Legislature(2011 - 2012)BARNES 124
02/13/2012 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HJR26 | |
| Presentation(s): a Five-year Look Back: Oil Industry Capital Expenditures by Category 2006-2010 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HJR 26 | TELECONFERENCED | |
| += | HB 9 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
February 13, 2012
2:05 p.m.
MEMBERS PRESENT
Representative Eric Feige, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Peggy Wilson, Vice Chair
Representative Alan Dick
Representative Neal Foster
Representative Bob Herron
Representative Cathy Engstrom Munoz
Representative Berta Gardner
Representative Scott Kawasaki
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE JOINT RESOLUTION NO. 26
Urging federal agencies to work with the Alaska Department of
Fish and Game, Southeast Alaska Native leaders, and other
interested parties to establish strategies and plans for the
sustainable management of the reintroduced sea otter population
of Southeast Alaska.
- MOVED CSHJR 26(RES) OUT OF COMMITTEE
PRESENTATION(S): A FIVE-YEAR LOOK BACK: OIL INDUSTRY CAPITAL
EXPENDITURES BY CATEGORY 2006-2010
- HEARD
HOUSE BILL NO. 9
"An Act requiring the Joint In-State Gasline Development Team to
report to the legislature recommended changes to state law that
are required to enable or facilitate the design, financing, and
construction of an in-state natural gas pipeline so that the in-
state natural gas pipeline is operational before 2016; and
providing for an effective date."
- BILL HEARING CANCELED
PREVIOUS COMMITTEE ACTION
BILL: HJR 26
SHORT TITLE: SEA OTTER MANAGEMENT
SPONSOR(s): REPRESENTATIVE(s) P.WILSON
03/31/11 (H) READ THE FIRST TIME - REFERRALS
03/31/11 (H) RES
02/03/12 (H) RES AT 1:00 PM BARNES 124
02/03/12 (H) Heard & Held
02/03/12 (H) MINUTE(RES)
02/13/12 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
ARTHUR MARTIN, Staff
Representative P. Wilson
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: On behalf of Representative P. Wilson,
prime sponsor, introduced the proposed committee substitute for
HJR 26, Version I.
GREG BROWN
Juneau, Alaska
POSITION STATEMENT: Expressed concern with HJR 26.
JULIANNE CURRY, Executive Director
Petersburg Vessel Owners Association (PVOA)
Petersburg, Alaska
POSITION STATEMENT: Testified in regard to HJR 26.
TINA BROWN, President
Alaska Wildlife Alliance (AWA)
Juneau, Alaska
POSITION STATEMENT: Expressed concern with HJR 26.
MIKE MILLER, Chairman
Indigenous People's Council for Marine Mammals (IPCoMM)
Sitka, Alaska
POSITION STATEMENT: Testified in support of HJR 26.
BRYAN BUTCHER, Commissioner
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation on oil
industry capital expenditures between 2006 and 2010.
DONA KEPPERS, Audit Master
Production Audit Group
Tax Division
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Shared in the providing of a PowerPoint
presentation on oil industry capital expenditures between 2006
and 2010.
ACTION NARRATIVE
2:05:27 PM
CO-CHAIR ERIC FEIGE called the House Resources Standing
Committee meeting to order at 2:05 p.m. Representatives Dick,
Herron, Gardner, Seaton, and Feige were present at the call to
order. Representatives Munoz, Foster, Kawasaki, and P. Wilson
arrived as the meeting was in progress.
HJR 26-SEA OTTER MANAGEMENT
2:05:45 PM
CO-CHAIR FEIGE announced that the first order of business would
be HOUSE JOINT RESOLUTION NO. 26, Urging federal agencies to
work with the Alaska Department of Fish and Game, Southeast
Alaska Native leaders, and other interested parties to establish
strategies and plans for the sustainable management of the
reintroduced sea otter population of Southeast Alaska. [Before
the committee was Version B, the proposed committee substitute
(CS) labeled 27-LS0717\B, Bullard, 1/27/12, adopted as the
working document on 2/3/12.]
CO-CHAIR SEATON moved to adopt the proposed committee substitute
(CS) for HJR 26, Version 27-LS0717\I, Bullard, 2/6/12, as the
working document. There being no objection, Version I was
before the committee.
2:06:29 PM
ARTHUR MARTIN, Staff, Representative P. Wilson, Alaska State
Legislature, explained that the language in Version I is the
result of working with the Sealaska Heritage Foundation. During
the 2/3/12 hearing on HJR 26 a concern was raised of the ability
of Native peoples to sell sea pelts to anyone. Therefore, all
mention of the sale of intact sea otter pelts was removed from
the resolution and language was crafted in two changes that
clarify the issue. The first change is on page 3, line 1, where
the language now reads that "Alaska Natives are limited to
selling only 'authentic' and 'traditional' Native handicrafts".
