Legislature(2011 - 2012)SENATE FINANCE 532
03/26/2012 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 |
SENATE FINANCE COMMITTEE
March 26, 2012
9:11 a.m.
9:11:23 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:11 a.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Dennis Egan
Senator Donny Olson
Senator Joe Thomas
MEMBERS ABSENT
Senator Lesil McGuire, Vice-Chair
Senator Johnny Ellis
ALSO PRESENT
Bryan Butcher, Commissioner, Department Of Revenue; Donna
Keppers, Audit Master, Tax Division, Department of Revenue;
William C. Barron, Director, Division of Oil and Gas,
Department of Natural Resources;
PRESENT VIA TELECONFERENCE
Merlin Wibbenmeyer, Independent Contractor, Department of
Revenue; John Larsen, Tax Division, Department of Revenue;
SUMMARY
SB 192 OIL AND GAS PRODUCTION TAX RATES
SENATE BILL NO. 192
"An Act relating to the oil and gas production tax;
and providing for an effective date."
9:13:14 AM
BRYAN BUTCHER, COMMISSIONER, DEPARTMENT OF REVENUE,
testified that the change from a gross tax to a net tax in
2006, as well as changes made to Alaska's Clear and
Equitable Share (ACES) in 2007, slowed the collection of
in-depth information and evaluation of current oil
activities on the North Slope. He shared that the
information had finally been compiled and divided into two
branches. One was a five-year review of activities on the
North Slope; the department had encountered difficulty in
acquiring the information because companies recorded the
data in categories and sub-categories that were difficult
to separate into necessary detail. The second branch
involved categorizing the information in an easily
understandable format. He relayed that the department had
entertained meetings and workshops with the involved
companies in an attempt to move forward as seamlessly as
possible. He believed that 2012 would be the first year
going forward that the detailed information would be
available, which would result in the availability of actual
necessary information by March 2013. He continued that the
attempt to fill the data gaps had strengthened the
Department of Revenue's (DOR) relationship with the
Department of Natural Resources (DNR) and the Alaska Oil
and Gas Conservation Commission (AOGCC). He explained that
DOR had compiled the information while implementing a new
tax revenue management system. The system would allow DOR
to integrate the more detailed categories immediately.
9:17:09 AM
DONNA KEPPERS, AUDIT MASTER, TAX DIVISION, DEPARTMENT OF
REVENUE, presented the PowerPoint Presentation: "Data
Assessment Project Access to Information." She pointed out
to the committee the Index on Slide 2:
•Project purpose and goals
•Accomplishments to Date
•Project Approach
•Five Focus Areas
•Cost Information Gathering Process
•Data Assessment - Over the Past Year
•Capital Expenditure Categories
•5 Year Look Back Overview
•Data Assessment - Next 15 Months
•Data Assessment - Future 2014 Forward
•Benefits of the Project
•Next Steps
•Handout List
•Industry Information Catalogue
•SB 192, Amendment 26 Comparison to Currently
Collected Data by Agency
9:18:10 AM
Ms. Keppers looked at slide 3," Data Assessment Project
Purpose and Objective":
Purpose: to establish the foundation of data types
required by the department for establishing a
centralized, reliable, secure, and automated database
of oil and gas production and tax information for DOR
to evaluate tax obligations, have efficient reporting,
have full compliance form producers/explorers, and for
data integration into more advanced information and
revenue management systems.
Objective: to assist in the design, development, and
implementation of standardized reporting forms from
industry leading to the development and implementation
of a standardized and automated collection of oil and
gas production volume, value, expense, credits, cost
forecasts and revenue information to address tax
related oil and gas economic, financial, and policy
issues and questions for the legislature, the Governor
and department.
Ms. Keppers testified that the project had been a valuable
exercise and that significant work had been completed over
the last year. She stated that DOR recognized that there
were levels of information that were necessary for informed
decision making; the department had captured the necessary
information in a standardized format. She relayed that
standardizing the information in order to collect it,
report it back, and analyses it was the first step in
setting up a new revenue management system.
