Legislature(2021 - 2022)SENATE FINANCE 532
05/13/2022 01:00 PM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB107 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | SB 107 | TELECONFERENCED | |
SENATE FINANCE COMMITTEE
May 13, 2022
1:11 p.m.
1:11:46 PM
CALL TO ORDER
Co-Chair Bishop called the Senate Finance Committee meeting
to order at 1:11 p.m.
MEMBERS PRESENT
Senator Click Bishop, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Lyman Hoffman
Senator Natasha von Imhof (via teleconference)
Senator Bill Wielechowski
Senator David Wilson
MEMBERS ABSENT
Senator Donny Olson
SUMMARY
SB 107 OIL and GAS PRODUCTION TAX; CREDITS
SB 107 was HEARD and HELD in committee for
further consideration.
SENATE BILL NO. 107
"An Act relating to the oil and gas production tax;
relating to credits against the oil and gas production
tax; relating to payments of the oil and gas
production tax; relating to lease expenditures and
adjustments to lease expenditures; making public
certain information related to the oil and gas
production tax; relating to the Department of Revenue;
and providing for an effective date."
1:12:50 PM
SENATOR BILL WIELECHOWSKI, SPONSOR, introduced himself.
Senator Wilson wondered how much of the bill was similar to
the Ballot Measure 1, which failed in the last election
cycle in 2020.
Senator Wielechowski replied that it was very similar, if
not identical.
Senator Wilson expressed caution about taking up a subject
that failed by over 70 percent in his district. He was
concerned about the subject matter considering most of
Alaska voted against it.
Co-Chair Stedman remarked that the bill was complex, and
could be amended and changed within the legislative
process.
1:14:57 PM
Senator Wielechowski stated that he was very involved in
the initiative process, and stated that many of the
opponents of the ballot initiative agreed that the oil tax
structure was broken. He shared that the opponents stressed
that the structure should not be fixed by the initiative
process, but rather the legislative process.
Co-Chair Bishop stressed that it was important to put the
subject on the record, rather than share hearsay.
Co-Chair Bishop discussed the presentation, "SB 107 Oil
Subsidy Reform" (copy on file). He looked at slide 2:
"The legislature shall provide for the utilization,
development, and conservation of all natural resources
belonging to the State, including land and waters, for
the maximum benefit of its people."
-Article 8, Section 2, Constitution of Alaska
Senator Wielechowski pointed to slide 3, "Production
Revenues Before Credits 2007-2021." He noted that the most
recent restructuring had negatively affected the states
revenue, because of the oil tax credits that are paid and
promised to oil companies. He remarked that there was a
dramatic drop off in revenue after that restructuring.
1:20:47 PM
Senator Wielechowski discussed slide 4, "Production
Revenues Before Credits 2007-2021." He noted that in 2009,
the states share was $12.09 per barrel of oil. He remarked
that, in 2019, the price of oil was a dollar higher, but
the state only receive $3.14 per barrel of oil.
Senator Wielechowski displayed slide 5, "Comparative
Production Tax Revenue." He continued to note the stark
difference in the states revenue between before SB 21, and
after SB 21.
Senator Wielechowski highlighted slide 6, "Production Tax
Revenue After Credits." He stressed that there was money
that the state should have received for its resource, and
was not yet receiving.
Senator Wielechowski discussed slide 7, "Alaska is
Consistently the Most Profitable Region in the World for
ConocoPhillips."
1:27:24 PM
Senator Wielechowski addressed slide 8, "Alaskans Recover
Too Little Under Low Oil Prices":
? When prices dropped 62 percent a few years ago,
Alaska's share of revenue fell 109 percent.
? During 2016 and 2017, when oil prices were lower,
ConocoPhillips lost $4.6 billion worldwide while
making $1.8 in Alaska.
? Producers can adjust project timing, budgets, and
costs and should bear some of the downside risk at low
prices.
