Legislature(2017 - 2018)BARNES 124
03/10/2017 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| Presentation(s): Department of Revenue - the Competitivness Review Board (o&gcrb) | |
| Confirmation Hearings(s): Alaska Oil and Gas Conservation Commission (aogcc) | |
| HB111 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| += | HB 111 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
March 10, 2017
1:02 p.m.
MEMBERS PRESENT
Representative Andy Josephson, Co-Chair
Representative Geran Tarr, Co-Chair
Representative Dean Westlake, Vice Chair
Representative Harriet Drummond
Representative Justin Parish
Representative Chris Birch
Representative DeLena Johnson
Representative George Rauscher
Representative David Talerico
MEMBERS ABSENT
Representative Mike Chenault (alternate)
Representative Chris Tuck (alternate)
COMMITTEE CALENDAR
PRESENTATION(S): DEPARTMENT OF REVENUE - THE COMPETITIVENESS
REVIEW BOARD (O&GCRB)
- HEARD
CONFIRMATION HEARINGS(S):
Alaska Oil and Gas Conservation Commission
Hollis French - Anchorage
Daniel Seamount Jr. - Eagle River
- CONFIRMATION(S) ADVANCED
HOUSE BILL NO. 111
"An Act relating to the oil and gas production tax, tax
payments, and credits; relating to interest applicable to
delinquent oil and gas production tax; and providing for an
effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 111
SHORT TITLE: OIL & GAS PRODUCTION TAX; PAYMENTS; CREDITS
SPONSOR(s): RESOURCES
02/08/17 (H) READ THE FIRST TIME - REFERRALS
02/08/17 (H) RES, FIN
02/08/17 (H) TALERICO OBJECTED TO INTRODUCTION
02/08/17 (H) INTRODUCTION RULED IN ORDER
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WITNESS REGISTER
RANDALL HOFFBECK, Commissioner
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Provided a presentation on the Oil and Gas
Competitiveness Review Board (OGCRB), Department of Revenue.
HOLLIS FRENCH, Appointee
Alaska Oil and Gas Conservation Commission (AOGCC)
Anchorage, Alaska
POSITION STATEMENT: Provided his qualifications and responded
to questions, as appointee to the Alaska Oil and Gas
Conservation Commission (AOGCC).
DANIEL SEAMOUNT, JR., Appointee
Alaska Oil and Gas Conservation Commission (AOGCC)
Eagle River, Alaska
POSITION STATEMENT: Provided his qualifications and responded
to questions, as appointee to the Alaska Oil and Gas
Conservation Commission (AOGCC).
LISA WEISSLER, Staff
Representative Andy Josephson
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented a side by side sectional
analysis/description of the committee substitute (CS), Version
N, for HB 111, on behalf of Representative Josephson, co-chair,
House Resources Standing Committee, sponsor.
ACTION NARRATIVE
1:02:50 PM
CO-CHAIR GERAN TARR called the House Resources Standing
Committee meeting to order at 1:02 p.m. Representatives Tarr,
Birch, Parish, Talerico, Rauscher, Johnson, Westlake, and
Josephson were present at the call to order. Representative
Drummond arrived as the meeting was in progress.
^PRESENTATION(S): DEPARTMENT OF REVENUE - THE COMPETITIVNESS
REVIEW BOARD (O&GCRB)
PRESENTATION(S): DEPARTMENT OF REVENUE - THE COMPETITIVNESS
REVIEW BOARD (O&GCRB)
1:03:25 PM
CO-CHAIR TARR announced that the first order of business would
be a presentation by the Department of Revenue on the Oil and
Gas Competitiveness Review Board, as requested by Representative
Johnson.
1:04:48 PM
RANDALL HOFFBECK, Commissioner, Department of Revenue (DOR),
informed the committee the Oil and Gas Competitiveness Review
Board was formed as a provision of Senate Bill 21, [passed in
the Twenty-Eighth Alaska State Legislature], and was charged
with two tasks. First, the board was to gather data and make
recommendations to the Alaska State Legislature concerning the
competitiveness structure of the state, not just on tax, but
also in areas such as regulatory and transportation issues.
