Legislature(2005 - 2006)HOUSE FINANCE 519
02/22/2006 12:30 PM House RESOURCES
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| HB488 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 488 | TELECONFERENCED | |
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ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
February 22, 2006
12:35 p.m.
MEMBERS PRESENT
Representative Jay Ramras, Co-Chair
Representative Ralph Samuels, Co-Chair
Representative Carl Gatto
Representative Gabrielle LeDoux
Representative Kurt Olson
Representative Paul Seaton
Representative Harry Crawford
Representative Mary Kapsner
MEMBERS ABSENT
Representative Jim Elkins
COMMITTEE CALENDAR
HOUSE BILL NO. 488
"An Act repealing the oil production tax and gas production tax
and providing for a production tax on the net value of oil and
gas; relating to the relationship of the production tax to other
taxes; relating to the dates tax payments and surcharges are due
under AS 43.55; relating to interest on overpayments under AS
43.55; relating to the treatment of oil and gas production tax
in a producer's settlement with the royalty owner; relating to
flared gas, and to oil and gas used in the operation of a lease
or property, under AS 43.55; relating to the prevailing value of
oil or gas under AS 43.55; providing for tax credits against the
tax due under AS 43.55 for certain expenditures, losses, and
surcharges; relating to statements or other information required
to be filed with or furnished to the Department of Revenue, and
relating to the penalty for failure to file certain reports,
under AS 43.55; relating to the powers of the Department of
Revenue, and to the disclosure of certain information required
to be furnished to the Department of Revenue, under AS 43.55;
relating to criminal penalties for violating conditions
governing access to and use of confidential information relating
to the oil and gas production tax; relating to the deposit of
money collected by the Department of Revenue under AS 43.55;
relating to the calculation of the gross value at the point of
production of oil or gas; relating to the determination of the
net value of taxable oil and gas for purposes of a production
tax on the net value of oil and gas; relating to the definitions
of 'gas,' 'oil,' and certain other terms for purposes of AS
43.55; making conforming amendments; and providing for an
effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 488
SHORT TITLE: OIL AND GAS PRODUCTION TAX
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/21/06 (H) READ THE FIRST TIME - REFERRALS
02/21/06 (H) RES, FIN
02/22/06 (H) RES AT 12:30 AM HOUSE FINANCE 519
WITNESS REGISTER
BILL CORBUS, Commissioner
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Presented HB 488 on behalf of the
Administration.
MICHAEL MENGE, Commissioner
Department of Natural Resources
Juneau, Alaska
POSITION STATEMENT: Presented HB 488 on behalf of the
Administration.
ROBYNN WILSON, Director
Tax Division
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Presented HB 488 on behalf of the
Administration.
DAN DICKINSON, Consultant
to the Office of the Governor
Anchorage, Alaska
POSITION STATEMENT: Presented HB 488 on behalf of the
Administration.
ACTION NARRATIVE
CO-CHAIR RALPH SAMUELS called the House Resources Standing
Committee meeting to order at 12:35:40 PM. Representatives
Ramras, Samuels, Gatto, Seaton and Olson were present at the
call to order. Representatives Crawford, LeDoux and Kapsner
arrived while the meeting was in progress. Also in attendance
were Representatives Meyer, Kohring, Kerttula, Guttenberg,
Hawker, Gardner, Gruenberg, McGuire, Rokeberg, Joule, Salmon,
Neuman, Dahlstrom, Gara, Moses, Wilson and others.
HB 488-OIL AND GAS PRODUCTION TAX
CO-CHAIR SAMUELS announced that the only order of business would
be HOUSE BILL NO. 488, "An Act repealing the oil production tax
and gas production tax and providing for a production tax on the
net value of oil and gas; relating to the relationship of the
production tax to other taxes; relating to the dates tax
payments and surcharges are due under AS 43.55; relating to
interest on overpayments under AS 43.55; relating to the
treatment of oil and gas production tax in a producer's
settlement with the royalty owner; relating to flared gas, and
to oil and gas used in the operation of a lease or property,
under AS 43.55; relating to the prevailing value of oil or gas
under AS 43.55; providing for tax credits against the tax due
under AS 43.55 for certain expenditures, losses, and surcharges;
relating to statements or other information required to be filed
with or furnished to the Department of Revenue, and relating to
the penalty for failure to file certain reports, under AS 43.55;
relating to the powers of the Department of Revenue, and to the
disclosure of certain information required to be furnished to
the Department of Revenue, under AS 43.55; relating to criminal
penalties for violating conditions governing access to and use
of confidential information relating to the oil and gas
production tax; relating to the deposit of money collected by
the Department of Revenue under AS 43.55; relating to the
calculation of the gross value at the point of production of oil
or gas; relating to the determination of the net value of
taxable oil and gas for purposes of a production tax on the net
value of oil and gas; relating to the definitions of 'gas,'
'oil,' and certain other terms for purposes of AS 43.55; making
conforming amendments; and providing for an effective date."
BILL CORBUS, Commissioner, Department of Revenue, said HB 488 is
the first major oil and gas tax legislation that has been
pursued by an administration since 1989. The profit-based
[petroleum] production tax (PPT) contained in HB 488 will
replace the existing Economic Limit Factor-based severance tax
(ELF), which is broken. The PPT will encourage badly needed
investment in oil and gas exploration, development, and
production, he said. It will provide special incentives for
emerging small Alaskan companies, and it will enhance state
revenues, particularly during periods of high oil prices, he
added. Commissioner Corbus said severance tax reform has been
under study for a long time, beginning with the prior
administration. He noted that oil and gas consultant Dr. Pedro
van Meurs was originally engaged with the state in 1996, and the
current administration began working on this issue after taking
office.
12:39:07 PM
COMMISSIONER CORBUS said there are three days of hearings
scheduled before the House Resources Standing Committee, and the
committee will be hearing from several professionals. He
acknowledged others who were involved in the process.
CO-CHAIR SAMUELS gave a timeline of the hearings. He said the
big question is why the tax rate was dropped from the publicly
announced 25 percent rate to 20 percent.
COMMISSIONER CORBUS said in early February, Dr. Pedro van Meurs
made a presentation to a joint finance committee analyzing a
range of tax rates and tax credits. As a result of his
analysis, he recommended a 25 percent tax rate and a 20 percent
investment credit. "Earlier this week, we had meetings with the
[oil and gas] producers, and we ultimately decided on an
acceptable 20 percent tax rate, 20 percent investment rate that
was acceptable to both parties. The administration felt that
this was in range of reasonableness compared to other regimes
around the world." He said Dr. van Meurs will be testifying and
he can address that issue in more depth.
