Legislature(2011 - 2012)SENATE FINANCE 532
03/14/2012 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB192 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 192 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
SENATE FINANCE COMMITTEE
March 14, 2012
9:04 a.m.
9:04:57 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:04 a.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Lesil McGuire, Vice-Chair
Senator Johnny Ellis
Senator Dennis Egan
Senator Donny Olson
Senator Joe Thomas
MEMBERS ABSENT
None
ALSO PRESENT
Senator Joe Paskvan; Senator Hollis French; Bryan Butcher,
Commissioner, Department Of Revenue; Dan Stickel,
Economist, Tax Division, Department of Revenue; Bruce
Tangeman, Deputy Commissioner, Tax Division, Department of
Revenue; Senator Cathy Giessel
SUMMARY
SB 192 OIL AND GAS PRODUCTION TAX RATES
SB 192 was HEARD and HELD in committee for
further consideration.
SENATE BILL NO. 192
"An Act relating to the oil and gas production tax;
and providing for an effective date."
9:06:48 AM
BRYAN BUTCHER, COMMISSIONER, DEPARTMENT OF REVENUE,
introduced himself.
Commissioner Butcher displayed the PowerPoint Presentation,
"Comments on CSSB 192; Presentation to the Senate Finance
Committee Department of Revenue (DOR) 3-14-12" (copy on
file).
Commissioner Butcher looked at slide 2, "Presentation
Organization."
-DOR position on bill and individual components of
bill.
-Comparison to the Alaska Clear and Equitable Share
Act (ACES) and CS HB 110 (FIN).
-Suggested improvements to bill.
Commissioner Butcher explained that his presentation would
outline the steps to achieving the governor's recommended
trigger point for oil tax revenue.
Commissioner Butcher discussed slide 3 "Components of CSSB
192."
-Progressive surcharge
-Allowance for production increases
-Gross minimum tax
-Petroleum information system
-Decoupling some oil and gas
Commissioner Butcher looked at slide 4, "CS SB 192: Changes
to progressive surcharge."
1. Changes the progressivity rate over $30 per barrel
production tax value from 0.4 percent to 0.35 percent.
2. Changes the trigger point that slows the rate of
progressivity to 0.1 percent, from $92.50 to $101.43
per barrel production tax value .
3. Changes the maximum production tax rate from 75
percent to 60 percent (would apply over $201.43 per
barrel production tax value).
4. Based on our Fall 2011 forecast, reduces revenue by
$125 million in FY 13, $230 million in FY 14, and $200
million per year in FY 15.
Co-Chair Stedman queried the definition of PTV.
Commissioner Butcher replied that Production Tax Value
(PTV) was the value of a barrel of oil that the tax was
applied to; after the operating expenses, capital expenses,
and transportation had been subtracted.
9:10:59 AM
Co-Chair Stedman requested an explanation of the PTV in
dollars. Commissioner Butcher replied that it would be
around $6 billion.
Commissioner Butcher discussed slide 5, "Effective
Production Tax Rates: ACES and CSSB 192 (progressivity
only)." He stated that the current price of oil was
approximately $120 per barrel; and there was a small
reduction in what the companies would pay to the State. He
furthered that the tax rate would be slightly lower under
CS SB 192 as the price of oil rose to approximately $240
per barrel.
Co-Chair Stedman noticed that the FY 12 numbers were being
used, and wondered why the capital expenditure (capex)
number was specifically $10.25. Commissioner Butcher
deferred to Dan Stickel.
DAN STICKEL, ECONOMIST, TAX DIVISION, DEPARTMENT OF
REVENUE, responded that the $10.25 capex represented the
deductible capital expenditures by the companies that had a
tax liability per barrel of taxable oil. He stated that
number came from Appendix D of the Revenue Sources Book,
and the total capital expenditures that were deductible in
FY 12 were approximately $1.8 billion. He explained that
the $1.8 billion was divided by the 176 taxable barrels to
determine the $10.25.
Co-Chair Stedman surmised that the rate was not the
homogenized rate of all producers, but the average rate of
the three major producers. Mr. Stickel replied that the
rate was the average price per barrel of those companies
that had a tax liability, who were able to deduct their
capital expenditures.
Co-Chair Stedman recalled that Exxon Mobil, ConocoPhillips,
and British Petroleum were the only three producers that
had a significant tax liability. He wondered if there were
any other producers that had a similar liability. Mr.
