Legislature(2015 - 2016)SENATE FINANCE 532
01/27/2015 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Oil and Gas Tax Credits | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
SENATE FINANCE COMMITTEE
January 27, 2015
9:01 a.m.
9:01:52 AM
CALL TO ORDER
Co-Chair MacKinnon called the Senate Finance Committee
meeting to order at 9:01 a.m.
MEMBERS PRESENT
Senator Anna MacKinnon, Co-Chair
Senator Pete Kelly, Co-Chair
Senator Peter Micciche, Vice-Chair
Senator Click Bishop
Senator Mike Dunleavy
Senator Lyman Hoffman
Senator Donny Olson
MEMBERS ABSENT
None
ALSO PRESENT
Janak Mayer, Partner, enalytica; Nikos Tsafos, Partner,
enalytica.
SUMMARY
^PRESENTATION: OIL and GAS TAX CREDITS
9:03:02 AM
JANAK MAYER, PARTNER, ENALYTICA, introduced himself. He
announced that the current legislative session was his
fourth consecutive session. His expertise had been utilized
for oil and gas tax reform; and most recently for the
Alaska Liquid Natural Gas (AKLNG) project. The prepared
documents on the day's agenda: background on oil prices,
and the fundamental causes for the movements in the market;
and the impact of the lower oil prices on the tax credits
within Alaska's production tax system.
Co-Chair MacKinnon clarified that her last name is
currently "MacKinnon."
NIKOS TSAFOS, PARTNER, ENALYTICA, shared that he had worked
for ten years as a consultant for ten years with a number
of companies, with a focus primarily on gas marketing
commercialization. He had also worked broadly on energy
economics. He discussed the PowerPoint, "Impact of Oil and
Gas Production Tax Credits at Low Prices" (copy on file).
The presentation was intended to understand the oil market
by outlining his process for evaluating the market.
9:05:32 AM
Mr. Tsafos looked at slide 2, "Oil Price Drop: Higher
Supply and Weaker Demand." The greatest recent issue in the
oil market was the boom in oil production in the Lower 48.
He pointed to the left chart and stated that the United
States added almost 5 million barrels a day of additional
production since January 2010. The world market was
approximately 90 million barrels per day, so adding 5
million barrels per day had significant impact. However,
there seemed to be occurrences such as accidents, civil
wars, or matters of policy that restricted oil production
in other parts of the world. The red line in the left chart
represented the additional barrels from the U.S. The green
line represented the unplanned outages. The sudden uptick
of the green line represented the civil war in Libya, which
took some oil of the market. There was also a civil war in
Syria, so that oil was off the market. The U.S. and its
allies tightened sanctions on Iran, so some of the Iranian
crude oil came off the market. He stressed that the boom in
the U.S. production did not have a benefit in pricing,
because of the counter oil production loss in other parts
of the world. The middle chart represents the global oil
production. In 2010 and 2011, there was very little
production growth, but 2012 saw increased production. There
was very little production growth from 2012 to 2013. He
stressed that with each U.S. addition, there was a
reduction in another part of the world. There was a
remarkable increase in production from 2013 to 2014 of
approximately 1.5 million barrels by the time the outages
halted, and other oil was added to the market. The oil
price decline occurred in the first six months of 2014. The
final chart represented the forecast for oil demand,
provided by the International Energy Agency, which was part
of the Organization of Economic Cooperation and Development
as a forum for developed countries to coordinate energy
policy. The forecast for January 2014 showed that the
market would grow by 1.4 percent. He pointed out that the
sudden decline was a result of Chinese development slowing
down, quantitative easing from the federal government,
crisis in the Euro zone, and other broad economic news.
9:11:29 AM
Mr. Tsafos continued to discuss the right-hand graph on
slide 2. He remarked that it was a 90 million barrel a day,
so approximately 900,000 barrels per day is lost,
reflecting a 1 percent decrease. In 2015, there was a 0.5
percentage loss. The supply that was previously flat was
growing by 1.5 million barrels per day. The demand
expectation, which was robust, had decreased by 1.5 million
barrels per day. The combination was the reason for the
extraordinary decrease in the price of oil, from a
fundamental perspective. Excess supply and bare demand
occurred at the same time, which applied great pressure to
the oil price.
