Legislature(2017 - 2018)BUTROVICH 205
03/01/2017 03:30 PM Senate RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| SB60 | |
| SB44 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 60 | TELECONFERENCED | |
| *+ | SB 44 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
March 1, 2017
3:30 p.m.
MEMBERS PRESENT
Senator Cathy Giessel, Chair
Senator John Coghill, Vice Chair
Senator Natasha von Imhof
Senator Bert Stedman
Senator Shelley Hughes
Senator Kevin Meyer
Senator Bill Wielechowski
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 60
"An Act relating to sport fishing, hunting, or trapping
licenses, tags, or permits; relating to penalties for certain
sport fishing, hunting, and trapping license violations;
relating to restrictions on the issuance of sport fishing,
hunting, and trapping licenses; creating violations and amending
fines and restitution for certain fish and game offenses;
creating an exemption from payment of restitution for certain
unlawful takings of big game animals; relating to commercial
fishing violations; allowing lost federal matching funds from
the Pittman - Robertson, Dingell - Johnson/Wallop - Breaux
programs to be included in an order of restitution; adding a
definition of 'electronic form'; and providing for an effective
date."
- MOVED SB 60 OUT OF COMMITTEE
SENATE BILL NO. 44
"An Act relating to information concerning oil and gas taxes,
including information about expenditures that must be provided
to claim an oil and gas production tax credit for those
expenditures; relating to the disclosure of that information;
and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 60
SHORT TITLE: FISH & GAME: OFFENSES;LICENSES;PENALTIES
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/15/17 (S) READ THE FIRST TIME - REFERRALS
02/15/17 (S) RES, JUD, FIN
02/27/17 (S) RES AT 3:30 PM BUTROVICH 205
02/27/17 (S) Heard & Held
02/27/17 (S) MINUTE(RES)
03/01/17 (S) RES AT 3:30 PM BUTROVICH 205
BILL: SB 44
SHORT TITLE: OIL & GAS TAX CREDIT REPORTING
SPONSOR(s): GARDNER
02/01/17 (S) READ THE FIRST TIME - REFERRALS
02/01/17 (S) RES, FIN
03/01/17 (S) RES AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
DICK ROHRER, representing himself
Kodiak, Alaska
POSITION STATEMENT: Supported SB 60.
AL BARRETTE, representing himself
Fairbanks, Alaska
POSITION STATEMENT: Supported SB 60.
BRUCE DALE, Director
Division of Wildlife Conservation
Alaska Department of Fish and Game (ADF&G)
Palmer, Alaska
POSITION STATEMENT: Commented on SB 60.
MAJOR BERNARD CHASTAIN, Deputy Director
Alaska Wildlife Troopers
Alaska Department of Fish and Game (ADF&G)
Anchorage, Alaska
POSITION STATEMENT: Commented during the discussion of SB 60.
SENATOR GARDNER
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Sponsor of SB 44.
SAMANTHA HARRIS, staff to Senator Gardner
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Commented on SB 44 for the sponsor.
EMILY NAUMAN, Legislative Attorney
Legislative Legal Services
Legislative Affairs Agency
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Commented on SB 44.
RANDALL HOFFBECK, Commissioner
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Comment on SB 44.
LENNIE DEES, Audit Master
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Commented on SB 44.
RICHARD RUGGIERO, Legislative Consultant
Castle Gap Advisors
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Commented on SB 44.
ACTION NARRATIVE
3:30:19 PM
CHAIR CATHY GIESSEL called the Senate Resources Standing
Committee meeting to order at 3:30 p.m. Present at the call to
order were Senators Coghill, Stedman, Von Imhof, Wielechowski,
Hughes, and Chair Giessel. Senator Meyer joined the meeting
shortly thereafter.
SB 60-FISH & GAME: OFFENSES;LICENSES;PENALTIES
3:30:43 PM
CHAIR GIESSEL announced consideration of SB 60 and opened public
testimony. She said SB 60 was proposed by the State Troopers,
Fish and Wildlife Enforcement, and Alaska Department of Fish and
Game. It would increase the fines for violations.
DICK ROHRER, representing himself, Kodiak, Alaska, supported SB
60. However he questioned if a violation in other countries like
Mexico and Canada should be included in section 2. He liked the
opportunity in section 3 for someone to be able to show their
license later when they don't have it on them. He fully
supported the increased fees in section 17 and especially the
qualifier in section 18 where if a person makes a mistake and
turns it in immediately they are not subject to those fines.