REPRESENTATIVE KAPSNER said the governor has said that the tax
would be retroactive to January 1, but it is not.
12:45:15 PM
COMMISSIONER CORBUS stated that the effective date "that we have
before you in HB 488 is July 1, 2006."
REPRESENTATIVE KAPSNER said that represents $500 million if the
tax rate is 20 percent and $750 million if the tax rate is 25
percent.
12:45:37 PM
MICHAEL MENGE, Commissioner-designate, Department of Natural
Resources, said the issue of lowering the tax rate gets at the
heart of what will have to be dealt with over the next weeks.
He said the policy calls cannot be measured for decades, and the
entire spectrum of [oil] companies needs to be considered, not
just the big three. He said on state lands there will be an
increasing number of small fields that mid-size and small
companies will be interested in developing. He said he is
talking about the fields with 100 to 150 million barrels.
12:48:20 PM
COMMISSIONER MENGE said he does not know what lies beneath the
surface, so the state needs additional drilling and exploration.
The governor's proposal sets a balance allowing "us to deal with
what we do know today," and it sets a stage to encourage smaller
companies "to lead us to the solutions and the future for
Alaska." One can be critical about a particular provision, "but
you really have to back off and see how that particular point
interacts with 1,000 other points across the spectrum for oil
and gas exploration." There are two major benefits of this
historic undertaking, he said, one is smaller companies doing
exploration and those benefits will come later. He said, "Lord
willing, we will have our gas line and there will be a gas pipe
line; the results of these companies will also send a lot of
additional gas down the pipe line." He added that the true
benefit lies in the future with increased investment.
12:50:55 PM
COMMISSIONER MENGE said there are 70 people working right now on
the North Slope "that are bringing home pay checks and buying
candy bars and bunny boots and making a net contribution to
society," because of royalty relief. He said next year that
number will grow to several hundred, but a single penny will not
come to the State of Alaska, but he surmised that there is a net
benefit to society "by virtue of [Alaska] providing an
investment scene that encourages small and mid-sized companies
to step up." The royalties are unaffected by HB488, and that is
where the real benefit will be to Alaska. He said the state
hopes to garner additional production taxes, too.
12:52:26 PM
COMMISSIONER MENGE said there are basins in Alaska that are
geologically stressed because of hard rock minerals, but the
temperatures are not so high that the hydrocarbon has been
destroyed. He said it is important to set an economic scene
that allows that kind of exploration. He said there is a mature
basin in Cook Inlet that is diminishing in prospects where it is
critically important to bridge the gap until bringing North
Slope gas "into the bowl." He noted an emerging basin on the
Alaska Peninsula that is a high risk and the state needs to
encourage people to step up. "So all of these things are
wrapped up in what you are seeing presented to you today."
Measure and judge the proposal in that context, he told the
committee. "If you ultimately put blinders on and simply hone
in on specific issues, you will find plenty there to work with."
He said to look at the entire spectrum and the benefit that
Alaska will garner over the years by encouraging companies to
drill holes and hopefully find gas. He said the Nenana Basin is
very exciting because the first hole had very high pressure
areas of gas, but there was a large shale section. The driller
needed to do "some exotic things" to maintain the integrity of
the well, but it is enough to make them go back. We are trying
to provide the incentives for companies to roll those dice, and
it will be a partnership, he said. HB 488 is not charity, he
stated, if those companies don't find anything, "at least we
will have looked."
12:56:43 PM
COMMISSIONER MENGE said HB 488 does not just deal with 2006; it
deals with the next two decades. If the tax is changed, "you're
going to see people coming here from all over the world making
investments, and those investments will bear results." He said
there are tremendous opportunities in the National Petroleum
Reserve Alaska and the Arctic National Wildlife Refuge. He
concluded that this legislation is a balance and sets the stage
to enhance Alaska's oil and gas future. He said he is
absolutely impressed with the seriousness with which the
legislature is taking this issue, and "all of us will write our
names in the charter of history."
12:59:01 PM
REPRESENTATIVE CRAWFORD asked what the legislature will be
voting on. The governor said the bill is for a gas line and oil
tax package, and it is an up or down vote. He said in
authorizing the Stranded Gas Act, the language was specific
about being only a gas deal--that oil taxes would be separate.
"Are we doing this under the Stranded Gas Act with a simple up
or down vote, or is this a separate oil tax deal that is open to
amendment? he asked."
1:00:50 PM
COMMISSIONER MENGE said the Stranded Gas Act set parameters that
"we" used. He said the gas pipeline is tied to the oil and
"everything." In negotiating the gas contract, it became "very
obvious that we were going to have to deal with oil taxation as
well." He continued:
Imagine a situation where the companies agreed to
spend $20 billion to build an infrastructure, and they
reached the day when they make the commitments, the
orders go in for the pipe, and the price of gas drops,
and we sit back as a body here in the state going 'hmm
not quite a good deal as we thought. Let's just bring
the oil taxation piece in and let's plump up the oil
side so we compensate for the gas side.' So then the
oil companies are not only taking a beating
economically on the pipeline, but they're also
threatened significantly on the oil side. If you look
at that they are inextricably linked. But the
Stranded Gas Act said very specifically, as you point
out...you cannot do this. We were locked on the horns
of a dilemma at that point. The oil companies were
unwilling to proceed without a recognition of a need
for oil certainty.
COMMISSIONER MENGE said the state resisted that for many months,
but it became obvious the state was not going to get a gas deal
unless the it dealt with oil. Because oil was not specifically
excluded under the Stranded Gas Act, "we said this will require
a structured approach." The oil taxation is critical to the gas
line, "but it is so important it touches everyone in the
state...We are not authorized to present that to the legislature
in an up or down vote." The decision was to present this stand-
alone oil legislation. Regardless of a gas line, the oil piece
in the bill will become the law of the land, and it will exist
for 20 years or more.
COMMISSIONER MENGE said HB 488 will be subject to the full
committee process. "It is connected but it's in a sequence,"
and he continued:
The oil thing is done by itself, fully amendable by
the legislature. You exercise all of your
authorities, and at the end a product is produced.
