Legislature(2017 - 2018)BARNES 124

03/10/2017 01:00 PM House RESOURCES

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Audio Topic
01:02:50 PM Start
01:03:25 PM Presentation(s): Department of Revenue - the Competitivness Review Board (o&gcrb)
01:16:57 PM Confirmation Hearings(s): Alaska Oil and Gas Conservation Commission (aogcc)
02:11:46 PM HB111
03:06:17 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation: AK Oil & Gas Competitiveness Review TELECONFERENCED
Board by Commissioner Hoffbeck
+ Confirmation Hearings: AK Oil & Gas Conservation TELECONFERENCED
-- Public Testimony --
Heard & Held
-- Testimony <Invitation Only> --
**Streamed live on AKL.tv**
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                         March 10, 2017                                                                                         
                           1:02 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Andy Josephson, Co-Chair                                                                                         
Representative Geran Tarr, Co-Chair                                                                                             
Representative Dean Westlake, Vice Chair                                                                                        
Representative Harriet Drummond                                                                                                 
Representative Justin Parish                                                                                                    
Representative Chris Birch                                                                                                      
Representative DeLena Johnson                                                                                                   
Representative George Rauscher                                                                                                  
Representative David Talerico                                                                                                   
MEMBERS ABSENT                                                                                                                
Representative Mike Chenault (alternate)                                                                                        
Representative Chris Tuck (alternate)                                                                                           
COMMITTEE CALENDAR                                                                                                            
PRESENTATION(S): DEPARTMENT OF REVENUE - THE COMPETITIVENESS                                                                    
REVIEW BOARD (O&GCRB)                                                                                                           
     - HEARD                                                                                                                    
CONFIRMATION HEARINGS(S):                                                                                                       
Alaska Oil and Gas Conservation Commission                                                                                    
     Hollis French - Anchorage                                                                                                  
     Daniel Seamount Jr. - Eagle River                                                                                          
     - CONFIRMATION(S) ADVANCED                                                                                                 
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                                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HB 111                                                                                                                  
SHORT TITLE: OIL & GAS PRODUCTION TAX; PAYMENTS; CREDITS                                                                        
SPONSOR(s): RESOURCES                                                                                                           
02/08/17       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/08/17       (H)       RES, FIN                                                                                               
02/08/17       (H)       TALERICO OBJECTED TO INTRODUCTION                                                                      
02/08/17       (H)       INTRODUCTION RULED IN ORDER                                                                            
02/08/17       (H)       SUSTAINED RULING OF CHAIR Y23 N15 E2                                                                   
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                                                                              
02/22/17       (H)       Heard & Held                                                                                           
02/22/17       (H)       MINUTE(RES)                                                                                            
02/22/17       (H)       RES AT 6:30 PM BARNES 124                                                                              
02/22/17       (H)       Heard & Held                                                                                           
02/22/17       (H)       MINUTE(RES)                                                                                            
02/24/17       (H)       RES AT 1:00 PM BARNES 124                                                                              
02/24/17       (H)       Heard & Held                                                                                           
02/24/17       (H)       MINUTE(RES)                                                                                            
02/27/17       (H)       RES AT 1:00 PM BARNES 124                                                                              
02/27/17       (H)       Heard & Held                                                                                           
02/27/17       (H)       MINUTE(RES)                                                                                            
02/27/17       (H)       RES AT 7:00 PM CAPITOL 106                                                                             
02/27/17       (H)       Heard & Held                                                                                           
02/27/17       (H)       MINUTE(RES)                                                                                            
03/01/17       (H)       RES AT 1:00 PM BARNES 124                                                                              
03/01/17       (H)       Heard & Held                                                                                           
03/01/17       (H)       MINUTE(RES)                                                                                            
03/01/17       (H)       RES AT 6:00 PM BARNES 124                                                                              
03/01/17       (H)       Heard & Held                                                                                           
03/01/17       (H)       MINUTE(RES)                                                                                            
03/06/17       (H)       RES AT 1:00 PM BARNES 124                                                                              
03/06/17       (H)       Scheduled but Not Heard                                                                                
03/06/17       (H)       RES AT 6:30 PM BARNES 124                                                                              
03/06/17       (H)       Heard & Held                                                                                           
03/06/17       (H)       MINUTE(RES)                                                                                            
03/08/17       (H)       RES AT 1:00 PM BARNES 124                                                                              
03/08/17       (H)       Heard & Held                                                                                           
03/08/17       (H)       MINUTE(RES)                                                                                            
03/08/17       (H)       RES AT 6:00 PM BARNES 124                                                                              
03/08/17       (H)       Heard & Held                                                                                           
03/08/17       (H)       MINUTE(RES)                                                                                            
03/09/17       (H)       RES AT 5:00 PM BARNES 124                                                                              
03/09/17       (H)       -- MEETING CANCELED --                                                                                 
03/10/17       (H)       RES AT 1:00 PM BARNES 124                                                                              
WITNESS REGISTER                                                                                                              
RANDALL HOFFBECK, Commissioner                                                                                                  
Department of Revenue (DOR)                                                                                                     
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Provided a presentation  on the Oil  and Gas                                                             
Competitiveness Review Board (OGCRB), Department of Revenue.                                                                    
HOLLIS FRENCH, Appointee                                                                                                        
Alaska Oil and Gas Conservation Commission (AOGCC)                                                                              
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Provided  his qualifications  and responded                                                             
to  questions,   as  appointee   to  the   Alaska  Oil   and  Gas                                                               
Conservation Commission (AOGCC).                                                                                                
DANIEL SEAMOUNT, JR., Appointee                                                                                                 
Alaska Oil and Gas Conservation Commission (AOGCC)                                                                              
Eagle River, Alaska                                                                                                             
POSITION STATEMENT:   Provided  his qualifications  and responded                                                             