CHAIR GIESSEL thanked him and noted that the bill has another
referral to the Judiciary Committee, and three of those members
are on this committee and they will take his comments forward.
AL BARRETTE, representing himself, Fairbanks, Alaska, supported
SB 60, adding that all of his questions were answered by Major
Chastain. However, he asked the committee to consider removing
the taxidermy license requirement on page 2, line 6. He is not
opposed to licenses, but he is opposed to redundant licensing.
He has a business license for a fur tannery and now he is also
now being required to have this taxidermy license, which is a
duplicate of the ADF&G license and costs $100 a year. He doesn't
know where that money goes or what it is used for. He knows it
doesn't directly affect any taxidermist or the industry in this
state. He suggested they contact other taxidermists to get
support for that amendment.
CHAIR GIESSEL thanked him and said she hadn't heard from any
other taxidermists. She asked Mr. Dale to respond to the
comments about the taxidermy license.
3:35:04 PM
BRUCE DALE, Director, Division of Wildlife Conservation, Alaska
Department of Fish and Game (ADF&G), Palmer, Alaska, answered
that they did some research on the taxidermy license and found
that the money goes to the general fund and is not directly
returned to the department for any special purpose. The
licensing requirement provides a statutory basis for regulations
relative to taxidermy and taxidermists. At this time those
regulations say that sale of game trophies is illegal. However,
licensed taxidermists can get a permit from the department - if
they can show they have tried to contact the owner if he hasn't
paid for it or picked it up after six months - to sell the
trophy which they otherwise wouldn't be able to do. This type of
permit is used 9 or 10 times a year by licensed taxidermists and
involves a pretty insignificant amount of time, about a day or a
day and a half.
MR. DALE said the taxidermist license is $200 every two years
and the program takes in about $13,000 annually (to the general
fund). The amount of the licensing is more than what it costs to
administer the regulations. But the license itself does provide
the basis by which the board or commissioner can make
regulations for taxidermy.
CHAIR GIESSEL thanked him and reiterated that the bill will move
to the Judiciary Committee where the chair, Senator Coghill,
would address the issue.
SENATOR COGHILL said he would probably look at it in the context
of what other places have a permit or licensing requirement and
still have to get a business license.
CHAIR GIESSEL, finding no further comments, closed public
testimony.
SENATOR STEDMAN said it seems like the double increase in fines
might be justified by inflation since they were last set in
1988, but doubling them will not stop commercial fishermen from
violating. It seems to be just another penalty added to a long
list of other actions that can be taken against them. He wanted
the Judiciary Committee to look at the impact of these fines on
everyone, especially commercial fishermen.
CHAIR GIESSEL said along with that issue, they talked about the
discretion given to the prosecutor in terms of the level of
discipline. That is also a Judicial Committee issue.
MAJOR BERNARD CHASTAIN, Deputy Director, Alaska Wildlife
Troopers, Alaska Department of Fish and Game (ADF&G), Anchorage,
Alaska, said he would be happy to talk to the Judiciary
Committee about the commercial fishing strict liability
penalties and with Senator Stedman if he has additional
questions.
3:41:34 PM
SENATOR COGHILL moved to report SB 60, version A, from committee
with individual recommendations and attached fiscal note(s).
There were no objections and it was so ordered.
3:41:45 PM
At ease
SB 44-OIL & GAS TAX CREDIT REPORTING
3:43:41 PM
CHAIR GIESSEL announced consideration of SB 44, sponsored by
Senator Gardner. Since the State of Alaska has been offering
incentives to various industries there has been a constant
tension between the public's right to know how public money is
being spent and the need for those investments to not be
compromised by undermining the competitiveness of those
decisions. She welcomed Senator Gardner.
SENATOR GARDNER, sponsor of SB 44, Alaska State Legislature,
Juneau, Alaska, said this measure is about transparency in how
state funds are used. If they want to support and ensure a
continuing effort for the state to participate in supporting and
promoting resource development in oil and gas fields, they have
to understand what the state's investments have done in the past
and what they are doing now, where efforts are being effective
and where money might just be poured down a hole. The first step
is to understand which companies are getting how much and in
broad strokes what they are doing with it. She did not want any
information of a competitive nature or for people to reveal
things they don't want other companies to know about. She is
interested in how much money a company claimed from the state
for what they are doing and how it is being spent.