Senator Hoffman wondered when the FY 15 forecast ended. Mr.
Tsafos replied that each month represented the forecast for
each year, as it devolves with each month.
Vice-Chair Micciche commented that there was growth, but
lower than predicted growth.
Co-Chair MacKinnon surmised that the United States was
benefitted from increased production, and the rest of the
market was unaffected. The world chaos had great impact on
the price of oil, and the other markets were back on line
with the U.S. production. More oil was available in a
relatively weaker global market. Mr. Tsafos responded that
the U.S. was benefitting from the increased oil production,
however there was no benefit of cheaper oil. He stressed
that the consumers still pay international prices. The
refiners were finally able to arbitrage between cheaper
U.S. oil and more expensive internationally priced
products.
9:16:08 AM
Senator Dunleavy wondered if Iraq was producing at its peak
production, or had its civil war scaled back production.
Mr. Tsafos replied that there were two ways to answer that
question. He stated that there was a hope for Iraq three
years prior, but Iraq as currently far off of peak
production.
Senator Dunleavy surmised that Iraq was off of peak
production potential. Mr. Tsafos agreed. He stated that
Iraq felt that they should be producing as much as Saudi
Arabia.
Senator Dunleavy stated that Syria was not at peak
production. Mr. Tsafos agreed.
Senator Dunleavy wondered if Libya was at peak production.
Mr. Tsafos replied in the negative.
Senator Dunleavy asked if Iran was at peak production. Mr.
Tsafos replied that Iran was not at peak production,
because of the sanctions.
Senator Dunleavy remarked that there were a number of large
producers that were not at peak production, but the price
was driven down by over-supply. He surmised that the price
of oil would be driven down even further, because of the
greater supply. Mr. Tsafos replied in the affirmative.
Senator Dunleavy stated that there were many oil
predictions that showed an increase in oil production. He
wondered if low oil prices should be expected for the near
to distant future. Mr. Tsafos stated that he would respond
to the question after two slides.
Mr. Tsafos highlighted slide 3, "OPEC Behavior not a
novelty." He stressed that the Organization of the
Petroleum Exporting Countries (OPEC) did not control the
price of oil. The top chart showed OPEC's market share
since 1965. He remarked that the composition of OPEC had
changed over time. The bottom graph showed the quotas. The
chief mechanism through which OPEC attempts to manage the
market was by setting quotas, which say how much oil OPEC
countries would produce. He stated that OPEC was founded in
1960, but the quotas were not introduced until 1982. He
remarked that different countries, at different times, had
agreed to the quotas. He looked at the yellow line, which
represented Ex. Iraq, which showed that Iraq had been
exempted from quotas. He remarked that quotas were based on
a concept of agreement. He shared that OPEC had attempted
to set the price of oil up until the mid-1980s. The
stabilization of OPEC was not intentional, but rather
because of the volatility of some countries and the
introduction of other locations to the market. From
approximately 1986 to the Asian financial crisis in the
late 1990s, OPEC had followed the market.
9:22:22 AM
Mr. Tsafos continued to discuss slide 3, and the history of
OPEC. There were a number of events in the late 1990s,
where OPEC attempted to stabilize the market, which is
reflected in the quotas. The graph showed some short,
drastic adjustments, because OPEC was cutting and adding at
a monthly basis. At that time there was an up and down
jumble in the oil price, because there were continually
tweaks. Eventually, OPEC realized that they could not
micromanage the oil market, so OPEC began to follow the oil
market. In 2007, OPEC abandoned quotas because the price of
oil was so high. The most recent financial crisis caused
OPEC to conduct a series of cuts, in order to arrest the
price. The quota has been set and maintained at 30 million,
and has stayed at that level for a few years. He stated
that OPEC had not attempted to actively manage the price of
oil since the mid-1980s. Rather, OPEC would step in to put
a flow underneath a sudden shock in demand. He stated that
the oil embargo in 1973 and the Iran revolution made oil
very expensive. At that point, Alaska put oil into the
market, because the price oil was profound at that moment
in time. When the price of oil is high enough to cause new
oil to be put on the market, there was not much that OPEC
can do to halt that process.
