02/11/2005 08:39 AM House W&M
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| HB71 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
February 11, 2005
8:39 a.m.
MEMBERS PRESENT
Representative Bruce Weyhrauch, Chair
Representative Peggy Wilson
Representative Max Gruenberg
Representative Carl Moses
MEMBERS ABSENT
Representative Norman Rokeberg
Representative Ralph Samuels
Representative Paul Seaton
COMMITTEE CALENDAR
HOUSE BILL NO. 71
"An Act relating to a credit for certain exploration expenses
against oil and gas properties production taxes on oil and gas
produced from a lease or property in the state; relating to the
deadline for certain exploration expenditures used as credits
against production tax on oil and gas produced from a lease or
property in the Alaska Peninsula competitive oil and gas
areawide lease sale area after July 1, 2004; and providing for
an effective date."
- MOVED CSHB 71 (W&M) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB 71
SHORT TITLE: AK PENINSULA OIL & GAS LEASE SALE; TAXES
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
01/12/05 (H) READ THE FIRST TIME - REFERRALS
01/12/05 (H) W&M, O&G, RES, FIN
02/11/05 (H) W&M AT 8:30 AM CAPITOL 106
WITNESS REGISTER
WILLIAM CORBUS, Commissioner
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 71
GARY ROGERS, Senior Auditor
Tax Division
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding HB 71
DAN DICKINSON, Director
Tax Division
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding HB 71
JIM COWAN, Geologist
Division of Oil and Gas
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding HB 71
PAT GALVIN, Leasing Manager
Division of Oil and Gas
Department of Natural Resources
POSITION STATEMENT: Answered questions regarding HB 71
ROBERT JEUTTNER, Administrator
Aleutians East Borough
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 71
ACTION NARRATIVE
CHAIR BRUCE WEYHRAUCH called the House Special Committee on Ways
and Means meeting to order at 8:39 AM. Representatives
Weyhrauch, Wilson, Gruenberg, and Moses were present at the call
to order.
8:39:07 AM
HB 71-AK PENINSULA OIL & GAS LEASE SALE; TAXES
CHAIR WEYHRAUCH announced that the only order of business would
be HOUSE BILL NO. 71 "An Act relating to a credit for certain
exploration expenses against oil and gas properties production
taxes on oil and gas produced from a lease or property in the
state; relating to the deadline for certain exploration
expenditures used as credits against production tax on oil and
gas produced from a lease or property in the Alaska Peninsula
competitive oil and gas areawide lease sale area after July 1,
2004; and providing for an effective date."
WILLIAM CORBUS, Commissioner, Department of Revenue, said he
wanted to make it clear that the administration strongly
supports this bill. The goals of HB 71 are to encourage
exploration on the Alaska Peninsula. He said that both large
and small companies will benefit by the incentives laid out in
the bill. He also sees economic benefits to the local
communities. He said that the legislation is part of the
administration's effort to encourage resource development.
CHAIR WEYHRAUCH said that HB 71 has been referred to four
committees, and that the House Special Committee on Ways and
Means has proposed a committee substitute.
REPRESENTATIVE Wilson moved to adopt the proposed committee
substitute (CS) HB 71, Version 24-GH1040\G Chenoweth 1/17/05, as
a work draft.
CHAIR WEYHRAUCH objected for discussion purposes.
8:42:02 AM
GARY ROGERS, Senior Auditor, Tax Division, Department of
Revenue, said he is responsible for auditing exploration tax
credits. He told the committee that oil and gas explorers get a
credit against their production taxes of 20 percent for
exploration wells that are more than three miles from existing
wells, and they get an additional 20 percent credit if they
explore wells more than 25 miles away from a unit boundary. A
third category is seismic exploration where companies can get 40
percent of exploration costs as tax credit when it is outside
the boundary of any unit of the state, he said. Producers can
use this credit against their tax liability or they can sell it
to other producers. Under existing law the work must be
performed between July 1, 2003, and July 1, 2007, he added.
8:44:01 AM
MR. ROGERS explained that producers can only get credit for
direct costs, and not from indirect expenses such as overhead,
administration, supervision, lease operating, and environmental
protection costs. He said that this bill extends the period for
this credit for the proposed Alaska Peninsula competitive lease
sale until July 2010, because that work can't start until after
the lease sale, and the current law will expire before that
time.
8:45:00 AM
JIM COWAN, Petroleum Geologist, Division of Oil and Gas,
Department of Natural Resources, deferred to Pat Galvin
regarding the leasing process.
PAT GALVIN, Leasing Manager, Division of Oil and Gas, Department
of Natural Resources, said he was available to answer any
questions regarding the leasing process.
REPRESENTATIVE GRUENBERG questioned if, legally, the
retroactivity clause is required on the last page.
DAN DICKINSON, Director, Tax Division, Department of Revenue,
said his belief is that all DOR is saying is that work that was
done before 2003 will qualify. He added that no one applied
prior to this date, but if they had done work, it would qualify,
and it is not the intent to make this extension for the Alaska
Peninsula more restrictive.