1:28:26 PM
Senator Wielechowski discussed slide 9, "Alaskans are
Compensated for Our Oil In
Two Ways":
? Royalties are the compensation the producer pay to
Alaska as the landowner.
? Production taxes are what Alaska receives as the
sovereign owner of the resource.
Senator Wielechowski highlighted slide 10, "Producers pay
less in royalties and taxes in Alaska Legislature":
? In Alaska, the average royalty is only 12.5 percent
and the average SB 21 production tax is 4 percent, for
a total Alaskan share of 16.5 percent
? In North Dakota, the average royalty is 18.7 percent
and the average production and severance is 10 percent
of the gross, for a 28.7 percent total
1:30:31 PM
Senator Wielechowski pointed to slide 11, "SB 107 Makes
Four Modest but Needed Reforms":
? Creates transparency by giving legislators and the
public the information we need to evaluate our oil tax
policies
? Closes a loophole that allows producers to deduct
expense from different fields
? Establishes a true minimum tax rate and adds slight
progressivity
? Eliminates the unnecessary deductible production tax
credits
Senator Wielechowski discussed slide 12, "SB 107 Only
Applies to Large Established Fields":
New and developing fields would not be impacted by
this bill.
Only applies to fields that produced an average of
40,000 barrels a day in the last calendar year and
over 400 million barrels over the life of the field
The only fields this would currently apply to are the
Prudhoe Bay Unit, Kuparuk River Unit, and the Colville
River Unit (aka Alpine)
Senator Wielechowski addressed slide 13, "Prudhoe, Kuparuk,
and Alpine are Low Cost, High Profit Fields":
? 2018 data showed that at $63/barrel, Prudhoe has a
profit margin over costs of $40 per barrel
? Operating, capital, and transportation costs were
only $25/ barrel
? Legislative Research Services analysis of
ConocoPhillips annual reports have shown that they
made twice as much per barrel on these three fields as
they did anywhere else in the world
Senator Wielechowski discussed slide 14, "SB 107 makes Two
Reforms to the Current Net Calculation":
? Eliminates the $8 per barrel credit.
? Raises the net profits tax by 15 percent above $50
per barrel.
? The first $50 of production tax value per barrel
would be taxed at the current 35 percent rate and
anything above that would be taxed at a 50 percent
rate.
? These reforms only apply to the three legacy fields.
Senator Wielechowski pointed to slide 15, "The $8 Per
Barrel Credit is Unnecessary for the Profitable Legacy
Fields":
? In 2018, these credits cost Alaska $742 million from
Prudhoe Bay alone.
? Producers have a legal duty under their leases to
invest in and produce oil from these fields without
incentives.
? The producers would continue to produce without
these credits, because they have done so for decades
and the profit margins in these fields are among the
highest in the world.
? No new investment or production has ever been linked
to the per barrel credits.
Senator Wielechowski discussed slide 16, "Capital
Investment in Prudhoe Bay has Plummeted from $826 million
in 2013 to Only $86 Million in 2021." He stated that the
report showed what was happening with the tax credits and
the behavior on the North Slope.
1:36:21 PM
Co-Chair Bishop wondered whether the year with asterisk was
affected by COVID-19.
Senator Wielechowski replied that the producers would need
to answer that question. He noted that there was a downward
trend even before 2020.
Senator Wielechowski pointed to slide 17, "Oil Industry
Investment In North Slope Oil Fields." He noted the
changing investment on the North Slope displayed on the
graph.
Senator Wielechowski addressed slide 18, "From FY 2014 FY
2022, we have lost $6.1 Billion to the Per-Barrel Credit,
while receiving just $5.2 Billion in Production Tax
Revenue."
Senator Wielechowski looked at slide 19, "From FY 2023 FY
2031, we will lose another $11.0 Billion to the Per-Barrel
Credit, while receiving just $8.9 Billion in Production Tax
Revenue."
Senator Wielechowski highlighted slide 20, "SB 107 Closes a
Loophole by Requiring Each Field be Treated Separately":
Current law allows producers to use expenses from more
expensive fields to lower their tax rates on the
highly profitable legacy fields.