That product is then set next to the oil legislation,
but because we are now authorized to include this
within the Stranded Gas Act, we will come to you with
a package of amendments to the Stranded Gas Act. So
step two, after you pass the stand-alone oil, will be
contemplation of a package of amendments to the
Stranded Gas Act. Within that will be an amendment
requesting your blessing to attach it to the gas
contract. Again, this will be amendable. This will
be for the full consideration of the legislature, and
you will draw your own conclusions as to whether this
is an appropriate thing to do. If, as we hope, this
is appropriate, you will have passed a piece of
historic oil legislation. You will have authorized us
to attach it to the gas contract through those
amendments. And then we will lay the entire platter
before you: the oil piece is there that you already
blessed; the ability to connect it to the gas line,
which you will bless; and the gas contract. And you
will contemplate all of this as a single entity. That
is the thing that you will vote up or down on as
specified in the Stranded Gas Act.
1:05:40 PM
COMMISSIONER MENGE repeated the sequence. The package is
necessary in order to set the economic environment within which
people are prepared to invest $20 billion or more and deal with
the uncertainty of natural gas, he said. He said natural gas
prices spiked recently because of [hurricane] Katrina. "Risk
reduction is best done through being able to have certainty,"
and the bill provides certainty for taxation. He said the state
was guilty of changing the tax structure after the Trans-Alaska
Pipeline was built. Gas is more subject to market fluctuation
than oil, he noted. He said there was great pressure to put
this into an up or down vote, but he recognized the importance
of running it through the legislative process.
1:08:43 PM
CO-CHAIR SAMUELS said there is a three-vote scenario: voting on
oil; voting on whether to include oil with gas; and voting on
the package. All three votes have consequences, he added.
There will be three separate votes in order, but right now it is
only a discussion of HB 488, he said. Members must know that it
is a long-term decision, "but you cannot base solely your
decision on that because we might be changing the oil tax system
and that's all we do this session." He said right now only a
revision of the oil tax is before the committee.
1:10:24 PM
REPRESENTATIVE GATTO said it is being stated that the oil
legislation is "stand alone," but then it was said that it will
be combined with gas.
COMMISSIONER MENGE said the linkages will occur at the end of
the day. "Once you have passed judgment on the oil pipeline,
there will be a consequential definition of an economic picture.
Now when you make the decision to link the oil piece to the gas,
that will redefine the economic picture." He said the
legislature can contemplate gas without any of the "others." It
comes with its own specific economic picture.
1:12:28 PM
REPRESENTATIVE MCGUIRE asked if the governor will veto HB 488 if
the legislature chooses not to adopt the amendments to the
Stranded Gas Act.
COMMISSIONER MENGE said he doesn't know.
1:12:50 PM
CO-CHAIR SAMUELS said if HB 488 passes, the second vote won't
take place until after the public comment period.
1:13:10 PM
REPRESENTATIVE KERTTULA said, "You already made an agreement on
how the oil piece fits into the gas line contract. My problem
is, if it is a sequence of events, we almost have to know what
the end [indecipherable] before we can take step number one."
COMMISSIONER CORBUS said, "We have not completed that portion of
our discussions with the producers."
REPRESENTATIVE KERTTULA asked, "Can you tell me what the issues
around this is?" She said she is particularly interested in
what is being spoke of as certainty with regard to oil tax.
COMMISSIONER CORBUS said, "Exactly how the wording in the
contract concerning fiscal certainty on oil has not been
determined. Certainly how HB 488 comes out will be important,
but it is envisioned that it will be referenced in the contract,
and that those will be most of the terms that will go forward.
As far as the years of fiscal certainty goes, we're not in a
position yet to go public on that issue."
1:14:53 PM
REPRESENTATIVE ROKEBERG said HB 488 has general applicability
and is not designed to extract the maximum benefit in the short
term. He asked how that reconciles with the constitutional
requirement to maximize the benefit for all Alaskans.
COMMISSIONER MENGE said he thinks the constitution takes the
long view.
1:17:19 PM
ROBYNN WILSON, Director, Tax Division, Department of Revenue
explained the agenda and introduced speakers.
1:21:19 PM
DAN DICKINSON, Consultant to the Office of the Governor, said
the PPT stands for Proposed Production Tax [although others have
said that PPT stands for Petroleum Production Tax or Petroleum
Profits Tax]. In fiscal year 2005 the state brought in $8.9
billion in revenues, and he said $3.4 billion came from oil;
$2.8 billion came from investments; $1.9 billion came from the
federal government; and $800 million came from other things. He
said oil revenue accounts for 88 percent of the unrestricted
revenue.
1:23:09 PM
MR. DICKINSON showed a pie chart of FY2005 petroleum revenue
where the largest amount of is from royalties and 25 percent of
that goes to the permanent fund or public school fund. He
showed the portion of the property taxes that the state receives
and the corporate income tax. The production tax, which is what
HB 488 deals with, was $863.2 million in FY2005. He said the
forecast for FY2006 is over $1 billion. The production tax is a
large piece of the total petroleum revenue picture, but not the
largest, he noted. He showed a slide of oil production in
Alaska and said Prudhoe Bay is huge, but its huge days are over.
In 1988 Alaska produced 2 million barrels of oil per day, and
1.6 million of those came from Prudhoe Bay. He said the Kuparuk
River Unit is the second largest oil field in the United States,
but it is very small compared to Prudhoe Bay. He said the North
Slope has tiny areas of new production. He noted that it would
be a vibrant place, except Prudhoe Bay is declining rapidly
because the easy days of production are over.
1:26:17 PM
MR. DICKINSON showed the trend in Alaska North Slope (ANS)
production and price on a graph. He said the price is rising so
the value of the production is the same as when production was
high. He said it is important that the change in price not
obscure the continued decline in production.
1:28:28 PM
MR. DICKINSON said he will concentrate on the revenues of the
PPT and the potential impacts on investments and production. He
said the state has been looking at production tax issues for two
years. He spoke of an administration decision to aggregate
several fields in the Prudhoe Bay unit into a single unit for
purposes of ELF. Assuming the bill passes, the aggregation will
have been in effect for 18 months and will have raised almost
$400 million in additional revenue. He said what the
legislature sees is part of an ongoing study.
1:30:23 PM
MR. DICKINSON showed a graph of the capital spending on the
North Slope without money spent on tankers or the Trans-Alaska
Pipeline. He said it has been about $1 billion per year. He
said tax is not the direct driver behind how much investment is
made, "I would never claim it is the ultimate reason that
investment gets made or doesn't get made." He stated that at
the margin, tax policy can have an effect, so the administration
is proposing a tax policy that favors making investments, which
the status quo does not.