The second change begins on page 3, line 31, and addresses a
previous discussion that the Marine Mammal Protection Act limits
the allowable uses of sea otters to only "authentic" and
"traditional" handicrafts. Because the definition of authentic
and traditional is too restrictive, the change here asks that
these terms be replaced with "Alaska Native articles of
handicraft".
MR. MARTIN reported that the sea otter issue has made headlines
and the sponsor is happy that the issue is being elevated to
this level and heard by the committee. If current policies of
inaction continue it is believed that in just a few years humans
will have little share of the dive fishery resources for
commercial or subsistence harvesting. Areas that once had an
abundance of sea cucumbers, geoduck clams, red sea urchins, and
Dungeness crab are being depleted by sea otter predation.
2:08:51 PM
REPRESENTATIVE KAWASAKI, regarding ecology and the hope that
management will include an ecosystem balance, questioned Mr.
Martin's last statement because the [first] further resolved
clause does not state that managing for a balanced ecosystem is
the plan. He understood the resolution to say that the state is
not taking a position on whether to start actively managing
populations of sea otters, but to urge federal agencies to
revisit [the 1994] management plan.
MR. MARTIN agreed it is Representative P. Wilson's opinion that
the ecosystem is out of balance because of increased sea otter
populations. He maintained, however, that the resolution itself
does not state an opinion; it just asks that a discussion be had
between the appropriate state and federal departments and the
Native peoples based on the research that has been done.
2:10:42 PM
REPRESENTATIVE KAWASAKI opined that the [November 2011] McDowell
Group report [entitled "Sea Otter Impacts on Commercial
Fisheries in Southeast Alaska"] does not say that sea otters
were the major part of the decline of sea cucumbers and a
certain shellfish. Responding to Mr. Martin, he said the report
clearly states that the declines in sea urchins and other
species were not due to sea otter predation.
MR. MARTIN recalled reading such a clause in the report, but
said he could not remember whether that clause was referencing
geoducks, sea cucumbers, or sea urchins. However, he continued,
[Appendix 2] of the report does show conclusive evidence that
sea otters have had a direct and indirect impact on species such
as the sea cucumber and geoduck clams.
2:13:47 PM
CO-CHAIR FEIGE opened public testimony on HJR 26.
GREG BROWN stated that HJR 26 was developed by a special
interest group that hired a consultant to substantiate its
beliefs. He said he has had many dealings with consultants all
over the world through his previous work as CEO of one of the
largest companies in Latin American, and consultants get to be
big and successful by writing reports that the people who are
paying them want to hear. He said that even the title of the
McDowell report is misleading and should instead be "The Effect
of Sea Otters on a Few Specific Fisheries in Southeast Alaska"
given there are dozens of fisheries in Southeast Alaska that are
not even mentioned in the report.
MR. BROWN said other possibilities should be looked at. For
example, sea otters could improve other commercial fisheries and
are a keystone species. He noted that the State of Oregon has
issued a report regarding ocean acidification that is not
covered [in the McDowell report]. Additionally, tourism viewing
and wildlife viewing is a $30 billion industry in the U.S. and
has grown over 6 percent annually even during this current
economic downturn. In the city of Juneau the business of
wildlife viewing is worth over $30 million. One whale, over its
lifetime, is worth over $32 million to the city of Juneau and a
bear at Pack Creek is worth $132,000 annually to the city. The
reintroduced wolves of Yellowstone National Park are worth $35
million annually.
2:16:27 PM
MR. BROWN maintained that sea otters could be worth as much as
$5 million annually in increased tourism. To support his
statement he read from a 2005 California study report: "The
eventual expansion of southern sea otter populations in range
would provide more than $100 million of annual income economic
benefit to California households." Allowing that reports can be
argued, he pointed to an example of economic benefit in
Monterey, CA, which began holding the Sea Otter Classic 22 years
ago when sea otters were reintroduced there. He said this
extravaganza, which will be running again in April 2012,
features amateur and pro cycling events as well as family
activities, attracting more than 50,000 bicycle enthusiasts from
around the world. The classic also plays host for the largest
consumer bike expo in the world. None of these have been
considered in the [McDowell] report, he pointed out.
MR. BROWN, again allowing that any report can be argued, related
that he searched for the most neutral report that he could find
and came upon a 2006 Master's thesis by Sarah Poirier of McGill
University. The thesis talks about the benefits of sea otters
around Victoria Island and the increase in tourism and economic
prosperity that can be gained by utilizing that opportunity.
The thesis also supports that the keystone species of sea otters
is real and provides extreme detail about why it is real and
where it comes from.
2:18:52 PM
MR. BROWN explained that his point in discussing economics and
other alternatives is that if nature was embraced and not fought
everyone could become rich because the opportunity is there for
this to happen. He said the committee is making a decision
based on the recommendations of a financial special interest
group and the report paid for by that special interest group is
very biased, woefully incomplete, and insulting. He recounted
an old rule in business that says to get 80 percent of the
information, add judgment, and then make a decision because one
can never get 100 percent of the information. In this case, he
argued, there is less than 20 percent of the information. He
urged the committee to take time to get the rest of the facts
and not rush to judgment.