Stickel replied that multiple companies had a tax liability
in any given year.
9:15:30 AM
Co-Chair Stedman wondered what fields were represented in
the chart on slide 5, and specifically wondered if Prudhoe
Bay was included in the chart. Mr. Stickel replied that the
majority of the revenue was coming from Prudhoe Bay,
Kuparuk, and Alpine. He stated that if the companies had
operations in other fields, the capital expenditures would
be deductible by the companies, because the tax was
company-specific.
Co-Chair Stedman used Exxon Mobil as an example and noted
that they had substantial expenditures at Point Thompson,
and wondered if Point Thomson was included in the chart.
Mr. Stickel replied that if a company were to have existing
production in major fields, and then invest in a new field,
the costs would be deductible.
Co-Chair Stedman wondered if the total numbers from all
participants were used, would the tax percentages increase
or decrease. Mr. Stickel replied that if the averages from
all companies were used, including those that were not able
to deduct their expenditures, the curve would shift to the
right. The average price would be slightly higher. He
stated that the general trend between the two tax systems
would remain the same.
Co-Chair Stedman felt that the shift should be down or up,
based on the tax. Mr. Stickel agreed, but clarified that
the display was based on the west coast price per barrel.
In terms of displaying the graph on a production tax value
basis, the numbers would remain the same as what was
displayed.
Co-Chair Stedman requested further research regarding the
major fields versus the overall aggregate effect of every
company.
Senator Thomas looked at the title of the slide, and
wondered if the graph included the base tax. Commissioner
Butcher replied that the graph only displayed the
progressivity aspect, comparing current law and CS SB 192.
Co-Chair Stedman requested a definition of "effective tax."
Mr. Stickel replied that the effective production tax rate
was determined by total production tax paid, including the
base tax and the progressivity tax; but minus capital
credits. The effective tax looked at the ratio between the
net production tax received to the total production tax
value to determine the effective tax rate for production
tax after credits. He stated that the presentation was an
analysis each of the components of the bill, and slide 5
looked at the change in progressivity in CS SB 192. He
noted that the other components were modeled in separate
slides in the presentation.
9:21:54 AM
Co-Chair Stedman stressed that the graph did not isolate
other components in the bill. Commissioner Butcher affirmed
Co-Chair Stedman's observation.
Co-Chair Stedman noted that there was discussion regarding
the marginal tax rate, and wondered why there was not a 90
percent rate. Mr. Stickel replied that there were various
ways to determine the tax rates. He explained that the
effective tax rate looked at the total tax paid by the
companies divided by the total tax base. He clarified that
the marginal tax rate was determined by the tax paid on an
additional dollar of value. He stressed that the Alaska
Clear and Equitable Share Act (ACES) held a marginal tax
rate of 90 percent.
Co-Chair Stedman looked at a slide that showed Alaska North
Slope (ANS) west coast oil prices from 60 to 300 a barrel.
He understood that DOR had "frozen" capital and operating
expenditures, and were "sliding" the oil price. He wondered
why the graph was displayed in that manner. Mr. Stickel
replied that the intent of the slide was to present a
"snapshot" of one year (FY 12). He explained that if a
company had made their capital and operating commitments,
and if the price were to change from one level to another
over the short term, there would not be a significant
change in costs. He furthered that if there was a move to
$60 or $300 per barrel over the long-term, the cost of
business would change accordingly. The purpose of the
current presentation focused on the "snapshot" of the lease
expenditures.
Co-Chair Stedman anticipated a request that the "x-axis" be
lowered to $160 or $200 per barrel, which would be a more
"normal" range. He understood the value of looking forward
to $300 per barrel, but the operating and capital
expenditures look much different than the current level of
$100 per barrel. Commissioner Butcher agreed that there
would be a "lag" in the increase over time.
9:26:00 AM
Commissioner Butcher presented slide 6, "Progressive
Surcharge."
1. Changes do not do enough to provide a meaningful
change that would influence investment decisions.
2. The biggest benefit from this provision comes at
very high prices, from the change in maximum tax rate.
3. Suggestions:
-Keep the lower maximum tax rate; consider a 50% cap
on maximum rate.
-Consider a bracketed approach, so that higher rates
apply only to additional profit and not to the first
dollar of profit.
-Or, consider further reductions in slope of
progressivity to provide a meaningful change.
Commissioner Butcher looked at slide 7, "Allowance for
production increases."