1:31:49 PM
MR. DICKINSON said in FY2005 the state produced about 330
million barrels, and the average price was $43.43 per barrel, so
the ANS oil was worth about $14 billion at the destination point
on the West Coast. He said the cost of getting the oil to the
West Coast was about $1.5 billion. At the point of production
it was worth about $12.8 billion. The capital, exploration and
operating costs were about $2 billion. "That gives you the net
value at the point of production...of about $11 billion." That
money gets divided up for royalties, federal taxes and the
remaining either goes to producers or is what is hit by Alaska's
production tax.
1:34:26 PM
MR. DICKINSON said under the PPT, Alaska would take the $12.8
billion, remove the royalty and get a net value of $11.2
billion. Under the current system a 15 percent tax rate is
multiplied by the ELF, which is currently .55, so taxes in 2005
would be about $927.15 million. He said it is not exactly
correct, just an overview, but that is how the current
production tax works. He said the current tax doesn't recognize
the investments on the North Slope necessary to get the oil out
of the ground; it looks at the gross value of oil. There are no
incentives for getting heavy oil out of the ground and no
recognition of the upstream investments, he noted. He said the
proposed PPT would begin with the oil value net of royalty, and
allow deductions for the upstream costs. It includes
exploration, wells and everything that it takes to get the oil
out of the ground. The taxable value in his example is down to
$9 billion, and with the proposed 20 percent tax rate and tax
credits of 20 percent it would generate $1.6 billion. He said
the important thing is recognizing the investments. With a
"huge slug of incremental investment," for example $1.7 billion-
worth, the production tax comes out at $927 million--exactly
where it started. The point is Alaska either gets the cash or
the investment. The PPT is meant to incentivize investment, but
"if we don't get the investment, we get the cash. The taxes are
higher for folks not making investments." In the current
system, taxes are the same whether a company is making
investments or not.
1:39:05 PM
MR. DICKINSON said the current system is broken because the ELF
was supposed to be a proxy for costs. It was supposed to be
high for easy oil and low when oil was difficult to recover. He
said the ELF was a very poor proxy for costs because it bore no
relation to price. At the $9 per barrel prices in 1999, the ELF
would not even have covered all the costs that were spent, and
at the $55 per barrel price, the ELF creates a proxy that is
many times higher than the actual cost. Under the current
system there is a deduction as if investments were being made,
but it's not being made, he stated, and the proxy was not
accurate with the price range of oil today.
1:41:15 PM
MR. DICKINSON said the PPT provides recognition that it costs
money to get the oil out of the ground.
CO-CHAIR SAMUELS asked if the PPT is risky when there are high
investments and then oil prices crash. How much risk is the
state exposed to if there is a big investment followed by low
prices? he asked.
MR. DICKINSON said he has wrestled with that. "I think you have
correctly identified the problem." He said there is money for
investing now. In a low price environment, especially four or
five years from now, the production tax will only be $100 or
$200 million. He said Co-Chair Samuels was right; when the PPT
is only $200 million, there is a very large hole in the pie, and
the fact that it is $100 million lower, there will have to be
other measures taken at those low prices whether the state is
using the PPT or not. But for every year of high prices, it
will take 5-6 years of low prices to balance out. The state
will have to look at other ways of dealing with cash flow at low
prices, and the PPT will make revenues more voluble, "but I
suggest to you that they will also be higher over time."
1:44:23 PM
CO-CHAIR SAMUELS said cost allocations are a problem, and the
industry will not trust the state regulator, and "I don't want
to pay for a building in Houston." He said he wants specific
attention to cost allocations and auditing.
REPRESENTATIVE MCGUIRE said it is a real situation that the
chair poses because "we allow, in this legislation, for unused
tax credits to be transferred, and so you can envision a
scenario where prices start to dip, folks may not be exploring
actively but they may have these unused tax credits out in
circulation." She asked how many years they are transferable.
1:45:49 PM
MR. DICKINSON said there is no limit on how long the transfers
can be use. He said he tried to make those credits as close to
their face value as possible. He added that it is important
that investors "can sell the credit as close to a cents on the
dollar as they can do it." He said there has been trading of
credits at over 90 cents on the dollar. The notion, he said, is
the companies taking the risk, "who are likely to incur the
losses, we want those to be able to trade at full value, and
therefore we did not put a restriction on how long they could be
used." He said there are other restrictions in the bill. He
said the problem Representative McGuire raised is real, but the
credits can't be used to reduce anyone's tax burden below zero.
When looking at a low price environment, the important point is
that even though a company can reduce its taxes to zero, when
prices recover there will be revenues again.
1:47:47 PM
REPRESENTATIVE MCGUIRE asked if the Department of Revenue
considered setting a cap. There has been other incentive
legislation, like the raw fish tax, with a five-year limit.
There is also a limit of 50 percent, so the state knows it will
always get 50 percent back.
MR. DICKINSON said there is a limit on purchased credits of 20
percent of owed tax; however, if a company generates its own
credits while making a huge investment and prices fall, there is
no restriction on using those credits in the future. He said
this is the kind of thing we need to get cleaned up. There were
"a lot of things like this" that created internal debates, he
added, and now they can be debated in a much larger circle.
1:49:15 PM
REPRESENTATIVE GARA said that Mr. Dickinson said that a tax
policy often doesn't have an impact on industry investments. He
said he really wonders if this PPT will have an impact.
According to the Department of Revenue, profits next year would
be about $1 billion at $20 per barrel, but at $60 per barrel,
the profits to the industry would be about $7 billion. Under
the current system and in the last three years, oil company
profits have multiplied 5-600 percent, he said. The companies
pay a zero percent production tax, but investments have gone
down, he stated. Under this proposal, the state is going to
give them an extra 20 percent of their costs back and charge
them a 20 percent tax. So if a zero percent tax with 600
percent more money led to less investment, "why should I believe
that giving them 20 percent more money--and increasing their
taxes--is going to lead to substantially more investment than
the current system?"
1:50:49 PM
MR. DICKINSON said the current effective tax rate on the North
Slope is between 7 and 8 percent rate. He said there are two
fields that have come on in the past several years, Northstar
Unit and Alpine, that are paying tax rates close to 10 percent.
