02/13/2012 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB192 | |
| Presentation: Five Year Look Back on Oil Industry Capital Expenditures by Category 2006-2010 & Access to Information | |
| HB60 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 192 | TELECONFERENCED | |
| HB 60 | |||
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
February 13, 2012
3:37 p.m.
MEMBERS PRESENT
Senator Joe Paskvan, Co-Chair
Senator Thomas Wagoner, Co-Chair
Senator Bill Wielechowski, Vice Chair
Senator Bert Stedman
Senator Hollis French
Senator Gary Stevens
MEMBERS ABSENT
Senator Lesil McGuire
OTHER LEGISLATORS PRESENT
Representative Paul Seaton
Senator Cathy Giessel
Senator Dennis Egan
COMMITTEE CALENDAR
SENATE BILL NO. 192
"An Act relating to the oil and gas production tax; and
providing for an effective date."
- HEARD & HELD
PRESENTATION BY DOR COMMISSIONER BUTCHER: FIVE YEAR LOOK BACK ON
OIL INDUSTRY CAPITAL EXPENDITURES BY CATEGORY 2006-2010 & ACCESS
TO INFORMATION
- HEARD
HOUSE BILL NO. 60
"An Act relating to aquatic farm permitting involving geoducks
and to geoduck seed transfers between certified hatcheries and
aquatic farms."
- MOVED HB 60 OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: SB 192
SHORT TITLE: OIL AND GAS PRODUCTION TAX RATES
SPONSOR(s): RESOURCES
02/08/12 (S) READ THE FIRST TIME - REFERRALS
02/08/12 (S) RES, FIN
02/10/12 (S) RES AT 3:30 PM BUTROVICH 205
02/10/12 (S) Heard & Held
02/10/12 (S) MINUTE(RES)
02/13/12 (S) RES AT 3:30 PM BUTROVICH 205
BILL: HB 60
SHORT TITLE: GEODUCK AQUATIC FARMING/SEED TRANSFER
SPONSOR(s): SEATON
01/18/11 (H) PREFILE RELEASED 1/7/11
01/18/11 (H) READ THE FIRST TIME - REFERRALS
01/18/11 (H) FSH, RES
02/15/11 (H) FSH AT 5:00 PM CAPITOL 120
02/15/11 (H) Moved Out of Committee
02/15/11 (H) MINUTE(FSH)
02/16/11 (H) FSH RPT 2DP 3NR 1AM
02/16/11 (H) DP: AUSTERMAN, THOMPSON
02/16/11 (H) NR: HERRON, PRUITT, JOHNSON
02/16/11 (H) AM: KAWASAKI
03/09/11 (H) RES AT 1:00 PM BARNES 124
03/09/11 (H) Moved Out of Committee
03/09/11 (H) MINUTE(RES)
03/10/11 (H) RES RPT 5DP 3NR 1AM
03/10/11 (H) DP: MUNOZ, FOSTER, DICK, HERRON, SEATON
03/10/11 (H) NR: GARDNER, P.WILSON, FEIGE
03/10/11 (H) AM: KAWASAKI
03/16/11 (H) TRANSMITTED TO (S)
03/16/11 (H) VERSION: HB 60
03/18/11 (S) READ THE FIRST TIME - REFERRALS
03/18/11 (S) RES, FIN
02/13/12 (S) RES AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
BRYAN BUTCHER, Commissioner
Department of Revenue
State of Alaska
POSITION STATEMENT: Provided information related to SB 192.
BRUCE TANGEMAN, Deputy Director
Tax Division
Department of Revenue
Anchorage, AK
POSITION STATEMENT: Provided information related to SB 192.
DAN STICKEL, Assistant Chief Economist
Tax Division
Department of Revenue
Anchorage, AK
POSITION STATEMENT: Provided information related to SB 192.
DONA KEPPERS, Audit Master
Tax-Production Audit Group
Department of Revenue
State of Alaska
POSITION STATEMENT: Provided information related to SB 192.
JOHN LARSEN, Audit Master
Tax-Production Audit Group
Department of Revenue
State of Alaska
POSITION STATEMENT: Provided information related to SB 192.
REPRESENTATIVE PAUL SEATON
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Sponsor of HB 60.
PAUL FUHS
Alaska Sea Farms
Juneau, AK
POSITION STATEMENT: Supported HB 60.
ROGER PAINTER, President
Alaskan Shellfish Growers Association
Juneau, AK
POSITION STATEMENT: Supported HB 60.
JEFF HETRICK, General Manager
Alutiiq Pride Shellfish Hatchery
Seward, AK
POSITION STATEMENT: Supported HB 60.
ACTION NARRATIVE
3:37:01 PM
CO-CHAIR JOE PASKVAN called the Senate Resources Standing
Committee meeting to order at 3:37 p.m. Present at the call to
order were Senators French, Stedman, Stevens, Wielechowski, Co-
Chair Wagoner and Co-Chair Paskvan.
SB 192-OIL AND GAS PRODUCTION TAX RATES
PRESENTATION: FIVE YEAR LOOK BACK ON OIL INDUSTRY CAPITAL
EXPENDITURES BY CATEGORY 2006-2010 & ACCESS TO INFORMATION
3:38:34 PM
CO-CHAIR PASKVAN announced the continued consideration of SB
192. He recapped that some information had been provided to
Commissioner Butcher regarding slide 6 and asked if he had been
able to prepare a slide on the forward looking information.