9:27:09 AM
Mr. Tsafos displayed slide 4, "US Production: Scalable,
Diffuse, Variable." The three key words in the U.S. oil
production were "scalable", "diffuse", and "variable." He
discussed the work, "scalable." He looked at the Eagle
Ford, Texas field which began as basically nothing in
January 2010 to 1.6 million barrels per day presently. He
stressed that the increase did not often occur in the world
of oil. Alaska, Libya, and the North Sea were the only
other locations that saw a similar rapid trajectory. He
looked at the word, "diffuse." He stated that the top
operator in Texas produced less than 10 percent of the
state's oil production. The top thirty producers in Texas
produced two-thirds of the state's oil productions. He
stressed that one had to include up to eighty producers in
order to examine the entire scope. He explained that one
well could be thirty times more productive than its
neighbor. He remarked that the job of forecasting oil
prices in 2010 and 2011 was focused on two numbers: the
marginal barrel and at what price did it need to come
online. The marginal barrel was either in the deep water
like Brazil or Angola; or it was in Canadian oil sands. The
forecast was formulated by examining approximately 30 or 40
projects, and attempt to understand the economics of the
projects. Another data point was examined by looking at the
fiscal breakeven of OPEC countries.
9:32:19 AM
Mr. Tsafos continued to address slide 4. He commented that
the lower 48 destroys the logic of OPEC's forecasting of
price. The scale showed that there could be a sudden
increase of 4 million barrels a day of production over
three years, which interrupts the forecasting ability. He
remarked that the players within Alaska had expressed their
intentions, because there were less than ten major players
in Alaska. In Texas, however, there were 50 or 60 players
with different incentives, capital structures, debt levels,
etc. He remarked that gas had the same viability in
production as oil, the rig count fell by one-half. The
activity fell by half, but the production did not decrease,
because only the very bad wells were eliminated. He
stressed that it was becoming extremely difficult to
understand the dynamics in the oil market. Many of the
models that the industry had relied upon were not well-
suited to the current world's pace, modern players, and
breakeven prices in the real world at response to different
incentives. Production responded to low oil prices in two
ways: reducing drilling from the belief that there will be
no revenue; and no money to invest in new drilling.
9:38:51 AM
Mr. Tsafos referred to slide 2, which showed the U.S.
decreasing because the players did not have enough cash.
Many of the companies were small, so they chose not to
produce because of lack of cash. He remarked that there may
be more downward pressure on the price when the oil hits
the market, but it was at the low level price that the
marginal barrels could not keep producing.
Senator Bishop wondered where the Monterey shale would go
on the chart. Mr. Tsafos replied that he was not sure where
the Monterey shale would be placed on the chart.
Senator Bishop wondered if acquisition should be considered
as one of the variable. Mr. Tsafos replied in the
affirmative. He explained that some producers became
financially strapped, and became bankrupt at the time the
price of oil fell. Ten years ago, the major oil producers
had decided to invest outside of the U.S., so the smaller
independent companies began producing in the U.S. At that
point the major producers returned to the U.S. He remarked
that some of the diffusion would be consolidated, but was
never at the level of a conventional basin like Alaska. The
stated offered large land parcels. The lower 48 would
divide similarly sized land parcels into 40 or 50 different
pieces.
9:42:37 AM
Senator Dunleavy surmised that it was previously extremely
difficult to forecast oil production and price; but
currently it was even more difficult to forecast. Mr.
Tsafos agreed.
Senator Dunleavy wondered if the market dynamics would put
Alaska in the neighborhood of $40 to $50 per barrel. Mr.
Tsafos replied in the affirmative.