3:47:21 PM
SAMANTHA HARRIS, staff to Senator Gardner, Alaska State
Legislature, Juneau, Alaska, began a sectional analysis of SB
44.
Section 1 amends statutes dealing with confidentiality and
exemptions of that confidentiality. This section expands current
exemptions to provide information like a description of an
expenditure, its purpose, and the lease or property for which
that expenditure was incurred. It would allow the Department of
Revenue (DOR) to collect that information and share it.
3:48:30 PM
Section 2 expands language that was added last year under HB 247
that requires disclosure of cash credits. It requires more
information regarding non-cash credits like credit certificates
purchased by the department in the preceding calendar year, the
name of each person or department for which a tax credit was
issued, the aggregate amount of the tax credit certificates
purchased from the person in the preceding calendar year, and
information submitted during the previous calendar year.
3:49:10 PM
Section 3 amends existing statute concerning tax return
information from oil and gas explorers and producers that are
producing oil and gas, asking that they now report to the DOR a
description of their expenditure, and the purpose for the lease
or property for which it was incurred.
3:49:34 PM
Section 4 is very similar to section 3 and amends a different
area of statute concerning oil and gas producers and explorers
that do not produce oil and gas and asks them to provide the
same information in section 3.
3:49:52 PM
Section 5 concerns dates for reports to be made available to the
legislature. There could be a date conflict here, because it's
convenient for the legislature to receive a report early on in
session. But this section asks for a report to be submitted
within 10 days of a regular legislature's convening time, and
due to the nature of tax information, that isn't available until
the end of April. So in section 2, April 30 is the date for
information submitted to the department, but it might also be
more practical to have the same date for the legislature.
However, session might not still be in then. So this issue is up
to the discretion of the committee.
3:51:13 PM
Section 6 provides for an effective date of July 1, 2017. This
means if they stick to the first 10 days of a session date, then
a report won't be available until January 2019. But using the
April 30 date would allow a partial report to be available by
April 2018.
CHAIR GIESSEL asked about section 4 that relates to folks who
are not producing oil or gas at this time, but are getting
credits that aren't cashable.
MS. HARRIS replied that the bill only concerns credits under AS
43.55.023 and .025. while section 4 addresses credits only
under .023.
CHAIR GIESSEL said her question was related to explorers that
aren't yet producing oil or gas from a lease or property and
asked what kind of information they want disclosure of, because
some of it could be proprietary.
MS. HARRIS replied that the intent of the bill is not to gain
that proprietary information, but just to understand what the
public funds do to increase production of oil and gas. The
sponsor is open to changes to make sure that proprietary
information is not being shared. The bill packet has an example
on how Louisiana collects information and requires their
disclosures in broad strokes.
SENATOR VON IMHOF asked if the bill includes different tax
credits and net operating losses (NOL).
MS. HARRIS answered yes.
3:55:45 PM
SENATOR VON IMHOF asked if the sponsor intends to evaluate tax
credit effectiveness, and what additional information they are
asking for to be able to evaluate that the credits are working.
MS. HARRIS answered that the sponsor feels that gaining the
description of the expenditure and what it is going towards will
help in the assessment.
SENATOR VON IMHOF said she suspects it might play out this way:
If she gets a $1,000 credit in cash, she could either spend it
on phone, rent, gas, utilities, whatever; she kind of pools it
with the money she already has to spend on her collective
expenditures. She asked how that is any different than a rig, a
road, a payroll, permits, or whatever it may be. These companies
can say they have earmarked the credit for a rig or that they
have used the money for all the things they need in order to
explore this new area. It's hard to sometimes qualify and she
didn't know if they would get exactly what the sponsor is asking
for.
MS. HARRIS said the sponsor understands the concern, but the
intent is that the information is helpful, and this is just one
way to approach it.
CHAIR GIESSEL said she would invite Commissioner Hoffbeck to
comment it.
SENATOR COGHILL asked, since sections 3 and 4 are prescriptive,
why is the language on page 2, line 27, - under a regulation
adopted by the department - necessary.