BRYAN BUTCHER, Commissioner, Department of Revenue, State of
Alaska, replied that Mr. Tangeman was working on that and would
get it to him as soon as possible. In response to the issue of
getting more information, he had been working with the
Department of Law on what is appropriate and inappropriate to
discuss in terms of the Gleason decision.
^Presentation: Five Year Look Back on Oil Industry Capital
Expenditures by Category 2006-2010 & Access to Information
3:40:38 PM
COMMISSIONER BUTCHER addressed slide 13, a bar chart that
compared ELF, PPT, ACES as introduced and ACES as passed saying
the administration believed the pendulum had swing too far in
terms of progressivity. ELF was not getting the state its fair
share of tax and definitely needed to be reformed. That occurred
with PPT, and ACES as proposed would have brought in a little
bit more, but ACES as passed brought in considerably more. The
Governor's oil tax bill is comparable to the ACES as proposed
scenario.
3:42:01 PM
SENATOR STEDMAN asked if the numerics were out of the fall
Revenue Sources Book that had the price of oil at $109.47 and
the volume expectations at 555 barrels a day (bb/d) and then had
expectations out the following years to 2016.
COMMISSIONER BUTCHER answered that was correct.
SENATOR STEDMAN said he assumed the CAPEX and credits obtained
with them are all derived from the forward looking information
submitted to the department.
COMMISSIONER BUTCHER answered yes.
SENATOR STEDMAN said he assumed they would get updated charts
with 2013 and forward in the same graphical presentation,
because there was a difference in the verbal presentation versus
the documents in the Revenue Sources Book.
3:43:53 PM
COMMISSIONER BUTCHER asked if he was referring to the updated
expenditure information.
SENATOR STEDMAN said he was referring to Friday's testimony from
the commissioner about expecting CAPEX to decline, yet the
Revenue Sources Book says it's expected to increase to almost
$3,900,000 in FY15. You can't say CAPEX is going down on one
hand and then show documents with it going up.
COMMISSIONER BUTCHER said he was preparing that request, but the
point he was trying to make is that the forecast is for CAPEX to
go up, but the department's forecasts have been overly
optimistic for the past years.
3:45:32 PM
SENATOR STEDMAN said if there has been a substantial deviation
from expectations they need to flesh it out and the Finance
Committee needs to know that in the appropriations cycle.
COMMISSIONER BUTCHER agreed.
3:46:34 PM
SENATOR WIELECHOWSKI agreed that information would be helpful
ask well as the reasoning behind why it is off, especially if it
is lower. He addressed the current chart and asked why the
administration proposed lowering oil taxes to level of ACES as
proposed because industry had testified in opposition to both
PPT and ACES as proposed. What makes him think that the industry
will significantly increase their investment now when past
testimony indicates they thought the tax was too high?
3:47:57 PM
COMMISSIONER BUTCHER answered this is only one piece of the bill
that was introduced and secondly, after rolling out the bill,
they talked to the companies again and most thought lowering
taxes would make a material difference and result in more
investment in Alaska.
3:48:45 PM
BRUCE TANGEMAN, Deputy Director, Tax Division, Department of
Revenue, State of Alaska, added that trying to apply testimony
from several years back to today's discussion was a little
dangerous because the oil price is the overriding part of the
discussion. Back then they were looking at $80 oil, tops.
3:49:53 PM
SENATOR STEDMAN stated the record would not match what he just
said and he asserted that legislators had spent quite a bit of
time working on ACES in the high priced environment.
3:50:40 PM
COMMISSIONER BUTCHER added that there is a difference between
having hypothetical discussions about high oil prices and making
capital decisions in a high oil price environment.
MR. TANGEMAN added that it's more important to see what the
effect of the high oil pricing has been elsewhere, because "that
is what is driving the boom in our competition."
3:51:46 PM
SENATOR FRENCH asked in the department's efforts to addressed
competitiveness if he had seen any increase in applications for
royalty relief that is on the books to help make non-economic
developments economic. Why hadn't they seen more?
3:52:42 PM
COMMISSIONER BUTCHER answered that royalty relief can be used,
but changing the tax structure would make a much bigger
difference in potentially bringing investments in. Royalty
relief can only occur when someone already has a lease or has
explored and can lay everything out to the department with an
explanation of what needs to happen to make something economic.
It has been utilized only a few times in the state's history.
3:54:12 PM
MR. TANGEMAN added that he believed that royalty directly
affects the amount of money that is going into the Permanent
Fund and if there was a choice he would rather look at the tax's
effect on state coffers.
SENATOR FRENCH said he was also sensitive about the Permanent
Fund and asked if some proof should be offered that a tax break
would result in more production than is already being
contemplated. He didn't think the companies would tell them
which projects are being held back right now by ACES or projects
they will go forward with if they get a tax reduction, because
royalty relief seems to be the place to test their desire to
reduce the state take through the use of real evidence. No
increase in those applications signaled to him the lay of the
economic land.
3:55:57 PM
CO-CHAIR PASKVAN asked questions about the details of
industry/state split of PTV on a FY13 production tax estimate
chart and Mr. Tangeman followed with answers.
SENATOR STEDMAN commented that there are three players at the
table: the sovereign State of Alaska, industry, and the federal
government. He said that whatever money is left over has to be
split between the federal government and industry at something
substantially less than the 35 percent federal rate.
