04/04/2005 02:48 PM House RES
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| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
April 4, 2005
2:48 p.m.
MEMBERS PRESENT
Representative Jay Ramras, Co-Chair
Representative Ralph Samuels, Co-Chair
Representative Jim Elkins
Representative Carl Gatto
Representative Gabrielle LeDoux
Representative Kurt Olson
Representative Paul Seaton
Representative Harry Crawford
MEMBERS ABSENT
Representative Mary Kapsner
COMMITTEE CALENDAR
HOUSE BILL NO. 71
"An Act relating to a credit for certain exploration expenses
against oil and gas properties production taxes on oil and gas
produced from a lease or property in the state; relating to the
deadline for certain exploration expenditures used as credits
against production tax on oil and gas produced from a lease or
property in the Alaska Peninsula competitive oil and gas
areawide lease sale area after July 1, 2004; and providing for
an effective date."
- MOVED CSHB 71 (RES) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB 71
SHORT TITLE: AK PENINSULA OIL & GAS LEASE SALE; TAXES
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/12/05 (H) READ THE FIRST TIME - REFERRALS
01/12/05 (H) W&M, O&G, RES, FIN
02/11/05 (H) W&M AT 8:30 AM CAPITOL 106
02/11/05 (H) Moved CSHB 71(W&M) Out of Committee
02/11/05 (H) MINUTE(W&M)
02/14/05 (H) W&M RPT CS(W&M) NT 3DP 1AM
02/14/05 (H) DP: MOSES, GRUENBERG, WEYHRAUCH;
02/14/05 (H) AM: WILSON
02/17/05 (H) O&G AT 5:00 PM CAPITOL 124
02/17/05 (H) Heard & Held
02/17/05 (H) MINUTE(O&G)
03/15/05 (H) O&G AT 5:00 PM CAPITOL 124
03/15/05 (H) Moved CSHB 71(O&G) Out of Committee
03/15/05 (H) MINUTE(O&G)
03/18/05 (H) O&G RPT CS(O&G) NT 1DP 5NR
03/18/05 (H) DP: KOHRING;
03/18/05 (H) NR: SAMUELS, GARDNER, KERTTULA,
DAHLSTROM, ROKEBERG
04/01/05 (H) RES AT 1:00 PM CAPITOL 124
04/01/05 (H) Scheduled But Not Heard
04/04/05 (H) RES AT 1:00 PM CAPITOL 124
WITNESS REGISTER
HENRY WEBB, Staff
to Representative Ralph Samuels
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 71 on behalf of Representative
Samuels.
MARK MYERS, Director
Division of Oil and Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding HB 71.
GARY ROGERS, Senior Auditor
Tax Division
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding HB 71.
JERRY BURNETT, Special Assistant
to the Commissioner
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Answered questions regarding HB 71.
ACTION NARRATIVE
CO-CHAIR RALPH SAMUELS called the House Resources Standing
Committee meeting to order at 2:48:12 PM. Representatives
Ramras, Samuels, Elkins, Olson, and Gatto were present at the
call to order. Representatives LeDoux, Crawford, and Seaton
joined the meeting as it was in progress.
HB 71-AK PENINSULA OIL & GAS LEASE SALE; TAXES
CO-CHAIR SAMUELS announced that the only order of business would
be HOUSE BILL NO. 71 "An Act relating to a credit for certain
exploration expenses against oil and gas properties production
taxes on oil and gas produced from a lease or property in the
state; relating to the deadline for certain exploration
expenditures used as credits against production tax on oil and
gas produced from a lease or property in the Alaska Peninsula
competitive oil and gas areawide lease sale area after July 1,
2004; and providing for an effective date."
HENRY WEBB, Staff to Representative Ralph Samuels, Alaska State
Legislature, said HB 71 is designed to extend exploration tax
credits through 2010 on the Alaska Peninsula. The committee
substitute (CS) clarifies how the tax credits work. He said
there is a 20-percent credit for 2003-2007 exploratory wells,
and the wells must be at least three miles from existing wells;
there is a 40-percent credit for wells that satisfy the 3-mile
requirement and are also over 25 miles from existing development
units; and there is a 40-percent credit for seismic testing that
occurs outside the boundaries of a production or exploration
unit. The CS also extends the exploration credit regime to the
Nenana Basin until 2008. He noted that there was an amendment
from the previous committee exempting private and federal land
from the existing credit, which runs through 2007. This CS
removes that amendment, he said, except for the Arctic National
Wildlife Refuge.