Senator Dunleavy felt that the Keystone Pipeline would
provide the gateway from the oil sands. Some people may say
that the oil sands were uneconomic, but the cheap energy
may provide the ability to "cook the oil sands." He
wondered where the corresponding increase supply of gas
within the calculus. He remarked that there were some that
believed that gas competed with oil in the market. He
wondered how the play of gas impacted potential future oil
prices, in addition to the greater supply. Mr. Tsafos
replied that there was a growth in demand, but a decline in
production. The industrial sectors saw a growth in demand
for gas, but some biofuels. The transportation sector
demanded mostly biofuels. He remarked that there was an
intense U.S. response to high oil prices. He explained that
the share of gas in the economy was on the rise, and the
share of oil was falling. He stated that airlines began to
fly on high utilization, so fuel was blamed for cancelled
flights. The driving patterns of Americans had recently
changed in vehicle ownership. There was a large number of
vehicles that had been taken off the fleet in a five-year
period, and a high number of motorcycles on the market. He
remarked that fuel efficient car ownership was often in
response to the high oil prices, but the lower oil prices
did not make a person purchase a less fuel efficient car.
He commented that the government subsidized the price of
gasoline in Saudi Arabia, but the consumer still paid the
same price. He remarked that there was demand in the world
that did not experience price in the same way that the U.S.
and Europeans experienced price. He remarked that many
other countries had subsidies and bans that limited the
changes in the oil price to the end user price.
9:50:30 AM
Senator Dunleavy understood that there were some
technological advances that helped to limit energy usage.
He wondered how the impact on the environment affected the
investment on the Alaska North Slope (ANS). He stated that
the Alaska Liquid Natural Gas (AKLNG) project would be
impacted the supply would be limited, if the line continued
to extend beyond the graph's limit. He remarked that the
line's extension would make the economics for the AKLNG
project very difficult, because it would be expensive in a
lower commodity environment.
Mr. Mayer responded that one must think about the contrast
between the nature of the investment cycle between Alaska
and the lower 48. He explained that the need to look at the
diffusion of the different players in the lower 48, and the
point at which there was a press response to lower
production, because the lower 48 quickly responded to
declining prices. The lower 48 was continually determining
the number of new wells that would be built in the near
future. Those wells had steep decline curves that required
continual replacement to maintain production. The nature of
investment decision making in the lower 48 was extremely
different than the nature of the investment decision on the
North Slope. The North Slope investment structure was about
spending billions of dollars by a couple of players to
build enormous facilities, drilling pads, and bring very
large projects online that would produce for the next few
decades. He stated that the behavior of the North Slope was
beneficial to Alaska in the current price environment,
because the fundamental nature of the decisions were not
about the upcoming six months or year. The nature of the
decisions were about the next decade or longer. He stressed
that there were two advantages to Alaska in the current
price environment for long term investment: 1) Large
players that make decisions in a fundamentally different
way than the lower 48. He stated that there were some
company executives that made it a point of pride to not
know the price of oil on any given day, because it was not
what drives their decisions; and 2) there was a fiscal
system that looked competitive at the current lower prices.
He added that there would be a different consideration, if
there was another decade of continued lowered oil prices.
9:57:46 AM
Senator Bishop felt that the reservoir capacity, and long
term production in the fracking facilities were still
unknown. Mr. Tsafos agreed. He stated that economists and
geologists often clashed when it came to oil forecasts. He
stated that there was a time in 2007 when he felt that
geologists had the upper hand, because prices were
extremely high, and there was no supply response. He
stressed that the oil market, with all its imperfections,
worked. He stated that the North Slope was one of the few
places in the world where the oil market truly worked as a
market on a large scale.
Senator Bishop shared that he had read an article that
asserted that without increased oil production, oil could
return to $200 per barrel.
Co-Chair MacKinnon felt that anyone can post an opinion to
the internet.
Co-Chair Kelly asked for more explanation of India's oil
market. He stated that India was expected to have a strong
oil boom, and it was slowly occurring. He wondered how the
future of India would impact Alaska's oil market. Mr.