-Describe allowance
-Revenue impact
-Examples
-Does not create an incentive that would alter an
investment decision
-Does increase complexity for DOR and taxpayers
-Suggestion: New field incentives, or provide
allowance by means of a credit
Co-Chair Stedman noted that North Dakota had a tax and
royalty system, and Alaska had a concession system. He felt
that a concession system could not be set up as simple as a
tax and royalty system. Commissioner Butcher agreed, and
did not suggest that Alaska follow North Dakota's system.
He stressed that the concession system was not "investor
friendly."
Commissioner Butcher discussed slide 8, "CS SB 192:
Allowance for production increases."
-Allowance for each additional barrel sent down TAPS,
over prior year's level.
-Effectively reduces PTV by $10 per additional barrel,
only for the base rate of 25 percent equals $2.50 per
additional barrel.
-Not part of production tax calculation; benefit is
calculated and refunded by DOR.
-Based on our Fall 2011 forecast, reduces revenue by
less than $25 million total for all companies, for all
years.
9:31:27 AM
Commissioner Butcher presented slide 9, "Allowance for
production increases: Example."
-Major producer with 200,000 barrels per day.
-Invests $1 billion per year to achieve modest decline
rate in legacy fields.
-Invests an additional $5 billion to develop several
marginal fields and in-field projects in legacy
fields.
-Increases production 5 percent to 210,000 barrels per
day, and maintains that level for several years.
-First year benefit is $9.1 million.
-Benefit in following years is ZERO.
Commissioner Butcher discussed slide 10, "Allowance for
production increases."
1. Allowance does not provide a meaningful change that
would influence investment decisions.
2. A very small benefit, for only one year, with no
benefit for maintaining production.
3. Mechanism requires DOR to track and calculate the
benefit.
4. Suggestions:
-Consider replacing this incentive with reduced tax
rates for new fields or incentives for in-field
development.
-If this concept is furthered, use a credit as the
mechanism as it would be easier to administer.
-If this concept is furthered, acknowledge that
maintaining production would be a significant
accomplishment for some producers.
Commissioner Butcher looked at slide 11, "Cs SB 192: Gross
Minimum Tax."
-10 percent gross minimum tax for certain fields.
-Applies only to units with over 1 billion barrels
cumulative production and over 100,000 barrels per day
in most recent year.
-Effectively applies only to Prudhoe and Kuparuk.
-"Hard floor" - credits cannot be used to reduce tax
for these fields below 10% of gross value.
-Also changes community revenue sharing provisions
-Based on our Fall 2011 forecast, increases revenue by
less than $25 million per year.
-At $40 per barrel, increases revenue by over $400
million per year.
Commissioner Butcher discussed slide 12, "Gross Minimum Tax
vs. Status Quo: FY 2013 ACES revenue with and without 10
percent gross floor for PBU/KPU." He stated that the graph
displayed the gross minimum tax versus the current law; and
production tax revenue in million dollars. He noted that
there was a small tax increase at the high end, but the low
end also showed a large tax increase to companies.
Co-Chair Stedman wondered what caused that tax increase at
the low end. Commissioner Butcher replied that it was
because the companies were required to pay taxes, and not
receive any credits. He stressed that when the price of oil
is so low, the amount of tax credits that a company
qualified for could surpass what the companies paid in tax.
He stressed that a company would always pay some taxes
regardless of what their tax credits might be for that
particular year.
9:35:13 AM
Co-Chair Stedman clarified that in FY 2012, the State had
granted approximately $400 million in tax credits, which
was half of the credits available. He stressed that the
credits erase the tax revenue, and could result in negative
tax revenue. Commissioner Butcher explained that CS SB 192
would increase taxes at the low end, and slightly increase
taxes on the high end.
Commissioner Butcher looked at slide 13, "Community Revenue
Sharing."
1. This bill impacts appropriations to the community
revenue sharing fund
2. Currently 20 percent of revenue from progressivity
3. Would change to lesser of:
-20 percent of progressivity revenue, or
-Difference between 25 percent of PTV from fields
subject to 10% minimum tax, and minimum tax for those
fields.
4. Maintains existing limit on revenue sharing: $60
million or the amount that brings fund balance to $180
million.
5. Increases complexity of the calculation, but not
likely to materially impact the amount of revenue
appropriated.
6. If this change ever would make a difference it
would be to the detriment of municipalities.