3:58:24 PM
MR. TANGEMAN said this was a chart of production tax only; there
is also property tax and corporate income tax.
CO-CHAIR PASKVAN said he understood that but he was continuing
to have trouble understanding the chart.
3:59:02 PM
SENATOR WIELECHOWSKI clarified that last year ConocoPhillips
made roughly $2 billion, BP made roughly the same and no one
knows what Exxon made, but probably the same as a one-third
owner. He said he had calculated profits of $6 billion for just
last year and over $30 billion since ACES had passed.
3:59:50 PM
MR. TANGEMAN said he wanted to invite Mr. Stickel, the
department's assistant chief economist, to help set them
straight.
DAN STICKEL, Assistant Chief Economist, Tax Division, Department
of Revenue, State of Alaska, said when you are looking at the
share of the total production tax value remaining to producers,
it's not as simple as taking production tax value (PTV) and
subtracting out the production tax liability. Income statements
in Appendix D of the Revenue Sources Book show the PTV after
royalty. To derive the producer take out of that number, you
have to subtract the production tax as well as state corporate
income taxes and state property taxes (for the total state
share) and federal corporate income taxes. It's complex for both
the industry and the state.
MR. STICKEL explained that this chart only addressed the
significant changes from ELF to PPT to ACES.
CO-CHAIR PASKVAN remarked that part of the complexity in the
FY13 chart on the state's $4.7 billion is that figure includes
at least $400 million that the state is paying out in credits.
MR. STICKEL answered that was correct.
4:02:29 PM
CO-CHAIR PASKVAN, addressing slide 10, said one of the points
they were trying to get to last Friday is that an analysis of
CAPEX on drilling and G&G was performed based upon $27 and if
you apply FY13 hypotheticals with the most realistically current
information that it comes out to less than $21.
COMMISSIONER BUTCHER said he would have to look at those
numbers.
CO-CHAIR PASKVAN said he welcomed the analysis.
SENATOR STEDMAN said it would be beneficial to convert the
numbers to dollars through-put for the entire year rather than
using per barrel numbers.
4:04:51 PM
MR. TANGEMAN said absolutely and that they were trying to make
the complex simple enough to understand.
4:05:29 PM
MR. TANGEMAN said slide 14 was the "Marginal Government Take"
under the current tax system (an additional dollar as the price
of a barrel of oil goes up). At ANS prices over $78, marginal
government take was over 75 percent. That also means that
government take is at least 75 percent of each additional profit
a company can produce.
4:06:17 PM
SENATOR FRENCH asked questions about interpreting the slide and
Mr. Tangeman and Mr. Stickel followed up with explanations.
4:08:50 PM
CO-CHAIR PASKVAN said he read the chart to be a PTV chart.
COMMISSIONER BUTCHER agreed and said there is always a lot of
confusion on determining the difference between PTV and the
price of oil.
4:10:24 PM
SENATOR STEDMAN said they had talked a lot about the marginal
government take issue, but little on the effective tax rate.
When do you use marginal and when do you use effective?
COMMISSIONER BUTCHER answered that effective tax is what is
paid. Marginal is not as important, but it is talked about when
companies speak specifically about progressivity at the high
cost of oil.
4:11:50 PM
SENATOR STEDMAN said the average guy on the street doesn't
understand marginal rate, particularly when it is delivered as
the tax imposed by the state on the industry and that he wanted
to see information on the effective rate. It needs more clarity,
because it looks like a 90 percent effective tax rate and it's
not.
4:12:35 PM
COMMISSIONER BUTCHER agreed.
CO-CHAIR PASKVAN agreed that they needed the effective tax rate
presentation and to use FY13 numbers.
COMMISSIONER BUTCHER agreed that was a reasonable point, but
going to FY13 becomes more of a projection than using actual
numbers from previous years.
4:14:00 PM
SENATOR WIELECHOWSKI said he recalled at $100 a barrel the
effective tax rate was around 28 percent. He asked if having a
higher marginal tax rate is a good policy call in the context of
Norway that spikes the tax rate to 78 percent for the first
dollar of profit. Alaska chose to have a lower tax rate at lower
dollars and stair-stepped it up as profits went up (the oil
companies made more and the state made more).
He explained that the oil companies were in harvest mode and
making huge amounts of money and investing it elsewhere. The
concept behind the high marginal tax rate was to say if you
reinvest in the State of Alaska we're going to give you what
amounts to a very large tax break. The effective tax rate still
remains at 28 percent at $100 a barrel, but the philosophy
behind the marginal tax rate is that it would encourage
reinvestment in the state. And record reinvestment levels have
been seen every single year since ACES had passed. Is there any
merit to having a higher marginal tax rate?
4:15:29 PM
COMMISSIONER BUTCHER answered that it makes sense to have the
state share in a higher percentage of profits at high oil prices
(progressivity), but the governor thinks the current take is too
high.
4:16:06 PM
MR. STICKEL said slide 15 showed producer's share of profit oil
and the upper end of it being taken away as the price goes up
and that is what the problem is.
4:17:05 PM
SENATOR STEDMAN recapped that before PPT, progressivity didn't
exist and the argument was the state should be happy because its
dollars were going up when the price advanced. Some in the
legislature weren't happy because the state's percent of the pie
was going down. Now the department was showing the reverse where
the state's percent was going up. So he could understand
industry's concern, but industry wasn't concerned when the state
was. He recalled that Governor Murkowski didn't support
progressivity but he still signed the bill.