to  questions,   as  appointee   to  the   Alaska  Oil   and  Gas                                                               
Conservation Commission (AOGCC).                                                                                                
LISA WEISSLER, Staff                                                                                                            
Representative Andy Josephson                                                                                                   
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:     Presented  a  side   by  side  sectional                                                             
analysis/description  of the  committee substitute  (CS), Version                                                               
N, for HB  111, on behalf of  Representative Josephson, co-chair,                                                               
House Resources Standing Committee, sponsor.                                                                                    
ACTION NARRATIVE                                                                                                              
1:02:50 PM                                                                                                                    
CO-CHAIR  GERAN   TARR  called   the  House   Resources  Standing                                                             
Committee meeting  to order at  1:02 p.m.   Representatives Tarr,                                                               
Birch,  Parish,   Talerico,  Rauscher,  Johnson,   Westlake,  and                                                               
Josephson  were present  at the  call to  order.   Representative                                                               
Drummond arrived as the meeting was in progress.                                                                                
^PRESENTATION(S):  DEPARTMENT  OF  REVENUE -  THE  COMPETITIVNESS                                                               
REVIEW BOARD (O&GCRB)                                                                                                           
  PRESENTATION(S): DEPARTMENT OF REVENUE - THE COMPETITIVNESS                                                               
                     REVIEW BOARD (O&GCRB)                                                                                  
1:03:25 PM                                                                                                                    
CO-CHAIR TARR  announced that the  first order of  business would                                                               
be a  presentation by the  Department of  Revenue on the  Oil and                                                               
Gas Competitiveness Review Board,  as requested by Representative                                                               
1:04:48 PM                                                                                                                    
RANDALL  HOFFBECK,  Commissioner,  Department of  Revenue  (DOR),                                                               
informed  the committee  the Oil  and Gas  Competitiveness Review                                                               
Board was  formed as a  provision of  Senate Bill 21,  [passed in                                                               
the  Twenty-Eighth Alaska  State  Legislature],  and was  charged                                                               
with two  tasks.  First,  the board was  to gather data  and make                                                               
recommendations to  the Alaska  State Legislature  concerning the                                                               
competitiveness  structure of  the state,  not just  on tax,  but                                                               
also  in  areas such  as  regulatory  and transportation  issues.                                                               
Second, the board  was to advise the legislature  on its findings                                                               
regarding the  state's fiscal system, labor  pool, and regulatory                                                               
competitiveness.  The diverse board  seats the following members:                                                               
two members  of the public  who are  not affiliated with  the oil                                                               
and  gas industry;  three  administrative  department heads,  one                                                               
each from the Department of  Environmental Conservation (DEC) and                                                               
the Department of Natural Resources  (DNR), and one from DOR; one                                                               
commissioner from the Alaska Oil  and Gas Conservation Commission                                                               
(AOGCC); three oil  and gas subject matter experts  - a petroleum                                                               
engineer, a geologist, and a  financial analyst; and two industry                                                               
trade  group  representatives.    The  board's  initial,  93-page                                                               
report was delivered in March  2015, as a general competitiveness                                                               
overview and is available on the DOR  web site.  The focus of the                                                               
report  was  a compilation  of  existing  data with  minimal  new                                                               
analysis, including a table which  provided a high-level overview                                                               
comparing Alaska's tax system to that of other states.                                                                          
COMMISSIONER HOFFBECK  relayed that  the next  report was  due in                                                               
January  2017 and  was  to be  a  review of  the  Cook Inlet  tax                                                               
regime.  However,  Cook Inlet is in a transition  phase after its                                                               
tax  policy was  rewritten under  House Bill  247 [passed  in the                                                               
Twenty-Ninth  Alaska  State  Legislature],  and a  delay  of  the                                                               
report  until   January  2019  was  requested   from  legislative                                                               
leadership.   The  board decided  to  use the  available time  to                                                               
compile and  facilitate the early  delivery of the  required 2021                                                               
report,  which  is to  be  a  comprehensive report  covering  the                                                               
state.   Further,  the board  realized that  by teaming  with the                                                               
Alaska  Oil and  Gas  Association (AOGA),  the  integrity of  the                                                               
report  would   be  acceptable  to   a  broader  sector   of  the                                                               
legislature.   However,  procurement issues  arose, and  AOGA has                                                               
contracted with  the consulting firm  of Wood Mackenzie to  do an                                                               
overall review of the state's  competitiveness, and the state has                                                               
contracted with  the firm  of Black  and Veatch  for a  review of                                                               
similar scope and  deliverables.  The board  will consolidate the                                                               
two   reports  and   provide  a   comparative  analysis   to  the                                                               
legislature.  The reports have as  yet to be delivered, and thus,                                                               
the  board   has  not  been   able  to  begin   the  compilation.                                                               
Commissioner  Hoffbeck  said  he   expected  there  would  be  no                                                               
information   available   to   the   committee   prior   to   its                                                               
deliberations on HB 111.                                                                                                        
1:11:03 PM                                                                                                                    
REPRESENTATIVE BIRCH  asked whether  the commissioner has  had an                                                               
opportunity to  review the  [upcoming] committee  substitute (CS)                                                               
for HB  111, and  whether the bill  and the  committee substitute                                                               
reflect the administration's position.                                                                                          
COMMISSIONER HOFFBECK noted that the  bill is very different from                                                               
the bill introduced by the  administration in [the Fourth Special                                                               
Session  of  the  Twenty-Ninth Alaska  State  Legislature,  which                                                               
occurred  in  2016]; DOR  has  assisted  the committee  with  the                                                               
structure  of  the  proposed  legislation,  but  it  is  not  the                                                               
administration's bill.                                                                                                          
REPRESENTATIVE BIRCH  asked whether  the CS  is supported  by the                                                               
COMMISSIONER  HOFFBECK   said  administrative   policy  precludes                                                               
taking a position on a bill during the legislative process.                                                                     
CO-CHAIR TARR  questioned the effectiveness  of the board,  as it                                                               
was established without resources, and  she suggested that if the                                                               