3:58:19 PM
EMILY NAUMAN, Legislative Attorney, Legislative Legal Services,
Legislative Affairs Agency, Alaska State Legislature, Juneau,
Alaska, answered that the intent is to give the department some
flexibility in the type and nature of information that would be
collected under the new and expanded language, but the exact
intent of that language belongs with the sponsor.
SENATOR COGHILL recapped that the bill is prescriptive and asked
what the department might use that flexibility for.
SENATOR WIELECHOWSKI said when he does his taxes it's a pain to
itemize the deductions, but he doesn't have to take them. He
looks at this the same way: if you don't want to take advantage
of billions of dollars in tax credits, you don't have to, but if
you do want to take advantage of billions of dollars in public
money, you simply have to write down what you used it for.
4:00:27 PM
MS. HARRIS said that is correct. The intent of this legislation
is that because these are public funds, the sponsor thinks there
should be some accountability.
4:00:52 PM
CHAIR GIESSEL commented that no single company gets billions in
a tax credit; it's more like millions and that is small change
in these types of developments.
SENATOR WIELECHOWSKI asked how much in net operating losses are
being claimed in 2018.
MS. HARRIS said she didn't have that on the top of her head, but
could look through her notes.
SENATOR WIELECHOWSKI said his understanding is that about $8
billion in tax credits have been paid out in recent years.
MS. HARRIS said that is the figure she has as well, and it was
provided to members in the bill packet on page 29 of a DOR
presentation.
CHAIR GIESSEL asked for the timeframe involved in the $8
billion.
MS. HARRIS replied that figure is from FY2007-2016.
CHAIR GIESSEL asked if Ms. Harris had the amount of revenue that
the State of Alaska appreciated during that same timeframe.
MS. HARRIS said she didn't have that information at her
fingertips.
4:02:35 PM
RANDALL HOFFBECK, Commissioner, Department of Revenue, Juneau,
Alaska, said the genesis of what SB 60 is trying to accomplish
is that while the Department of Revenue (DOR) gets to see the
data, it doesn't have the ability to share it with the decision
makers who have to decide whether in fact the tax/credit system
is functioning, appropriate, or the most efficient. The bill
sponsor has simply said it makes sense for the legislature and
the public to have access to at least some level of information
as it makes these difficult decisions, although it would never
be the level of detail the department gets.
SENATOR COGHILL agreed that they should get the information, but
asked if this regulation capacity is necessary in order to make
those decisions.
COMMISSIONER HOFFBECK said having regulatory authority is
important because sideboards are needed on some things that may
not be fully detailed in the legislation. The difficulty that
Senator von Imhof was referring to is in how to determine which
piece of work is causing the net operating loss. This is not an
issue for the non-producers, because whatever they are working
on is creating their loss and they don't have anything to write
that off against. It becomes more difficult when a producer is
producing a certain amount of oil and also maybe developing a
field that doesn't have production, and how to parse out which
piece of development is creating a loss.
SENATOR COGHILL said language on page 3, line 10, for the credit
claim is pretty detailed and "down to the penny" and some
expenditures are blended and asked if that was the reason for
the regulation or if the language is explicit enough to say
"every expenditure blended or not."
COMMISSIONER HOFFBECK answered that it's not intended to get
down to the pennies; it's more the idea of for instance spending
a billion dollars in capex and opex, but only generating a $100
million in loss, and what piece that loss is associated with.
So, you don't have to report everything on the entire billion
dollars, just on the piece that is a loss.
SENATOR COGHILL said detailing every expenditure looks like a
lot of work and asked if that could be gotten to a legislature
in the kind of timeframe outlined in the bill.
4:08:20 PM
COMMISSIONER HOFFBECK said that language is in section 5 and it
could be removed, because an earlier section provides for a
different deadline, April, which is doable. Ten days would be
very difficult and conflicts with the April language.
SENATOR WIELECHOWSKI said he had asked a question before about
tax credit subsidies that went to various producers, and the
chair corrected him saying that various companies haven't gotten
billions. He wanted to ask if the commissioner could get the
committee a list of how much each producer has gotten in tax
credits and what the general purpose of those credits were for.
COMMISSIONER HOFFBECK answered that he couldn't provide that
information, but that is the reason for this legislation.