Tsafos responded that the period of economic growth
required addressing fuel subsidies. He remarked that
removing subsidies increased the price of energy. He
remarked that oil demand in India had more potential, and
felt that India could drive the market.
10:04:49 AM
Vice-Chair Micciche looked at the business model of North
Slope versus the Texas models, noted the credit issue with
those that were not producing. He remarked that the larger
companies looked 20 years into the future, versus smaller
companies. He wondered if there was a future in Alaska that
included realistic production from smaller companies. Mr.
Tsafos replied that there could not be a discussion of
competitive landscapes without a geology discussion. He
felt that 50 companies could not operate in Prudhoe Bay.
The non-commercial gas market worked differently, because
individual wells were drilled, rather than a massive
reservoir. He stressed that there was an inherent limit in
the geology, so there probably would not be 50 or 60
operators.
Vice-Chair Micciche wondered if there was a possibility for
a blending of the operators, where some smaller players
would become more productive at 15 or 20 percent of North
Slope production. Mr. Mayer replied that there had been a
decade-long transformation on the North Slope for the
smaller companies. He felt that, given the right
conditions, which would continue to grow.
Co-Chair MacKinnon explained that the documents for the
day's meeting could be found on the State of Alaska
website.
Mr. Mayer addressed slide 5, "Net Credit Balance due to two
flows."
Revenues net of credits used against tax liability
(big producers)-no cash outflow
Credits paid out in cash to companies that do not have
a liability
10:13:08 AM
Vice-Chair Micciche felt that Alaskans should understand
the sunset of the alternative exploration of Frontier
Basin, and small producer credits in 2016. Mr. Mayer
replied with slide 7, which charted the credits to 2018. He
stressed that there was more uncertainty in the distant
future, because there were less projects forecasted in
TAPS.
Vice-Chair Micciche understood that the liability of the
credits would sunset most of the adverse effects that the
state was currently experiencing. Mr. Mayer agreed, and
wanted to highlight some of the positive benefits of SB 21
on the state's revenue.
Mr. Mayer continued to address slide 5. He stressed that
the producers paid taxes. The slide showed the high level
tax calculation to say that DOR accounted for two separate
credits that were accounted: credits used against a
producer's tax liability and credits for potential
purchase. He looked at the line of production tax revenue
of $524 million in 2015, it was net of all claimed credited
by producing companies. The greatest component was the
dollar per barrel credit, with current low oil price was
approximately $8 per barrel.
Co-Chair Kelly wondered if $2.5 million in FY 14 was the
net profit. Mr. Mayer replied in the affirmative.
Co-Chair MacKinnon shared that many Alaskans thought
"producer" only referred to three large oil companies, and
was exclusive of other companies. She noticed that the
presentation referred to producers that were inclusive of
an overall tax structure that included many tax payers. Mr.
Mayer agreed.
Co-Chair MacKinnon stressed that the producers were
referred to every tax paying producer in the state. Mr.
Mayer agreed, but furthered that the majority of the taxes
came from the larger producers.
Mr. Mayer continued to address slide 5, and explained that
it may be a misnomer to refer to the tax liability credits
as beneficial credits to the producers.
10:19:33 AM
Mr. Mayer looked at slide 6, "Tax Credits and SB21;
positive impact of SB21 on revenues."
Under RSB assumptions for oil price and production, SB
21 brings more revenue than ACES would have in both FY
2015 and FY 2016; in fact, in FY 2016, under ACES
producers would pay no tax and carry a credit forward.
Main differences are binding gross minimum and
elimination of capital credits.
Mr. Mayer looked at the bottom six sections of the table on
slide 6. He began with $12 billion of revenue from
production; and reduced by $1.5 billion in transportation
costs and $7 billion in lease expenditures. The production
tax value would equate to approximately $3.7 billion, in
terms of the total taxable value under either Alaska's
Clear and Equitable Share (ACES) or SB 21. He stressed that
there was a 35 percent base rate under SB 21; and a 25
percent base rate under ACES. He stated that ACES would not
affect any calculations the low price and high investment
environment. He looked at line 4, which the Revenue Source
Book forecasted the reduction of $720 million against the
tax liability claimed by the producers in the North Slope.