He then asked for the charts to synchronize ANS West Coast in
dollars because the next side goes to PTV, which deletes
royalties and expenditures distorting the picture. It would be
nice if the X axes lined up.
4:19:01 PM
COMMISSIONER BUTCHER agreed.
SENATOR WIELECHOWSKI said the state would do better under ELF if
oil was under $50 a barrel. ACES originally had a minimum floor,
but the oil companies didn't like that. The bargain was to take
out the state's protection at the low end, but in return the
stated wanted to get more at the high end. They have no idea if
oil will stay this high ($118-120 barrel). Since the
commissioner said progressivity would become punitive to the oil
industry at some point, what point was that?
4:20:20 PM
COMMISSIONER BUTCHER answered there was no specific spot;
companies are different and have different views. This slide
just illustrated the size of the state's take as the price of
oil increases.
CO-CHAIR PASKVAN said it's also important to remember that
whatever the numbers may be, Alaska has to approach this problem
wearing two different hats, as the resource owner and as a
taxing jurisdiction.
4:22:17 PM
COMMISSIONER BUTCHER said he was correct, but when a company is
looking at an economic model for $115 a barrel and 72 percent
going to the federal and state governments, that would
definitely be factored in.
4:23:09 PM
MR. STICKEL said slide 16 looks at the profits in dollars
instead of percentages like on the previous slide and it's a way
to see the small growth the producer would realize at higher
prices.
CO-CHAIR PASKVAN asked if it includes credit deductions.
MR. TANGEMAN replied that it assumed that 20 percent of capital
expenditures are available for credit.
CO-CHAIR PASKVAN said another way to phrase that is there is a
40 percent exploration credit and asked if the 20 percent is
only for operators with production or can the credit be turned
into the state for cash.
MR. TANGEMAN replied this only looks at the 20 percent CAPEX
credit; it doesn't make a distinction between refunding credits
versus filing against a tax liability.
4:25:09 PM
SENATOR WIELECHOWSKI said he has heard the administration and
others say when ACES was written, the price of oil was $80 a
barrel and no one expected these high prices, which implies that
others believed ACES works at certain levels, but not at higher
levels. At what point is ACES broke? At what point is the share
no longer fair?
COMMISSIONER BUTCHER answered that he did not know there was an
actual dollar amount, but it's more lopsided at high prices.
4:26:19 PM
SENATOR WIELECHOWSKI said people are asking them to fix the tax
system and that is a critical question to answer.
MR. TANGEMAN agreed and said they need to hear from industry
about it.
4:27:08 PM
CO-CHAIR PASKVAN added that he could infer a number of things
from that statement, the least of which is that the
administration has nothing to say on where the system is broke.
MR. TANGEMAN said he did not agree.
SENATOR WIELECHOWSKI said HB 110, proposing to roll back oil
taxes, isn't the oil companies' bill; it's the administration's.
He assumed when they wrote it that they had some inclination
that the tax system was broken at some point, and now they are
saying they don't know where it's broken.
COMMISSIONER BUTCHER answered that he didn't know of an exact
dollar amount.
4:28:20 PM
MR. TANGEMAN responded, since he referred to HB 110, the two
critical parts of that bill were putting a cap in place and
putting the brackets in place, the brackets making it easier and
more understandable to calculate tax and based it on the federal
system, and it is still a higher tax than anywhere else in North
America.
4:29:11 PM
SENATOR STEDMAN said the chart showing production tax values is
confusing for the public. They need to be consistent and use the
recent price range of around $150 and fix it there before going
north of it. He pointed out the implied 35 percent federal tax
rate and remarked, "I'd like to know the accountants that work
for BP, Conoco or Exxon where they pay 35 percent and I'll show
you the next accountant that is going to get terminated."
4:31:36 PM
MR. TANGEMAN agreed and added that they are getting into the
complexities of the current tax system. As the prices goes from
$35 to $235, the only segment realizing the upside is the state;
"the producers are more or less flat in comparison." The chart
illustrates how the split looks between the three entities.
4:32:23 PM
SENATOR STEDMAN said first they should agree that the industry
does not pay a 35 percent rate. ConocoPhillips publishes its
information and they should get a ballpark figure from that of
where their competitors are. His other point was that the
production tax value is more complex than the marginal and
effective tax rates and it's confusing to the public. It needs
to be "boiled down" so that Alaskans who own the oil can
understand it.
4:34:00 PM
COMMISSIONER BUTCHER said he agreed and they were very willing
to do that. Here they were trying to provide a snapshot that
they would be lucky to get through in two hearings hitting on a
bunch of topics. They would be here for weeks if they dug into
the details.
SENATOR STEDMAN said he knew about the timeframe, but they were
dealing with billions of dollars and the future of the state,
and he personally wanted the details.
CO-CHAIR PASKVAN said he agreed with Senator Stedman. The whole
purpose of the hearing starting last Friday was asking the
Department of Revenue to define the problem. One of their
concerns is starting to advance solutions when they don't know
what the problem is.
4:35:46 PM
COMMISSIONER BUTCHER said he appreciated that, but they were
trying in a fairly small number of slides in a small amount of
time to do that. They would be "excited" to go into detail, but
it's just not part of this presentation.