9:18:21 AM
Ms. Keppers discussed slide 4, "Accomplishments Spring 2011
to Spring 2012." She stated that the accomplishments were
as follows:
· Gathered data, identified information needs and
sources.
· Completed Industry Information Catalogue - Handout
1.
· Focused on 5 Areas of oil and gas tax information
needs.
· Hosted 4 industry workshops to communicate goals.
· Requested and compiled 5-year look back (2006-2010)
of capital expenditures (CAPEX) by high level
category.
· Integrated, streamlined, and automated forms.
· Proposed work plan to obtain/report detail data for
FY12.
· Proposed work plan to integrate (sub ledger) oil and
gas accounting data into other information systems.
Ms. Keppers stressed the DOR's responsibility to correct
and clean-up any duplicate information in order to
streamline the flow of data.
9:21:51 AM
Ms. Keppers discussed slide 5, "Project Approach." The
slide listed the following approach:
DOR used and "integrated collaborative" approach among
DOR, DNR, AOGCC, industry, and other agencies to gather
current information.
· Identified current information received by DOR, DNR,
AOGCC and other oil and gas industry associated
agencies - "Industry Information Catalogue" -
Handout 1.
· Identified and cross referenced statute and
regulation requirements of data received and NOT
received.
· Reviewed past and current DOR information requests.
· Reviewed compliance level of responses.
· Identified type and format of information submitted
by companies (PDF's, Excel Spreadsheets, etc) for
documents, graphs, charts, displays, narratives,
spreadsheet data files.
9:21:53 AM
Ms. Keppers continued to slide 6, "Focus on Current Areas."
She stated that the areas that were the key sources of oil
and gas tax related information and reporting activities
were:
· Production Forecast Reporting
· Cost Forecast Reporting
· Monthly Information Reporting
· Credit Application Filing
· Annual Production Tax Return
9:22:31 AM
Co-Chair Stedman noted that there was a section of SB 192
that dealt at length with the collection of information. He
hoped DOR could work with the committee to draft agreeable
language into the legislation.
9:23:11 AM
Co-Chair Hoffman felt that audit analysis and time-frame
for receiving information should be included in the key
areas. Ms. Keppers replied that the issue could be
addressed.
9:23:37 AM
Ms. Keppers discussed slide 7, "Cost Information Gathering
Process." She discussed the following work plan:
· Conducted in house discussion and review.
· Developed CAPEX & OPEX Expense Category Lists.
· Conducted 4 workshops with industry.
· Industry responsive in both active participation and
written comments.
· Developed CAPEX 5 year look-back of high level cost
categories.
· Proposed forward-looking more detailed CAPEX and
OPEX cost categories - Handout 2.
9:26:10 AM
Ms. Keppers looked at slide 8, "Data Assessment to Date":
· Data Assessment Project accomplishments, forms &
processes.
· 5 Year Look Back effort - compiled baseline data.
· Annual Cost Supplemental Information Report, rev 1.
o Effective for CY 2011 tax reporting due March
31, 2012
o Uses high level look back CAPEX categories
o Filed by producers and explorers
· Near completion of Annual Production Tax Return
Ms. Keppers spoke to the issue of audits. She stated that
DOR had a 6 year statute of limitation to complete audits.
She explained that the process was large and complex;
considering the 6 year time period for completion, the tax
division should not be accused of being behind on the
audits. She reiterated that automatizing and standardizing
the information, collecting it in a timely manner and
putting it into an easy to read format would expedite the
auditing process. She relayed that the department had made
some accomplishments concerning form and processes and had
prescribed what was necessary according to statute. She
said that DOR had worked with industry to standardize data.
She furthered that some changes that had been made would be
effective in the current tax reporting year; the annual
cost supplemental information would be categorized in the 5
high level areas listed on Slide 9 and then added to the
look back effort.
9:31:40 AM
Ms. Keppers discussed slide 9, "Capital Expenditure
Categories":
· Look Back Categories for 2006-2010:
o Geological & Geophysical Work (G&G)
o Exploration Drilling
o Development Drilling
o Facilities
o Other Capital
· High level categories were used as a result of
workshop discussions with industry to balance the
department's information needs and the industry's
ability to respond in a short time frame for 5 years
of historical data.