This bill requires that oil and gas production taxes
be calculated separately for these three major fields.
Sound policy and common sense dictate that the
production taxes for our largest and most profitable
fields should be based on the actual costs of
producing oil from each of those fields.
Senator Wielechowski discussed slide 21, "NPR-A Development
is Reducing Alaska's Production Revenue":
? ConocoPhillips is currently developing on federal
lands in the NPR-A and deducting these costs from
their production taxes on the legacy fields.
? If this loophole is not closed, it would likely cost
Alaska $300 million per year over the next decade.
? Alaska is subsidizing fields that we will receive
little royalties or production taxes on.
? This loophole creates a competitive disadvantage for
new producers, since unlike their competitors they do
not have other Alaskan fields, they can deduct their
expenses from.
1:41:16 PM
Senator Wielechowski pointed to slide 22, "SB 107 Reforms
the Alternative Gross
Minimum Tax":
Currently this is based on the greater of the
alternative gross minimum tax calculation or gross
calculation (percentage of wellhead value), or the tax
on production tax value or net calculation (percentage
of profits).
? SB 107 maintains this basic structure, while
reforming it to be fairer for Alaskans
Senator Wielechowski looked at slide 23, "Reforming the
Alternative Gross Minimum Tax":
? SB 107 raises the minimum rate from 4 percent to 10
percent and raises this floor by 1 percent (to a
maximum of 15 percent) for every $5 dollars over $50/
barrel oil price
? The current 4 percent minimum is a "soft" floor and
producers argue it can be less. SB 107 makes the
minimum rate a true minimum.
Senator Wielechowski discussed slide 24, "Profitability on
the Average Barrel of Oil Produced from Prudhoe Bay in FY
2018: Order of Operations."
Senator Wielechowski displayed slide 25, "Profitability on
the Average Barrel of Oil Produced from Prudhoe Bay in FY
2018: Order of Operations."
Senator Wielechowski pointed to slide 26, "Profitability on
the Average Barrel of Oil Produced from Prudhoe Bay in FY
2018: Order of Operations."
1:45:16 PM
Senator Wielechowski addressed slide 27, ""Profitability on
the Average Barrel of Oil Produced from Prudhoe Bay in FY
2018: Order of Operations."
Senator Wielechowski looked at slide 28, "Profitability on
the Average Barrel of Oil Produced from Prudhoe Bay in FY
2018: Order of Operations."
Senator Wielechowski addressed slide 29, "Profitability on
the Average Barrel of Oil Produced from Prudhoe Bay in FY
2018: Order of Operations."
Senator Wielechowski discussed slide 30, "Profitability on
the Average Barrel of Oil Produced from Prudhoe Bay in FY
2018: Order of Operations."
Senator Wielechowski displayed slide 31, "SB 107 Provides
Much Needed Transparency":
? Requires filings and supporting information for
producers in the three legacy fields to be made
public.
? Alaska owns the land and oil being produced and have
invested billions in subsidies for these fields. It is
only fair that Alaskans have the information needed to
see if these investments are wise.
? Without having access to the true revenues, costs,
and profits of each producer of these three major
fields, legislators are left to make oil policies
based on fear and misinformation.
Senator Wielechowski looked at slide 32, "Our Own
Consultants Have Advised Us to Improve Transparency."
Senator Wielechowski discussed slide 33, "Alaskans Have
Heard a Lot of Promises About Alaska's Oil Tax Law."
Senator Wielechowski pointed to slide 34, "Oil Production
is Quite Insensitive to the Tax Structure."
Senator Wielechowski displayed slide 35, "Under Our Old
System of Extremely Low Taxes (ELF), Production Declined
Dramatically at Kuparuk and Elsewhere."
Senator Wielechowski highlighted slide 36, "The SB 21
Referendum was held on 8/19/14":
Oil jobs peaked at 15,300 in August 2014, the month of
the Referendum On September 15, 2014, the front page
of the Alaska Dispatch News.