Co-Chair Stedman suggested clarity related to the reason
that PPT was "driven under water", he wondered how the
credits were handled and "carried forward." Commissioner
Butcher replied that DOR was able to work with the
committee to discuss the changes in each aspect of the tax
law.
Commissioner Butcher discussed slide 14, "Gross Minimum
Tax."
1. Provision will impact some companies at current
prices.
2. Provision creates a substantial tax increase at
lower prices (less than $60 per barrel).
3. Creates a disincentive to investment in Prudhoe and
Kuparuk, Alaska's most important fields.
-Including development drilling, expansions such as
new pads and facilities, and heavy oil development
4. Mechanism requires DOR to track and calculate the
benefit.
5. Suggestions:
-Remove this provision as it represents a tax
increase.
-If this concept is furthered, allow credits to be
applied against minimum tax so there is still some
incentive to invest at lower prices.
-If this concept is furthered, consider removing the
change to community revenue sharing language.
Commissioner Butcher looked at slide 15, "CS SB 192:
Petroleum Information System."
1. New information system to be implemented by AOGCC.
2. Operational before January 1, 2014.
3. Suggestions:
-Consider need in context of DOR efforts to make more
information available.
-Defer to AOGCC on challenges with this provision.
Co-Chair Stedman stated that the Alaska Oil and Gas
Conservation Commission (AOGCC) would be presenting to the
committee at a later date, and there may need some work on
the language in CS SB 192.
9:41:32 AM
Commissioner Butcher discussed slide 16, "CS SB 192:
Decoupling Some Oil and Gas."
1. Identical to SB 305.
2. Creates 2 separate progressivity calculations:
-Oil, Cook Inlet gas, and gas used in state.
-Gas other than Cook Inlet and used in state.
3. Allocates lease expenditures based on Gross Value
4. Revenue impacts:
-Less than $10 million per year prior to major gas
sale.
-Could increase revenue by over $1 billion per year
with major gas sale.
Co-Chair Stedman requested a definition "decoupling."
Commissioner Butcher replied that currently oil and gas was
combined, and this aspect of the bill would "decouple" the
oil and gas. He stated that if there was a major gas sale,
the State of Alaska could potentially bring less revenue
than it would from stand-alone oil taxes.
Co-Chair Stedman queried the magnitude of the current
dilution affect. Commissioner Butcher replied that the
dilution affect was approximately $80 million.
Co-Chair Stedman stressed that there was currently an $80
million dilution, without any gas sales. He pointed out
that if there were a large gas sale, the number would grow
drastically.
Co-Chair Stedman stated that the committee would continue
to work with DOR, and the discussion of decoupling oil and
gas would occur at the committee table.
9:44:15 AM
Co-Chair Hoffman queried DOR's position on the decoupling
component. Commissioner Butcher replied that the governor
had serious concerns with the proposed language in CS SB
192. He stated that DOR was working with Co-Chair Stedman
to develop language that would accomplish decoupling oil
and gas, while being more revenue-neutral.
Senator Olson queried the governor's position on
delineation between Cook Inlet gas and gas produced
elsewhere in the state. Commissioner Butcher agreed to
provide that information.
Commissioner Butcher looked at slide 17, "Comparison to
ACES and CS HB 110 (FIN)." He explained that the columns
showed the differences in progressivity, differences in
maximum tax rate, new production incentives, and a minimum
tax.
Co-Chair Stedman requested a brief history of HB 110.
Commissioner Butcher replied that HB 110 was Governor
Parnell's bill that was introduced during the previous
legislative session. He stated that he was referencing HB
110, because it would provide the administration's
perspective regarding substantive change in oil tax law.
Co-Chair Stedman requested the original submission of HB
110 to the comparison and graphing. Commissioner Butcher
agreed to provide that information. He noted that the major
components were the same, but had been smaller alterations
in the legislative process.
Commissioner Butcher discussed slide 18, "Effective
Production Tax Rates: ACES, CS SB 192, and CS HB 110
(FIN)." He stated that the graph referred to the fields
that were currently producing on the North Slope.
9:49:30 AM
Co-Chair Stedman noted some testimony from consultants that
stated that there did not need to be significant changes in
the current production tax structure. He felt that there
was a "spread" between the blue and red lines on the graph,
and consultants had suggested that the current problem was
with incremental increases. He wondered how that issue
would be rectified. Commissioner Butcher stated that DOR
disagreed with Pedro Van Meurs on that particular aspect of
the tax structure issue. He felt that the tax structure was
too high for current and future production.