Other smaller fields are paying zero taxes. He said companies
other than the smallest fields will pay tax. He said one of the
reasons why investments are not being made in Alaska and they
are being made in other parts of the world is because other
places reward those investments differently. He noted that
every decision is not made by tax rates, but "part of the reason
that investment has flowed to places that recognize investment
is because you can make bigger investments or your investments
have more bang for the buck."
1:52:51 PM
REPRESENTATIVE GARA said his point is that most new fields pay
zero tax and some pay up to 10 percent, and a lot more cash flow
has been made because of high oil prices. He noted that the
proposal is to increase the tax. He asked why giving the oil
companies a 20 percent tax credit benefit "is going to lead to
so much more investment than the 600 percent benefit that oil
prices have given them that has led to a decline in investment."
1:53:53 PM
MR. DICKINSON said there are two pieces, and a 20 percent tax
rate means that for every dollar generated, "we get 20 cents on
it." There will be other government takes, so the company will
take home 40 cents on the dollar. "We are moving that rate up
so once the tax basis is calculated, we are now taking a larger
piece of it." But the bill gives the companies the opportunity
to lower the tax base for investment incentive. He said if
people thought there would continue to be high prices, why
wouldn't companies drill every possible hole in the ground. He
said the state could never create the same incentives that the
current price structure does now. He said the state is trying
to be "a little more focused" and to make investment in Alaska a
better proposition than investment elsewhere.
1:55:31 PM
REPRESENTATIVE CRAWFORD asked about Mr. Dickinson's example of a
small company drilling three dry holes and getting credit for
its losses, but the credits don't just come from losses; a
company gets credits whether it is dry or not.
MR. DICKINSON said that is exactly right. He said he was giving
an example of a company coming to Alaska, spending a lot of
money and getting a zero return. He said the state wants to say
the state will take part of the loss with tax credits. But he
said the state will never question a company on whether their
activities were successful or not. Supporting exploration is
one of best ways to incentivize future production. Once a
company has drilled and found oil, the chances are that it will
develop the discovery. The bill kicks in at the exploration
level and creates a credit, and the downside is a dry hole, and
"we're going to make the downside a little bit less worse."
1:57:57 PM
MR. DICKINSON said the ELF uses the volume from wells and the
field to calculate the tax rate, creating a problem when volume
falls. The ELF is an exponential formula, and the net effect is
when volume falls, the ELF falls faster. He showed a graph of
the Kuparuk production. In 1993, at the height of production in
the unit, 12 percent of every barrel was being taxed. As
production fell by about one third, the ELF fell by more than
half. From 2000 to 2005 the ELF essentially disappeared. So as
volume falls, the ELF falls more rapidly. With the PPT there
would still be a fall in taxes, but less quickly.
2:00:47 PM
MR. DICKINSON said taxes go down in maturing fields due to
decreased production, but with the ELF it goes down to near
zero. He addressed the North Star and Alpine fields where the
ELF goes down to zero when volumes fall by about 50 percent.
The sensitivity to volume is overstated, just as the sensitivity
to price is understated, and he showed a slide highlighting that
point. "Should we have a tax system that automatically falls-
has a smaller tax on each barrel that is remaining to be
produced, or as we're proposing here, we tax the profitability
on each barrel..."
2:03:25 PM
CO-CHAIR RAMRAS asked for an addendum to Mr. Dickinson's
presentation that describes the problem with the current tax.
He said there will be surplus money this year, and royalties are
invested around the world, and not generally in Alaska. Money
that goes to government services doesn't generally help the
Alaska economy, he noted. He asked Mr. Dickinson to later
discuss the incentive for exploration and the economic
multiplier created by the additional exploration, "and I'd like
to see what that will do for employment opportunities, for
revenue and dollars that go into our economy." He said it was a
great presentation but "I found that why it is a problem is also
why we have had retarded growth in the Alaska economy over this
as the ELF broke and as production broke down, we also have not
had the blossoming economy we should have had." He asked for
different scenarios of exploration at different rates that have
been mentioned: 1 to 3 billion; "What that would mean when we
apply some kind of an economic multiplier...to see how broken is
that part of the system..."
2:05:52 PM
MR. DICKINSON said, "I think you've made the point, and I think
it's very true that when we talk about investments yielding more
barrels, that's only one of the effects, and clearly any work
going on on the North Slope or around the state has a multiplier
effect."
2:06:12 PM
MS. WILSON said the problem with the current tax is the lack of
incentive to reinvest in Alaska. "It has a low take
internationally at high prices, and a high take at low prices."
The tax is referred to as a regressive tax, and the maturing of
the North Slope leads to a decline in tax revenue.
REPRESENTATIVE ROKEBERG said it is not fair to say there is
currently no incentive. The ELF was designed to try to generate
investments, and the question is whether it is working.
Producers are investing substantial money, he noted. He said he
is concerned about the de facto tax credit that Representative
Gara referred to.
MR. DICKINSON said that is a fair point, "and maybe we should
say that there is no effective incentive." He noted that
investment can be its own reward, and the state is trying to
create a specific incentive tied to the amount of the
investment.
2:09:15 PM
MS. WILSON told the committee to keep four ideas in mind
regarding HB 488: the relative encouragement of the investment;
competitive rates internationally; encouragement of small
companies to invest in Alaska; and the efforts that have been
made on streamlining the tax process. She said there are five
basic elements of HB 488. 1) Tax base-or what is taxed. The
current tax system is based on gross and the PPT is based on
net. 2) Tax rate of 20 percent. 3) Incentive credit to
encourage companies to reinvest in Alaska. 4) Base allowance of
$73 million, which is akin to the standard deduction on personal
income tax. 5) Transition provision that recognizes recent
investments in oil exploration and production.
REPRESENTATIVE KAPSNER addressed the $73 million base allowance,
and asked if any other industries have a base allowance.
MR. DICKINSON said the only similarity might be the mining
license tax where there is an extended period of time in which
there is no tax paid.
2:12:45 PM
REPRESENTATIVE KERTTULA asked if the allowance is on the gross
profit or on the net profit.
2:13:18 PM
MS. WILSON said the base allowance is a deduction on the net.
In terms of a personal tax return, the allowance would be
similar to a charitable contribution deduction; however, credits
are akin to the childcare credit and other dollar-for-dollar
credits. She noted that the gross versus net can be confusing
and said that the bottom-line might be the same for a gross and
net system. She gave an example of both systems where the tax
would be the same where a tax on gross might be 15 percent and a
PPT on net would be 20 percent, but the tax before credit would
be the same. "It makes sense that when you tax net your tax
rate will be higher."