committee  believes   the  board   is  important,  then   it  may                                                               
reconsider staffing the board.                                                                                                  
COMMISSIONER  HOFFBECK   added  that  DOR  has   also  questioned                                                               
whether, without  resources, the board  has a purpose.   Although                                                               
difficult  to achieve  without resources,  the board  as a  whole                                                               
determined that it  has a purpose, which could  be achieved given                                                               
the  appropriate  resources.     In  response  to  Representative                                                               
Johnson,  he   reiterated  why  a   report  date  has   not  been                                                               
^CONFIRMATION  HEARINGS(S):    ALASKA OIL  AND  GAS  CONSERVATION                                                               
COMMISSION (AOGCC)                                                                                                              
                   CONFIRMATION HEARINGS(S):                                                                                
       ALASKA OIL AND GAS CONSERVATION COMMISSION (AOGCC)                                                                   
1:16:57 PM                                                                                                                    
CO-CHAIR TARR announced that the  next order of business would be                                                               
the   confirmation  hearings   for   the  Alaska   Oil  and   Gas                                                               
Conservation Commission (AOGCC).                                                                                                
CO-CHAIR TARR announced that the  committee would first hear from                                                               
Hollis French.                                                                                                                  
1:18:48 PM                                                                                                                    
HOLLIS FRENCH  provided an overview  of his work  experience that                                                               
is  relevant for  being seated  on  the commission,  paraphrasing                                                               
from  a  prepared  statement, which  read  as  follows  [original                                                               
punctuation provided]:                                                                                                          
     I began work  in Alaska's oil industry in  1979, when I                                                                    
     was hired  as a  bullcook on Shell  Platform A  in Cook                                                                    
     Inlet. I worked continuously  on that platform for five                                                                    
     years. I  was promoted  from bullcook to  roustabout in                                                                    
     1980, and a  year later Shell Oil Company  hired me and                                                                    
     trained me to be a production operator.                                                                                    
     I  became familiar  with all  aspects  of offshore  oil                                                                    
     production    including    water    injection,    power                                                                    
     generation,  gas  compression  and oil  separation  and                                                                    
     shipping. We  worked closely  with drilling  crews when                                                                    
     the rotary  drill rig was  running. We shipped  pigs in                                                                    
     the  oil transport  line  and  proved custody  transfer                                                                    
     meters. Every member  of the crew was  a firefighter as                                                                    
     In  1984  I  was  hired   by  ARCO  Alaska  Inc.  as  a                                                                    
     production operator  at the Kuparuk River  Field on the                                                                    
     North Slope.  ARCO had  an aggressive  training program                                                                    
     in  place that  moved  operators  through a  half-dozen                                                                    
     positions  at roughly  six  month  intervals. I  became                                                                    
     qualified  to   work  every   station  in   the  plant:                                                                    
     waterflood, oil  separation and shipping, gas  lift and                                                                    
     compression,   power  generation,   diesel  production,                                                                    
     natural  gas liquids  handling and  waste injection.  I                                                                    
     was  also  assigned  to  Drill  Sites,  which  entailed                                                                    
     monitoring  and testing  wells,  and coordinating  work                                                                    
     with wireline operations and  drilling. I became versed                                                                    
     in  one  of  AOGCC's  primary  missions  by  conducting                                                                    
     witnessed tests  of each well's surface  and subsurface                                                                    
     safety valves  for AOGCC field inspectors.  The top job                                                                    
     at that  time for operators  was to be assigned  to the                                                                    
     control room as Board  Operator. I worked approximately                                                                    
     fifty week-long shifts, at ninety  hours per week, as a                                                                    
     Board Operator.                                                                                                            
     The performance  reviews I received from  ARCO were all                                                                    
     positive. Here is  an example from 1991,  just prior to                                                                    
     my being promoted to Lead  Operator, a position created                                                                    
     that  year to  replace the  company's foremen:  "Hollis                                                                    
     exceeds  expectations.   Hollis'  technical  expertise,                                                                    
     maturity  and leadership  abilities  make him  uniquely                                                                    
     qualified for advancement into supervision."                                                                               
     In addition  to my  operator duties I  was a  member of                                                                    
     the Kuparuk Fire Brigade.                                                                                                  
     In 1992 I left the oil industry to go to law school.                                                                       
1:23:15 PM                                                                                                                    
REPRESENTATIVE BIRCH  asked what Mr.  French considers to  be the                                                               
most  important role  of  the commission,  for  example, the  key                                                               
aspects and responsibilities.                                                                                                   
MR. FRENCH responded that the  commission is focused primarily on                                                               
management  of  the state's  enormous  oil,  gas, and  geothermal                                                               
resources through conservation practices  designed to provide the                                                               
highest possible  level of recovery, while  ensuring workers have                                                               
a  high  level  of  personal  safety  and  protecting  the  fresh                                                               
groundwater  of  the   state.    Further,  it  is   part  of  the                                                               
commission's mission  to make  sure that every  owner is  able to                                                               
extract their share of the  resource, and he provided an example.                                                               
Along with staff engineers and  geologists, as a public member of                                                               
the commission, he provides another set of eyes on issues.                                                                      
REPRESENTATIVE  RAUSCHER inquired  of  Mr. French,  based on  his                                                               
commission experience  thus far,  what changes  he would  like to                                                               
see occur or visions adopted.                                                                                                   
MR.  FRENCH  said one  action  is  the  revision of  the  bonding                                                               
practices,  which came  as a  recommendation  from a  legislative                                                               
audit dating back to 1991.   The current practice is to collect a                                                               
$100,000 bond  from a  drilling company to  ensure that  the well                                                               