· Categorized capital expenditure data provided
represents 90% of company reported capital
expenditures relating to credits.
9:32:07 AM
Ms. Keppers addressed slide 10, "5 Year Look Back (2006-
2012) Qualified Capital Expenditures":
· Another aspect of the Data Assessment Project
included the 5 year look back of qualified capital
expenditures into pre-defined industry compatible
categories.
· The pre-defined categories for the look back were
high level common categories used across the
industry to serve as a historical baseline for
analysis.
· For CY 2012 and forward tax reporting the department
has proposed expanded pre-defined more detailed
CAPEX and OPEX cost categories to the industry.
9:33:14 AM
Ms. Keppers discussed slide 11, "Data Assessment Next 15
Months":
· Host prospective Cost Information Workshops on
CAPEX\OPEX.
· Update Annual Cost Supplemental Information
Report, rev 2.
o Effective for CY 2012 reporting due March
31, 2013
o Uses more detailed categories following
additional workshops - April 2012
o Filed by producers and explorers
· Finalization of Annual Production Tax Return for
2012 reporting.
· Consolidating standardized forms to eliminate
duplicate reporting.
o Finalize oil and gas reporting processes,
definitions
o Compile 5 YLB historical cost data with 2012
cost data for analysis
· Complete the foundation and basis for data
integration with a Tax Revenue Management System
("TRMS").
· Refine proposed work plan to initiate development
and integration of standardized oil and gas
accounting information into a secured database
once the Tax Revenue Management System ("TRMS ")
project plans decisions advance.
Ms. Keppers stressed that there was a great amount of
baseline information necessary before the new system could
be implemented.
9:36:14 AM
Ms. Keppers looked at slide 12, "Data Assessment Future
July 2014 Forward."
· The project has defined what we need to do to
organize the oil and gas accounting information.
· TRMS project needs to establish the project
implementation plan in order for our project to
integrate into that system.
· After TRMS project implementation plan is
defined, the next step is to define how the oil
and gas accounting information will be
incorporated into TRMS and when it can begin.
9:37:06 AM
Ms. Keppers discussed slide 13, "Benefits of Data
Assessment Project":
· Proposed reporting definitions and automation
standards.
· Established reporting categories for qualified
capital expenditures categories.
· Obtained historical capital expenditure
information.
· Developed requirements to report cost categories
going forward in 2012.
· Identified potential for electronic data sharing
among associated agencies.
9:37:17 AM
Ms. Keppers continued to Slide 14, "Next Steps":
· Continued interaction with stakeholders to
complete identifying and defining more detailed
cost categories for both CAPEX and OPEX for 2012
tax reporting
· Complete standardization of forms, format and
content
· Automation of the standardizes forms
Ms. Keppers recognized the committee maintained the
expectation that more useful information would be made
available within the next year.
9:38:06 AM
Ms. Keppers referred to Slide 15, which listed the
handouts. She stated that the Industry Information
Catalogue was a compilation of information that DOR, DNR,
and AOGCC had received. She discussed the spreadsheet, "Oil
and Gas Information Disclosure in Alaska". The column
headers on the document signaled the following information:
· Type of Data
· Agency Receiving Data
· Statue/Regulation Authority
· Agencies with which Data May be Shared
· Reason for Data Submission
· Disclosure Timeframe
· Publication and Public Access
· Form of Reported Info.
· Data Provided By Source Agency
· Additional Data Needs of DOR
9:38:26 AM
Ms. Keppers relayed that while crafting the spreadsheet
workshops were held with industry. Research into DOR's tax
accounting system had revealed that the department had been
receiving the requested general information. She revealed
that DOR would need to request more specific information in
regard to lease expenditures and the form in which the
department received the information would need to be
standardized. She shared that companies often believed that
DOR was requesting redundant information. She conceded that
volumes of information had been given to DOR by industry;
however, the information could not be categorized because
it was not in a standard form. She said that it should not
be the role of the department to decide where the costs
should be categorized. She trusted that once the department
defined the categories industry could make the decision.