Second, the board was to advise the legislature on its findings
regarding the state's fiscal system, labor pool, and regulatory
competitiveness. The diverse board seats the following members:
two members of the public who are not affiliated with the oil
and gas industry; three administrative department heads, one
each from the Department of Environmental Conservation (DEC) and
the Department of Natural Resources (DNR), and one from DOR; one
commissioner from the Alaska Oil and Gas Conservation Commission
(AOGCC); three oil and gas subject matter experts - a petroleum
engineer, a geologist, and a financial analyst; and two industry
trade group representatives. The board's initial, 93-page
report was delivered in March 2015, as a general competitiveness
overview and is available on the DOR web site. The focus of the
report was a compilation of existing data with minimal new
analysis, including a table which provided a high-level overview
comparing Alaska's tax system to that of other states.
COMMISSIONER HOFFBECK relayed that the next report was due in
January 2017 and was to be a review of the Cook Inlet tax
regime. However, Cook Inlet is in a transition phase after its
tax policy was rewritten under House Bill 247 [passed in the
Twenty-Ninth Alaska State Legislature], and a delay of the
report until January 2019 was requested from legislative
leadership. The board decided to use the available time to
compile and facilitate the early delivery of the required 2021
report, which is to be a comprehensive report covering the
state. Further, the board realized that by teaming with the
Alaska Oil and Gas Association (AOGA), the integrity of the
report would be acceptable to a broader sector of the
legislature. However, procurement issues arose, and AOGA has
contracted with the consulting firm of Wood Mackenzie to do an
overall review of the state's competitiveness, and the state has
contracted with the firm of Black and Veatch for a review of
similar scope and deliverables. The board will consolidate the
two reports and provide a comparative analysis to the
legislature. The reports have as yet to be delivered, and thus,
the board has not been able to begin the compilation.
Commissioner Hoffbeck said he expected there would be no
information available to the committee prior to its
deliberations on HB 111.
1:11:03 PM
REPRESENTATIVE BIRCH asked whether the commissioner has had an
opportunity to review the [upcoming] committee substitute (CS)
for HB 111, and whether the bill and the committee substitute
reflect the administration's position.
COMMISSIONER HOFFBECK noted that the bill is very different from
the bill introduced by the administration in [the Fourth Special
Session of the Twenty-Ninth Alaska State Legislature, which
occurred in 2016]; DOR has assisted the committee with the
structure of the proposed legislation, but it is not the
administration's bill.
REPRESENTATIVE BIRCH asked whether the CS is supported by the
administration.
COMMISSIONER HOFFBECK said administrative policy precludes
taking a position on a bill during the legislative process.
CO-CHAIR TARR questioned the effectiveness of the board, as it
was established without resources, and she suggested that if the
committee believes the board is important, then it may
reconsider staffing the board.
COMMISSIONER HOFFBECK added that DOR has also questioned
whether, without resources, the board has a purpose. Although
difficult to achieve without resources, the board as a whole
determined that it has a purpose, which could be achieved given
the appropriate resources. In response to Representative
Johnson, he reiterated why a report date has not been
determined.
^CONFIRMATION HEARINGS(S): ALASKA OIL AND GAS CONSERVATION
COMMISSION (AOGCC)
CONFIRMATION HEARINGS(S):
ALASKA OIL AND GAS CONSERVATION COMMISSION (AOGCC)
1:16:57 PM
CO-CHAIR TARR announced that the next order of business would be
the confirmation hearings for the Alaska Oil and Gas
Conservation Commission (AOGCC).
CO-CHAIR TARR announced that the committee would first hear from
Hollis French.
1:18:48 PM
HOLLIS FRENCH provided an overview of his work experience that
is relevant for being seated on the commission, paraphrasing
from a prepared statement, which read as follows [original
punctuation provided]:
I began work in Alaska's oil industry in 1979, when I
was hired as a bullcook on Shell Platform A in Cook
Inlet. I worked continuously on that platform for five
years. I was promoted from bullcook to roustabout in
1980, and a year later Shell Oil Company hired me and
trained me to be a production operator.