will  be ultimately  plugged  and  abandoned at  the  end of  its                                                               
economic life.   When the  same company drills another  well, the                                                               
state receives another  $100,000 bond for the  second well, which                                                               
is  the bond  for all  subsequent  wells the  company may  drill.                                                               
Thus, most  companies operating  in Alaska  never post  more than                                                               
$200,000 in bonds  as a promise to plug and  abandon however many                                                               
wells they  drill.  He  said that the commission  recognizes that                                                               
$200,000 is an insufficient amount  to cover the cost of plugging                                                               
and abandoning a typical well in Alaska.                                                                                        
REPRESENTATIVE  RAUSCHER  asked  how  many wells  have  not  been                                                               
closed  appropriately, causing  the state  to pursue  the company                                                               
for mitigation purposes.                                                                                                        
MR. FRENCH answered  that the legacy wells are  the best example.                                                               
The wells  were drilled by  the U.S.  Navy (USN) in  the National                                                               
Petroleum  Reserve-Alaska (NPR-A),  circa 1940-1970.   The  wells                                                               
were  not sufficiently  plugged and  abandoned when  the drilling                                                               
company contracted  by the  USN pulled  off the  sites.   He said                                                               
these  wells  have  become enormous  environmental  and  economic                                                               
headaches, despite  the $50 million  appropriated by  the federal                                                               
government  to clean  up the  well sites.   Although  these wells                                                               
stand as the  dominant example of how not to  manage an oilfield,                                                               
it's  estimated that  there  are  750 wells  in  Alaska that  are                                                               
neither abandoned  nor producing,  but are standing  shut-in with                                                               
their  ultimate fates  unknown.   Ten years  ago, the  number was                                                               
500, and it  is now over 750,  which is cause for  concern by the                                                               
1:29:48 PM                                                                                                                    
CO-CHAIR  JOSEPHSON  noted  that  the  experience  the  appointee                                                               
brings to the commission's public  member seat is beneficial, but                                                               
not a prerequisite for serving.                                                                                                 
MR. FRENCH  pointed out that a  statutory change was made  to the                                                               
public membership  qualifications:  AS 31.05.009(3)  directs that                                                               
the public member being seated  must have "training or experience                                                               
that gives the person a  fundamental understanding of the oil and                                                               
gas industry  in the state."   Therefore, some background  in oil                                                               
and gas  is necessary  to assume this  "very technical  job," and                                                               
someone who has no knowledge  of oilfield operations is prevented                                                               
from being appointed as a public member.                                                                                        
CO-CHAIR JOSEPHSON said  there has been a "dust-up"  on the Kenai                                                               
Peninsula   regarding  [hydraulic   fracturing,  also   fraccing,                                                               
frac'ing, hydrofracturing  or hydrofracking], and he  asked about                                                               
both  the risks  and concerns  for  this practice  and if  public                                                               
notices are being provided in a fair and sufficient manner.                                                                     
MR. FRENCH opined  that the physical and  environmental risks for                                                               
fracking in the affected area are  extremely low.  A tough set of                                                               
permit requirements is  in place to govern the  practice, and one                                                               
aspect of  the permit requires notification  of landowners within                                                               
a one-half mile radius of a  site.  The public is concerned about                                                               
the  pollution  of  freshwater; however,  the  engineering  being                                                               
applied  should  alleviate those  concerns.    Currently out  for                                                               
public comment is a proposed  regulation that would make fracking                                                               
permit   requests  immediately   available  for   public  review,                                                               
allowing 10 days  for feedback and keeping  residents informed of                                                               
what is being considered.                                                                                                       
CO-CHAIR  JOSEPHSON  reported one  concern  is  that industry  is                                                               
allowed 30 days  to review proposed fracking  regulations and the                                                               
residents have only 10 days.                                                                                                    
MR.  FRENCH acknowledged  that the  proposal out  for notice  and                                                               
comment is  to allow the public  10 days to review  a regulation,                                                               
which, he estimated, can usually be read in about one hour.                                                                     
1:35:15 PM                                                                                                                    
REPRESENTATIVE  DRUMMOND asked  when the  governor appointed  Mr.                                                               
French to the commission.                                                                                                       
MR. FRENCH responded that the appointment was made in July 2016.                                                                
REPRESENTATIVE DRUMMOND established that  this hearing is not for                                                               
a re-appointment but is an  initial confirmation.  She asked what                                                               
had been  accomplished since Mr.  French assumed the seat  on the                                                               
MR. FRENCH  recalled that permits  have been  received, reviewed,                                                               
and signed  for nearly  300 workover permits  and almost  100 new                                                               
wells.  He  offered that Hilcorp executives  have expressed their                                                               
support   for  his   confirmation.     In  further   response  to                                                               
Representative Drummond,  he said workover permits  cover actions                                                               
other than drilling  new wells, such as moving the  location of a                                                               
REPRESENTATIVE  RAUSCHER  queried  how  many  permits  have  been                                                               
MR. FRENCH  estimated zero  permits have been  stopped.   He said                                                               
that the companies  operating in Alaska know  what they're doing,                                                               
and if the rules are followed, the permit is issued.                                                                            
REPRESENTATIVE   RAUSCHER  concluded   that  the   oil  companies                                                               
understand the permits and realize  the necessary steps to follow                                                               
and the due diligence required.                                                                                                 
MR. FRENCH said  the interesting aspect of a permit  is often the                                                               
back  and forth  dialogue  documented by  the  engineers on  each                                                               
side, as they consider the best way to proceed with a project.                                                                  
REPRESENTATIVE  JOHNSON asked  what  process he  would follow  to                                                               
have a statute changed.                                                                                                         
MR.  FRENCH  responded  that  he  would  bring  issues  requiring                                                               
statutory changes  to the House Resources  Standing Committee and                                                               
the Senate Resources Standing Committee.                                                                                        