4:36:20 PM
COMMISSIONER BUTCHER said they used Pedro van Meurs Petro Cash
model in comparing Alaska government take and life cycles to its
international peers in fields over 50 million barrels. It was a
country-by-country snap shot rather than state by state.
4:37:13 PM
SENATOR FRENCH asked if he thought Norway had a healthy level of
industry investment.
COMMISSIONER BUTCHER replied he was not an expert on Norway, but
there seems to be.
SENATOR WIELECHOWSKI said Norway has a 78 percent tax on the
first dollar of profit. He asked if he thought we had to just
look at the government take or are there other levers they
should be pulling.
COMMISSIONER BUTCHER answered obviously there are differences;
Norway is country and Alaska is a state; Norway has a state-
owned oil company; Norway controls their permits; there are a
lot of differences. Permitting is a huge issue as well.
4:38:56 PM
SENATOR STEDMAN said they spent quite a bit of time last go-
round looking at Norway as a comparative and one of the things
that was pointed out is that their marginal tax rate is flat
while ours is robust. He asked the department to come back with
an effective and marginal tax rate comparison between the two.
COMMISSIONER BUTCHER said they would be happy to do that, but
would have to discuss the apples and oranges differences those
comparisons would expose.
SENATOR STEDMAN said he was trying to help his argument and said
Norway has a flat marginal rate and that is probably one of the
biggest issues on the table.
COMMISSIONER BUTCHER agreed to prepare the comparison.
4:40:39 PM
COMMISSIONER BUTCHER said he used the Petro Cash model again
focusing on the largest jurisdictions of oil producers in North
America: North Dakota, California, Texas, Alberta, Oklahoma, OCS
in federal waters, in Alaska waters and ACES in Alaska.
Government take was a percent of divisible income.
SENATOR STEDMAN asked him to rerun the slide with a comparative
of the exporting basins that was presented to the Finance
Committee a couple of hours ago by Dr. van Meurs.
4:41:42 PM
COMMISSIONER BUTCHER said he would be happy to do that; he noted
that Alaska's peers shifted from what they were in 1997 to North
America in 2012.
CO-CHAIR PASKVAN said slide 18 talks about divisible income and
that seems to be PTV, but North Dakota, for example, has a
royalty and a gross production tax system. How do you say it is
divisible income if they are a gross system and we are partially
a net system?
MR. TANGEMAN responded that this was modeled off of Dr. van
Meurs' Petro Cash model and they could get him some details on
how the model handled them.
CO-CHAIR PASKVAN said in comparing Alaska to Texas and North
Dakota it should compare a percent of gross, because their
systems are gross.
COMMISSIONER BUTCHER agreed.
4:43:28 PM
SENATOR STEDMAN said he meant total government take rather than
divisible income.
COMMISSIONER BUTCHER said this slide showed that the government
take is a percentage of divisible income and had a total
government take over the life of the project.
SENATOR WIELECHOWSKI asked Mr. Brena and Mr. Richards last week
if they had some suggestions other than tax changes, like
vertical integration issues, lack of transparency and facilities
access issues, tariff, and pipeline bottleneck issues. Do those
have any merit?
COMMISSIONER BUTCHER asked if he wanted to be more specific.
SENATOR WIELECHOWSKI said he would get a list and would be
interested in the department's opinion.
COMMISSIONER BUTCHER agreed to help him with that.
4:45:32 PM
COMMISSIONER BUTCHER started his five year look-back
presentation and he brought Dona Keppers forward, saying she is
one the three audit masters who oversaw the five-year look-back
project. It came about primarily as a result of last year's
discussions about tax credits and capital expenditures. The
Department of Law determined that under current regulations DOR
could ask industry for more of a breakdown in spending and that
began the month after the legislative session ended. Some of the
issues surfacing in their workshops with companies were that all
had different ways of putting their numbers together, so two
pieces were developed. First they asked companies to do a five-
year look-back and break out their capital expenditures into
five general categories. The second piece was doing a look-
forward with a lot more detailed categories with not just
capital expenditures but operating expenditures as well.
4:48:43 PM
CO-CHAIR PASKVAN asked him to jump forward to page 5 because
some of it is self-explanatory.
COMMISSIONER BUTCHER said he was happy to do that. He said they
spent a lot of time in-house discussing what categories should
be used and conducted four workshops (one of which Senator
Paskvan sat in on) with industry averaging about 15 companies
per workshop. Industry was responsive and worked with them very
well in trying to compile this information and helped establish
the expenditure categories for both the look-back and the
forward reporting.
4:49:50 PM
COMMISSIONER BUTCHER said the five-year look back was for 2006
to 2010. It doesn't go to 2011 because the true ups for 2010
come in then. The first of the five basic categories was
geological and geophysical work (G&G) and includes work and/or
costs associated with the performance or acquisition of seismic
and/or geological and geophysical data. Exploration drilling was
a different category that included drilling and exploration
wells, an appraisal well that is post-discovery and prior to
development and included side tracks on the discovery well, and
appraisal costs including coring and testing discovery wells.