I became familiar with all aspects of offshore oil
production including water injection, power
generation, gas compression and oil separation and
shipping. We worked closely with drilling crews when
the rotary drill rig was running. We shipped pigs in
the oil transport line and proved custody transfer
meters. Every member of the crew was a firefighter as
well.
In 1984 I was hired by ARCO Alaska Inc. as a
production operator at the Kuparuk River Field on the
North Slope. ARCO had an aggressive training program
in place that moved operators through a half-dozen
positions at roughly six month intervals. I became
qualified to work every station in the plant:
waterflood, oil separation and shipping, gas lift and
compression, power generation, diesel production,
natural gas liquids handling and waste injection. I
was also assigned to Drill Sites, which entailed
monitoring and testing wells, and coordinating work
with wireline operations and drilling. I became versed
in one of AOGCC's primary missions by conducting
witnessed tests of each well's surface and subsurface
safety valves for AOGCC field inspectors. The top job
at that time for operators was to be assigned to the
control room as Board Operator. I worked approximately
fifty week-long shifts, at ninety hours per week, as a
Board Operator.
The performance reviews I received from ARCO were all
positive. Here is an example from 1991, just prior to
my being promoted to Lead Operator, a position created
that year to replace the company's foremen: "Hollis
exceeds expectations. Hollis' technical expertise,
maturity and leadership abilities make him uniquely
qualified for advancement into supervision."
In addition to my operator duties I was a member of
the Kuparuk Fire Brigade.
In 1992 I left the oil industry to go to law school.
1:23:15 PM
REPRESENTATIVE BIRCH asked what Mr. French considers to be the
most important role of the commission, for example, the key
aspects and responsibilities.
MR. FRENCH responded that the commission is focused primarily on
management of the state's enormous oil, gas, and geothermal
resources through conservation practices designed to provide the
highest possible level of recovery, while ensuring workers have
a high level of personal safety and protecting the fresh
groundwater of the state. Further, it is part of the
commission's mission to make sure that every owner is able to
extract their share of the resource, and he provided an example.
Along with staff engineers and geologists, as a public member of
the commission, he provides another set of eyes on issues.
REPRESENTATIVE RAUSCHER inquired of Mr. French, based on his
commission experience thus far, what changes he would like to
see occur or visions adopted.
MR. FRENCH said one action is the revision of the bonding
practices, which came as a recommendation from a legislative
audit dating back to 1991. The current practice is to collect a
$100,000 bond from a drilling company to ensure that the well
will be ultimately plugged and abandoned at the end of its
economic life. When the same company drills another well, the
state receives another $100,000 bond for the second well, which
is the bond for all subsequent wells the company may drill.
Thus, most companies operating in Alaska never post more than
$200,000 in bonds as a promise to plug and abandon however many
wells they drill. He said that the commission recognizes that
$200,000 is an insufficient amount to cover the cost of plugging
and abandoning a typical well in Alaska.
REPRESENTATIVE RAUSCHER asked how many wells have not been
closed appropriately, causing the state to pursue the company
for mitigation purposes.
MR. FRENCH answered that the legacy wells are the best example.
The wells were drilled by the U.S. Navy (USN) in the National
Petroleum Reserve-Alaska (NPR-A), circa 1940-1970. The wells
were not sufficiently plugged and abandoned when the drilling
company contracted by the USN pulled off the sites. He said
these wells have become enormous environmental and economic
headaches, despite the $50 million appropriated by the federal
government to clean up the well sites. Although these wells
stand as the dominant example of how not to manage an oilfield,
it's estimated that there are 750 wells in Alaska that are
neither abandoned nor producing, but are standing shut-in with
their ultimate fates unknown. Ten years ago, the number was
500, and it is now over 750, which is cause for concern by the
commission.
1:29:48 PM
CO-CHAIR JOSEPHSON noted that the experience the appointee
brings to the commission's public member seat is beneficial, but
not a prerequisite for serving.
MR. FRENCH pointed out that a statutory change was made to the
public membership qualifications: AS 31.05.009(3) directs that
the public member being seated must have "training or experience
that gives the person a fundamental understanding of the oil and
gas industry in the state." Therefore, some background in oil
and gas is necessary to assume this "very technical job," and
someone who has no knowledge of oilfield operations is prevented
from being appointed as a public member.