REPRESENTATIVE GARDNER asked what keystone species means and how
that plays out.
MR. BROWN understood from Dr. Mary Willson [of Juneau] and the
aforementioned thesis that sea otters control the number of sea
urchins and sea urchins are directly related to the amount of
kelp. When kelp is healthy other fisheries are also healthy,
such as salmon and fisheries similar to salmon.
2:20:52 PM
JULIANNE CURRY, Executive Director, Petersburg Vessel Owners
Association (PVOA), specified that PVOA has about 120 vessels
and businesses and its members are active personal use,
subsistence, and sport fishermen who are affected by the species
that are affected by sea otters. She said nobody is looking for
widespread and unchecked harvest of sea otters; people are
looking for a balance, but in Southeast Alaska there is not a
good balance with what is happening with resources. She noted
that Version I does not include the allowance of Alaska coastal
Natives to sell and trade raw pelts to non-Natives. Without
that language, she said it will be difficult to support the
resolution because that is a time-honored tradition and PVOA
feels it is very important for Alaska coastal Natives to be able
to sell raw pelts. However, she continued, the rest of the
resolution is heading in the right direction. She observed that
PVOA's letter is missing from the committee packet, but drew
attention to the resolution from the City of Petersburg and the
letter from the Southeast Alaska Subsistence Regional Advisory
Council (RAC), which has heard hours and hours of testimony
about this issue.
2:22:49 PM
REPRESENTATIVE HERRON, regarding the inability of Alaska Natives
to sell to non-Natives, asked whether Ms. Curry is suggesting
there be a quota for pelt use and that once that quota is
reached then pelts could be sold by Natives to non-Natives.
MS. CURRY replied that PVOA would be looking for the U.S. Fish
and Wildlife Service, or the U.S. Congress through an amendment
of the Marine Mammal Protection Act, to interpret the definition
of significantly altered differently. She said PVOA would like
for coastal Natives, who are allowed to harvest sea otters under
current regulations, to be able to sell a sea otter pelt to a
non-Native.
2:24:03 PM
REPRESENTATIVE P. WILSON pointed out that she did meet with
Native groups to discuss the resolution and it was re-worded to
the way that the Native groups wanted. She inquired whether
there has been a change since then.
MS. CURRY responded that much of the conversation so far about
significantly altered and handicraft has been driven by the
artisan market and she understood that that conversation has
helped in the shaping of the current bill. However, she
continued, there is a significant number of just harvesters who
would like to be able to sell raw pelts, although she does not
know why they are not coming forward with testimony. She shared
that she would like to have a raw sea otter pelt to put on one
of her two couches to accompany the raw pelt of an arctic fox
that she already has. While she understood the concern about
the sale of raw pelts potentially industrializing the current
artisan market, she remained unconvinced that that should trump
the overall good that would come from returning the right of
Alaska Natives to sell a raw pelt.
REPRESENTATIVE P. WILSON said she would be glad to add anything
that might help with those concerns as the resolution moves
along, but the harvesters will need to call her office.
2:26:58 PM
TINA BROWN, President, Alaska Wildlife Alliance (AWA), noted
that her non-profit organization, whose board is comprised only
of Alaskans, is committed to the preservation and protection of
Alaska's wildlife. She said AWA has critical concerns about HJR
26 because the resolution appears to call for the implementation
of predator control on sea otters. While understanding this is
a resolution and not a bill, she stressed that there would be
negative consequences if the resolution is adopted. It is
intended to be a foot in the door for those advocating for
predator control on sea otters. The sponsor's statement on the
Internet seems clear in the call for predator control on sea
otters because it says that action must be taken now rather than
waiting for studies. Additionally, at a previous hearing the
executive director of the United Fishermen of Alaska (UFA)
testified that HJR 26 is probably not enough to help his
fishery, but it is a step in the right direction.
2:29:17 PM
MS. BROWN related that at a presentation by the Alaska
Department of Fish & Game (ADF&G) last week a member of the
audience said predator control on sea otter population was
necessary and urged that it be opened up to all Alaskans, not
just Native Alaskans. This issue is escalating, she continued,
and the resolution has not yet been passed. She noted that HJR
26 urges state and federal governments to work with ADF&G to
reduce sea otter populations, but said that ADF&G does not have
a shining reputation for wildlife management: the department is
shooting wolves from aircraft in the Kenai Peninsula; snaring
bears, including sows, and then shooting their cubs; gassing
wolf pups in their dens; and is allowing non-resident hunting in
some active predator control areas. Alaska's reputation for
wildlife management is deeply tarnished right now, she said.
Imagine the negative press if Alaska started what people would
consider predator control on sea otters. Imagine the reaction
of tourists and potential tourists. Imagine the reactions of
Alaskans.