9:41:36 AM
Ms. Keppers stated that DOR had created a large matrix of
every piece of industry information that the tax division
had received. She stated that more specific information
concerning lease expenditures would be gathered through the
capital and operating expenditures (CAPEX & OPEX)
exercises.
9:42:34 AM
Ms. Keppers discusses the handout, "Proposed Master
Expenditures Categories List" (copy on file). She explained
that when DOR resumed workshops with industry in April 2012
the list would be reviewed in detail. Page 1 of the list
gave the CAPEX expenditure categories and accompanying
definitions. Working through the list with corporations
would define what information needed to be shared between
DOR and industry. Pages 2 through 4 listed OPEX
expenditures.
9:44:09 AM
Ms. Keppers addressed the handout, "SB 192, Amendment 26,
PIMS Data Requirements Comparison to Currently Collected
Data by Agency" (copy on file). She explained the handout
detailed the comparison of what was listed in the amendment
and what was currently collected by agency. The first
column listed individual items that may have been listed as
a single line item in the amendment. The second column
listed the information that could be found in the industry
catalogue; the third column listed the agency collecting
the information.
9:45:11 AM
Co-Chair Stedman wondered which items on the handout were
proprietary. He spoke to concerns that the requests in the
CS involved issues that were more complicated than they
appeared in the surface.
Commissioner Butcher replied that DOR had the
responsibility be very careful with proprietary
information. He said that the majority of information
requested in the CS was currently being collected. He added
that the determination of what information could be
released to the public would be determined on a case-by-
case basis.
9:46:54 AM
Ms. Keppers referred to the center column on the handout.
She stated that it had been discovered that four items
listed in the amendment had not been collected. She said
that the information could be collected with more
coordination with DOL&WD.
9:47:20 AM
Ms. Keppers stated that there was data collected among the
three agencies that was not identified in the amendment.
9:47:35 AM
Commissioner Butcher interjected that slide 17 touched on
the fact that 90 percent of the data requirements in the CS
were already being collected by the 3 agencies. Only 4 of
the 35 data items were not currently being collected, which
could be fixed through further coordination with DOL&WD. He
expressed concern that redundant information collection
would be financially inefficient. He said that over the
last year DOR had been the agency compiling all of the
information and would expand the search to the handful of
data items not currently being collected.
9:48:33 AM
Co-Chair Stedman pointed out that the handout listed 5 data
items that had not been collected.
9:48:41 AM
Co-Chair Hoffman referred to page 2 of the handout. He
queried why DOR had not collected information about
Production Work Programs and Production Work Program
Budgets.
9:49:08 AM
Co-Chair Stedman added that no information had been
gathered concerning Exploration Work Program Budgets.
Ms. Keppers understood that further collaboration with
DOL&WD would be necessary in order to collect information
at the level DOR needed.
9:50:05 AM
Co-Chair Hoffman noted that the missing information had
been previously requested by the committee. He expressed
disappointment that the data had not been made available to
the state.
Commissioner Butcher agreed to provide the information
following future conversations with DOL&WD. He explained
that the DOR had worked to identify all of the information
necessary in order to evaluate revenue issues. He admitted
that the department had failed to consider collecting the
information prior to the last year.
Co-Chair Hoffman wondered if DOR felt that gathering the
missing information was a worthwhile pursuit. Commissioner
Butcher replied that the information would have value to
the state.
9:51:40 AM
Co-Chair Stedman asked if DOR had been communicating with
DOL&WD the importance that the requested information
reached the committee expeditiously. He suggested that a
letter from the committee might expedite the process.
Ms. Keppers testified that DOR would work with the DOL&WD.
She said that to date the department had collaborated with
DNR and AOGCC on the commonality of information.
9:52:30 AM
Senator Egan referred to page 3 document. He understood
that DOL was receiving monthly reports concerning Oil and
Gas Employment Information and Training. He wondered why
DOR did not have access to the information.
Ms. Keppers stated that the area was one in which a gap had
been recognized. She assured the committee that the
department recognized that more work needed to be done with
DOL&WD in the area of information sharing.