CO-CHAIR JOSEPHSON said there has been a "dust-up" on the Kenai
Peninsula regarding [hydraulic fracturing, also fraccing,
frac'ing, hydrofracturing or hydrofracking], and he asked about
both the risks and concerns for this practice and if public
notices are being provided in a fair and sufficient manner.
MR. FRENCH opined that the physical and environmental risks for
fracking in the affected area are extremely low. A tough set of
permit requirements is in place to govern the practice, and one
aspect of the permit requires notification of landowners within
a one-half mile radius of a site. The public is concerned about
the pollution of freshwater; however, the engineering being
applied should alleviate those concerns. Currently out for
public comment is a proposed regulation that would make fracking
permit requests immediately available for public review,
allowing 10 days for feedback and keeping residents informed of
what is being considered.
CO-CHAIR JOSEPHSON reported one concern is that industry is
allowed 30 days to review proposed fracking regulations and the
residents have only 10 days.
MR. FRENCH acknowledged that the proposal out for notice and
comment is to allow the public 10 days to review a regulation,
which, he estimated, can usually be read in about one hour.
1:35:15 PM
REPRESENTATIVE DRUMMOND asked when the governor appointed Mr.
French to the commission.
MR. FRENCH responded that the appointment was made in July 2016.
REPRESENTATIVE DRUMMOND established that this hearing is not for
a re-appointment but is an initial confirmation. She asked what
had been accomplished since Mr. French assumed the seat on the
commission.
MR. FRENCH recalled that permits have been received, reviewed,
and signed for nearly 300 workover permits and almost 100 new
wells. He offered that Hilcorp executives have expressed their
support for his confirmation. In further response to
Representative Drummond, he said workover permits cover actions
other than drilling new wells, such as moving the location of a
rig.
REPRESENTATIVE RAUSCHER queried how many permits have been
refused.
MR. FRENCH estimated zero permits have been stopped. He said
that the companies operating in Alaska know what they're doing,
and if the rules are followed, the permit is issued.
REPRESENTATIVE RAUSCHER concluded that the oil companies
understand the permits and realize the necessary steps to follow
and the due diligence required.
MR. FRENCH said the interesting aspect of a permit is often the
back and forth dialogue documented by the engineers on each
side, as they consider the best way to proceed with a project.
REPRESENTATIVE JOHNSON asked what process he would follow to
have a statute changed.
MR. FRENCH responded that he would bring issues requiring
statutory changes to the House Resources Standing Committee and
the Senate Resources Standing Committee.
REPRESENTATIVE PARISH questioned whether the commission requires
legislative action on any topic at this time.
MR. FRENCH responded no.
REPRESENTATIVE TALERICO asked if Mr. French has seen an
improvement in facility and personal safety within the oil and
gas industry.
MR. FRENCH recalled taking a tour of Point Thomson as a
legislator and being stunned to see the improvement in safety
practices that had occurred since he left the industry in 1992;
there has been a step up of safety measures in all areas.
1:43:07 PM
CO-CHAIR TARR opened public testimony on the confirmation
hearing of Mr. French. After ascertaining no one wished to
testify, public testimony was closed.
1:43:32 PM
CO-CHAIR TARR announced that the committee would next hear from
Daniel Seamount, Jr.
1:44:15 PM
DANIEL SEAMOUNT, JR., Appointee, Alaska Oil and Gas Conservation
Commission (AOGCC), said he has served on a public seat on AOGCC
for over 17 years and looks forward to another 6 years. He
provided personal history and directed attention to the
committee packet and his resume, biography, and letter of
interest provided, and reviewed highlights, which include: work
with 10 AOGCC commissioners and 5 governors; service in Alaska
for 25 years; industry service for 27 years in onshore and
offshore exploration and development in many parts of the world;
and extensive reviews of AOGCC orders and permits. Mr. Seamount
praised the AOGCC staff for their outstanding work in assisting
industry. He provided many details on work the commission has
accomplished during his service. He endorsed the appointment of
Hollis French as commissioner.