2:15:55 PM
MS. WILSON said the tax base starts with gross value at the
point of production and then subtracts lease expenditures, which
include operating costs, capital expenditures and allowance for
overhead. She noted that capital expenditures are expected to
generate income over a number of years. In HB 488, "the plan
allows for basically immediate write off of capital
expenditures, so just as normal lease operating expenses are
deductible in the year that they are incurred, by the same token
then machinery, things that are normally capitalized that will
have a life over a number of years, are immediately written
off." She said there will also be an allowance for overhead,
but the exact formula has not been "fleshed out," so the
division will be writing the regulations. The lease
expenditures must be direct costs and they must be ordinary and
necessary, she added. The deductible expenses are in the bill.
She said the department will write regulations on defining
"direct" and "ordinary and necessary". The bill specifies that
substantial weight be given to industry practice and standards
adopted by the Department of Natural Resources.
2:19:15 PM
CO-CHAIR SAMUELS asked if it will be completely in the
regulatory environment, and asked if that will create constant
conflict between the state and the industry on valuations and
costs. He said industry is going to be mistrustful that the
state will not allow expenses that it thinks is real. "I'm not
going to want to pay for the building in London and Houston," he
said. He suggested the conflict might continue because the
issue will not be in statute.
2:20:12 PM
MS. WILSON said, "This is an area where there is some
streamlining, as I would see it." She said with regard to lease
expenditures, there is recognition of established practices
where there is joint interest. She said there may be
disagreements about allocation of overhead, but "we have been
given marching orders, so I would hope that that would minimize
the conflict."
CO-CHAIR SAMUELS asked about the timeframe for the regulations.
MS. WILSON said the administration has not started on them. It
may be required to be done on an expedited basis, she added.
2:21:23 PM
REPRESENTATIVE ROKEBERG asked if the net profit formula in
Alaska leases has ever been litigated.
MR. DICKINSON said he doesn't believe it has gotten to
litigation, but there have been differences. "I don't believe
that the overhead was one of those because I believe that is
specified in the net profit share regulations as they exist."
REPRESENTATIVE ROKEBERG asked, "Are you not adopting the
USC...the federal tax code?"
MR. DICKINSON said, "We will. For capitalized expensive, in
other words, the rules that say when you self construct an
asset, how much of your overhead can go into that, or has to go
into that...we will be adopting the federal code for that." The
issue, for example, is when an operator at Prudhoe Bay uses an
engineer in Anchorage to do work on the North Slope, other
working-interest owners will be billed an overhead beyond that
engineer's salary, "so when we say we're going to look at
industry practice, that's really what we want to look at...like
Prudhoe Bay where there are lease expenses and how the operator
charges overhead to other lessees."
2:23:14 PM
REPRESENTATIVE GUTTENBERG asked about the analysis for an
independent.
MR. DICKINSON said a lease generally has several working-
interest owners, and independents or wholly-owned operations
have no one looking over their shoulders, and "that's when it's
going to get a little bit harder, and that is where we are just
going to have to look at industry practice and set out rules
that embody industry practice and try to make sure we come as
close to a reasonable number as possible." He said he didn't
try to embody a rule in HB 488 because "we thought having
regulations with a direction to look at industry practice would
probably keep us more in line."
2:24:42 PM
CO-CHAIR SAMUELS said there was a previous bill on a decoupling
because the federal government did something that the
legislature did not like. He asked if there would be a problem
with a federal rule change, "is there some worry that now we're
stuck with this...and we have moved down the road with [the
industry], and now the feds come in and do something to the two
of us that changes the economics of the project or the economics
of the state?"
2:25:47 PM
REPRESENTATIVE SEATON said, "We are looking at establishing the
oil statute and then coupling that possibly with a future vote
into gas; now is that going to couple in the regulations or are
we essentially setting up regulations that...determine some tax
policy that could be changed at a future date that are not going
to be tied in here?" He said he sees future conflict and
litigation, "if we're talking about trying to couple statutes
into the long term gas, but then we're decoupling regulations
that could be changed. Could that be a future problem?"
2:26:59 PM
MR. DICKINSON said that in the context of the Stranded Gas Act,
discussions about fiscal stability focus very much on
regulations because that is something the department really can
do, aside from listening to public input, because the decision-
making rests with the department. But with HB 488, "what we're
trying to do here is create enough flexibility...the cost areas
here are much more specific than they are in the current
statute." The current statute uses 12 words talking about what
costs are, and "we have written hundreds of pages of regulations
interpreting what those 12 words do." He said he has tried to
be more specific in HB 488 while maintaining flexibility.
"Clearly, what's contemplated in the Stranded Gas Act, and again
I can only tell you a window into that, is the discussion about
regulations and the effects that they may or may not have on
someone signing the Stranded Gas Act contract."
REPRESENTATIVE SEATON said he would like that addressed. This
is a stand-alone bill but the intent is to have a future vote to
tie it into a Stranded Gas Act bill. He wants to know if the
regulations that are establishing these costs will be tied to
stranded gas, or could there be litigation based on changing
allowable costs in the regulations.
2:29:07 PM
MR. DICKINSON said, "I think what we contemplate is that where
the statute sets up the option for regulations, essentially in
the Stranded Gas Act, we might essentially come up with that."
He gave an example using the Stranded Gas Act to guide how
overhead will be calculated. He said the hope is that the
Stranded Gas Act will be completed before the regulatory process
of HB 488. There might be a situation where a signatory to the
Stranded Gas Act had one set of interpretations, and a company
that did not sign onto the act would have something different.
"They'd be under the same statutory authority but the
interpretation might be slightly different."
REPRESENTATIVE ROKEBERG referred to the remark of coming back to
committee if there were a change in federal law, and he asked
Mr. Dickinson to speak to the issue of a federal windfall
profits tax.
2:30:25 PM
CO-CHAIR SAMUELS asked about the extent of exposure the state
and industry would have to the federal government.
2:30:56 PM
MS. WILSON said for income tax, what the federal government does
is important because the state adopts the internal revenue code.
But the production tax will not piggyback to the code except in
certain areas. If the federal government wants to generate
activity and not capitalize certain things, then the state could
not capitalize those things. She said the state is not adopting
the code generally, so a windfall profit tax would be not
applicable because it is based on net income.
2:32:34 PM
REPRESENTATIVE ROKEBERG asked if the bill was adopting the
federal code by reference.