He pointed out that the total tax after credits in FY 15
was $605 million under FY 21. He remarked that ACES would
have a significantly different outcome.
10:25:53 AM
Vice-Chair Micciche surmised that the difference between SB
21 and ACES in FY 15 was approximately $380 million that
would not have under ACES. He further asserted that the
difference in FY 16 was $529 million. The total difference
was approximately $1 billion. Mr. Mayer replied in the
affirmative. He stressed that the liability should be
considered, and its impact on future revenue.
Vice-Chair Micciche surmised that the estimate in the low
price environment was healthy for the general fund, and
would possible slow the decline. He felt that Alaska would
expect a greater positive influence from the tax change,
following the expiration of the tax credits in 2016. Mr.
Mayer agreed, and remarked that ACES focused on high oil
prices and low investment.
Co-Chair Kelly felt that many members of the press had not
been fair in their reporting of SB 21.
Co-Chair MacKinnon felt that the change to Alaska's tax
structure had an impact on Alaska's bottom line.
Vice-Chair Micciche remarked that the presentation for FY
15 was based on actual numbers, and remarked that the
benefit of SB 21 brought $380 million to GF, which would
not have occurred under ACES. He stated that the FY 16
forecast assumed an additional $525 million under SB 21.
10:31:53 AM
Senator Hoffman asked for a review of the reconciliation on
line 4, specifically the difference from the previous
slide. Mr. Mayer replied that the slide was an abstracted,
high level outline of the tax credit, rather than the
detailed analysis of DOR. He explained that the $720
million on line 4 referred to the credits claimed against
liability for the North Slope. The previous figure of $750
million also included the Cook Inlet.
Co-Chair MacKinnon stressed that the presentation was an
aggregate look at the performance of two different systems.
Mr. Mayer agreed.
Senator Dunleavy remarked that a major component of SB 21
was to provide a favorable investment environment, because
of decline in production. He furthered that the secondary
focus of SB 21 was to capture revenue on the low price of
oil. He noted that the state's revenue was larger under SB
21 versus ACES. He hoped that the low oil prices did not
deter investment, and encouraged the producers to continue
to invest in the state. Mr. Mayer replied that Alaska still
looked competitive, and was well served in the nature of
investment opportunities.
Senator Bishop suggested that it may be cheaper for Alaska
to explore other credit options.
Mr. Mayer continued to discuss slide 6. He stressed that SB
21 affected the way that credits interacted with the 4
percent gross minimum floor. The 4 percent gross minimum
floor was in the tax statute under ACES, but it was never
binding, because of the capital credit functions. The 4
percent floor, under ACES, only applied to line 1. Any
substantial producers that made major new investments could
take their tax liability below the 4 percent of gross
revenue on their tax liability. He explained that SB 21
replaced the credits with the dollar per barrel allowance
that would reduce the tax liability at low price levels,
but the dollar per barrel amount could not fall below the 4
percent floor.
10:37:43 AM
Co-Chair MacKinnon remarked that there had been a debate
about connecting a tax credit with a barrel of oil. She
wondered if there was a credit tied to a barrel of
production sold on its behalf, or was it part of the
formula. Mr. Mayer responded that he did not fully
understand the question. He explained that there was a
dollar per barrel credit of a variable amount. He restated
that it was a credit, but it was more a feature of the tax
system that existed to reduce the tax rate in lower price
environments.
Co-Chair Kelly surmised that if there was no production
there would be no credit. Mr. Mayer replied in the
affirmative for the major producers.
Senator Dunleavy wondered if there was any aspect of ACES
that would be favorable in the current environment. Mr.
Mayer replied that ACES was a good tax system in a harvest
environment, but did not feel that ACES was a good system
in the current environment.