Co-Chair Stedman noted that there was concern about the
incremental production over the 6 percent decline curve,
and the cost in capital dollars. He furthered that the
current tax structure, when price per barrel exceeded $100,
was a major problem.
Commissioner Butcher looked at slide 19, "ACES, CS SB 192,
and CS HB 110 (FIN): Impact of 10 percent gross tax." He
explained the setup of the graph. He noted that when the
price of oil drops, CS SB 192 would allow for the
percentage of the tax rate that a company would pay rises,
eventually reaching 100 percent.
Commissioner Butcher discussed slide 20, "Marginal
Government Take: ACES, CS SB 192, and CS HB 110 (FIN)." He
explained the setup of the chart displayed on the slide.
9:53:52 AM
Co-Chair Stedman wondered why the chart would not have
validity at $300 per barrel. Commissioner Butcher replied
that there would eventually be a cap, and there would be no
increase in government take.
Co-Chair Stedman felt that if the price of oil spiked to
$300 per barrel, capital expenditures and operating
expenditures would rise too rapidly. Commissioner Butcher
agreed.
BRUCE TANGEMAN, DEPUTY COMMISSIONER, TAX DIVISION,
DEPARTMENT OF REVENUE, remarked that a rapid spike from $40
to $140, would not allow enough time for capex to respond
to the sudden increase.
Co-Chair Stedman wondered how the time window was
calculated. Mr. Stickel replied that the tax was payable on
a monthly basis, which was based on the monthly share of
the annual cost. He furthered that taxes are paid each
month from the company, and the progressivity portion would
be calculated by the price and the production tax value in
the month.
Co-Chair Stedman stated that the tax was determined by the
monthly average, over a 12-month period. Mr. Stickel
affirmed. He stressed that the tax was a monthly tax, but
had an annual reconciliation.
9:57:04 AM
Co-Chair Hoffman looked at the lower end of HB 110, and
wondered why the administration was so set on bracketing,
rather than the current system under ACES or CS SB 192.
Commissioner Butcher stated that virtually every
jurisdiction used progressivity brackets. Because Alaska
did not have a progressivity bracket tax system, a company
would be discouraged from investing in Alaska. He explained
that the bracket system was similar to how the federal tax
system was set up.
Co-Chair Hoffman asked if the intent of the bracket system
was to act like every other jurisdiction. Commissioner
Butcher responded that the bracket system provided a
benefit to those other jurisdictions, and Alaska was not
taking advantage of that same benefit.
Co-Chair Stedman felt that the marginal tax rate could be
modified in numerous ways by changing the slope of
progressivity or the base tax. Commissioner Butcher
responded in the affirmative and that the marginal rate was
so high because Alaska did not have a bracket system.
Mr. Tangeman said that other jurisdictions had indicated
the State's tax system was not simple, and DOR had chosen
to stay with the $30 and chose to adjust the bracket and
cap.
Co-Chair Stedman asked if HB 110 came out of DOR.
Commissioner Butcher responded that HB 110 came from DOR
and the Department of Natural Resources (DNR).
10:02:21 AM
Co-Chair Stedman stated the consultants had declared that
if there was not much adjustment at the government take
number, the bracketing system would decrease the government
take. Therefore, something else needed to be adjusted to
maintain the State's revenue. He queried who received the
net cash flow between the state, the federal government,
and industry. He stressed that the focus should be on the
cash flow. Commissioner Butcher replied that if there was a
focus on maintaining the status quo, he agreed that some
other aspect needed to change.
Mr. Tangeman said that the "pendulum had swung out too far
under ACES" and the goal was to increase production by
reducing revenue to the state and giving more to producers.
Co-Chair Stedman commented that progressivity was intended
to neutralize the regressive tax structure. The legislature
was unable to base it on a rate of return. Commissioner
Butcher responded that DOR was comfortable with
progressivity, but felt that certain adjustments were
needed to the current tax structure.
Commissioner Butcher discussed slide 21, "Share of Profit
under ACES." He stated that the graph included the total
gross value of oil less the transportation costs and lease
expenditures, including royalty oil. He explained what each
line represented. He stressed that the State took in 56
percent, the federal government took 15 percent, and the
companies took 27 percent under current law.