The development drilling included costs associated with well
drilling, completions, planned multi-laterals of development
wells including costs upstream and all costs related to well
work overs and completions. Facilities included well tie-in
costs, expansions of existing facilities such as increasing oil,
gas or water handling increases to capacity, debottlenecking or
processing facilities' improvements to reliability or reduced
operational costs, production control system upgrades, IT,
communications equipment, control systems, camp sites, medical
facilities, laboratories, warehouses and any facilities that
would fall generally into that category. The fifth category was
a catch-all for other capital expenditures which include
significant capital equipment, health, safety, environment and
other non-drilling related costs that weren't captured in the
previous four categories.
4:52:26 PM
SENATOR STEDMAN asked him to point out what was available for
the 20 percent capital credits with the immediate write off as
he goes forward.
COMMISSIONER BUTCHER replied that he didn't have that kind of
detail yet, but he would see what could be done. He added that
the categorized capital expenditure data represents
approximately 90 percent of the costs related to credit
applications that the department has seen. He then passed the
presentation over to Ms. Keppers.
4:53:17 PM
DONA KEPPERS, Audit Master, Tax-Production Audit Group,
Department of Revenue, State of Alaska, said the categorized
capital expenditure data represents 90 percent of the costs
related to qualified capital expenditures. That is important
because it means a company can have costs greater than those
reported for credit purposes, because they may have costs that
they have chosen not to apply for a credit on.
She said slide 9 showed that 2006 includes nine months of PPT
and indicated that the exemptions for the five-year period
totaled $9.3 billion. The two largest categories are facilities
and development. She said the overall trend was for increased
spending probably in maintaining production (as there are no
major increases or decreases in any one category).
MS. KEPPERS said development drilling and facilities had
increases in 2007 and 2008 and a decline in 2009 (the first year
that ACES would have possibly had some effect on budgets and
activities). The increase in spending in both development wells
and facilities in 2010 was greater than in years prior to 2009.
The figures provided no significant indication of ACES
influences but maybe were a reflection of the credit program and
more targeted spending for credits qualifying for spend.
4:55:29 PM
MS. KEPPERS said a broader perspective for total companies
development drilling ($4.2 billion) could be viewed as being
relatively flat or generally demonstrated no dramatic increase
during the four-year period. The other $4.2 billion for
facilities spend mirrored that of development and could be
interpreted as simply supporting existing production from
existing fields. The slight fluctuation in total expenditures
for these categories could also be attributed to annual cost
increases for labor or services, materials, and not necessarily
reflective of an increase in overall development activity.
4:56:21 PM
CO-CHAIR PASKVAN asked if figures from 2009 were possibly
consistent with the world and U.S. economic downturn.
MS. KEPPERS answered that all of that had an impact on costs.
She said that slide 10, G&G and drilling costs, indicated
increases from 2007 to 2008 and a decline in 2008 to 2009 and
then increasing from 2009 to 2010. She said the multi-year
increases were not reflected in development drilling and after
the increase in 2007, spending stays fairly level for the
remainder of the reporting period. This agrees with statements
made by some companies that they had level spend to develop
existing fields and are not pursuing new finds or development of
new fields.
4:57:48 PM
MS. KEPPERS said slide 11 showed facilities for all companies,
and some of the costs were for new development; others were for
replacement of aging facilities.
4:58:33 PM
SENATOR WIELECHOWSKI asked for some examples of CAPEX and OPEX
for facilities.
JOHN LARSEN, Audit Master, Tax-Production Audit Group,
Department of Revenue, responded that CAPEX would have a longer
type life that would be related to buildings and vessels for
handling the production; the OPEX is by and large labor and
materials.
CO-CHAIR PASKVAN recognized Senator Egan in the audience.
4:59:53 PM
MS. KEPPERS said on slide 12 that costs between independents and
majors were difficult to split out because for 2008, 2009 and
2010 the aggregation factor of three or more companies for
confidentiality couldn't be met. So the costs got lumped
together by year for the look back. The independents had a
total CAPEX of $2.6 billion. Capital expenditures increased in
2008 through 2010 by approximately 67 percent for the
independents, which may be due to increased activity in the
smaller producing fields.
5:00:50 PM
SENATOR STEDMAN asked for a rough idea of a figure for
reimbursements the state would be making on the $805 million in
credits.
MS. KEPPERS replied they would have to work with Mr. Dees to get
those details.
COMMISSIONER BUTCHER said they would do that.
CO-CHAIR PASKVAN said it would be interesting to have it for the
majors as well.
MS. KEPPERS said they could do that.
5:02:11 PM
MS. KEPPERS said slide 13 was similar with total CAPEX for the
major companies that amounted to $6.7 billion. The increase for
them for the same time period of 2008 to 2010 was approximately
5 percent. The data indicated no major increases overall in
spending totals, especially in the most recent three years.
SENATOR STEDMAN asked when the request goes out for expectations
in FY13-16 if could they break data down into the independents
and the majors and just add them to the same charts so they
don't have to flip back and forth.
MS. KEPPERS and commissioner agreed to do that.
5:03:24 PM
COMMISSIONER BUTCHER went to the conclusions on slide 14 and
said they would be having further workshops and getting more
details and everyone was invited. They are open to the public.
He said capital expenditures from 2007 to 2010 increased from
just under $2 billion to about $2.4 billion; explorers seemed to
spend most of their money on drilling wells and G&G. Companies
in the development stage spent money on development drilling and
facilities; companies in transition spent money in multiple
areas depending on what stage they were in; and companies in the
mature production phase spent money on maintenance and upgrade
of facilities and development wells. More players are active in
the field, as well.