2:31:06 PM
MS. BROWN concurred that sea otters are a keystone species and
said that without sea otters there will be no great kelp forests
because the otters keep sea urchins under control. She related
that a panel of scientists at the recent Board of Fisheries
meeting in Petersburg stated that research on sea otters in
Southeast Alaska is underway and more research is needed. It
was also stated at the meeting that the carrying capacity for
sea otters in Southeast Alaska, before they were wiped out, is
unknown. At this same meeting, the Board of Fisheries stated
that one species should not be placed in higher regard than
another and the board specifically referred to sea cucumbers
versus sea otters. Prudence is the wisest approach to this
issue, she advised. Opening the door for predator control on
sea otters also opens the door for predator control on other
protected species, such as Steller sea lions and humpback
whales, and people are already talking about that.
2:32:25 PM
MS. BROWN said the consequences of HJR 26 could be devastating.
If the intent of the resolution is to provide greater economic
benefits to Native Alaskans via a more liberal use of sea otter
pelts, then re-word the resolution to say that. However, if the
intent of the resolution is to use Native Alaskans as a tool to
start predator control on sea otters, then the Alaska Wildlife
Alliance strongly opposes the resolution.
CO-CHAIR SEATON noted that the committee has adopted Version I,
which would do what Ms. Brown suggests in regard to expanding
the usage in handicrafts, such as allowing for a zipper. Since
Version I has no expansion of who can hunt and has no sales to
non-Natives, he asked whether it would fit the criteria that Ms.
Brown has laid out.
MS. BROWN pointed out that the resolution has numerous whereas
clauses and some of the wording in those clauses need to be
changed to not address predator control. She offered to go
through the clauses and mark the areas of concern. She said
previous oral testimony and the written testimony clearly view
the resolution as a step towards predator control on sea otters.
2:34:25 PM
REPRESENTATIVE HERRON asked whether predator control in any form
is unnecessary.
MS. BROWN replied that she did not say that; she said that more
studies need to be made, which is what scientists said at the
Board of Fisheries meeting. While she is not a biologist, she
said she knows that sea otters are good for the marine
environment and fisheries. Since sea otters are just making a
comeback right now, it seems wise to see what happens and not
jump into anything.
REPRESENTATIVE HERRON inquired whether it is being said that
there is not enough science on wolves and bears.
MS. BROWN responded that ADF&G cannot always be depended upon to
make wise management decisions.
2:35:34 PM
REPRESENTATIVE MUNOZ noted that the Marine Mammal Protection Act
is very restrictive in the use of sea otter materials for Alaska
Native handicrafts. She asked whether Ms. Brown perceives that
a threat could happen on the national level if the act is re-
opened, even though the resolution is directed at Alaska Natives
and their uses.
MS. BROWN agreed that the resolution is directed at Alaska
Natives, but stressed that the committee needs to be very
precise and specific in the wording so that it does not appear
to be a step toward predator control on sea otters. She said
she gets nervous when she looks at the sponsor statement and
when she looks at some of the wording in the resolution. The
Alaska Wildlife Alliance supports the Native community and if
that is the sole purpose then the language about sea otter
populations increasing and being too much does not have a place
in the resolution. If the economic benefit is wanted for the
Native community - wonderful, but leave out the idea of reducing
sea otter populations.
2:37:32 PM
MIKE MILLER, Chairman, Indigenous People's Council for Marine
Mammals (IPCoMM), noted that IPCoMM is comprised of 18 organized
marine mammal hunting groups in the state of Alaska. His group
has a co-management umbrella agreement with National Marine
Fisheries Service (NMFS) and the U.S. Fish and Wildlife Service
to deal with issues of common concern around the state on the
mammals under the Marine Mammal Protection Act. He said it has
been interesting to listen to all the different points and he
agrees with points brought out by both sides. He offered his
support for HJR 26. He understood the concern about the
resolution being used for getting into a predator control
program and said he does not want the act used for anything
along those purposes. He agreed, however, with the resolution's
statement about establishing strategies and plans for
sustainable management of sea otter populations, which is very
consistent with everything the Native community has worked for.
2:39:16 PM
MR. MILLER appreciated the changes made to the resolution and
said he supports Version I. The resolution is being looked at
with two different approaches. The Native community definitely
has concern about the impact that sea otters have and wants to
conserve the species, but conservation is the wise use of a
resource, not preservation. Protection is needed for both the
otters and the resources that the communities rely on for
subsistence and commercial purposes. He said headway could be
made on the root of the problem by dealing with definitions,
such as significantly altered, and the Marine Mammal Protection
Act would not need to be opened up for that.
MR. MILLER stated that he has worked on this issue for about 15
years. He facilitated the harvest management workshop for the
U.S. Fish and Wildlife Service and a tannery was started in
Sitka to promote economic opportunities for tribal members in
the community. He expressed his organization's great concern
with some of the enforcement actions that have happened and
which have created confusion amongst the hunters and artisans.
He concluded by supporting Version I with no changes to it.
2:41:16 PM
REPRESENTATIVE GARDNER, regarding the current use of sea otters,
asked who determines who qualifies as Native and how a Native
harvester would know that a buyer is qualified to own it.
