent to 15 percent, which was                                                               
a gain of $2 billion.  Additional  impacts are a gain of about $1                                                               
billion from changes  to the sliding scale credit, and  a gain of                                                               
about $25  million from hardening  the floor.  Other  changes are                                                               
insignificant to cash flows.                                                                                                    
                                                                                                                                
CO-CHAIR TARR restated the analysis  is over the lifecycle of the                                                               
modeled   field,   thus   the  total   potential   earnings   are                                                               
approximately  $22 billion,  and the  total potential  change for                                                               
the life of the field would  be the aforementioned $2 billion and                                                               
$1 billion.                                                                                                                     
                                                                                                                                
MS. GLOVER added on slide 28  the blue bar on the left represents                                                               
approximately $22  billion in net  cash flow for the  status quo,                                                               
and the purple  bar on the right represents net  cash flow earned                                                               
under HB 111.   Slide 29 illustrated the difference  by HB 111 in                                                               
state net  present value (NPV),  incorporating the time  value of                                                               
money over the lifecycle of the  field.  The biggest impact of HB                                                               
111 was  again changing  the NOL  credits from  35 percent  to 15                                                               
percent; the  sliding scale credits,  hardening of the  floor and                                                               
other changes have smaller impacts.   Eliminating cash repurchase                                                               
has no  impact.  Slide 30  illustrated the difference made  by HB                                                               
111 in  producer net cash  flows:    status quo for  the producer                                                               
was about $18 billion in cash  flow, changing NOL credits from 35                                                               
percent to  15 percent was a  reduction of about $2  billion, and                                                               
the change  in sliding scale  credit was  a reduction.   Slide 31                                                               
illustrated  the difference  by HB  111 in  producer NPV.   Under                                                               
status quo  the producer is  at a  negative NPV and  changing NOL                                                               
credits has  the biggest impact; sliding  scale credit, hardening                                                               
the  floor,  changing  the  minimum  tax,  and  eliminating  cash                                                               
repurchase have further impacts.                                                                                                
                                                                                                                                
2:55:40 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOSEPHSON  inquired as  to the  price forecast  that was                                                               
used on the model for slide 31.                                                                                                 
                                                                                                                                
MS. GLOVER said the Fall 2016  RSB forecast was used.  In further                                                               
response to Co-Chair  Josephson, she explained there  are no cash                                                               
credits reflected in slide 31.                                                                                                  
                                                                                                                                
MS. GLOVER, in  response to Co-Chair Tarr,  further explained the                                                               
status quo  of the producers is  negative in slide 31  because of                                                               
the time  value of money.   Slide 22 indicated the  same negative                                                               
NPV due  to the outlay  of money in  the beginning of  a project,                                                               
which is shown in 2018 dollars.                                                                                                 
                                                                                                                                
REPRESENTATIVE PARISH  surmised there  was a  10 percent  rate of                                                               
return on other funds.                                                                                                          
                                                                                                                                
MS. GLOVER said correct.                                                                                                        
                                                                                                                                
[HB 111 was held over.]                                                                                                         
                                                                                                                                
2:59:58 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Resources Standing Committee meeting was adjourned at 2:59 p.m.                                                                 

Document Name Date/Time Subjects
SB030 Transmittal Letter 2.21.17.pdf HRES 2/22/2017 1:00:00 PM
SB 30
SB030 ver A 2.21.17.pdf HRES 2/22/2017 1:00:00 PM
SB 30
SB030 Supporting Document-DNR Slide Presentation 2.21.17.pdf HRES 2/22/2017 1:00:00 PM
SB 30
SB030 Supporting Document-Royalty Board Resolution 2.21.17.PDF HRES 2/22/2017 1:00:00 PM
SB 30
SB 30 Supporting Document-Report from Royalty Board 2.21.17.pdf HRES 2/22/2017 1:00:00 PM
SB 30
SB30 Supporting Document-Support Letter 2-15-2017.pdf HRES 2/22/2017 1:00:00 PM
SB 30
SB 30 Supporting Document-Best Interest Finding 2.21.17.pdf HRES 2/22/2017 1:00:00 PM
SB 30
HB111 ver O 2.8.17.PDF HRES 2/13/2017 1:00:00 PM
HRES 2/17/2017 1:00:00 PM
HRES 2/20/2017 1:00:00 PM
HRES 2/22/2017 1:00:00 PM
HRES 2/22/2017 6:30:00 PM
HRES 2/24/2017 1:00:00 PM
HRES 2/27/2017 1:00:00 PM
HRES 3/1/2017 1:00:00 PM
HRES 3/1/2017 6:00:00 PM
HRES 3/6/2017 6:30:00 PM
HRES 3/8/2017 1:00:00 PM
HB 111
HB111 Fiscal Note DOR-TAX 2.12.17.pdf HRES 2/13/2017 1:00:00 PM
HRES 2/17/2017 1:00:00 PM
HRES 2/22/2017 1:00:00 PM
HRES 2/22/2017 6:30:00 PM
HRES 2/24/2017 1:00:00 PM
HRES 2/27/2017 1:00:00 PM
HRES 3/1/2017 1:00:00 PM
HRES 3/1/2017 6:00:00 PM
HRES 3/6/2017 6:30:00 PM
HRES 3/8/2017 1:00:00 PM
HRES 3/13/2017 1:00:00 PM
HB 111
HB111 Sectional Analysis 2.12.17.pdf HRES 2/13/2017 1:00:00 PM
HRES 2/17/2017 1:00:00 PM
HRES 2/20/2017 1:00:00 PM
HRES 2/22/2017 1:00:00 PM
HRES 2/22/2017 6:30:00 PM
HRES 2/24/2017 1:00:00 PM
HRES 2/27/2017 1:00:00 PM
HRES 3/1/2017 1:00:00 PM
HRES 3/1/2017 6:00:00 PM
HRES 3/6/2017 6:30:00 PM
HRES 3/8/2017 1:00:00 PM
HB 111
HB111 Sponsor Statement 2.12.17.pdf HRES 2/13/2017 1:00:00 PM
HRES 2/17/2017 1:00:00 PM
HRES 2/20/2017 1:00:00 PM
HRES 2/22/2017 1:00:00 PM
HRES 2/22/2017 6:30:00 PM
HRES 2/24/2017 1:00:00 PM
HRES 2/27/2017 1:00:00 PM
HRES 3/1/2017 1:00:00 PM
HRES 3/1/2017 6:00:00 PM
HRES 3/6/2017 6:30:00 PM
HRES 3/8/2017 1:00:00 PM
HRES 3/13/2017 1:00:00 PM
HB 111
HB111 - DOR Lifecycle Scenario Analysis Presentation - 2.17.17.pdf HRES 2/17/2017 1:00:00 PM
HRES 2/22/2017 1:00:00 PM
HB 111
SB30 Fiscal Note-DNR-DOG 2.22.17.pdf HRES 2/22/2017 1:00:00 PM
SB 30
Ocean Acidification in Alaska Ecosystems and Economics By Jessica Cross 2.22.17.pdf HRES 2/22/2017 1:00:00 PM