REPRESENTATIVE PARISH questioned  whether the commission requires                                                               
legislative action on any topic at this time.                                                                                   
MR. FRENCH responded no.                                                                                                        
REPRESENTATIVE  TALERICO   asked  if  Mr.  French   has  seen  an                                                               
improvement in  facility and personal  safety within the  oil and                                                               
gas industry.                                                                                                                   
MR.  FRENCH  recalled  taking  a  tour  of  Point  Thomson  as  a                                                               
legislator and  being stunned  to see  the improvement  in safety                                                               
practices that had  occurred since he left the  industry in 1992;                                                               
there has been a step up of safety measures in all areas.                                                                       
1:43:07 PM                                                                                                                    
CO-CHAIR  TARR  opened  public   testimony  on  the  confirmation                                                               
hearing  of Mr.  French.   After  ascertaining no  one wished  to                                                               
testify, public testimony was closed.                                                                                           
1:43:32 PM                                                                                                                    
CO-CHAIR TARR announced  that the committee would  next hear from                                                               
Daniel Seamount, Jr.                                                                                                            
1:44:15 PM                                                                                                                    
DANIEL SEAMOUNT, JR., Appointee,  Alaska Oil and Gas Conservation                                                               
Commission (AOGCC), said he has served  on a public seat on AOGCC                                                               
for  over 17  years and  looks forward  to another  6 years.   He                                                               
provided  personal   history  and   directed  attention   to  the                                                               
committee  packet  and  his  resume,  biography,  and  letter  of                                                               
interest provided, and reviewed  highlights, which include:  work                                                               
with 10  AOGCC commissioners and  5 governors; service  in Alaska                                                               
for  25 years;  industry  service  for 27  years  in onshore  and                                                               
offshore exploration and development in  many parts of the world;                                                               
and extensive reviews of AOGCC  orders and permits.  Mr. Seamount                                                               
praised the AOGCC  staff for their outstanding  work in assisting                                                               
industry.   He provided many  details on work the  commission has                                                               
accomplished during his service.   He endorsed the appointment of                                                               
Hollis French as commissioner.                                                                                                  
REPRESENTATIVE RAUSCHER  asked what Mr. Seamount  considers to be                                                               
his biggest contribution to the  state, after 16 years of service                                                               
on AOGCC.                                                                                                                       
MR.  SEAMOUNT answered  that his  focus has  been to  keep things                                                               
running smoothly  and to maintain  oversight of the  operators to                                                               
ensure that they are adhering  to state regulations and statutes.                                                               
The  low number  of  blowouts compared  to  other oil  production                                                               
states  is  notable, with  only  17  in  60 years,  versus  North                                                               
Dakota, which had 17 blowouts in 6 months.                                                                                      
REPRESENTATIVE  RAUSCHER  noted  the resume  references  to  work                                                               
performed  in  the  various  areas  of the  state  and  said  the                                                               
experience Mr. Seamount brings is appreciable.                                                                                  
1:55:02 PM                                                                                                                    
REPRESENTATIVE BIRCH  observed there  has been  recent discussion                                                               
about the  marketing of  seismic data, and  he remarked  that DNR                                                               
may  make seismic  data in  its possession  available to  enhance                                                               
exploration  efforts.     He  asked   whether  seismic   data  is                                                               
MR. SEAMOUNT  said seismic data has  come a long way.   There are                                                               
over  20  basins in  Alaska  that  have  oil and  gas  potential,                                                               
although  only  2  have been  productive,  leaving  a  tremendous                                                               
amount of  oil and gas  left to  be discovered, and  seismic will                                                               
have a big part in future discoveries.                                                                                          
REPRESENTATIVE  PARISH directed  attention  to  the ongoing  Cook                                                               
Inlet natural gas  leak where 200,000-300,000 cubic  feet per day                                                               
of  natural  gas   is  "bubbling  away."    He   asked  what  the                                                               
legislature  can do  and  what action  the  commission is  taking                                                               
about the pipeline leak.                                                                                                        
MR. SEAMOUNT advised the commission  is divided, but the majority                                                               
opinion  is that  the  authority over  the leak  is  held by  the                                                               
Department  of  Environmental  Conservation (DEC)  and  the  U.S.                                                               
Coast Guard  (USCG), because  "that gas  has already  been bought                                                               
and paid for; ... that gas belongs to somebody else now."                                                                       
REPRESENTATIVE PARISH  disagreed, noting that  the gas was  to be                                                               
"provided to  Alaskan ...  businesses and  homes, and  we capture                                                               
more of its economic value that way."                                                                                           
MR.  SEAMOUNT expressed  his personal  confidence  that the  leak                                                               
will be stopped by May 2017.                                                                                                    
REPRESENTATIVE  TALERICO expressed  his  strong  support for  the                                                               
appointment of Mr. Seamount.                                                                                                    
2:00:16 PM                                                                                                                    
CO-CHAIR  TARR  opened  public   testimony  on  the  confirmation                                                               
hearing of  Mr. Seamount.   After ascertaining  no one  wished to                                                               
testify, public testimony was closed.                                                                                           
REPRESENTATIVE   DRUMMOND   expressed   her   support   for   the                                                               
appointment of Mr. Seamount.                                                                                                    
REPRESENTATIVE   WESTLAKE   expressed   his   support   for   the                                                               
appointment of both Mr. French and Mr. Seamount.                                                                                
REPRESENTATIVE PARISH requested that  AOGCC members reexamine the                                                               
loss of hydrocarbons in Cook Inlet.                                                                                             
2:03:14 PM                                                                                                                    
CO-CHAIR JOSEPHSON made  a motion to advance the  names of Hollis                                                               
French and  Daniel Seamount,  Jr., appointees  to the  Alaska Oil                                                               
and Gas Conservation Commission, to  a joint session of the House                                                               
and  Senate for  consideration.   He  reminded committee  members                                                               