REPRESENTATIVE RAUSCHER asked what Mr. Seamount considers to be
his biggest contribution to the state, after 16 years of service
on AOGCC.
MR. SEAMOUNT answered that his focus has been to keep things
running smoothly and to maintain oversight of the operators to
ensure that they are adhering to state regulations and statutes.
The low number of blowouts compared to other oil production
states is notable, with only 17 in 60 years, versus North
Dakota, which had 17 blowouts in 6 months.
REPRESENTATIVE RAUSCHER noted the resume references to work
performed in the various areas of the state and said the
experience Mr. Seamount brings is appreciable.
1:55:02 PM
REPRESENTATIVE BIRCH observed there has been recent discussion
about the marketing of seismic data, and he remarked that DNR
may make seismic data in its possession available to enhance
exploration efforts. He asked whether seismic data is
effective.
MR. SEAMOUNT said seismic data has come a long way. There are
over 20 basins in Alaska that have oil and gas potential,
although only 2 have been productive, leaving a tremendous
amount of oil and gas left to be discovered, and seismic will
have a big part in future discoveries.
REPRESENTATIVE PARISH directed attention to the ongoing Cook
Inlet natural gas leak where 200,000-300,000 cubic feet per day
of natural gas is "bubbling away." He asked what the
legislature can do and what action the commission is taking
about the pipeline leak.
MR. SEAMOUNT advised the commission is divided, but the majority
opinion is that the authority over the leak is held by the
Department of Environmental Conservation (DEC) and the U.S.
Coast Guard (USCG), because "that gas has already been bought
and paid for; ... that gas belongs to somebody else now."
REPRESENTATIVE PARISH disagreed, noting that the gas was to be
"provided to Alaskan ... businesses and homes, and we capture
more of its economic value that way."
MR. SEAMOUNT expressed his personal confidence that the leak
will be stopped by May 2017.
REPRESENTATIVE TALERICO expressed his strong support for the
appointment of Mr. Seamount.
2:00:16 PM
CO-CHAIR TARR opened public testimony on the confirmation
hearing of Mr. Seamount. After ascertaining no one wished to
testify, public testimony was closed.
REPRESENTATIVE DRUMMOND expressed her support for the
appointment of Mr. Seamount.
REPRESENTATIVE WESTLAKE expressed his support for the
appointment of both Mr. French and Mr. Seamount.
REPRESENTATIVE PARISH requested that AOGCC members reexamine the
loss of hydrocarbons in Cook Inlet.
2:03:14 PM
CO-CHAIR JOSEPHSON made a motion to advance the names of Hollis
French and Daniel Seamount, Jr., appointees to the Alaska Oil
and Gas Conservation Commission, to a joint session of the House
and Senate for consideration. He reminded committee members
that signing the reports regarding appointments to boards and
commissions in no way reflects individual members' approval or
disapproval of the appointees, and that the nominations are
merely forwarded to the full legislature for confirmation or
rejection. There being no objection, the confirmations of Mr.
French and Mr. Seamount were advanced from the House Resources
Standing Committee.
2:03:44 PM
The committee took an-at ease from 2:03 p.m. to 2:11 p.m.
HB 111-OIL & GAS PRODUCTION TAX; PAYMENTS; CREDITS
2:11:46 PM
CO-CHAIR TARR announced that the final order of business would
be HOUSE BILL NO. 111, "An Act relating to the oil and gas
production tax, tax payments, and credits; relating to interest
applicable to delinquent oil and gas production tax; and
providing for an effective date."
2:12:01 PM
CO-CHAIR JOSEPHSON moved to adopt the proposed committee
substitute (CS) for HB 111, Version 30-LS0450\N, Nauman,
3/10/17, as the working document.
2:12:19 PM
CO-CHAIR TARR objected for discussion purposes. She stated the
intent of the co-chairs is to give the committee an opportunity
to review the CS and, following that, the bill would be held in
committee.
[A discussion ensued regarding the committee's development and
handling of the CS.]