MR. MILLER explained that there is an exemption in the Marine
Mammal Protection Act, Section 101(b), for Alaska coastal
Natives to harvest and make use of sea otter for handicrafts, as
well as to trade and sell pelts to other qualified Natives. In
regulation the definition of Alaska Native for purposes of the
act is one-quarter blood quantum or greater who lives on the
coast. However, there is some question as to how that is
figured out by the different solicitors of the respective
agencies, although that is how they say they enforce that. For
many people who are one-quarter blood or a bit more it would be
hard to determine that they are unless they show identification
and that raises questions about how that would be enforced. A
lot of this comes back to questions about how things are
enforced and there needs to be some clarity on those things
before sea otters can really be fully utilized to help Natives.
REPRESENTATIVE DICK commented that he is the only non-Native in
his family and all his family members have a Bureau of Indian
Affairs (BIA) card that shows what fraction Native Alaskan they
are.
2:43:57 PM
CO-CHAIR FEIGE closed public testimony on HJR 26 after
ascertaining that no one else wished to testify.
CO-CHAIR SEATON reiterated that he thinks Version I cleans up
the potential problems in the resolution. He said he would not
make a motion to move the resolution if it allowed sale to non-
Natives because that would hurt the Native artisan community and
the authenticity of sales to tourists and others, as well as
have a situation in which one shooter on a boat that was
qualified and the rest of the people onboard would be non-
Natives. The sponsor has done a good job of expanding the use
within the Native community without getting into the situation
of less control on the harvest.
REPRESENTATIVE MUNOZ agreed with Co-Chair Seaton. However, she
suggested to the sponsor that some of the editorializing
language be toned down so as not to build up hysteria around the
issue. She said she agrees with the resolution and thinks it is
important.
2:46:09 PM
REPRESENTATIVE KAWASAKI agreed with the previous two speakers
and noted that Version I calls for coming up with local plans.
He appreciated the sponsor's willingness to change the language
dealing with Alaska Native and traditional artifacts and agreed
with the previous speaker about how the resolution should be
fixed further. Regarding the McDowell Group report, he
maintained that a lot of study has not been done and much more
needs to be done for any management plan. Referring to
citations in the report that ADF&G has closed seven areas for
sea cucumbers presumably for sea otter predation, he said it is
inconclusive. He further noted that no geoduck harvests have
ever been closed due to sea otter predation, although ADF&G has
identified some areas where there could be sea otter predation.
Continuing his reference to the report, he said sea otter
predation impacts on red sea urchins since 2005 have not been
compiled, and the decline of red sea urchin in recent years is
related to market factors, not due to sea otter predation. He
further noted that the abalone fishery collapsed almost
certainly because of excessive harvest in the 1970s and 1980s,
not due to sea otter predation. He said he would like to ask
ADF&G numerous questions about how it comes up with the various
numbers. He urged that there be thoughtful debate about this
and offered his appreciation of the sponsor's willingness to
continue in this regard.
2:48:09 PM
REPRESENTATIVE DICK understood the concern of those people
asking for more study and said that if hunting was begun
tomorrow it would be premature. He maintained, however, that
with predator control for wolves the cry for more study went on
for eight years and resulted in no moose populations. He said
he is sure that there will be more study on the sea otter issue,
given the timing of the resolution.
CO-CHAIR FEIGE stated that a good part of the resolution is
simply to get the U.S. Fish and Wildlife Service to come up with
a plan.
2:48:54 PM
CO-CHAIR SEATON moved to report the committee substitute (CS)
for HJR 26, Version I, labeled 27-LS0717\I, Bullard, 2/6/12, out
of committee with individual recommendations and the
accompanying zero fiscal note. There being no objection, the
House Resources Standing Committee reported CSHJR 26(RES) out of
committee.
The committee took an at-ease from 2:49 p.m. to 2:55 p.m.
^PRESENTATION(S): A FIVE-YEAR LOOK BACK: OIL INDUSTRY CAPITAL
EXPENDITURES BY CATEGORY 2006-2010
PRESENTATION(S): A FIVE-YEAR LOOK BACK: OIL INDUSTRY CAPITAL
EXPENDITURES BY CATEGORY 2006-2010
2:55:46 PM
CO-CHAIR FEIGE announced that the next order of business would
be a presentation regarding a five-year look back on oil
industry capital expenditures between the years 2006 and 2010.
BRYAN BUTCHER, Commissioner, Department of Revenue (DOR), noted
that the genesis for this look back came about during
discussions in this committee about how much information the
Department of Revenue (DOR) and the State of Alaska had
regarding what has been seen from the tax credits and the
breakdown of capital expenditures from the industry. The
department began working with the companies to get information
that breaks down capital expenditures by category for the last
five years. The department started out with a large number of
categories for the look back, but had to shrink that down to a
limited number because each company does things differently.
Moving forward, the department will be working with the
companies to include a larger number of categories. All
companies will know that the department expects a breakdown in
certain categories for both capital and operating expenditures,
and this will provide decision makers with more information to
look at.