Co-Chair Stedman asked for a clarification regarding the
federal tax. Mr. Stickel responded that DOR used a nominal
rate of 35 percent to determine the federal income tax. He
furthered that using nominal rates would simplify
comparisons to other jurisdictions.
10:07:49 AM
Co-Chair Stedman observed that it was hard to believe that
the federal government actually took 35 percent. He stated
that the consultants recommended a 75 percent take on our
existing fields and that there was concern that above 75
percent would be too much take for the state. His
understanding was that a big concern industry had was that
when the price of oil rose above $90 dollars a barrel the
companies' cut dropped considerably.
Commissioner Butcher stressed looking at the difference
between a reasonable government take and a reasonable
company take. He noted that when specifically looking at
company take, many companies felt saw greater company take
in jurisdictions outside of Alaska.
10:12:11 AM
Co-Chair Stedman stressed that Mr. Van Meurs suggested a 75
percent for what he perceived as our competitive
environment to justify his numeric to the committee.
Commissioner Butcher replied that Alaska was not
competitive in company take percentage-wise. Mr. Tangeman
furthered that PPT to ACES was not a huge "delta" when ACES
was introduced.
Co-Chair Stedman surmised that DOR suggested that the
government take should be 67 percent. Mr. Tangeman replied
that the government take should be whatever is appropriate
to make Alaska competitive.
Co-Chair Stedman wondered what price range oil should be to
make Alaska competitive. Commissioner Butcher replied that
the governor hoped to keep the rate between 60 and 80
percent.
Co-Chair Stedman felt that the administration should have a
similar perspective to Pedro Van Meurs. Commissioner
Butcher responded that there was no perfect tax rate
number. He stressed that conversations needed to occur with
the companies to determine the best tax rate.
10:17:19 AM
Co-Chair Stedman requested running the chart with the 35
percent tax, and adjust it at 25 percent and 20 percent.
Commissioner Butcher agreed to provide that information,
but wondered what the 20 percent would be based on. Co-
Chair Stedman replied that the 20 percent would be based on
"the wind."
Co-Chair Stedman wondered if the chart included the credit
from FY 12: $400 million. Commissioner Butcher replied in
the affirmative.
Co-Chair Stedman suggested that the numbers be determined
in a homogenized manner, which included the explorers and
all other companies. He noted that the slide represented
the three major producers, and felt that the rate from the
three major producers did not reflect the rate to the
treasury. Commissioner Butcher explained that the slide was
from the point of view of a company that had a tax
liability to the state.
Co-Chair Hoffman noted that much of North Dakota's land was
privately owned, and taxed by royalty to private owners.
He wondered how North Dakota could be a fair comparison to
Alaska. Commissioner Butcher stressed that it was difficult
to compare Alaska to other regimes, but furthered that it
was important that Alaska be competitive.
Co-Chair Hoffman wondered if there was a way to make a fair
comparison with other regimes. Commissioner Butcher replied
that there were different ways to make comparisons. He
stressed that North Dakota had more roads, more work days,
and an abundant work force.
Co-Chair Stedman felt that an important aspect of the
discussion was prospectivity of the hydrocarbon basin.
Commissioner Butcher agreed, and felt that a company would
be more likely to invest in a larger reservoir, rather than
a small reservoir.
10:23:55 AM
Co-Chair Stedman wondered if Alaska's hydrocarbon reserves
were equal to North Dakota. Commissioner Butcher replied
that Alaska was far in excess to North Dakota, and added
that Alberta was the only province or state that had
reserves greater than Alaska.
Co-Chair Stedman commented that North Dakota had
approximately 250 to 300 feet of shale oil, and Alaska had
approximately 1000 feet of shale oil. Commissioner Butcher
agreed, but added that it was anticipated that North Dakota
surpass Alaska in production.
Co-Chair Hoffman wondered how quick North Dakota would use
up their reserves. Commissioner Butcher replied that North
Dakota's reserves would decline, but were expected to rise
over many years. He stressed that North Dakota's reserves
would decline before Alaska's reserves decline.
Co-Chair Stedman suggested that DOR continue with their
presentation.
Commissioner Butcher looked at slides 21 to 23, and stated
that the slides made a comparison between the share of
profit. He stated that slide 21 represented the current
law, and slide 22 represented CS SB 192.
Co-Chair Stedman requested the slides in terms of dollars.