MS. WILSON said no, and the last point is that any lease
expenses where the producer is receiving any reimbursements,
those would be taken off the expense amount.
2:33:14 PM
MS. WILSON listed non-deductible expenses: depreciation, royalty
payments, taxes based on net income, interest and financing
charges, lease acquisition costs and other costs. Rather than
depreciating, the producer gets an immediate write off in year
one. Royalty payments never enter the calculation in the first
place, she said. She said taxes based on net income and
interest are general expenses not tied to leases. Other costs
including arbitration, donations and costs of organizing joint
ventures are general expenses that are not tied to certain
leases. She said the non-deductible expense list is on page 13
of the bill.
2:35:29 PM
MR. DICKINSON said any conflict or court case against the state
is not deductible, nor are conflicts between interest owners.
An injury case would be allowed as a deductible expense.
MS. WILSON discussed how value is determined under the current
system. Transportation expenses, including TAPS and marine
transportation, are backed out and simplified under the PPT
because marine transportation expenses take a lot of audit time.
Under the PPT the producer can elect to use royalty values, and
that would be royalty values accepted by the Department of
Natural Resources. The other option is to use a formula that
estimates the value at a specific location, such as at a point
of delivery...common carrier pipeline.
CO-CHAIR SAMUELS asked about the Trans-Alaska Pipeline System
settlement methodology (TSM), and what the bill says about the
trust on the tariff that is paid to the Alyeska Pipeline Service
Company, which is probably not as high as it should be.
2:38:37 PM
MR. DICKINSON said when TSM expires there will be an
alternative. He said he contemplated going to publicly
available values for calculating a netback, particularly for
small companies that aren't doing their own "tankering". He
said he never contemplated anything other than using a published
tariff.
MR. DICKINSON said, "The current standard, which we're not
changing, talks about actual cost, so I suppose that if the
department believed that what was ultimately determined was not
actual cost, they could argue it's not deductible. I think in
general, what we've contemplated is we have enough arguments on
our hands about other things, we'll let those fights go on in
the proper forums."
2:39:56 PM
MS. WILSON said the bill specifies that the Department of
Revenue may use other factors like published prices, quality
differentials, applicable transportation costs and inflation
adjustments to guide it in the formula. She noted that the tax
rate is 20 percent of net profits, and the bill provides
incentive credits of 20 percent, which may be taken on
exploration costs and capital costs incurred on the lease. She
said the credits are transferable and subject to audit.
Exploration costs include geological and geophysical costs.
Capital costs include intangible drilling costs, which are under
the federal code and written off in the first year, but under
the PPT, "what we've said is you've got a credit on capital
costs and that includes any IDCs." The purchaser of a credit
can only reduce their tax by 20 percent.
REPRESENTATIVE ROKEBERG asked about the credit and tax rate, and
if they are additive.
2:43:52 PM
MS. WILSON showed a slide of how losses are handled. "If we
look at a gross value...of $50, and we write off lease operating
expenses of $12.50, and we give a deduction for the capital
expenditures--that is, write off the equipment that was
purchased--that leaves, at this point, a net loss, which
commonly is referred to as a NOL, net operating loss, of $22.50.
Net operating losses. That's before any credit. Right now
you've gotten to a negative place. You don't have any tax
against which to apply the credit, so, you have a loss. And
what the bill provides for is that the loss can be converted
into a credit and we apply 20 percent of that amount to just get
it on a dollar for dollar."
REPRESENTATIVE ROKEBERG asked about breaking even.
MS. WILSON said if the bottom line was zero there would be no
tax; a company would not utilize any credit at that point.
REPRESENTATIVE ROKEBERG asked if he would get 20 percent
investment credit.
MS. WILSON said he would get it on the books and have to carry
it forward.
REPRESENTATIVE GARA said he is worried there is double
accounting. The tax credit is for exploration and then also for
building a facility, "so there's 20 percent there, and if you're
a profitable company, when you pay your 20 percent tax on the
other side, you're deducting your costs. So you're deducting 20
percent of your costs on the tax side and then getting a 20
percent credit on the credit side. For those companies that are
making a profit...aren't they 40 percent credit?"
2:47:23 PM
MS. WILSON said that is correct, "if there's a piece of
equipment on the lease, you will be able to write off the cost
of equipment in year one as a deduction, and that will also
qualifies for a tax credit of 20 percent." It was done this way
to maximize the incentives for investment.
REPRESENTATIVE GARA said it really benefits the bigger companies
who can get it at both ends. He suggested giving credit to help
find oil but once it is found, why should the state give credit
"after you've struck gold?"
2:48:44 PM
MR. DICKINSON said no matter the size of the company, if it has
expense, it gets 20 percent if profits are below zero. A
company can convert it into a credit, which is the same for
large and small companies. He said Representative Gara is right
that the state wants to incentivize credits for exploration.
"One of the reason's this larger policy call was made was
looking at the kinds of investments that were occurring, and
whether in fact a focus on merely exploration versus exploiting
resources that we know that they're there in place, but for
whatever reason, appear to be more challenged. For example,
heavy oil." People know where heavy oil is, "but the question
is, should we be creating a system where you go out and you
incentivize finding light oil more than just taking a known
reserve of heavy oil and monetizing it? So as we look at the
resources in the North Slope, is focus on exploration important?
Absolutely, but so too is taking some of the more challenged
pools of oil where we know exactly where they are...and try and
incent the technology and the investment to get those up and
running at a higher productivity level."
2:50:49 PM
REPRESENTATIVE ROKEBERG said he has concern about heavy oil and
frontier exploration, and having a discussion about a two-tiered
system. He said it relates back to a three step gas line deal,
and the adoption, by reference, of something that would be much
more volatile. He mentioned separate legislation for further
incentives for those types of investments.
2:51:46 PM
MR. DICKINSON said he is trying not to create a multi-tier
system, but a system where one gets the same bang for the
investment buck.
REPRESENTATIVE ROKEBERG said that may not be working.
MS. WILSON said she sees the ability to transfer credits as a
way to help a small producer.
2:52:50 PM
MS. WILSON said the base allowance is a $73 million deduction,
and that number came from allowing $200,000 per day in net
profit to be produced without taxation. It is a standard
deduction that cannot generate a net operating loss and cannot
be carried forward. It is taken in monthly chunks, she said.