that  signing the  reports regarding  appointments to  boards and                                                               
commissions in  no way reflects  individual members'  approval or                                                               
disapproval  of  the appointees,  and  that  the nominations  are                                                               
merely  forwarded to  the full  legislature  for confirmation  or                                                               
rejection.   There being no  objection, the confirmations  of Mr.                                                               
French and  Mr. Seamount were  advanced from the  House Resources                                                               
Standing Committee.                                                                                                             
2:03:44 PM                                                                                                                    
The committee took an-at ease from 2:03 p.m. to 2:11 p.m.                                                                       
       HB 111-OIL & GAS PRODUCTION TAX; PAYMENTS; CREDITS                                                                   
2:11:46 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."                                                                                               
2:12:01 PM                                                                                                                    
CO-CHAIR  JOSEPHSON   moved  to  adopt  the   proposed  committee                                                               
substitute  (CS)   for  HB  111,  Version   30-LS0450\N,  Nauman,                                                               
3/10/17, as the working document.                                                                                               
2:12:19 PM                                                                                                                    
CO-CHAIR TARR objected  for discussion purposes.   She stated the                                                               
intent of the  co-chairs is to give the  committee an opportunity                                                               
to review the  CS and, following that, the bill  would be held in                                                               
[A discussion  ensued regarding  the committee's  development and                                                               
handling of the CS.]                                                                                                            
2:19:50 PM                                                                                                                    
LISA WEISSLER,  Staff to Representative Andy  Josephson, directed                                                               
attention  to a  document, entitled  "Comparison of  HB 111  with                                                               
Committee Substitute  Work Draft  (Resources)," dated  3/9/17, to                                                               
point  out  the side  by  side  analysis/comparison.   The  first                                                               
change is an addition of  intent language such that contingent on                                                               
the  passage of  a  fiscal  plan, a  substantial  portion of  the                                                               
outstanding transferable  and production tax  credit certificates                                                               
would be purchased.                                                                                                             
CO-CHAIR TARR  interjected that another vehicle  for establishing                                                               
legislative  intent could  be  brought via  a  letter of  intent;                                                               
however,  having the  language included  in the  bill provides  a                                                               
stronger  message in  which to  outline  a means  to address  the                                                               
existing debt.                                                                                                                  
MS.  WEISSLER said  the interest  statement in  Section 1  became                                                               
Section 2 in the CS ("Version  N"), without change.  Section 2 in                                                               
the original  bill raised  the minimum  tax from  4 percent  to 5                                                               
percent; Section  6 in Version N  would set the minimum  tax at 5                                                               
percent, when the  average Alaska North Slope (ANS)  price is $50                                                               
or more,  and at 4  percent, when the  average ANS price  is less                                                               
than $50, and it would remove the variable minimum tax rate.                                                                    
2:22:46 PM                                                                                                                    
The committee took an at-ease from  2:22 p.m. to 2:24 p.m. due to                                                               
technical difficulties.                                                                                                         
[A   series  of   intermittent   technical  difficulties   caused                                                               
interruptions and some testimony was lost.]                                                                                     
CO-CHAIR  TARR commented  that changing  the minimum  oil tax  to                                                               
reflect  a  benchmark rate  of  $50.00  per  barrel was  done  in                                                               
response  to industry  to better  reflect  the current  low-price                                                               
2:25:11 PM                                                                                                                    
The committee took an at-ease from  2:25 p.m. to 2:34 p.m. due to                                                               
technical difficulties.                                                                                                         
2:34:04 PM                                                                                                                    
MS. WEISSLER returned attention to  the comparison and said there                                                               
was a mistake in Section 2  of the original bill, which ended the                                                               
minimum tax for  oil in 2022 when the net  production tax for gas                                                               
was slated to change  to a gross value tax.   Version N makes the                                                               
necessary   correction  to   apply   the  minimum   tax  to   oil                                                               
indefinitely and end it  only for gas in 2022.   A new section to                                                               
AS 43.55.011 related to reducing  the minimum tax below the floor                                                               
was not  changed.   In order  to stop industry's  use of  the per                                                               
barrel tax credit in months  that would reduce their tax, Section                                                               
7 of Version  N would delete language in AS  43.05.011(q) and add                                                               
new language in AS 43.05.011  (j) that better addresses the issue                                                               
of the credits  being applied in different months.   [Indisc. due                                                               
to audio recording technical difficulties.]                                                                                     
REPRESENTATIVE RAUSCHER asked whether  per barrel tax credits are                                                               
being applied in the same fiscal or calendar year.                                                                              
MS. WEISSLER answered  that credits have been  allowed during the                                                               
same calendar year.                                                                                                             
2:37:36 PM                                                                                                                    
The committee took an at-ease from  2:37 p.m. to 2:42 p.m. due to                                                               
technical difficulties.                                                                                                         
2:42:34 PM                                                                                                                    
MS.  WEISSLER  explained  that  HB  111  initially  proposed,  in                                                               
Section [5], to  change the North Slope carry  forward annual net                                                               
operating  loss  (NOL)  credit  rate,  as  established  under  AS                                                               
43.55.023(b), from  35 percent to  15 percent for the  purpose of                                                               
matching the  production tax rate  with the carry forward  or NOL                                                               
rate.  Currently, the per barrel  credits added in by Senate Bill                                                               
21  [passed  in  the   Twenty-Eighth  Alaska  State  Legislature]                                                               
distort the 35 percent matching  rates.  Ms. Weissler referred to                                                               
testimony  by legislative  consultants related  to carry  forward                                                               
losses,  and  noted that  another  provision  of  HB 111  was  to                                                               
eliminate cash credits for NOLs.                                                                                                