Commissioner Butcher agreed to provide that information.
10:28:47 AM
Commissioner Butcher discussed slide 24, "Suggested
Improvements."
-Bracketed progressivity.
-Lower cap on progressivity.
-Reduced tax for new fields.
-Increased credits for in-field drilling.
Commissioner Butcher discussed slide 25, "Bracketed
Progressivity."
-ACES and CSSB 192 apply progressive tax rate to the
entire production tax value.
-Tax on the first $1 of value can vary from 25 percent
to 75 percent (ACES) or 60 percent (CSSB 192).
-Bracketed approach applies progressive tax only to
the incremental value.
-Other jurisdictions with price progressive systems
use a bracketed approach.
-Companies have committed $5 billion under this tax
change.
Co-Chair Hoffman wondered if the bullet points on the slide
were prioritized. Commissioner Butcher replied that each
aspect was important, but felt that progressivity should be
the focus.
Co-Chair Hoffman noted two issues on progressivity:
bracketing and lowering the cap. He wondered which issue
was the focus. Commissioner Butcher replied that brackets
would have a substantial effect on investment, but putting
a cap on high prices would benefit investors.
Co-Chair Stedman remarked that the bracket system was
intended to fix a problem, and queried the problem.
Commissioner Butcher replied that the government was taking
a higher price of the profit share, and companies were
investing in places where they could receive a higher
return.
Co-Chair Stedman felt that the focus should be in solving
that problem not adjusting the tax structure. Commissioner
Butcher replied he was uncomfortable splitting the issues
apart.
Co-Chair Stedman stressed that the cash flow to the State
was the most important issue. Commissioner Butcher agreed.
Commissioner Butcher continued to discuss slide 25, and
felt that the bracketed progressivity would be a great
benefit to Alaska.
Commissioner Butcher looked at slide 26, "Bracketed
Progressivity: Marginal Tax Rate (Production Tax Post-
Credits." He stated that the graph displayed current law,
but in bracketed form.
10:33:07 AM
Co-Chair Stedman moved back to slide 25, requested a
discussion regarding gold-plating and excessive tax
credits. Mr. Stickel replied that the concept of gold-
plating was the inverse of a marginal tax rate.
Co-Chair Stedman stressed that gold-plating was a major
issue for the Senate Finance Committee to discuss.
Commissioner Butcher explained that it was a matter of
looking at numbers and exposure, and determining the
benefit to the State.
Co-Chair Hoffman wondered if gold-plating was a concern to
the administration. Commissioner Butcher replied that it
would be a concern if there was a situation that was
detrimental to the State of Alaska, without getting an
excessive corresponding benefit.
Co-Chair Hoffman surmised that DOR had concerns but no
solution. Commissioner Butcher stated that the discussion
was more conceptual, and would be happy to provide examples
regarding specific situations.
Commissioner Butcher looked at slide 27, "Bracketed
Progressivity: Effective Production Tax Rate (Post-
Credits)." He stated that the graph showed a slope, but
much more gradual than current law.
Co-Chair Stedman wondered what a simplified system, with a
tax on gross would look like to equate the same amount of
dollars in the tax structure. Commissioner Butcher agreed
to provide that information. Co-Chair Stedman furthered
that he would like that information to exclude royalties
Commissioner Butcher agreed to provide more specific
information. Co-Chair Stedman requested data regarding the
$120 per barrel intersect on the graph. Commissioner
Butcher agreed to provide that information.
Commissioner Butcher discussed slide 28, "Lower Cap on
Progressivity."
-Part of a bracketed or non-bracketed approach.
-Provides the "upside potential" companies need to
make investments attractive at higher prices.
-60 percent cap in CSSB 192 would only apply at prices
over $240 percent barrel.
-50 percent cap in CSSB 192 would apply at prices over
$140 per barrel.
10:40:42 AM
Co-Chair Stedman noted some discussion in the previous
committee regarding analysis of revenue from previous
fields. Commissioner Butcher agreed to provide that
information.
Commissioner Butcher looked at slide 29, "Lower cap on
progressivity: Effective Production Tax Rate (Post-
Credits." He explained that the black line represented 25
percent, the red line represented the reduction to 60
percent, and the blue represented a cap at 50 percent.
Co-Chair Stedman requested the government take analysis
with the slide. Commissioner Butcher agreed to provide that
information.
Commissioner Butcher discussed slide 30, "Reduced tax for
new fields."