9:53:24 AM
Co-Chair Stedman noted that the section of the bill that
spoke to the issue could be altered to reflect the
recommendations of the department. He thought the priority
moving forward should be to focus on the delivery of
information to the committee. Commissioner Butcher replied
that the department would provide specific recommendations.
Co-Chair Stedman added that the committee was not
interested in redundant information. He highlighted that
the concern centered on the flow of information to the
committee.
9:54:37 AM
Senator Olson expressed concern regarding abandoned wells;
wells that had been abandoned or that could no longer be
located. He understood that most of the wells were on
federal ground, but wondered why page 3, item (6)(A),
reflected that there was missing information concerning the
wells.
9:56:13 AM
MERLIN WIBBENMEYER, INDEPENDENT CONTRACTOR, DEPARTMENT OF
REVENUE (via teleconference), responded that the item
specifically referred to the budget information pertaining
to abandonment wells, leases, production, and
transportation. He stated that industry did not normally
provide the level of detailed information requested by the
department.
9:56:33 AM
Co-Chair Stedman understood that DOR requested expected
expenditure estimations from industry twice per year. He
said that the most current figures had been released to the
Senate Resources Committee in Summer of 2011. He queried
when the information would be introduced to the committee
for use in future discussions. He understood that industry
could have confidentiality issues when presenting
information to the legislature, but that the numbers the
committee received were in the aggregate, which made the
data difficult to parse. He assumed that the data would
vary, but thought it would be beneficial to the committee
to have a more fluid flow of information from industry in
order to craft sound policy. He stressed that the
substantial number of credits that affected the treasury
each year necessitated open-ended appropriations in order
to pay the credits as they were submitted.
9:59:30 AM
Commissioner Butcher replied that the department would
provide more frequent updates to the committee.
9:59:43 AM
Co-Chair Stedman clarified that receiving the information
in January was sufficient. He expressed concern that the
facts of the data had varied from one committee to the
next. He wondered how the problem could be alleviated.
10:00:20 AM
Commissioner Butcher replied that the department had been
examining the issue of inconsistent information. He stated
that for decades, the department had been too optimistic
with production forecasts. He felt that the issue had been
driven by overly optimistic industry projections. He
pointed out that there was a similar concern regarding the
capital expenditure forecasts. He explained that the
industry's capital expenditure forecasts had also been too
optimistic. He assured the committee that DOR was
researching the issue.
10:02:01 AM
Co-Chair Stedman wondered if the situation could work in
the opposite; could industry spend more than anticipated on
a year-by-year basis.
10:02:35 AM
Commissioner Butcher replied in the affirmative.
10:03:33 AM
Co-Chair Stedman asserted that the issue should be
frequently discussed in order to track potential capital
expenditures in the future.
10:04:24 AM
Ms. Keppers replied that the forecast information was
gathered twice per year by DOR's economic research group.
The first forecast arrived in October and was published in
the Revenue Source Book the first week of December. The
spring forecast was updated in January or February of the
following year.
10:05:08 AM
Co-Chair Stedman emphasized that there was always an
interest in the projected forecast and the actual numbers.
He shared that the change in the forecast was of interest
to the committee.
10:05:22 AM
Ms. Keppers agreed that the forecast to forecast analysis
was significant. She said that the department currently
received the information, but not at the level of detail
requested by the committee.
10:05:40 AM
Co-Chair Hoffman noted that the job of the committee was to
set tax policy during the legislative session. He opined
that there still seemed to be missing information. He
queried the current audit results for Alaska's Clear and
Equitable Share (ACES), and added that the audits were
unavailable as far back as 2007. He argued that informed
decisions on tax policy for the State of Alaska could not
be made without all of the pertinent information. He
wondered why the administration would ask the committee to
make changes in the tax structure without any of the audit
information. He added that the issue of abandoned wells
should not be ignored by DOR. He stressed that the
information collected by DOR should be shared with the
Department of Environmental Conservation (DEC), and the
situation should be under better control. He declared that
the state should be more aggressive in seeking the
information necessary to craft sound public policy.