REPRESENTATIVE RAUSCHER  paraphrased a  quote from  a consultant,                                                               
stating, "If you're not allowed  to recover your costs, that puts                                                               
Alaska on the bottom of  the competition scale around the world."                                                               
He  noted  that  [the  proposed  change from  35  percent  to  15                                                               
percent] represents a significant percentage drop.                                                                              
CO-CHAIR  TARR advised  that the  remainder  of the  presentation                                                               
should  provide   an  understanding   of  how   the  consultant's                                                               
recommendation is being followed.                                                                                               
MS.  WEISSLER restated  the  original  intent of  HB  111 was  to                                                               
reduce  NOLs to  15  percent and  eliminate  cash credits,  which                                                               
would be  "a very  big hit  to the  independent producers."   She                                                               
said the state  seeks to keep independent  producers operating in                                                               
Alaska;  therefore, Version  N, Sections  9 and  24-26, introduce                                                               
carry forward deductions.  She continued, as follows:                                                                           
     We get rid  of the net operating loss  credits - people                                                                    
     carry  the  deduction  forward.   Now,  typically  that                                                                    
     would be 100 percent of  someone's cost ....  The issue                                                                    
     that we have here in  Alaska is this distortion that we                                                                    
     refer  to of  a 35  percent  tax rate  with per  barrel                                                                    
     credits and where the effective  tax rate is lower than                                                                    
     that 35  percent.  And  so, speaking in the  context of                                                                    
     major producers  who have tax  liability, if  they came                                                                    
     to a  point where  they had a  net operating  loss that                                                                    
     was carry forward,  where they got an uplift  - and the                                                                    
     uplift, I should  mention, and this will  be in Section                                                                    
     26  of  [Version]  N,  is 7  percent  above  the  [U.S.                                                                    
     Federal  Reserve  System]  rate   -  they'll  get  that                                                                    
     interest,  they  carry  forward a  hundred  percent  of                                                                    
     their net  operating loss.  However,  when they accrued                                                                    
     that  loss   they  would  have  only   been  paying  an                                                                    
     effective tax rate  of say 15, 17 percent.   And so, to                                                                    
     ... correct  for that, ...  because of our  tax system,                                                                    
     it's being set at 50  percent of the net operating loss                                                                    
     carry forward, and that has  the same effect as how the                                                                    
     original bill  was written, ...  taking 35  percent tax                                                                    
     rate, 15 percent net operating  losses.  So, ... that's                                                                    
     how this works.                                                                                                            
     For the  major producers, it  won't have a  huge effect                                                                    
     ...  because they  generally have  tax liability;  they                                                                    
     are able to take a  hundred percent of their deductions                                                                    
     in a  year.   Now, we'll  talk about  the independents,                                                                    
     who  don't  have production,  or  the  explorers.   ...                                                                    
     They'll  be  able to  carry  50  percent of  their  net                                                                    
     operating  losses forward,  they'll have  the uplift  -                                                                    
     this  interest  that will  address  the  time value  of                                                                    
     money -  but they are  getting 50 percent of  their net                                                                    
     operating losses,  where the major producers,  who have                                                                    
     a tax  liability, are getting  a hundred percent.   So,                                                                    
     this is essentially  a policy call in terms  of our tax                                                                    
MS. WEISSLER pointed  out that this structure has been  set up in                                                               
an  effort  to  level  the   playing  field  between  majors  and                                                               
independents, and  she specified  that the provision  would apply                                                               
to operators  only on  the North  Slope, not  to those  in Middle                                                               
Earth or Cook Inlet.                                                                                                            
2:49:24 PM                                                                                                                    
CO-CHAIR   TARR  recalled   the   work   session  that   included                                                               
information on the carry forward  losses.  By allowing the losses                                                               
to be carried  forward, at the 100 percent level  with the uplift                                                               
included, in  seven years the value  would be 200 percent.   This                                                               
action represents a big commitment on  the part of the state, she                                                               
opined, when an  initial year investment, with  interest, is able                                                               
to grow  by 100 percent  in value in  seven years.   A seven-year                                                               
timeframe is the acceptable time  described for an oil project to                                                               
come on  line.  The effort  here is to make  Alaska attractive to                                                               
investors and to allow producers  to recover 100 percent of their                                                               
losses  and 200  percent of  their investment  over time.   Other                                                               
considerations  are to  ensure  that the  state's  tax policy  is                                                               
sustainable,  that   it  will  allow   the  state  to   meet  its                                                               
obligations,  and  that  it  will   not  result  in  a  financial                                                               
circumstance of being overcommitted.                                                                                            
MS. WEISSLER,  in response to  Representative Birch,  clarified a                                                               
portion  of  the  language  in  Version N  as  described  in  the                                                               
comparison document.                                                                                                            
2:55:12 PM                                                                                                                    
MS. WEISSLER  returned attention  to the comparison  document, on                                                               
page 2,  and said Section  6, removing the ability  for taxpayers                                                               
to  apply for  purchase  of  NOL credits,  remains  the same  and                                                               
appears in  Version N as Section  11.  She noted  that Section 7,                                                               
with amendments to sliding scale  per barrel credits, is found in                                                               
Section 14 of Version N.                                                                                                        
CO-CHAIR  TARR further  explained  that the  current lower  price                                                               
environment, which  led to a change  to the minimum tax,  is also                                                               
reflected in changes  to the per barrel credits.   Currently, per                                                               
barrel credits "slide"  from $8 to zero, which  has been adjusted                                                               
down [from  the highest oil price  of $150 per barrel  and above,                                                               
to $110  per barrel and  above] to  ensure the per  barrel credit                                                               
can be applied  in a lower price environment.   The original bill                                                               