1:51:11 PM
Senator Wielechowski pointed to slide 37, "Alaska Oil and
Gas Jobs 2013-2021." He remarked that the price of oil was
very high, but oil jobs had a significant decrease.
Senator Wielechowski discussed slide 38, "Production Has
Risen Across the Country While Falling in Alaska." He
remarked that there was less production in Alaska than
almost every other state.
Senator Wielechowski looked back to slide 34. He stressed
that slide showed a report that stated, oil production is
quite insensitive to the tax structure. He remarked that
tax structure could have some impact in the first few
years, but it bounces out after roughly a decade.
1:55:26 PM
Senator Wielechowski stressed the legislature needed to
follow the constitutional mandate to get the maximum value
of its oil. He questioned whether the legislature was
following that mandate when there were massive amounts of
tax credits.
Co-Chair Stedman asked about the transition of the
reflection point from the gross tax to net tax.
Senator Wielechowski said he could provide the information.
Co-Chair Stedman understood that the bill would remove the
per barrel reduction, leaving the 35 percent base tax.
Senator Wielechowski agreed.
Senator von Imhof spoke of earlier presentations from
Gaffney Cline. She offered several takeaways from those
discussions. She asserted that SB 21 had helped with the
decline and that Gaffney Cline had showed that it had
stabilized the taxes.
Senator Wielechowski responded that Alaska was one of the
most complicated tax structures in the world. He recalled
that Gaffney Cline had testified in the House Finance
Committee about lowering the deductible tax credits from $8
to $5, and they indicated that it would not have a
significant impact on investment.
2:00:36 PM
Senator Wielechowski said that DOT had testified before the
committee that tax credits could be lowered with no impact
on investment. He agreed that taxes should not be changes
hurriedly, but argued that the bill needed to be moved as
quickly as possible. He further argued his point.
Senator von Imhof reminded the committee and listening
audience that the ballot measure had failed and that the
rewriting statute in 5 days would be foolish.
Senator Hoffman agreed and pointed out that although SB 21
passed by 62 percent vote, all of the problems presented by
Senator Wielechowski were still present. He was open to
discussing the concept of adjusting the slider.
2:05:02 PM
Senator Wielechowski responded that the $5 slider had been
debated and passed by the body in the past. He stressed
that more production and investment had been promised and
had not been delivered. He spoke to the position of the
Chamber of Commerce and disagreed that changes would hurt
investment.
Co-Chair Stedman recalled that during SB 21 discussions the
Senate had passed the bill to the House with a $5 slider,
but was returned to the Senate with an $8 slider, and the
Senate concurred with changes and was not discussed in
committee or on the floor.
Senator Hoffman pointed out that once the bill came back to
the Senate there was no discussion regarding a conference
committee, and there was not an opportunity to discuss the
impacts of that change.
Co-Chair Bishop recalled the changes that took place in the
committee process with SB 21, and expressed his
consternation with the changes.
SB 107 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
2:12:03 PM
The meeting was adjourned at 2:12 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 107 Supporting Document -Legislative Research Report ConocoPhillips Earnings Comparison 2012-21 Q1 5.11.22 BW.pdf |
SFIN 5/13/2022 1:00:00 PM |
SB 107 |
| SB 107 Supporting Document - Ruggiero Testimony SRES 3.1.17_Confidentiality Tax Information.pdf |
SFIN 5/13/2022 1:00:00 PM |
SB 107 |
| SB 107 Sectional Analysis Version A 3.22.21.pdf |
SFIN 5/13/2022 1:00:00 PM |
SB 107 |
| SB 107 Sponsor Statement Revised 5.11.22.pdf |
SFIN 5/13/2022 1:00:00 PM |
SB 107 |
| SB 107 Supporting Documents - Sponsor Presentation 5.13.22.pdf |
SFIN 5/13/2022 1:00:00 PM |
SB 107 |