-Provide a lower tax rate to incentivize new fields
over the life of the project.
-No fiscal impact for many years.
-Would apply primarily to production that is not even
in our current forecast - the state has "nothing to
lose."
Co-Chair Stedman felt that it was irresponsible to assume
that just because the money was not currently in the
reserves already, that it would not be missed in the
future. Commissioner Butcher agreed.
Commissioner Butcher looked at slide 31, "Reduced tax for
new fields: Effective Production Tax Rate (Post-Credits)."
He explained that the blue line represented new field tax
compared to current fields, which was approximately 10
percent less.
Co-Chair Stedman wondered what was used in the credit
analysis. Commissioner Butcher agreed to provide that
information.
10:46:25 AM
Commissioner Butcher discussed slide 32, "Increased credits
for in-field drilling."
-Existing 40 percent credit for well-related lease
expenditures outside North Slope.
-Recommend extending credit to include North Slope.
-Makes in-field development work more attractive to
companies.
-Improves economics of developing new North Slope
fields, and increasing production from existing
fields.
Co-Chair Stedman noted that consultants had stated that
Alaska had too many tax credits. Commissioner Butcher
replied that companies should have an opportunity to
express what the credits mean for their revenue.
Co-Chair Stedman felt that if a company was offered a 40
percent return on capital expenditures, there would be few
companies who would not encourage credits. Commissioner
Butcher agreed.
Commissioner Butcher looked at slide 33, "Increased credits
for in-field drilling: Effective Production Tax Rate (Post-
Credits."
Commissioner Butcher discussed slide 34, "Summary:
Effective Production Tax Rates: ACES, CS SB 192, and CS SB
192 with recommended changes." He explained that the black
line represented current line, the red line was CS SB 192,
and the blue line was the administration's recommended
changes for unitized changes with the new fields
represented by the dotted blue line.
Co-Chair Stedman requested the slide with non-unitized
fields represented. Mr. Stickel explained that the blue
line was more hypothetical tax structure.
Co-Chair Stedman would like to delete the dashed line, and
surmised that the red line represented the inclusion of all
companies. Mr. Stickel replied that the forecast did not
include tax liability being incurred from fields that would
qualify under the non-unitized fields for the next decade.
10:50:36 AM
Co-Chair Stedman noted the effect of the tax rate, because
that credits pull $400 million from the treasury. Mr.
Tangeman noted that the slide was from the tax-payers'
perspective.
Co-Chair Stedman felt that all impacts should be
considered, including tax credits. Mr. Tangeman replied
that there could be an additional slide representing a non-
producing, non-tax-payer would be irrelevant. The slide
would be geared toward the government perspective, rather
than a tax-payer perspective.
Co-Chair Stedman felt that the committee should not be
narrowly focused on the unitized fields, because the
financial impact to the state was the main concern.
Co-Chair Hoffman remarked that Pedro Van Meurs had focused
on the harvesting in the North Slope. He wondered if the
administration would still support the legislation, if
there was a significant discovery on the North Slope.
Commissioner Butcher replied that he benefit to the State
of Alaska would be minimal if there was a discovery on the
federal land in the North Slope.
10:54:02 AM
Co-Chair Hoffman noted that if there were major finds in
the North Slope, additional investment would occur.
Commissioner Butcher agreed that a discovery on the North
Slope would be beneficial to the investment climate. He
stated that there were other factors to consider, when
determining investment projections. He felt that DNR would
be able to conduct a better analysis.
Co-Chair Hoffman wondered if there were a major find off-
shore of the North Slope, would the administration would
still recommend HB 110. Commissioner Butcher replied that
the administration would still support HB 110, because
there could be more opportunities on state land, if the
investment climate were better.
Senator Thomas looked at slide 9, and wondered if there
could be further information regarding which projects would
cause the increases displayed. Co-Chair Stedman stated that
there would be a couple of days focusing on the slide
subject.
Senator Thomas wondered if there was some way to add an
incremental profit share similar to the incremental share
in the federal government, between the state and the
industry.
SB 192 was HEARD and HELD in committee for further
consideration.
Co-Chair Stedman discussed the following meeting's agenda.
ADJOURNMENT
10:58:09 AM
The meeting was adjourned at 10:58 AM.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 192 DOR Presentation 03.14.12.pptx |
SFIN 3/14/2012 9:00:00 AM |
SB 192 |