would have cut the credit to $5, which was deemed too extreme.                                                                  
MS. WEISSLER explained that a  dry hole credit was not previously                                                               
in HB  111, and now appears  in Version N  as Section 17.   It is                                                               
designed  to assist  a company  that explored  in good  faith but                                                               
realized no production.  The  language would allow an explorer to                                                               
take up  to a  15 percent purchasable  tax credit  of exploration                                                               
expenditures incurred  for drilling that  results in a  dry hole,                                                               
based  on the  following  specific conditions:    payment of  all                                                               
service contracts;  return of the  lease to the state;  proof the                                                               
explorer has  no oil  or gas production;  and the  expenditure is                                                               
not the  basis for  another credit  claimed under  the production                                                               
CO-CHAIR TARR added that the  aforementioned measure was included                                                               
on the  recommendation of the  consultant to provide a  means for                                                               
explorers that never see production to cover their costs.                                                                       
MS.  WEISSLER explained  that Section  8, without  change, became                                                               
Section 18 in  Version N, and would amend the  tax credit fund to                                                               
reflect  the change  that removes  the ability  for taxpayers  to                                                               
apply  for  a  cash  payment  for  net  operating  loss  credits.                                                               
Section 9, without change, became  [Section 19] in Version N, and                                                               
would change the limit on cash  payment of tax credits from a $70                                                               
million  cap  to  a  $35   million  cap  per  company  and  limit                                                               
purchasable  credits  to  companies  with not  more  than  15,000                                                               
barrels per  day production, which  is down from  50,000 barrels.                                                               
She pointed out that this  provision applies only to Middle Earth                                                               
[non-North  Slope, non-Cook  Inlet areas  of the  state], and  to                                                               
qualified capital expenditure credits  and well lease expenditure                                                               
MS.  WEISSLER directed  attention to  Section 27,  "Assignment of                                                               
Tax Credit  Certificates," in Version  N, which would  repeal the                                                               
2013 statute  that allowed for  the assignment of  production tax                                                               
credits to  a third-party assignee.   This provision  is required                                                               
because a  change in current  statute that was intended  to apply                                                               
to gas in  Cook Inlet actually applied to the  entire state; as a                                                               
result of the  current statute, the state has been  placed in the                                                               
position with  banks holding credits,  which Alaska must  now pay                                                               
for in cash.                                                                                                                    
REPRESENTATIVE   RAUSCHER  asked   if   this   measure  will   be                                                               
CO-CHAIR TARR replied no.                                                                                                       
2:59:54 PM                                                                                                                    
MS.  WEISSLER  continued  to  Sections 20  and  21,  "Tax  Credit                                                               
Information," two  new sections in  Version N, which  would allow                                                               
certain information  related to  tax credits  to be  made public,                                                               
and  to Sections  3-5, "Confidential  Tax Information,"  also new                                                               
sections  of Version  N, which  would allow  certain confidential                                                               
taxpayer information to be disclosed  to legislators in executive                                                               
session in conformance with a signed confidentially agreement.                                                                  
CO-CHAIR TARR  informed the committee the  foregoing language was                                                               
the same as  was used [for House Bill 247,  passed in the Twenty-                                                               
Ninth  Alaska  State  Legislature]   and  was  drafted  with  the                                                               
participation of the Alaska Oil and Gas Association (AOGA).                                                                     
MS. WEISSLER continued  to Section 26, "Net  Operating Loss Carry                                                               
Forward,"  a new  section in  Version  N which  would direct  the                                                               
Department of  Natural Resources (DNR) to  develop regulations to                                                               
establish  a  review  process for  agency  preapproval  of  lease                                                               
expenditures  that would  generate a  carry forward  annual loss.                                                               
Finally, Section  28 in Version  N would establish  a legislative                                                               
working group to analyze the Cook Inlet fiscal regime.                                                                          
CO-CHAIR TARR added that a Cook  Inlet working group is needed to                                                               
review  the tax  regime  in  Cook Inlet;  currently,  there is  a                                                               
dollar per barrel oil tax, but  no gas tax, and the working group                                                               
will meet  on this issue  during the legislative  interim period.                                                               
Membership in the working group is open to industry.                                                                            
3:02:56 PM                                                                                                                    
CO-CHAIR TARR  removed her objection  to the motion to  adopt the                                                               
proposed  committee  substitute  (CS)  for HB  111,  Version  30-                                                               
LS0450\N, Nauman, 3/10/17, as the  working document.  There being                                                               
no further objection, Version N was before the committee.                                                                       
3:04:28 PM                                                                                                                    
REPRESENTATIVE  BIRCH  asked  for  clarification  on  the  uplift                                                               
provision in the bill.                                                                                                          
CO-CHAIR TARR said the consultant  recommended seven years as the                                                               
average timeframe  for a  project to  come on  line.   There were                                                               
other options  discussed, and  the decision was  made to  use the                                                               
same interest rate that is applied to delinquent tax payments.                                                                  
CO-CHAIR TARR said the upcoming  hearing schedule on HB 111 would                                                               
be adjusted as necessary to accommodate forthcoming amendments.                                                                 
[HB 111 was held over.]                                                                                                         
3:06:17 PM                                                                                                                    
There being no further business before the committee, the House                                                                 
Resources Standing Committee meeting was adjourned at 3:06 p.m.                                                                 

Document Name Date/Time Subjects
HB111 Supporting Document - Alaska's Oil and Gas Competitiveness Report 2015 3.7.17.pdf HRES 3/10/2017 1:00:00 PM
HB 111
Seamount ReAppointment Thank you022317.pdf HRES 3/10/2017 1:00:00 PM
Seamount Resume0317.pdf HRES 3/10/2017 1:00:00 PM
Seamount Biography0317.pdf HRES 3/10/2017 1:00:00 PM
HB 111- CS Comparison.pdf HRES 3/10/2017 1:00:00 PM
HB 111
French Oil Field Experience_Redacted.pdf HRES 3/10/2017 1:00:00 PM
Resume Hollis French_Redacted.pdf HRES 3/10/2017 1:00:00 PM
Daniel Seamount, Jr. 2016_Redacted.pdf HRES 3/10/2017 1:00:00 PM
Seamount re-appointment request 2017_Redacted.pdf HRES 3/10/2017 1:00:00 PM
Hollis French_Redacted.pdf HRES 3/10/2017 1:00:00 PM
HB111 Version N 3.10.17.pdf HRES 3/10/2017 1:00:00 PM
HRES 3/13/2017 1:00:00 PM
HRES 3/14/2017 3:00:00 PM
HB 111
HB 111- CS Ver N Comparison 3.10.17.pdf HRES 3/10/2017 1:00:00 PM
HRES 3/13/2017 1:00:00 PM
HRES 3/14/2017 3:00:00 PM
HB 111