2:58:16 PM
REPRESENTATIVE KAWASAKI, regarding each company doing things
differently, inquired why the state does not establish the
categories that the companies must keep. He commented that it
is currently a reverse engineering situation.
COMMISSIONER BUTCHER agreed and said DOR will be doing that
moving forward. However, he pointed out, the companies that
have already filed five years' worth of returns have different
limits. The department met with a couple of dozen companies
while working on this process and they all had different ways of
categorizing their expenditures. The problem was in the looking
back and getting categories that all the companies could provide
data on in a quick fashion, since DOR needed to gather the
information in time for this legislative session. Going forward
DOR will work on specifically what it wants and the companies
will know what and how they need to categorize for the
department.
2:59:39 PM
REPRESENTATIVE KAWASAKI asked whether the raw data is available
to legislators or only to the department, given confidentiality
agreements.
DONA KEPPERS, Audit Master, Production Audit Group, Tax
Division, Department of Revenue (DOR), explained that DOR
started with a very long list of capital expenditure categories.
She and another audit master met with the companies four
different times and came up with five major categories. Working
with the companies, the department pre-defined what went into
those categories and that is what the companies compiled for
this look back exercise. Looking forward, DOR has already pre-
defined a very long proposed list for capital expenditures
(capex) as well as operating expenditures (opex) and the
department has met once with the companies to begin this
exercise of compiling costs so that legislators are able to make
sound decisions.
3:01:16 PM
COMMISSIONER BUTCHER explained the purpose of tax credit
provisions (slides 3-4), which first began with exploration tax
credits in 2003 under Senate Bill 185. That bill "provided for
a reduction in royalty on certain oil produced from Cook Inlet
in addition to the tax credit provisions." The goals "were to
increase exploration and increase the state's knowledge of the
natural resource base." The sponsor statement for the bill said
that it would encourage companies to drill more wells looking
for information. The bill provided that drilling within an
existing unit would not qualify, nor would wells under current
development and exploration plans. Since Senate Bill 185 passed
while the state had a gross tax, rather than the [current] net
tax, the state did not have much information on what the capital
and operating expenditures of companies were. Under that bill,
the state would stop "recovering the cost" once a well was
successful because it was assumed that a producer would continue
development at that point. Wildcat exploration would qualify
for a 40 percent credit, but the explorer was required to submit
information to the Department of Natural Resources (DNR) about
the geology and resource base that were discovered during the
exploration activities.
3:03:06 PM
COMMISSIONER BUTCHER outlined the purpose of the five-year look
back (slide 5): to provide informative cost information to
decision makers; to break down capital expenditures and how they
relate to credits; to understand the benefits and impacts of
current statutes and regulations; to create a process and
reporting mechanism to collect and compile expenditure
information in non-standard formats to catch up on the years of
data collection in which DOR was collecting the information in a
format that could not be detailed to the legislature and others;
and to establish a historical basis for future analysis and
comparisons. He added that much of this kicked into high gear
when the state moved from a gross tax to a net tax.
COMMISSIONER BUTCHER reviewed the process of information
gathering for the look back (slide 6), which included: in-house
discussion and review to come up with a list of the potential
categories; conducting four workshops with industry in which
participation averaged 15 companies per workshop; industry
providing active participation and written comments;
establishing capital cost expenditure categories; and developing
the five-year look back and more expansive, forward-looking
reporting categories.
COMMISSIONER BUTCHER discussed the use of the cost expenditure
categories for the five-year look back (slide 7). He explained
that the compilation of capital expenditures is for the years
2006 to 2010 and does not include 2011 because the companies
will not have their true-ups for that year until March 31, 2012.
Moving forward the companies will begin submitting this detailed
information for the various categories with their annual
production tax returns. Most, if not all, of this information
is based on confidential information, he noted.
3:05:38 PM
COMMISSIONER BUTCHER outlined the five capital expenditure
categories used for the 2006-2010 look back (slide 8): 1)
geological and geophysical (G&G), including work or costs
associated with the performance or acquisition of seismic and/or
G&G data; 2) exploration drilling, including drilling of an
exploration well, drilling of a post-discovery appraisal well
prior to development, sidetracks on a discovery well, and
appraisal costs, including coring and testing discover wells;
3) development drilling, including costs associated with well
drilling, completions, planned multi-laterals of development
wells, including costs upstream, and all costs related to well
workovers and completions; 4) facilities, including well tie-in
costs, increases to capacity, expansions of existing facilities
such as increasing oil, gas, or water handling, de-bottlenecking
or processing facilities, improvements to reliability or reduced
operational costs, production control system upgrades, costs for
information technology, communications equipment, nonproduction
control systems, camp sites or accommodation facilities, medical
facilities, laboratories, warehouses and maintenance buildings,
and new or replacement transit lines, gathering lines, and flow
lines, or the addition of new production lines and/or pumps to
transit or downstream lines, but not repairs to the lines; and
5) other capital, including significant capital equipment,
health, safety, environment, and other non-drilling costs not
captured in the other four categories. He noted that the
categorized capital expenditure data represents about 90 percent
of the costs related to credit applications that the department
has received.