2:19:50 PM
LISA WEISSLER, Staff to Representative Andy Josephson, directed
attention to a document, entitled "Comparison of HB 111 with
Committee Substitute Work Draft (Resources)," dated 3/9/17, to
point out the side by side analysis/comparison. The first
change is an addition of intent language such that contingent on
the passage of a fiscal plan, a substantial portion of the
outstanding transferable and production tax credit certificates
would be purchased.
CO-CHAIR TARR interjected that another vehicle for establishing
legislative intent could be brought via a letter of intent;
however, having the language included in the bill provides a
stronger message in which to outline a means to address the
existing debt.
MS. WEISSLER said the interest statement in Section 1 became
Section 2 in the CS ("Version N"), without change. Section 2 in
the original bill raised the minimum tax from 4 percent to 5
percent; Section 6 in Version N would set the minimum tax at 5
percent, when the average Alaska North Slope (ANS) price is $50
or more, and at 4 percent, when the average ANS price is less
than $50, and it would remove the variable minimum tax rate.
2:22:46 PM
The committee took an at-ease from 2:22 p.m. to 2:24 p.m. due to
technical difficulties.
[A series of intermittent technical difficulties caused
interruptions and some testimony was lost.]
CO-CHAIR TARR commented that changing the minimum oil tax to
reflect a benchmark rate of $50.00 per barrel was done in
response to industry to better reflect the current low-price
environment.
2:25:11 PM
The committee took an at-ease from 2:25 p.m. to 2:34 p.m. due to
technical difficulties.
2:34:04 PM
MS. WEISSLER returned attention to the comparison and said there
was a mistake in Section 2 of the original bill, which ended the
minimum tax for oil in 2022 when the net production tax for gas
was slated to change to a gross value tax. Version N makes the
necessary correction to apply the minimum tax to oil
indefinitely and end it only for gas in 2022. A new section to
AS 43.55.011 related to reducing the minimum tax below the floor
was not changed. In order to stop industry's use of the per
barrel tax credit in months that would reduce their tax, Section
7 of Version N would delete language in AS 43.05.011(q) and add
new language in AS 43.05.011 (j) that better addresses the issue
of the credits being applied in different months. [Indisc. due
to audio recording technical difficulties.]
REPRESENTATIVE RAUSCHER asked whether per barrel tax credits are
being applied in the same fiscal or calendar year.
MS. WEISSLER answered that credits have been allowed during the
same calendar year.
2:37:36 PM
The committee took an at-ease from 2:37 p.m. to 2:42 p.m. due to
technical difficulties.
2:42:34 PM
MS. WEISSLER explained that HB 111 initially proposed, in
Section [5], to change the North Slope carry forward annual net
operating loss (NOL) credit rate, as established under AS
43.55.023(b), from 35 percent to 15 percent for the purpose of
matching the production tax rate with the carry forward or NOL
rate. Currently, the per barrel credits added in by Senate Bill
21 [passed in the Twenty-Eighth Alaska State Legislature]
distort the 35 percent matching rates. Ms. Weissler referred to
testimony by legislative consultants related to carry forward
losses, and noted that another provision of HB 111 was to
eliminate cash credits for NOLs.
REPRESENTATIVE RAUSCHER paraphrased a quote from a consultant,
stating, "If you're not allowed to recover your costs, that puts
Alaska on the bottom of the competition scale around the world."
He noted that [the proposed change from 35 percent to 15
percent] represents a significant percentage drop.
CO-CHAIR TARR advised that the remainder of the presentation
should provide an understanding of how the consultant's
recommendation is being followed.
MS. WEISSLER restated the original intent of HB 111 was to
reduce NOLs to 15 percent and eliminate cash credits, which
would be "a very big hit to the independent producers." She
said the state seeks to keep independent producers operating in
Alaska; therefore, Version N, Sections 9 and 24-26, introduce
carry forward deductions. She continued, as follows:
We get rid of the net operating loss credits - people
carry the deduction forward. Now, typically that
would be 100 percent of someone's cost .... The issue
that we have here in Alaska is this distortion that we
refer to of a 35 percent tax rate with per barrel
credits and where the effective tax rate is lower than
that 35 percent. And so, speaking in the context of
major producers who have tax liability, if they came
to a point where they had a net operating loss that
was carry forward, where they got an uplift - and the
uplift, I should mention, and this will be in Section
26 of [Version] N, is 7 percent above the [U.S.