10:07:55 AM
Commissioner Butcher stated that he agreed that the state
needed more information. He noted that 2006 was the most
difficult year to audit. The state had switched from a
gross tax to a net tax, while implementing dozens of new
regulations. He stated that DOR was working on 2007 and was
well within statutory guidelines. He said that providing
the information expeditiously was a priority for the
department. He shared that when the department received the
returns from the companies, a desk audit was performed to
assure the numbers looked accurate. He stated that a more
detailed audit was later performed in order to establish
the accuracy of the numbers to a higher degree. He said
that the department had not noticed any large errors in the
desk audits. He reiterated that the department had more
audits that needed to be done, but was not behind
statutorily.
10:10:50 AM
Co-Chair Hoffman accepted that the department was within
the timeframe provided under statute. He asserted that the
question still remained as to whether the credits were
working for the state or not. He reminded the committee
that consultants had testified that the state had provided
to too much in tax credits; the committee did not have the
information to fix the problem, and the department had
provided no recommendations.
10:11:21 AM
Commissioner Butcher said that half of the tax credits that
were paid out were to companies that were already
exploring, and that the department would not know for a
decade whether production had increased as a result. He
relayed that the companies themselves could give the
legislature better insight as to what the credits
accomplished than could DOR.
10:12:08 AM
Co-Chair Hoffman stressed that billions of dollars for the
state were at risk. He asserted that an understanding of
weather the credits were working or not should be a high
priority for the department.
10:12:35 AM
Commissioner Butcher agreed that it was the responsibility
of the department to provide sufficient information
concerning the issue to the committee. He qualified that
DOR was limited by an inability to foretell the future.
10:12:48 AM
Co-Chair Hoffman probed the various ways in which the
legislature could assist the department in gathering the
information.
10:13:09 AM
Commissioner Butcher reiterated that in 2006 the department
had been overworked by the implementation of regulations
for ACES and the Petroleum Production Tax (PPT). He felt
that the presentation reflected the level of detail the
department could provide concerning audits. He assured the
committee the department would provide more detailed
information in the future.
10:13:42 AM
Co-Chair Stedman expressed concern that the administration
would support an increase in oil tax credits without
considering consultants testimony that the credits
currently extended to industry were too large and had
caused a negative production tax at high oil prices. He
felt that DOR had not provided a reasonable analysis or
explanation for the credit increase. He noted that when PPT
was crafted, the 20 percent capital credit had been
targeted for increased production, but had instead gone
into maintenance.
10:16:07 AM
Commissioner Butcher solicited additional questions
concerning the presentation.
10:16:16 AM
Co-Chair Stedman concluded that there would be continued
work between DOR and DOL&WD on providing more detailed
information to the committee and the legislature.
Commissioner Butcher agreed.
10:16:59 AM
Commissioner Butcher stated that switching from a gross-
system to a net-system had allowed DOR to collect a higher
degree of data. He stressed that many agencies worked
together to gather the important information. He shared
that DOR was learning to work with each company's database
program.
10:18:07 AM
Co-Chair Stedman looked to page 1 of the Industry
Information Catalogue. He asked why the Joint Operating
Agreements were listed as "not public information." He
remarked that the chairman of the Senate Judiciary
Committee had cited the joint operating agreements during
public committee meetings.
10:19:34 AM
Commissioner Butcher deferred the question to the
department's tax division.
10:19:49 AM
JOHN LARSEN, TAX DIVISION, DEPARTMENT OF REVENUE (via
teleconference), stated that the joint operating agreements
were a confidential contract between working interest
owners. He explained that there were several types of
agreements: joint operating agreements and unit operating
agreements. He deferred further explanation to DNR.
10:20:57 AM
Co-Chair Stedman believed that DNR could clarify the
difference between the two agreements. He noted that
questions had risen during past meetings concerning the
operating agreements. He referred to the agreements as a
sort of "black box" which provided no answers.
10:22:00 AM
Senator Thomas wondered if the process of gathering data
was becoming more streamlined or more burdensome for the
department.
10:23:16 AM
Commissioner Butcher responded that the implementation of
the new tax management system would require increased
labor. He relayed that collecting the information would not
be labor-saving, but would provide more detailed
information.