5:04:56 PM
COMMISSIONER BUTCHER said they were working on the proposed
annual cost supplemental information report and will have one
more year of look-back and starting with calendar year 2012 they
will be able to use more detailed categories. He said they have
discussed these issues with industry and had given them a
general breakdown of different categories and definitions and a
picture of where they are going with it. He hoped for a "fairly
seamless move" so they can give the legislature more detail on
expenditures with each additional year.
5:05:48 PM
CO-CHAIR PASKVAN thanked the presenters and held SB 192 in
committee.
CO-CHAIR PASKVAN transferred the gavel to Co-Chair Wagoner.
HB 60-GEODUCK AQUATIC FARMING/SEED TRANSFER
5:06:12 PM
CO-CHAIR WAGONER announced the consideration of HB 60.
5:06:46 PM
CO-CHAIR WAGONER asked for a motion.
5:06:55 PM
CO-CHAIR PASKVAN moved to bring HB 60, version \A, before the
committee for purposes of discussion.
CO-CHAIR WAGONER objected for purposes of discussion.
5:07:20 PM
REPRESENTATIVE PAUL SEATON, sponsor of HB 60, said he
appreciated the timely effort the committee was taking on this
bill. He said it works on trying to promote economic development
around the coast of Alaska where it is difficult to establish
new economic bases, especially ones that won't conflict in time
with salmon and herring fishing. He said HB 60 allows for sub-
tidal farming of geoduck clams. They average about 2.5 lbs. and
are about 7 inches long. They are filter feeders and are
generally two to three feet down in one place their entire life.
Their habitat has worms and tunicates, a small sessile animal
(naturally immobile) that aren't used commercially for
subsistence, and nothing about geoducks has been found to
inhibit their numbers.
His said his plan is necessary because the ADF&G has an informal
policy of not allowing geoducks to go to the single certified
hatchery in the state in Seward for raising and being
distributed to farms anywhere other than where they are already
occurring (only in Southeast). The recent geoduck conflict has
been because wild stocks are harvested by divers and people want
to put farms in good habitat which is where there is already a
wild stock.
He explained however, that if the species would proliferate it
would be a great bonus for Alaska, because right now fishermen
are getting $21 lb. for them. It is good for communities around
the coast because geoducks, unlike oysters or muscles that have
to be tended two or three times every summer, are put in the
sediment with a small plastic piece of pipe with a net on the
top to keep out predators, two years later those are taken off,
and in about seven years you are in harvest mode without doing
anything else.
5:11:13 PM
REPRESENTATIVE SEATON began his video presentation at 5:11 and
that ran until 5:14 p.m.
5:14:41 PM
REPRESENTATIVE SEATON said HB 60 simply says you can't use the
absence of geoducks in an area to deny a plan permit. It would
be for all areas around the Gulf of Alaska, Kodiak, Yakutat,
Chignik and other areas out West, but not including Kachemak
Bay, which is designated a critical habitat and doesn't allow
bottom farming.
5:15:18 PM
REPRESENTATIVE SEATON said HB 60 limits farms to sub-tidal
areas, so there is no interference with subsistence or sport
fisheries. This is a clean and renewable fishery; it depends on
clean water so people will make sure no pollution comes in.
He said the state has "larval drift zones" to make sure if you
are enhancing a clam species you have to take the stock from
that same area, raise the seed and then replant from that same
stock so you don't get genetic crosses. And HB 60 is
specifically for taking clam seed to an area where there are no
natural stocks in the first place to alleviate that worry.
5:16:44 PM
CO-CHAIR WAGONER asked what the main predator for geoducks is as
they are being raised.
REPRESENTATIVE SEATON answered when they are juveniles it's the
star fish.
SENATOR STEVENS asked how the red tide would affect geoducks.
REPRESENTATIVE SEATON answered that geoducks are filter feeders
and would be affected by a red tide bloom. This bill does not
exempt any farm from all of the health and safety criteria that
all Mari culture farms must deal with. So the geoducks have to
be tested before they are sold.
5:17:59 PM
SENATOR STEVENS asked if there are shellfish hatcheries ready to
supply the needs of this new industry.
REPRESENTATIVE SEATON replied the problem with having the only
shellfish hatchery in the state is that its business plan was
based on sale of seeds so it could be self-sustaining. Geoduck
seed is much more valuable than oyster seed and without being
able to distribute to more farms than just in Southeastern
Alaska that business plan has not been realized. This bill
should make the shellfish hatchery self-sustaining.
5:18:35 PM
SENATOR WIELECHOWSKI recalled concerns from ADF&G and asked if
they had been resolved.
5:18:56 PM
REPRESENTATIVE SEATON answered yes, and the department is now
neutral. They were concerned about the larval drift zones in
terms of contamination and there is no question of that here.
5:19:31 PM
SENATOR FRENCH asked if he heard any opposition to the bill.
REPRESENTATIVE SEATON answered not since ADF&G came out with its
concern.
5:19:47 PM
CO-CHAIR WAGONER opened the public hearing.