Co-Chair Kelly remarked that ACES did not have a credit
associated with production. Mr. Mayer agreed.
Co-Chair Kelly felt that ACES would not ever be an
advantage, whether prices were high or low. He stressed
that there should always be production. Mr. Mayer replied
that SB 21 eliminated the capital credit of ACES, and
replaced it with the dollar per barrel amount that was tied
to production. He stressed that capital credits existed as
a means of state support for spending. He stated that SB 21
took less of the revenue, but the dollar per barrel was
intended to reduce the tax rate.
Co-Chair MacKinnon remarked that the result of ACES was
depositing a substantial amount of money in the state's
reserves.
10:43:00 AM
Co-Chair Kelly wondered if ACES incentivized "harvest
mode." Mr. Mayer stressed that ACES incentivized capital
spending.
Senator Olson wondered how to protect Alaska's revenues in
the following stage of the regime. Mr. Mayer replied that
Alaska's disadvantage was the instability of previous oil
tax structures.
Senator Hoffman felt that term "harvest mode" referred to
the maximum amount of oil that could be recovered. He
understood that the change was to reverse the downtrend of
production.
Co-Chair MacKinnon agreed that there should be more
production.
10:48:56 AM
Mr. Mayer discussed slide 7, "Tax Credits and SB21;
positive impact of SB21 on revenues." He stated that the
slide represented a broad outlook of the DOR figures for
the following four years. He explained that the yellow line
referred to the credits used against tax liability and the
green line represented the credits for purchase by the
state.
Mr. Mayer highlighted slide 8, "Tax Credits and SB21;
credit eliminations and transitional arrangements":
Sunset for small producer-focused credits
Alternative Credit for Exploration
Frontier Basin Credit
Small Producer Credit
- Collectively cost $113 million in FY2014
Impact of transitional arrangements
Support for small producer spending at 45 percent
until
January 2016 (same as ACES)
Reduced to 35 percent thereafter
10:53:18 AM
Senator Dunleavy requested an analysis of Cook Inlet
credits versus North Slope credits. Co-Chair MacKinnon
replied that the analysis could not be run because of the
limited number of tax payers in those regions.
Mr. Mayer addressed slide 9, "Cook Inlet remains heavily
subsidized":
Production essentially a continuation of 'ELF':
Low, fixed rate on gas
Generally no tax on most oil production
But significant credits to Cook Inlet producers:
20 percent capital credit
40 percent well expenditure credit
25 percent carried-forward annual loss credit
With no profit-based production tax, credits are not,
as on North Slope, an investment in future production
tax revenue
Could other solutions - such as state financing -
offer a better solution to ease capital constraints?
10:57:00 AM
Vice-Chair Micciche stated that there were two types of oil
and gas production in Alaska: the production that was
destined for GF on the North Slope; and the production that
was destined for the furnaces, water heaters, and vehicle
fuel tanks. He stated that there were conversations about
for Fairbanks from Cook Inlet. He stated that he hoped to
continue the conversation about availability of natural gas
to Alaskans.
Senator Hoffman shared that he was looking to reduce the
energy costs for 100 percent of Alaskans.
Mr. Mayer displayed slide 10, "Conclusions":
Oil price drop due to excess supply and bearish
demand-and OPEC acknowledging reality
Big producers still paying large sums but not enough
to offset credits paid to small companies
SB 21 placed a more secure floor under state revenues
when oil prices fall and eliminated many credits
Cook Inlet production still receives substantial state
support-is the policy mix right?
ADJOURNMENT
11:00:45 AM
The meeting was adjourned at 11:00 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 020215 updated SFC enalytica Oil Prices January 2015.pdf |
SFIN 1/27/2015 9:00:00 AM |
Oil and Gas |
| 020215 updated SFC enalytica Tax Credits January 2015.pdf |
SFIN 1/27/2015 9:00:00 AM |
Oil and Gas |
| 012715 enalytica presentation - Tax Credits.pdf |
SFIN 1/27/2015 9:00:00 AM |
Oil and Gas |