SENATOR WIELECHOWSKI commented: "You mean to tell me that me,
sitting here as a policy maker, have doled out $8 billion in
public subsidies and I can't even see what those - that money
has gone to?"
COMMISSIONER HOFFBECK answered that the department has strict
confidentiality statutes and cannot release that information
because of them.
4:09:59 PM
SENATOR STEDMAN said he wanted to put that into context, because
he thought the bill was written to target company-specific
details. He also had concerns with the general subject matter,
because as policy makers, legislators get the Revenue Sources
Book from the DOR in the fall. It provides insight into what is
going on with revenue projections and expenses and what the
department feels would be of interest given the circumstances of
the year. Without that they would be totally lost. The Revenue
Sources Book is compiled with monthly data from multiple
companies and put together and delivered as a one lump sum
annual book and legislators don't have the ability to look at
all the different components like from the previous questioner:
what company got what credit.
One of the frustrating things is that industry has in-depth data
on themselves per company in multiple fields and the legislature
gets a consolidated number. This is what makes it difficult to
set policy. We're talking billions in credits, he said. He's not
interested in particular companies, but in particular fields,
and surmises that the department would be in a better position
to tell them what is working and what isn't.
For an example, Point Thomson where the 20 percent capital tax
credit was deleted had billions in development costs and was
critical to the State of Alaska to get that field on line and
expand the infrastructure. The state was able to the first few
years of the tax credits applicable to the development and could
see the credit number for Point Thomson. Then a couple of years
went by and that kind of all got merged together into one credit
number for the North Slope. Now the field is up and running and
has a high tariff because it's a long ways away. But the policy
makers don't know what it costs the industry and how well it's
working.
SENATOR STEDMAN said he is not interested in the credits BP,
ExxonMobil, or ConocoPhillips got, but he is interested in what
the industry got, so when he has a better feel for what is good,
bad, or otherwise policy. The DOR has the information but it is
confidential. The commissioner should be able to tell him if a
particular policy works for the state or not, so it can be
fixed.
4:16:47 PM
COMMISSIONER HOFFBECK said he concurred; he thought sharing more
information with the legislature would be in everybody's best
interest. Going forward, HB 247 gave the department the ability
to report the name of a company and how much they have collected
in credits, but only on the credits for which a check has been
written (not certificates) and he couldn't go backwards.
4:18:20 PM
SENATOR MEYER said industry's concern with transparency is maybe
tipping off the competition.
COMMISSIONER HOFFBECK said that was true and legislative
consultant Mr. Ruggiero could talk about how other jurisdictions
deal with transparency.
SENATOR MEYER said these tax credits have quite a history going
back to PPT. The 20 percent credit was in ACES and other credits
have been sprinkled in along the way. For the most part, the
credits had two objectives: to get smaller companies on to the
North Slope and to get more oil in the pipeline. Both objectives
have been met. Small companies like Caelus, Hilcorp, Armstrong,
Brooks Range, Great Bear and a couple of Native corporations are
up there and have some discoveries. The big three are actually
putting more oil in the pipeline, as well. So, wouldn't you say
that our tax credits are a success?
COMMISSIONER HOFFBECK replied that a lot of things came into
play with the new discoveries, and production and credits were
part of that, but there may be a more efficient way to apply the
credits now. People realize the state has a place in helping
incentivize certain activity, but the limited resources it has
have to be used as surgically as possible.
SENATOR MEYER said it gets kind of confusing on the per-taxable
barrel credit that bumped the base rate of 25 percent up to 35
percent, which in itself would be the highest in the world. But
then they said since they weren't going to have progressivity
anymore like under ACES they would use a sliding scale so that
the higher the price the closer to the 35 percent we get. He
asked if that is a tax credit or just part of the production
tax.
COMMISSIONER HOFFBECK replied that the administration has been
pretty consistent in feeling the per-barrel credit is part of
the tax system. It was felt that 35 percent was too high and the
credit was a way of offsetting that rate at lower oil prices.
SENATOR MEYER stated that if people try to add the per taxable
barrel credit to the total tax credits, that's not really apples
and apples.
4:23:12 PM
COMMISSIONER HOFFBECK replied that their presentations have
parsed that credit out from the rest of the credits as a
separate line item.