REPRESENTATIVE GRUENBERG said he "tends to agree."
8:48:59 AM
ROBERT JEUTTNER, Administrator, Aleutians East Borough, said the
Aleutians East Borough municipality has no problem with HB 71.
"We support it," he said. "The idea of new oil and gas
exploration on the Alaska Peninsula is very exciting to us." He
stated that oil exploration has been a topic of debate for years
because of the area's dependence on fisheries, but because of
the decline in the fisheries economy, "people have gotten
together." He said the Lake and Peninsula Borough, Bristol Bay
Native Corporation, the Aleut Corporation, and the Aleutians
East Borough "are all on line with this plan to go forward with
oil exploration and development, so any bill that is going to
offer incentives to help move it along to help create a
diversified economy, we're behind 100 percent."
8:52:03 AM
REPRESENTATIVE GRUENBERG said he had a question regarding line
15, on page 2 of the original bill which was deleted in the
committee substitute. He said the original bill defined the
limitations of the legislation to the 43 areas described in
Section 5, and with that limitation deleted, he expressed
concern that this would apply to a much broader area than
intended.
8:53:29 AM
MR. DICKINSON said that it is his belief that that was a
stylistic change only, and that he had spoken with the attorney
in DOL who said it didn't change the intent of the bill. He
said there was no intent to "broaden it beyond that area."
REPRESENTATIVE WILSON asked for clarification regarding page 5,
line 15 which says "as described in section a" in the committee
substitute. Going back to section a, it says "subject to the
terms and conditions of this section," she said, and "it doesn't
talk about specific areas."
REPRESENTATIVE GRUENBERG explained "that is a contingent
effective date; it requires that for the act to occur there must
be a condition precedent, and that means the Commissioner of
Natural Resources must find that certain legal requirements are
met, and that the sale has occurred." He added that it is a
technical requirement to notify the publisher.
8:56:14 AM
REPRESENTATIVE GRUENBERG read from a memo written on January 17,
2005, by Mr. Chenoweth in Legislative Legal Services: "I have
deleted references in the amendment...to section 5 of this
Act...to omit temporary law bill section references in the body
of permanent law." Representative Gruenberg said that he didn't
think the omission was appropriate here because the language is
not talking about a legal description. "Unless the entire
Alaska Peninsula is included in the legal descriptions in
section 5...they need to limit it to those areas in section 5,"
he stated. He added that he was not sure, and that an attorney
should be consulted.
CHAIR WEYHRAUCH said that he will ask Mr. Chenoweth to respond
to the committee on that issue.
REPRESENTATIVE GRUENBERG said that he did not want to hold up
the bill.
CHAIR WEYHRAUCH asked Mr. Dickinson if the tax credit is applied
to production tax before or after the economic limit factor.
MR. DICKINSON said that the total amount of tax due is
calculated, and then the credit is applied, so it has no bearing
on the calculation of tax liability.
REPRESENTATIVE WILSON referred to Mr. Chenoweth's memo which
said that "the change of the 'or' to 'and' on page 2, line 5 of
the measure as introduced allows for a doubling of the potential
cumulation of expenditures that may be claimed as credits from
the 40 percent maximum of current law to a possible maximum of
80 percent."
8:59:46 AM
MR. ROGERS said that "the way the tax credit works is that the
expenditure is either under [sub]section (c), which is 20
percent for a 3-mile well, or [sub]section (d), which is 20
percent plus 20 percent for a well that's both 3 miles and 25
miles from a unit, or under [sub]section (e), which is for
seismic which is 40 percent. So a seismic expenditure can never
be a well expenditure, and they can't be added together...so
there is no addition of 40 percent plus 40 percent."
REPRESENTATIVE WILSON said that the word "or" was exchanged for
"and".
MR. DICKINSON said the change was made because using the word
"or" would imply that a company could only get a tax credit on
one type of exploration. "The kinds of expenses you submit for
seismic work and the kinds of expenses you submit for well
[work] are different," because overhead costs are not included,
he said.
REPRESENTATIVE WILSON said it is confusing.
REPRESENTATIVE GRUENBERG expressed his confusion.
MR. ROGERS stated that "in line 1, you get 20 percent of the
expenditures that qualify under (c), or 20 percent of the
expenditures that qualify under (d), or both...and that cannot
exceed 40 percent. And then on line 6, paragraph 2...you can
get 40 percent for expenditures that qualify under (e), which is
seismic."
REPRESENTATIVE GRUENBERG said he understood but that an
uninitiated lawyer would read it wrong because it is highly
ambiguous. "I do think that it should be 'or'," he said.
MR. DICKINSON said that the important point is that "no
invoice...could be submitted under [sub]section (e) and under
the other [sub]sections." He said that costs for wells and
costs for seismic work are different expenditures, and that much
time was spent on this language. He said the attorneys were
concerned that if the word "or" was used it would mean that a
company could either choose credit for its seismic work or its
well work, but it could not apply for both credits - even if it
did both kinds of work.