2:51:26 PM
MARK MYERS, Director, Division of Oil and Gas, Department of
Natural Resources, said the bill extends the exploration credit
on the Alaska Peninsula to encourage a competitive sale this
October, allowing a reasonable amount of time for the credit to
be applicable. The credit is intended to increase competitive
bidding in an area that has no infrastructure, he said. By only
extending the credit to 2010, the state hopes to accelerate
exploration and acquisition of speculative areas.
MR. MYERS said the Nenana Basin language is a judgment call for
the legislature because there is active exploration going on.
If the survey results are favorable, operators would only have
one season to apply the credit. There is actually very little
good exploration data available, he added. There is exploration
risk in the Nenana Basin, so the extended credit will allow for
two drilling seasons. He said he thinks it will help encourage
and accelerate a more aggressive evaluation of the basin.
2:55:45 PM
REPRESENTATIVE SEATON asked about the credit being applied to
production tax, and if the credit is designed to stimulate
production in the areas where the exploration credit is offered.
MR. MYERS said it is an exploration credit, and it is
transferable and sellable. He said the credits will likely be
sold to producers on the North Slope, and they usually sell for
over 90 percent of their value. The bill will not allow its use
in the Arctic National Wildlife Refuge.
2:58:52 PM
MR. MYERS said that for the Nenana Basin it applies only for
state land, and in the Alaska Peninsula credit could be applied
to state lands or Native lands.
CO-CHAIR SAMUELS asked if the bill changes the transfer rules.
MR. MYERS said it does not.
REPRESENTATIVE SEATON said transferring the credit is in direct
contradiction with the title of HB 71, which says production in
the Alaska Peninsula.
MR. MYERS said the title gives that impression, but the intent
is to have transferability, so changing the title makes sense.
3:01:35 PM
GARY ROGERS, Auditor, Department of Revenue, said the transfer
language is in the original statute. Last year's legislation
allowed statewide application of the credit, he said.
3:03:36 PM
REPRESENTATIVE SEATON asked if HB 71 was an outgrowth of
Representative Chenault's bill a few years ago.
MR. ROGERS said he is not sure, but that Senate Bill 185 became
AS43.55.025 in statute.
JERRY BURNETT, Special Assistant to the Commissioner, Department
of Revenue, said Senate Bill 185 passed in 2003, and it was
Senator Wagoner's bill.
REPRESENTATIVE SEATON said Representative Chenault's intention
was that the credit would be available for exploring and
producing, so that the state wasn't spending money on finding
oil without it being produced. "The entire purpose was to tie
it to a production tax credit for producing wells," he said.
The state will be paying for exploration of an area where people
can decide not to produce it, and they get a tax credit anyway.
It was a key provision on the floor, he said, and "it seems like
we have lost it here."
MR. BURNETT said the bill that was introduced always allowed
transferability. "There may have been some misimpression
carried in some testimony at some point, but going back to the
committee record, in each of the committees it was clearly
explained," he said.
3:06:50 PM
CO-CHAIR SAMUELS said the bill is to encourage companies to
explore on the peninsula.
MR. BURNETT said if a commercial quantity is found, it will be
produced--that's the idea. He said he understands the concern
about the title and will look into it.
3:07:34 PM
REPRESENTATIVE SEATON said the original title meant the bill was
tied to production, and that is why the title is what it is--a
tax credit applied to production.
CO-CHAIR SAMUELS said a company is not guaranteed to find
anything so no one will explore. The point of the incentive is
to encourage exploration, and if no one is willing to put their
own capital on the peninsula, "which is a long ways away," the
state will have to "sweeten the pot."
3:09:27 PM
REPRESENTATIVE GATTO said that is the nature of the business;
that is the risk they take. Now we are also adding a reward for
producing, he said.
3:10:04 PM
CO-CHAIR SAMUELS asked, "Do we want to sell the leases or don't
we?"
REPRESENTATIVE LEDOUX said she agrees with Co-Chair Samuels,
because getting the reward isn't needed once oil is found.
3:10:45 PM
CO-CHAIR SAMUELS said the front-end costs are minimal compared
to a long-term process once oil is found.
CO-CHAIR RAMRAS said he thinks the bill is dead on. "We need to
find resource wealth," he added.
3:11:27 PM
MR. ROGERS said he receives a number of calls regarding this
credit. The explorers' concern is the sweetener in the
exploration phase.
3:12:10 PM
MR. MYERS said the tax credit is only for the first part of the
exploration, not for the expensive evaluation follow-up. It
minimizes the cost to the state, and gives the credit for the
riskiest activity in frontier areas, he said.
3:13:59 PM
CO-CHAIR SAMUELS said it is only an extension from 2007 to 2010.
Operators will have to start exploring now or the credit will go
away.
REPRESENTATIVE SEATON asked if there will be no exploration in
Nenana without the credit.