3:07:40 PM
MS. KEPPERS explained that slide 9 depicts the costs related to
qualified capital expenditures during the years 2006 to 2010.
The two categories with the largest expense were facilities at
$4.2 billion and development at $4.2 billion. In 2007
development went up a bit, in 2009 it took a downturn, and in
2010 it took another upturn. The overall trend for all [five]
categories is increased spending and the increases are likely
maintaining production. Spending increased in development
drilling and facilities in 2007 and 2008, but declined in 2009,
which was the first year that ACES would possibly have had some
effect on budgets and activities. The increase in spending in
both development wells and facilities in 2010 was greater than
in years prior to 2009 and provides no significant indication of
ACES influences, but it may be a reflection of the credit
program and more targeted spending for credits qualifying for
spend.
3:09:21 PM
MS. KEPPERS said that when looking at this from the big picture
of total companies, the development drilling spending could be
viewed as relatively flat with no generally demonstrated
dramatic increase during the four-year period of 2007 to 2010.
Facilities spending mirrored development and could be
interpreted as simply supporting existing production from
existing fields. The slight fluctuation in total expenditures
for these categories could be attributed to annual cost
increases, not necessarily a reflection of increased overall
development activity. The historical capital expenditures for
this five-year look back period are $9.3 billion for these five
major categories.
MS. KEPPERS next reviewed the historical capital expenditures
specifically for drilling and G&G during this five-year look
back (slide 10). A two-fold increase occurred in development
drilling in 2007 and then spending stayed fairly level for the
remainder of the reporting period of 2008 to 2010. She said
this agrees with statements made by some companies that they
have had level spend to develop existing fields and are not
pursuing new finds or development of new fields. In response to
Co-Chair Feige, she confirmed that slide 10 depicts spending for
the entire state, not just the North Slope. She added that the
slide represents a 90 percent reporting of large and small
companies.
3:11:56 PM
MS. KEPPERS moved to discussion of the expenditures for
facilities and other capital expenditures [slide 11]. She
pointed out that many different costs are lumped into
facilities, as was outlined by Commissioner Butcher. Both
industry and the department recognized that this is a huge cost
category, but industry was unable to break down these costs fast
enough for the time allowed for doing this. She said this will
be better in the look forward and DOR will be able to provide
more definitive descriptive costs. In this look back,
facilities was the largest category of investment by all the
companies and there was some for new development and some for
replacement of aging facility operations. To make this a better
chart for study in the look forward, DOR has proposed five more
levels of categories to the industry: three separate levels for
facility categories; one for facility support costs, including
rate increasing facility costs and nonrate increasing facility
costs; and pipeline costs, including capital replacement cost
and normal capital cost.
3:13:37 PM
MS. KEPPERS turned to slide 12 and explained that DOR had a hard
time figuring out how to stay within the confines of
confidentiality requirements when splitting these total costs
into something usable. She said the department had wanted to do
costs by categories for the independents as well as costs by
those categories for the majors. However, for the independents
it was found that for 2008, 2009, and 2010, DOR could not meet
the aggregation rule of three companies or more. Therefore, DOR
could not break down these schedules by cost category, which
resulted in the big grey bars depicted on slide 12. Total
capital expenditure for independents over the five-year period
came in at $2.6 billion. Capital expenditure increased from
2008 to 2010 by approximately 67 percent.
MS. KEPPERS noted that the department also could not break down
these schedules by cost category for the majors, again resulting
in big grey bars as depicted on slide 13. The majors had an
aggregate capital expenditure of $6.7 billion for the five-year
period. The data indicated no major increases in overall
spending totals, particularly in the most years of 2008 through
2010 in which the increase was only 5 percent. She added that
going forward it is known that there will be more players and
more cost categories. The department will soon have the
information for 2011 for these five categories, she advised, but
for 2012 there will be a much greater level of detail.
3:16:18 PM
COMMISSIONER BUTCHER related the conclusions drawn from the
aforementioned information (slide 14): DOR now has more actual
information regarding oil and gas spending habits in the state
than ever before and is striving for more; capital expenditures
between 2007 and 2010 increased from approximately $2 billion a
year to $2.4 billion a year; explorers spent money mostly on the
drilling of wells and G&G; companies in the development stage
spent money largely on development drilling and facilities;
companies in transition spent money in multiple areas depending
on the stage they entered a project; companies in mature
production phase spent money on maintenance and upgrade of
facilities and development wells; and more players are active in
the field. This information does not tell much more than what
was already known, he continued, but it solidifies what was
suspected. He said the companies were at first a bit skeptical
of this process, but there was no push back and the companies
worked well with the department.
COMMISSIONER BUTCHER noted that calendar year 2011 will be the
last year of the capital expenditure look back and this
information is due from the companies by 3/31/12 (slide 15).