4:23:18 PM
SENATOR VON IMHOF said in retrospect a more robust evaluation
system and process should have occurred many years ago when the
tax credits were rolled out. If we are going to be giving away
tax payers money, there should be some level of confidence that
it is being used in the highest and best use. But we didn't and
HB 247 attempted to address that and its first report will
happen in April and that should be revealing in what kind of
information can be collected.
4:24:58 PM
COMMISSIONER HOFFBECK remarked that the April report will be
enlightening to a point, because it covers only the credits the
department has written checks for and it's only since the
effective date of the bill. So of the $700 or $800 million worth
of credits they will see a report on only about $70 million of
them.
CHAIR GIESSEL said having written checks is somewhat constrained
by the Governor's veto of the monies to fund those checks.
COMMISSIONER HOFFBECK responded yes and no: yes, the Governor
did veto the $500 million worth of credits last year down to the
statutory level for the credits, so it depends on whether the
statute was the driver or the appropriation process.
SENATOR COGHILL said he was concerned about the phrase "unless
prohibited by law" and that from legislator's perspective they
need to know what that actual hurdle is for the unreported
things.
COMMISSIONER HOFFBECK replied they would make sure that is part
of the report.
CHAIR GIESSEL asked if any federal laws constrain the disclosure
by publically traded companies.
COMMISSIOENER HOFFBECK replied that he was not aware of any.
4:28:48 PM
LENNIE DEES, Audit Master, Department of Revenue, Anchorage,
Alaska, added that he didn't know of any laws that would
prohibit those disclosures. AS 43.55.890 is what the
commissioner referred to as the disclosure law and the fact that
that information has to be aggregated in order to disclose it.
That would be the law that would impact this section the most.
4:29:42 PM
CHAIR GIESSEL said her secondary question was related to the net
operating losses and if there are any federal laws that
regulated publically traded companies and the disclosure of
their tax information.
MR. DEES answered that he was not aware of any.
4:30:03 PM
SENATOR WIELECHOWSKI said some new committee members are unaware
of the fact that the legislature had tried to fix this problem
several times with legislation, but the bills often haven't
gotten a hearing. So, he is glad it is finally getting a
hearing. He asked to be provided with a detailed analysis of
what percentage of oil in the pipeline is related to tax
credits, a detailed analysis of the projects' and fields' net
present values, internal rates of return, and how they are
impacted by the $8 billion in subsidies the state has provided.
4:30:57 PM
COMMISSIONER HOFFBECK replied they would not be able to provide
detailed information on net present value and IRR; that would
require providing internal company information. In all honesty,
they could make a stab at how much oil is based on the credits,
but regulatory issues have occurred as well as changes in other
portions of the tax regime: credits and oil prices issues: a
multitude of things all come together to create the production
the state has now. One thing is pretty clear as far as what they
can report: they could not report information on company income-
related type investment before it was reported to the
shareholders. So, they have to wait until the companies' annual
reports are filed to have access to the data in the fashion they
could share.
CHAIR GIESSEL thanked him for that very helpful information.
4:32:37 PM
SENATOR STEDMAN said Senator Meyer had talked about the 35
percent base tax and the per barrel sliding scale calculation
that basically puts the state into a gross tax calculation (less
than $70/oil) and the residual issue is a 35 percent base tax
becomes an NOL deductible percentage of opex and capex, which is
- everyone has an opinion - exceptionally high. In dealing with
that and even to say it's not high will give the argument to the
folks that think it is a squared up good rate.
It helps in numerous ways with the longevity of the pipeline,
the state's revenue stream and jobs, and getting into
developments like Smith Bay with maybe 300,000 barrels a day.
But there is a little thing called cash flow between today and
tomorrow, and it looks like that project will have billions
invested before first oil.
"How do we cash flow 35 percent of the cost of that going
forward when we can't meet our payroll today and it doesn't look
like we're going to meet our payroll tomorrow...?" With that
being said, Senator Stedman asked how a policy maker knows what
is a good deal for the state and industry so they are not
changing course all the time, and will that project be co-
mingled with the rest so he just gets one number?