Senator Thomas thought that the coordination between
departments and reformatting of information would alleviate
some of the redundant data.
Commissioner Butcher replied in the affirmative. He shared
that Legislative Audit had highlighted that the archaic
database programs used by the department had resulted in
auditors spending time manually entering information. He
believed the new system would benefit the department
greatly.
10:24:34 AM
Co-Chair Hoffman requested the time-frame for completing
the audits.
Commissioner Butcher replied that a time-frame could not be
provided.
10:25:14 AM
Co-Chair Hoffman wondered when the department would be able
to provide a time-frame in which the audits would be
complete. He contended that the information was critical in
discussion about revisions to the tax structure.
Commissioner Butcher responded that a snap-shot of where
DOR was in the process, and how fast the department was
getting caught-up, could be provided. However, the
department was hamstrung by the implementation of the new
database.
10:27:32 AM
Co-Chair Hoffman asserted that the committee would be
negligent to not make the audits a priority. He felt that
the committee had a fiduciary responsibility to the
citizens of the state to push the issue of the audits. He
implored DOR to establish a time-frame and report back to
the committee.
Commissioner Butcher understood; however, he could not give
and accurate time-frame.
10:28:58 AM
Senator Olson expressed discomfort discussing additional
tax credits for the industry without having seen the audits
in question.
Commissioner Butcher replied that more information was
always better. He noted that DOR and the legislature had
much more information now than when ACES and PPT were voted
on.
10:30:05 AM
Co-Chair Stedman interjected that much of the currently
available information was conflicting. He said that the
report from DOR when HB 110 was introduced had raised
numerous concerns on many levels, particularly the
department's direct involvement in a particular piece of
legislation.
10:30:50 AM
Co-Chair Hoffman referred back to the proposal in 2007 of
ACES by the administration. He stated that he had not felt
at that time that sufficient information had been provided,
which resulted in his vote against ACES. He reiterated that
a sound decision could not be made without the proper
information.
Commissioner Butcher replied that the detailed audits
through 2012 would have a minimal effect on the information
policy makers would need to make tax decisions. He said
that the department was basically going through and
"dotting I's and crossing T's." He argued that the detailed
audits would not provide information concerning necessary
changes in the tax structure.
Co-Chair Hoffman maintained that he did not have enough
information. Commissioner Butcher replied that DOR would
work to provide all of the requested information.
10:33:49 AM
AT EASE
10:44:20 AM
RECONVENED
10:44:51 AM
WILLIAM C. BARRON, DIRECTOR, DIVISION OF OIL AND GAS,
DEPARTMENT OF NATURAL RESOURCES, addressed a question
regarding joint and operating unit agreements. He stated
that he did not have the information, but would address the
issue at a later date in a letter to the committee.
10:45:35 AM
Mr. Barron presented a PowerPoint Presentation, "Senate
Finance Committee, 26 March 2012" (copy on file).
10:45:47 AM
Mr. Barron discussed slide 2, "Outline of Presentation":
· Land Disposition
· Land Management
· Facility Capacity Access
10:45:52 AM
Mr. Barron continued to slide 3, "Land Management: Life of
Lease," which illustrated the current state process for
land disposition and management. Parties could acquire
access to state land in two ways: through an exploration
license, or through an area-wide lease sale. Once the lease
was issues there was a primary term for exploration and
during that time-frame parties were expected to explore the
land to prove moveable hydrocarbons. If no moveable
hydrocarbons were found within the time-frame, the acreage
would be made available for the next lease sale. In the
event that moveable hydrocarbons were found, a unit would
be formed under careful state direction concerning work
programs and expectations for the first five years of
development. He stated that if no significant production
occurred after five years, the unit would terminate, and
the land would be returned to the state for resale. If the
unit proved successful it would be deemed a Participating
Area (PA). He noted that he leased under discussion before
the committee were in the PA stage.
10:47:47 AM
Co-Chair Hoffman wondered why there was no time frame
addressed for exploration during the primary term. Mr.
Barron replied that the question would be addressed further
into the presentation.