Additional workshops with industry will be held and moving
forward for calendar year 2012 the companies will know the
detailed categories that are to be included in their Annual Cost
Supplemental Information Report due on 3/31/13. This report
will include a breakdown of operating expenditures as well as
capital expenditures. Calendar year 2012 will be the first year
in which the department dictates to the companies how items are
to be separated out and compiled.
3:19:13 PM
MS. KEPPERS added that for the look forward, DOR has expanded
the list from five categories to a proposed list that is
currently four pages long. The department must pre-define what
goes into each category, which is an arduous task. She said DOR
has already held one workshop with industry and looks forward to
the next workshop at which the operating expenditure list will
be discussed. Basically, DOR is trying to merge the accounting
systems that are unique to each company and doing it the first
time is hard. She said this is an exciting time for DOR because
the department is able to actually compile something and look at
it. She thanked members for their questions, saying that they
made the department look, dig, and work with. A foundation
layer for historical data is being laid with the capital
expenditure and operating expenditure categories and this
foundation will at some point import into the revenue management
system. This opens up more and better information in real time,
which is important to legislators.
3:21:13 PM
REPRESENTATIVE P. WILSON asked whether legislators, once this
new system is in place, will be able to state what they would
like to accomplish and DOR will be able to suggest what needs to
be tweaked to make that happen.
COMMISSIONER BUTCHER replied that the Department of Revenue will
certainly have more information to look at for having such
discussions. When trying to assign tax credits to a particular
result, he pointed out that many of the tax credits that DOR is
presently paying out are to companies that are currently
exploring and doing business now. In 10 or 12 years the state
will probably be able to look back at this tax credit and say
that the credit did or did not do something. So, DOR will have
more information to have the discussion, but it may not be as
definitive as what would be liked.
3:22:22 PM
REPRESENTATIVE P. WILSON surmised that for the next time the
companies will know what categories they are expected to provide
information for.
MS. KEPPERS responded yes and said that at this point DOR has a
proposed list of categories that are defined. It is a matter of
meeting with the companies through a workshop to go through the
categories to see if those can be merged based on how DOR has
defined them. The state has an obligation to prescribe and
define and to give industry the guidelines it needs to follow.
The partnership in the workshops has worked effectively. She
pointed out that this is a huge, time-consuming task because the
state is talking with both the accounting and the tax
departments of the companies and in the larger companies those
are two totally separate divisions. The department must bring
those people together with what it knows, while keeping in mind
the kinds of information that legislators need to see, such as
trends and asking DOR for different kinds of analyses.
3:24:17 PM
REPRESENTATIVE P. WILSON inquired whether new regulations need
to be written and, if so, has that been done.
MS. KEPPERS answered that the Department of Revenue already has
the authority to prescribe and define.
COMMISSIONER BUTCHER, in further response to Representative P.
Wilson, explained that DOR has the right to do this under its
current regulations. However, the department never had the time
to ask these questions because it was trying to catch up on
regulations for the petroleum production profits tax (PPT) and
then regulations for Alaska's Clear and Equitable Share (ACES).
While examining whether regulations were needed, the Department
of Law determined that under DOR's current regulations these are
reasonable for DOR to ask. He added that in addition to the
accounting and tax departments mentioned by Ms. Keppers, DOR
must also work with the information technology departments
because it is not so easy to come in with a list of the 50
categories that DOR wants, especially for the smaller companies.
The department is working with the companies to try to make it
work for everybody without costing them millions of dollars to
implement.
3:25:44 PM
CO-CHAIR SEATON commented that this was stimulated by
Representative P. Wilson's bill about getting information
released. He asked whether there are any questions or any
categories of information that the state has the legal right to
receive that the companies have not been submitting. He further
asked what percentage of state credit is paid on the totals of
$2.6 billion for independent companies and $6.7 billion for the
majors, as depicted on pages 12 and 13. He said the department
could get back to the committee with the information.
COMMISSIONER BUTCHER agreed to do so.
3:27:09 PM
REPRESENTATIVE GARDNER inquired what the role of the global
financial crisis has been in the amount of capital expenditures
as opposed to just the role of the state's tax regime. She said
DOR could get back to the committee with this information.
COMMISSIONER BUTCHER agreed to do so.
3:27:45 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 3:28 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| CSHJR 26 Explanation of Changes.pdf |
HRES 2/13/2012 1:00:00 PM |
|
| CSHJR26 Work Draft Version I.pdf |
HRES 2/13/2012 1:00:00 PM |
|
| HJR26 Support Letter - Neidiffer.pdf |
HRES 2/13/2012 1:00:00 PM |
|
| HRES Dept. Rev 5 YLB 2.13.12.pdf |
HRES 2/13/2012 1:00:00 PM |
|
| HJR 26 Comments - Knudsen.pdf |
HRES 2/13/2012 1:00:00 PM |
|
| HJR 26 Comments - Randrup.pdf |
HRES 2/13/2012 1:00:00 PM |
|
| HJR 26 Comment - Churchill.PDF |
HRES 2/13/2012 1:00:00 PM |