REPRESENTATIVE WILSON asked "if there is no way that they could
turn in anything that's the same, then why not have 'or'?"
REPRESENTATIVE GRUENBERG said the language should be made
"absolutely clear" so that concerned parties "don't have to look
at some obscure committee minutes" for clarification.
MR. DICKINSON said this was discussed repeatedly. He said that
if the bill said "or," and a company did seismic work one year,
and then in the next year it did well work, the company may not
be able to apply for both types of credit. He said they may not
have achieved clarity and would like to make it clear.
9:07:46 AM
REPRESENTATIVE WILSON asked Mr. Dickinson if he means that if a
company is doing work in one phase they will not be excluded
from the credit when they move on to the next phase.
MR. DICKINSON said that is right, and no costs will occur
concurrently in both phases.
REPRESENTATIVE GRUENBERG requested that DOR attorneys make it
"crystal clear."
MR. DICKINSON said he will bring these points up with the
attorney next week.
REPRESENTATIVE WILSON asked that if the policy of getting tax
credit for different phases of exploration is "the current way
we do business."
9:09:38 AM
MR. ROGERS said that the way companies explore is by discrete
projects, one project might be a well and one might be seismic
work. He said they file a claim for each separate project, and
the claim is audited to make sure the costs aren't duplicated
between two projects. He added that it is "not so much phases
but it's projects."
REPRESENTATIVE WILSON asked if it is current policy that a
company can get a 40 percent credit for one project, and then
move on to a new project and then get another 40 percent credit.
MR. ROGERS said yes, as long as the conditions qualify under
law.
CHAIR WEYHRAUCH asked if the proposed amendment creates a
smaller or larger tax credit than the previous lease agreement.
MR. ROGERS answered that it is the same.
MR. DICKINSON said our intent was to provide the same credit,
while clarifying the language.
REPRESENTATIVE GRUENBERG requested a letter of intent which
flags the issues of concern for next committee.
CHAIR WEYHRAUCH said he will write a memo to the next committee.
REPRESENTATIVE GRUENBERG asked if the proposed language is
"triple checked" for errors.
MR. DICKINSON said we have worked with the DOL and DNR, and "it
is our belief that these are accurate."
CHAIR WEYHRAUCH closed public testimony.
REPRESENTATIVE GRUENBERG referred to the areas listed in the
bill and asked, "How much wiggle room does it give the
commissioner in adding additional lands?"
MR. GALVIN said that language is added to acknowledge that the
lease sale boundary may be smaller then what is proposed - it
will not be larger. He said that DNR starts with a proposed
boundary, and if there are areas within it that are found not to
be in the state's interest to offer then the area may be
restricted, but it can't be expanded.
REPRESENTATIVE GRUENBERG asked if it would be appropriate to say
that in the bill.
9:16:06 AM
MR. GALVIN said that statutes dealing with the leasing process
make that clear.
MR. DICKINSON said this is a stylistic question. It is not good
to put things in two places because when something is amended,
it needs to be amended twice, but he said, he will bring it up
with DOL.
CHAIR WEYHRAUCH expressed the need to take care of issues in
committee, not on the floor.
MR. DICKINSON said he doesn't think it would expand the area and
doesn't need to be restated.
9:17:43 AM
REPRESENTATIVE GRUENBERG asked the testifiers to address the
other potential problems raised in the Chenoweth memo. He said
that the bill refers to expenditures claimed as credit on oil
and gas produced from a lease sale after July 1, 2004, but the
authorization in the body of the bill refers to activity
occurring on or after July 1, 2003. Representative Gruenberg
asked if the date should be in the title.
9:19:19 AM
MR. ROGERS responded, "Actually we want to leave the title
because activity before the lease sale could qualify...if there
has been exploration prior to the lease sale. We didn't want to
change any of the dates in the bill other than extending the
period."
REPRESENTATIVE GRUENBERG said he doesn't want to hold up the
bill, but he wants to get the legal issues resolved. He asked
for a response regarding page 3, line 10.
MR. GALVIN said that the reference in this statute is the 25
miles from the boundary of the unit, and that is a separate
issue than the boundary of the lease sale area. He added that
the lease sale boundary is a completely separate designation,
and he believes that Mr. Chenoweth did not recognize the
difference between unit and sale boundaries.
REPRESENTATIVE GRUENBERG said that Mr. Chenoweth has the same
concern as Representative Wilson about the possible doubling of
the tax credit.
9:22:27 AM
REPRESENTATIVE WILSON moved to report CSHB 71(W&M), version 24-
GH1040\G Chenoweth, 1/17/05, from committee with individual
recommendations and the accompanying fiscal notes. There being
no objection, CSHB 71(W&M) moved from the House Special
Committee on Ways and Means.
CHAIR WEYHRAUCH said, "We will get the memo to the next
committee."
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
9:23 AM.
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