She added that there is a monthly return filing, and "this bill
envisions sort of a 90 percent safe harbor amount, month by
month." There will be a yearly true up on March 31 when the
rest of the tax is due. "I see that as being sort of a taxpayer
friendly reasonable thing to do." The bill has an effective
date of July 1, 2006, she stated.
REPRESENTATIVE SEATON asked if the 90 percent safe harbor is
interest-free.
MR. DICKINSON said, "If you pay 90 percent in any month, there
would be no tax due when you pay the additional 10 percent on
the March 31 true up date." But if a company only paid 85
percent, then it would owe interest on five percent.
REPRESENTATIVE SEATON said so this isn't a safe harbor from
penalty, it is a safe harbor from penalty and interest.
2:57:07 PM
MR. DICKINSON said that is correct. Penalty is about willful
neglect, he said, and this simply says by paying 90 percent a
oil company won't have to pay interest.
MS. WILSON said the transition provision allows cost recovery of
assets placed in service in July 2001 through June 2006. She
said when an oil company buys a piece of equipment for the North
Slope, it will get 100 percent write off in year one. "What
that means then is the assets that were invested last year, for
example, they're getting no representation in the calculation of
net income." She said those assets are producing income for a
number of years and yet if they were purchased last year, they
aren't represented. The bill allows cost recovery of assets
that were placed in service in the previous five years, and
those deductions will be allowed for six years. The deduction
will only be available when the average price of oil exceeds $40
a barrel.
2:59:00 PM
CO-CHAIR SAMUELS asked if companies can carry that deduction
forward beyond six years if the price of oil is below $40 a
barrel in the fifth and sixth year.
MS. WILSON said yes.
2:59:17 PM
CO-CHAIR RAMRAS said the three majors have chosen to explore and
reinvest in Alaska between 2001 and 2006, and he asked Ms.
Wilson to monetize it for each producer. He said he wants to
know who will benefit most from this transition provision.
MR. DICKINSON said there is publicly available information but
it is not broken down. He said ConocoPhillips Alaska, Inc.
reports segment accounting, "so they report a set of
numbers...we could certainly present that," but things that
occur outside of that process are confidential.
CO-CHAIR RAMRAS asked who benefits from the transition
provision, and why is it there.
3:01:05 PM
MR. DICKINSON said it would benefit the taxpayer who has made
the largest investment, and the taxpayer who made no investment
will get no benefit from it.
CO-CHAIR RAMRAS said, "We're really only talking about three
taxpayers." He again asked which company will benefit the most.
MR. DICKINSON said ExxonMobil Corporation holds a third of the
Prudhoe Bay unit and ConocoPhillips Alaska, Inc. has the same in
Prudhoe Bay and owns a majority of Kuparuk and Alpine field, so
it will have higher investments. BP owns a much smaller piece
of Prudhoe Bay, but also has holdings in other places.
CO-CHAIR RAMRAS said the title of the presentation is "Current
Production Tax, and why it is a Problem." He asked who has been
the problem in stimulating exploration. The transition
provision assumes someone benefits more or less. "Who benefits
more, and who benefits less?"
3:02:39 PM
MR. DICKINSON said the two major fields that have opened up in
the last five years were North Star, owned by BP, and Alpine,
owned by ConocoPhillips Alaska, Inc. "Those are two large
investments that will probably figure prominently in this
calculation."
CO-CHAIR SAMUELS said costs that were incurred by the oil
companies three years ago have probably been recovered by the
$60 a barrel price. As the price went up, the recovery should
have been there, he said. If oil was $30 a barrel the
transition provision would make sense, because the companies
would have calculated that into their rate of return, but he
asked if it makes sense.
3:04:31 PM
MS. WILSON said in the accounting world, buying machinery will
yield the value each year it is used. "Just because you had a
windfall in year two...doesn't change your view that in year
five that asset is still producing that income and should be
offset against that. I think it's really from a, sort of,
accounting perspective."
REPRESENTATIVE SEATON asked about the presentation about ELF
spiraling down and that ELF stopped functioning as it was
anticipated. He suggested the investment costs have been
recovered by ELF not functioning.
3:07:08 PM
MR. DICKINSON said in the sense of gross cash flows the ELF
provided a large window "that allowed that." He said the state
is taxing profits regardless of what has been captured in the
past. "We are trying to create a situation where there is some
recognition of that--their contribution of the profits going
forward."
REPRESENTATIVE SEATON said everything that has been invested "up
there" is in the same structures. He noted that 2001 happens to
be where ELF free falls, but why are investments in 1999 or 2000
still not producing assets. He said he doesn't understand the
transition going back to 2001.
3:08:39 PM
MR. DICKINSON said it could have been a different number of
years. "This is what the governor is recommending."
REPRESENTATIVE GATTO said he is curious about the chart that the
oil companies will show regarding the PPT.
MR. DICKINSON said the legislature will get many charts from the
oil companies. He said the state will show charts on who will
get what with the PPT.
3:10:34 PM
MS. WILSON said additional revenue will be based on the price of
oil and the amount of producer investment in the state. The
revenue forecast was modeled on three different price
predictions. The Department of Revenue forecasts oil to be
$25.50 per barrel after two years. In that forecast the state
revenue is less than it would be with the current system. She
says she views that as the worst-case scenario, and it is in the
fiscal note.
3:13:25 PM
REPRESENTATIVE GARA said a chart by Pedro van Meurs showed that
under a 20:20 system, the state would earn less money with a PPT
than the current system at $27 a barrel. Now she is showing it
roughly even at $25 a barrel, and asked about any change in
variables.
MR. DICKINSON said that modeling is based on five different-
sized fields, but the state analysis looks only at the North
Slope.
3:14:39 PM
MS. WILSON showed the fiscal impact at today's oil prices and
then the impact of a "moderate" $40 per barrel.
3:15:14 PM
MS. WILSON said the fiscal note shows tax revenues, and in terms
of expenditures, there will be increases for auditing of
expenses, except there will be less auditing on transportation
costs. She noted that the transition deduction will require
much auditing done quickly. There will be heavy upfront costs,
and that work will be outsourced. There will be an additional
three auditors and an employee for filing. There will also be
outside help for regulation writing. Basic programming will be
required, she concluded.
REPRESENTATIVE SEATON asked for a chart on oil at $18 a barrel.
REPRESENTATIVE GARA said he would like to see the charts on
three other tax/credit scenarios, including 30/15, 30/20 and
25/20, which is what the governor proposed the prior week.
3:20:27 PM
[HB 488 was held over.]
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 3:20 PM.
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