5:20:56 PM
PAUL FUHS, Alaska Sea Farms, said he supported HB 60 and that
Alaska Sea Farms is the biggest operation growing geoducks in
Southeast. He said if they pass this bill, it won't be a wasted
effort. They would go immediately to a research permit and get
some geoducks in the ground and see how they grow, mortalities
and things like that. Geoducks are growing in Resurrection Bay
right now. He said "the market has just gone off the deep end
for geoducks" and that $21 lb. to fisherman makes it the highest
price fish in Alaska. It takes seven or eight years to grow
them, but once you get them in the ground that is all you need
to do. It's really good for rural Alaska, but what makes it so
simple is the logistics: the transportation, the hatchery, the
PSP testing is all there and that is what Southeast fights all
the time. So it could be even more successful in Southcentral.
5:21:53 PM
SENATOR STEVENS asked how a person starts a geoduck farm.
MR. FUHS explained that you get a lease from the State of Alaska
and from that you get exclusive use of the clams on your site.
They don't worry about people coming and taking them because
they are not a big item on most people's menu. But you have to
prove that the water is clean and take over a year's worth of
water samples; you can't be anywhere near a discharge line; you
have to stake it off; you have to get a permit to transfer the
seed from the hatchery, but that's it. The lease lasts for 10
years and is renewable. They have had some of these farms for 10
years and are just beginning to sell their first adult geoducks.
5:23:04 PM
CO-CHAIR WAGONER asked about much a first-year geoduck weighs.
MR. FUHS replied about two pounds after seven or eight years.
5:23:46 PM
ROGER PAINTER, President, Alaskan Shellfish Growers Association,
said they supported HB 60. He said the geoduck market is strong
and seems to be getting strong all the time. There are major
geoduck aquaculture operations in Puget Sound that are doing
very well, and two have had some interest in investments in
Southcentral. And while he thinks they should be successful,
they won't really know until the animals are put in the ground.
They have been unsuccessful to this point in convincing ADF&G to
do an experimental approach.
5:25:45 PM
SENATOR WIELECHOWSKI asked if someone for ADF&G was on line.
CO-CHAIR WAGONER said no, just someone from the shellfish
hatchery.
SENATOR WIELECHOWSKI asked if it was run by the state.
CO-CHAIR WAGONER said someone indicated yes.
SENATOR WIELECHOWSKI asked Mr. Hetrick (on line) if he saw any
problems to the ecosystem with this, a disease or anything.
JEFF HETRICK, General Manager, Alutiiq Pride Shellfish Hatchery,
Seward, Alaska, answered no. They are currently using
Resurrection Bay water that is filtered prior to coming into the
hatchery and then they chlorinate the effluent prior to going
back into the bay. So there should be no disease concerns. He
said there are other clam populations, but sub-tidally they
don't expect any competition between geoduck clams and anything
else.
5:26:50 PM
SENATOR WIELECHOWSKI asked how much acreage they anticipate
leasing and how many geoducks they will allow per acre.
MR. HETRICK answered initially a fisheries resource permit would
just be a small plot to prove the concept and identify the sites
that would be applicable. The minimum size for a commercially
viable farm for DNR and ADF&G is two acres, but he didn't know
exactly how many geoducks get planted per acre - but hundreds of
thousands.
SENATOR WIELECHOWSKI asked if there is spacing between the
acreage.
MR. HETRICK answered that the acreage is fee-based, so you don't
want to take more space than you actually need. But typically,
farms are contiguous; acreage would be side by side. These sites
require specific habitat and you wouldn't be taking steep rocky
slopes, for instance; you'd look for gentle sandy bottoms or
light gravel, which are "minimized." They are working with the
Sea Life Center and some local dive shops to identify some
locations for the first proof of concept program in Resurrection
Bay. Perhaps others would step forward with other sites.
5:28:28 PM
SENATOR STEVENS asked how geoducks are processed, since they are
off the road system.
5:29:04 PM
MR. FUHS replied that they are taken from remote locations now
and delivered by the dock, but they are sold live. So as soon as
they hit the dock they go into "chill mode" and are flown out
immediately. They experimented with processing some of them, but
the market didn't want that. They wanted live geoduck.
5:29:39 PM
SENATOR STEVENS asked if geoducks can survive for a period of
time.
MR. FUHS answered yes; they found that the farms benefit the
smaller airlines and ships, fuel, divers, and all the ancillary
services that go around it.
5:30:18 PM
CO-CHAIR WAGONER asked if some of the Native corporations want
to get into the geoduck industry; Port Graham would probably be
a perfect place because it doesn't get a big surge and is
shallow. Can they be transported to Homer on a boat and then be
put on the airplane in Homer?
MR. FUHS answered yes.
SENATOR WIELECHOWSKI asked if geoducks are handpicked by SCUBA
(self-contained underwater breathing apparatus) divers.
MR. FUHS replied yes; they are dug in so hard that the diver
puts a water jet down in the mud and it loosens it up a little
bit to where the geoduck can be wrestled out. It's tough work in
about 15-40 feet of water, but a diver can harvest about 1,000
animals a day.
CO-CHAIR WAGONER asked if they use hookah gear.
MR. FUHS replied yes, sometimes hardhat, sometimes SCUBA.
CO-CHAIR WAGONER closed public testimony and removed his
objection. He asked for a motion to move HB 60 out of committee
with individual recommendations and attached fiscal note(s).
5:31:57 PM
CO-CHAIR PASKVAN said so moved. There were no objections and HB
60 moved from the Senate Resources Standing Committee.
5:32:08 PM
CO-CHAIR WAGONER adjourned the Senate Resources Standing
Committee meeting at 5:32 p.m.