10:48:33 AM
Mr. Barron addressed slide 4, "Alaskan Area-wide Leasing
System.": He stated that the area-wide lease sale was
primarily the largest function of land disposition used by
the state, and covered areas where:
· limited or no data exists regarding actual
resource potential
· some basins have shown production or promise
Mr. Barron cited the North Slope Foothills as a primary
area of interest in an active basin. He continued that new
rental rates would provide a mechanism that would encourage
timely exploration and development without the additional
administrative burden to State. He said that during the new
ten-year time-frame, the leaseholder would retain exclusive
rights to explore the land. He shared that the leasing
system was a product of U.S. Oil and Gas law; it relied on
the highest bidder and was non-discriminatory. He explained
that the state could impose work committees and special
terms in lease sales (AS 38.05.035(h)) which typically
occurred when the state was aware of a higher probability
of known hydrocarbons in an area.
10:51:17 AM
Co-Chair Hoffman requested the imposed work commitments for
the prior 5 years. Mr. Barron agreed to provide the
information.
10:51:41 AM
Mr. Barron added that the state did not typically impose
work commitments. Current statute required the state to
provide expectations to companies concerning he lease, not
vice-versa. Mr. Barrons continued to slide 5, "Current
Lease Terms." He relayed that in primary producing areas,
i.e.; Cook Inlet and the North Slope, were currently
bidding out at a minimum of $25.00 per acre. The rental for
the first seven years was $10.00 per acre and jumped to
$250.00 per acre in years 8, 9, and 10.
10:52:11 AM
Co-Chair Hoffman questioned if the rates had been
established under statute, and queried the date of their
last review. Mr. Barron replied that the rates had not been
established under statute, rather by the Division of Oil
and Gas. The division reviewed the rates on an annual
basis. He clarified that the terms in the presentation were
first used in 2011 for the North Slope lease sale. He said
that between the years 2002 and 2005, the lease term was
for seven years, between 2006 and 2009 the term varied
between five years and seven years; depending on the area,
and between 2009 and 2011 it varied between seven years and
ten years. The division had recognized over time that five
years did not seem to be enough time because of the short
drilling and exploration season. The division had
established that 10 years was a reasonable maximum amount
of time. He said that the jump to $250.00 per acre at the
eight year mark gave companies the choice to make a
business decision after seven years at a significantly
lower rate. He cited the example on slide 5:
Lease term expenditures
(20 tracts/5,760 acres each)
¾Minimum bonus bid for land is $25/acre
¾20 tracts at 5760 acres multiplied by $25
equals $2.88 million
¾Rentals: $10/acre equals $1.15 million each
year in annual rentals years 1 through 7
¾Rentals: $250/acre equals $28.8 million each
year in annual rentals years 8 through 10
10:56:05 AM
Mr. Barrons shared that the idea was to get companies to do
the work within the first seven years or pay the elevated
rate for years 8, 9, and 10.
Senator Olson asked how the state's lease terms compared to
terms on federal land. Mr. Barron replied that leases on
federal lands were much lower.
10:56:36 AM
Co-Chair Stedman concluded the meeting with housekeeping
information.
ADJOURNMENT
10:57:03 AM
The meeting was adjourned at 10:57 AM.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 192 12 03 26 M26 PIMS Data vs Currently Collected.pdf |
SFIN 3/26/2012 9:00:00 AM |
SB 192 |
| SB 192 12 03 26 SenFin AK Industry Information Catalogue V1.pdf |
SFIN 3/26/2012 9:00:00 AM |
SB 192 |
| SB 192 12 03 26 Proposed Master Expenditure Categories List V1.pdf |
SFIN 3/26/2012 9:00:00 AM |
SB 192 |
| SB 192 12 03 26 SenFin Data Assess Project V11 Draft (BT).pdf |
SFIN 3/26/2012 9:00:00 AM |
SB 192 |
| SB 192 032312 Response to 030512 Questions.pdf |
SFIN 3/26/2012 9:00:00 AM |
SB 192 |
| SB 192 DNR Presentation 032612.pdf |
SFIN 3/26/2012 9:00:00 AM |
SB 192 |