Federal Reserve System] rate - they'll get that
interest, they carry forward a hundred percent of
their net operating loss. However, when they accrued
that loss they would have only been paying an
effective tax rate of say 15, 17 percent. And so, to
... correct for that, ... because of our tax system,
it's being set at 50 percent of the net operating loss
carry forward, and that has the same effect as how the
original bill was written, ... taking 35 percent tax
rate, 15 percent net operating losses. So, ... that's
how this works.
For the major producers, it won't have a huge effect
... because they generally have tax liability; they
are able to take a hundred percent of their deductions
in a year. Now, we'll talk about the independents,
who don't have production, or the explorers. ...
They'll be able to carry 50 percent of their net
operating losses forward, they'll have the uplift -
this interest that will address the time value of
money - but they are getting 50 percent of their net
operating losses, where the major producers, who have
a tax liability, are getting a hundred percent. So,
this is essentially a policy call in terms of our tax
structure.
MS. WEISSLER pointed out that this structure has been set up in
an effort to level the playing field between majors and
independents, and she specified that the provision would apply
to operators only on the North Slope, not to those in Middle
Earth or Cook Inlet.
2:49:24 PM
CO-CHAIR TARR recalled the work session that included
information on the carry forward losses. By allowing the losses
to be carried forward, at the 100 percent level with the uplift
included, in seven years the value would be 200 percent. This
action represents a big commitment on the part of the state, she
opined, when an initial year investment, with interest, is able
to grow by 100 percent in value in seven years. A seven-year
timeframe is the acceptable time described for an oil project to
come on line. The effort here is to make Alaska attractive to
investors and to allow producers to recover 100 percent of their
losses and 200 percent of their investment over time. Other
considerations are to ensure that the state's tax policy is
sustainable, that it will allow the state to meet its
obligations, and that it will not result in a financial
circumstance of being overcommitted.
MS. WEISSLER, in response to Representative Birch, clarified a
portion of the language in Version N as described in the
comparison document.
2:55:12 PM
MS. WEISSLER returned attention to the comparison document, on
page 2, and said Section 6, removing the ability for taxpayers
to apply for purchase of NOL credits, remains the same and
appears in Version N as Section 11. She noted that Section 7,
with amendments to sliding scale per barrel credits, is found in
Section 14 of Version N.
CO-CHAIR TARR further explained that the current lower price
environment, which led to a change to the minimum tax, is also
reflected in changes to the per barrel credits. Currently, per
barrel credits "slide" from $8 to zero, which has been adjusted
down [from the highest oil price of $150 per barrel and above,
to $110 per barrel and above] to ensure the per barrel credit
can be applied in a lower price environment. The original bill
would have cut the credit to $5, which was deemed too extreme.
MS. WEISSLER explained that a dry hole credit was not previously
in HB 111, and now appears in Version N as Section 17. It is
designed to assist a company that explored in good faith but
realized no production. The language would allow an explorer to
take up to a 15 percent purchasable tax credit of exploration
expenditures incurred for drilling that results in a dry hole,
based on the following specific conditions: payment of all
service contracts; return of the lease to the state; proof the
explorer has no oil or gas production; and the expenditure is
not the basis for another credit claimed under the production
tax.
CO-CHAIR TARR added that the aforementioned measure was included
on the recommendation of the consultant to provide a means for
explorers that never see production to cover their costs.
MS. WEISSLER explained that Section 8, without change, became
Section 18 in Version N, and would amend the tax credit fund to
reflect the change that removes the ability for taxpayers to
apply for a cash payment for net operating loss credits.
Section 9, without change, became [Section 19] in Version N, and
would change the limit on cash payment of tax credits from a $70
million cap to a $35 million cap per company and limit
purchasable credits to companies with not more than 15,000
barrels per day production, which is down from 50,000 barrels.