MR. MYERS said the idea of the extension is to encourage
multiple exploration targets. If operators found good fields
this season, they would not need a credit. If the first
exploration wells are so-so, the credit might be an incentive to
spend additional exploratory funds.
3:15:41 PM
REPRESENTATIVE SEATON asked where in the bill does it say the
credit is for just the exploratory phase.
MR. MYERS said the original bill has that language.
3:18:09 PM
REPRESENTATIVE SEATON asked how HB 71 differs from the Cook
Inlet exploration tax credit from last year.
MR. MYERS said there are areas in Cook Inlet where this bill
applies. Additionally there was a credit allowed against
development costs for gas, he said, and it was more focused on
actual development. It was the opposite approach, because only
successful wells allowed the use of the exploration tax credit.
All capital costs were included, he said.
REPRESENTATIVE SEATON asked if HB 71 will allow deeper drilling
depths off the Cook Inlet platform if the wells are over 35
years old.
MR. MYERS said most of the platforms have newer wells, and there
are very few cases with old wells that will qualify, because
there is generally a unit around the well, and even outside the
boundary of a unit, another well will likely be within three
miles. The bill is envisioned to look at frontier exploration,
not exploration for deeper targets, he said.
3:21:40 PM
CO-CHAIR SAMUELS offered Amendment 1 labeled 24-GH1040\I.1,
Chenoweth, 4/4/05, as follows:
Page 4, lines 22 - 24:
Delete all material and insert:
"Sections 25 - 36;"
Page 5, line 22:
Delete all material and insert:
"Sections 1 - 4, 9 - 16, and 19 - 36;"
Page 5, line 24:
Delete all material and insert:
"Sections 19 - 36;"
There being no objection, Amendment 1 carried.
3:22:28 PM
CO-CHAIR SAMUELS said he would accept a conceptual amendment to
the title to note that the credit can be transferable.
REPRESENTATIVE SEATON said he will offer it only to make it
consistent.
REPRESENTATIVE GATTO asked if the amendment just deletes line 4.
CO-CHAIR SAMUELS said on line 4, after the word gas.
3:24:28 PM
REPRESENTATIVE SEATON said the intent [of conceptual Amendment
2] is for the title to say the exploration needs to be on the
Alaska Peninsula or the Nenana Basin, but the production doesn't
have to be from there. Conceptual Amendment 2 was treated as
carried.
3:25:09 PM
REPRESENTATIVE GATTO asked if offshore exploration is included.
MR. MYERS said it includes state submerged waters, but not
offshore beyond three miles. The bill itself does not include
any of the outer continental shelf activity, he said. With the
preliminary best interest findings, the commissioner has
restricted any drilling from onshore directionally offshore, he
said. So the sale as proposed would not allow the placement of
offshore drilling facilities. In Cook Inlet, offshore
facilities are allowed, he added.
3:26:41 PM
REPRESENTATIVE SEATON said he wants a letter of intent saying
there will be no offshore exploration off the Alaska Peninsula.
MR. MYERS said it is also in testimony by Commissioner Irwin
from last year.
REPRESENTATIVE SEATON suggested that the committee have it in
legislative intent, instead of just in someone's testimony.
CO-CHAIR SAMUELS said if it is in the best interest finding, he
feels it is covered.
3:28:00 PM
REPRESENTATIVE SEATON said it would be consistent to the
committee to indicate what it means. He said he doesn't think
anyone is supporting offshore drilling.
CO-CHAIR SAMUELS said, "Perhaps an amendment to page 7, at the
end of line 31, saying the production tax credit does not apply
to any offshore drilling."
REPRESENTATIVE SEATON said he will offer that conceptual
Amendment 3.
REPRESENTATIVE GATTO asked if offshore means everything beyond
three miles.
MR. MYERS said in the five-year schedule Commissioner Irwin put
in the letter of intent that he would not allow offshore
drilling. "The stipulations are pretty much in the lease sale,
and I don't think we buy much by repeating that here. It would
only tell you that you couldn't get the credit for something
that is not going be allowed in the lease sale anyway," he
noted. The credit cannot be used on the federal outer
continental shelf, he said. The letter of intent was on Senate
Bill 266 and said companies are only allowed to access offshore
drilling prospects from onshore drilling sites using directional
drilling technology.
REPRESENTATIVE SEATON withdrew Amendment 3.
3:31:16 PM
CO-CHAIR RAMRAS moved to report HB 71 as amended out of
committee with individual recommendations and the accompanying
fiscal notes. There being no objection, CSHB 71(RES) was passed
out of the House Resources Standing Committee.
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 3:31p.m.
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