COMMISSIONER HOFFBECK replied that Smith Bay would generate a
$3.5 billion NOL credit, and the state could deal with it a
couple of ways. One way was is in HB 247 last year that capped
the annual cash payment at $75 million, but because only half of
that was at 100 percent and half was at 75 percent it works out
to be about $62 million-plus that they could cash in any given
year if they are willing to take the haircut on the second half
of that $75 million. That would reduce the state's liability
during the development years. But there would be multiple
partners who could all claim a piece of the credit, so it's a
little bit uncertain about how big the liability would be. It's
fairly certain that a good share of that $3.5 billion would
still be unreimbursed credits at the time that the field went
into production. Then those, of course, would be deductions
against tax liability until the credits were used up.
4:36:45 PM
Secondly, they would bump into the current situation where there
is no mandatory requirement to cash out the credits and making
it subject to appropriation. And if the state doesn't have the
money to pay the credits it simply would not be able to cash the
credits out. That creates a lot of uncertainty for those that
are relying on the credits for developing their fields. The
administration has taken the position that the state is better
off with a credit program that it can afford and give some
certainty rather than a program that may be higher than it can
afford that creates uncertainty before the fields come into
development.
For a field that may already be in development that may be in a
NOL situation - which is essentially all they are talking about
ultimately for any big dollars - because all credits have been
repealed for Cook Inlet effective the end of this FY18, a few
credits are left in Middle Earth and the NOL is the only credit
left on the North Slope. If a company has an NOL credit and they
report it under this new language, they would tell you where
that loss was within the bigger construct of their company.
4:39:41 PM
SENATOR STEDMAN said there could be sizeable shift in field
economics with delayed payments while everyone wants stability.
COMMISSIONER HOFFBECK said the department has a robust full-
cycle economic model for showing the impacts of various credit
regimes and when the credits get paid is a big driver in the
economics of the development.
SENATOR COGHILL said he tended to agree with some of that
assessment and he struggles with a couple of mechanical things
in the bill. At this point he is looking at the regulation
adopted by on page 2, line 27. It had a very prescriptive list
of 10 items that should be reported on by March 31 under oath.
Now there are 10 things and of those number, 10 has three major
parts to it. The language that bothers him is "information
required" and then the statute now read 9 things. Now it will be
required under a regulation, not a law. How would he interpret
that?"
COMMISSIONER HOFFBECK asked if he could defer that answer.
CHAIR GIESSEL added that was her concern as well. She asked the
commissioner to speculate, but did he have any sense of how the
disclosures that are proposed in SB 44 might affect companies
accessing money from lending institutions. Would the lenders
have concerns lending to a company that is disclosing as much
information as proposed?
COMMISSIONER HOFFBECK asked if he could defer that answer to Mr.
Ruggerio's expertise.
CHAIR GIESSEL said a slide from the tax director points out $8
billion in credits over a 10-year period and asked how much
revenue was realized in that time to the State of Alaska.
4:44:11 PM
COMMISSIONER HOFFBECK said he would have to bring that back to
her.
SENATOR STEDMAN said this comment was geared more for the people
at home who are watching, but when he has been talking about the
inability to get data and asking revenue questions they can't
answer, sometimes when individual companies do answer the
question in private. He didn't want the public to think the
industry is completely shutting the policy makers out. The Big
Three have been good over the years and helpful in letting them
know how the tax mechanism works.
SENATOR HUGHES remarked that the commissioner said he would be
taking a stab in the dark to try to figure out what percentage
of oil and pipeline resulted from tax credits, and yet he has
all the proprietary information. This bill would provide the
legislature with less detailed information and if it is a stab
in the dark for him, how would the legislature having access to
less information help them determine whether a particular tax
credit is effective or not?
COMMISSIONER HOFFBECK replied the piece the department doesn't
have is they don't sit in the board room and don't know what
piece triggered an investment decision. As to how much more
legislators will be able to parse out, they will not be able to
parse out precisely how much oil is in the pipeline due to the
credits, but they will be able to see which companies received
the credits and how much those companies are producing. That
will give them some idea of whether or not the credits are being
efficiently used. Probably some of the older credits are the
more egregious and those have been repealed.
SENATOR HUGHES said she understands that Texas and Louisiana
have collected some of this information and asked if that has
worked for them in figuring out what is effective.
COMMISSIONER HOFFBECK again deferred to Mr. Ruggiero on that
question.
CHAIR GIESSEL added that he just illustrated why so many of the
credits in ACES were repealed - because they were not resulting
in production.