She pointed out that this provision applies only to Middle Earth
[non-North Slope, non-Cook Inlet areas of the state], and to
qualified capital expenditure credits and well lease expenditure
credits.
MS. WEISSLER directed attention to Section 27, "Assignment of
Tax Credit Certificates," in Version N, which would repeal the
2013 statute that allowed for the assignment of production tax
credits to a third-party assignee. This provision is required
because a change in current statute that was intended to apply
to gas in Cook Inlet actually applied to the entire state; as a
result of the current statute, the state has been placed in the
position with banks holding credits, which Alaska must now pay
for in cash.
REPRESENTATIVE RAUSCHER asked if this measure will be
retroactive.
CO-CHAIR TARR replied no.
2:59:54 PM
MS. WEISSLER continued to Sections 20 and 21, "Tax Credit
Information," two new sections in Version N, which would allow
certain information related to tax credits to be made public,
and to Sections 3-5, "Confidential Tax Information," also new
sections of Version N, which would allow certain confidential
taxpayer information to be disclosed to legislators in executive
session in conformance with a signed confidentially agreement.
CO-CHAIR TARR informed the committee the foregoing language was
the same as was used [for House Bill 247, passed in the Twenty-
Ninth Alaska State Legislature] and was drafted with the
participation of the Alaska Oil and Gas Association (AOGA).
MS. WEISSLER continued to Section 26, "Net Operating Loss Carry
Forward," a new section in Version N which would direct the
Department of Natural Resources (DNR) to develop regulations to
establish a review process for agency preapproval of lease
expenditures that would generate a carry forward annual loss.
Finally, Section 28 in Version N would establish a legislative
working group to analyze the Cook Inlet fiscal regime.
CO-CHAIR TARR added that a Cook Inlet working group is needed to
review the tax regime in Cook Inlet; currently, there is a
dollar per barrel oil tax, but no gas tax, and the working group
will meet on this issue during the legislative interim period.
Membership in the working group is open to industry.
3:02:56 PM
CO-CHAIR TARR removed her objection to the motion to adopt the
proposed committee substitute (CS) for HB 111, Version 30-
LS0450\N, Nauman, 3/10/17, as the working document. There being
no further objection, Version N was before the committee.
3:04:28 PM
REPRESENTATIVE BIRCH asked for clarification on the uplift
provision in the bill.
CO-CHAIR TARR said the consultant recommended seven years as the
average timeframe for a project to come on line. There were
other options discussed, and the decision was made to use the
same interest rate that is applied to delinquent tax payments.
CO-CHAIR TARR said the upcoming hearing schedule on HB 111 would
be adjusted as necessary to accommodate forthcoming amendments.
[HB 111 was held over.]
3:06:17 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 3:06 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB111 Supporting Document - Alaska's Oil and Gas Competitiveness Report 2015 3.7.17.pdf |
HRES 3/10/2017 1:00:00 PM |
HB 111 |
| Seamount ReAppointment Thank you022317.pdf |
HRES 3/10/2017 1:00:00 PM |
|
| Seamount Resume0317.pdf |
HRES 3/10/2017 1:00:00 PM |
|
| Seamount Biography0317.pdf |
HRES 3/10/2017 1:00:00 PM |
|
| HB 111- CS Comparison.pdf |
HRES 3/10/2017 1:00:00 PM |
HB 111 |
| French Oil Field Experience_Redacted.pdf |
HRES 3/10/2017 1:00:00 PM |
|
| Resume Hollis French_Redacted.pdf |
HRES 3/10/2017 1:00:00 PM |
|
| Daniel Seamount, Jr. 2016_Redacted.pdf |
HRES 3/10/2017 1:00:00 PM |
|
| Seamount re-appointment request 2017_Redacted.pdf |
HRES 3/10/2017 1:00:00 PM |
|
| Hollis French_Redacted.pdf |
HRES 3/10/2017 1:00:00 PM |
|
| HB111 Version N 3.10.17.pdf |
HRES 3/10/2017 1:00:00 PM HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM |
HB 111 |
| HB 111- CS Ver N Comparison 3.10.17.pdf |
HRES 3/10/2017 1:00:00 PM HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM |
HB 111 |