4:48:29 PM
SENATOR WIELECHOWSKI asked if they have no idea if any of the
tax credits result in getting more oil or not, why should the
state continue to offer tax credits at all.
COMMISSIONER HOFFBECK replied that they can see in their full-
cycle economic modeling where a field would be economic with a
credit boost and where it would be uneconomic without it.
4:50:55 PM
CHAIR GIESSEL thanked the commissioner for his presentation and
noted that Senator Gardner asked to hear from Richard Ruggiero
and welcomed him to the table.
4:51:07 PM
RICHARD RUGGIERO, Legislative Consultant, Castle Gap Advisors,
Alaska State Legislature, Juneau, Alaska, said 10 years ago, as
a member of the Gaffney Cline team he wrote in a memo that
basically Alaska was one of the most opaque places with respect
to data coming from the oil companies for this body to be able
to make its policy decisions. And today it remains the same. The
state is actually making decisions with a whole lot less
information than similar bodies in the other governments he
works for. For members who don't know him, he spent decades as
big oil, he spent over a decade advising governments, and he
spent almost a decade with a large service company, so he has
varied perspectives.
He said for legislators to make good durable decisions and
understand how well the credits are working they need another
layer of information and detail. One difference he still sees
today is that the Tax Division is the one talking about
production and it is bound by confidentiality of the tax return
it gets. But 90-plus percent of the information that goes on a
tax return is basic oil field operating data that all the other
regimes he works for report to the equivalent of the DNR or the
AOGCC here in Alaska and openly report it. In fact, he could go
on line and show them a field in Norway that has well-by-well
detail with a 30-year history of the capital that was spent and
the production that resulted from that capital, as well as a
five-year projection of work they plan on doing, what plans have
been approved, and what the expectations are for that country as
they move forward.
4:54:11 PM
Secondly, Mr. Ruggiero, said with respect to data transparency,
he knows they get into a continual discussion of how much
someone got paid being confidential tax payer information, but
now there is a global initiative called the "Extraction Industry
Transparency Initiative," which many governments have signed on
to including the U.S. government. The Securities and Exchange
Commission (SEC) is going to require anyone who is listed on
their stock exchange to publish, if they are part of the
extraction industry, the payments they make to governments and
disaggregate those into five or six categories. That type of law
is already in place in Europe. He can show them what every oil
company has paid to Norway in terms of license bonuses, royalty,
petroleum taxes, and income taxes. He could go to the U.K.
website and find out how much a company that operates in Alaska
actually paid the State of Alaska as income tax, royalty, and as
license fees in 2015. There is also a 2014 report.
So, companies are required to provide information, and if he
could make a suggestion he would say that elsewhere in the world
much more information changes hands than in Alaska, and that
data is available to the government for setting policy with
respect to what acreage it makes available, to what data that
helps others come in, and data to inform making tax policy.
MR. RUGGIERO said comments were made with respect to whether a
35 percent credit too high or too low, and the one piece he
would make is whether the credit in place is a net operating
loss (NOL) and if that was not allowed that would move Alaska to
the bottom of the competitive rankings in the world. Every
regime, everywhere, allows companies especially with a
development like Smith Bay, to deduct the cost of what it took
to get that production from the future revenues of that project.
To deny that would really move Alaska to the bottom of the
competitive scale.
Now, various countries around the world have different means by
which they treat that NOL. Some give the equivalent of what
Alaska has - the qualifying capital expenditure. In other
places, because there are long lead times between when the money
is spent and when the actual production comes on they will offer
forms of uplift - another way of saying interest - as it's
carried forward, so that way the time value loss does not become
a big kicker to their economics.
He could offer a whole lot more information if he had more time.
He could show them the EITI Initiative, standard terms for
production sharing contracts that show Alaska is competing more
against places around the world than the Lower 48. That would
show the type of data requirements that the oil companies have
to disclose and what rights the governments have under those
contracts to use that data for their purposes.
SENATOR MEYER asked why he feels Alaska's competition is more
global versus the Lower 48. And he wanted to know how Alaska
competes globally on a competitive basis with its current tax
rate.
4:58:03 PM
MR. RUGGIERO answered the reason he said Alaska is competing
more globally than in the U.S. is that Alaska and the Lower 48
are two very different businesses. Alaska is a large project,
long-lead times, significant scale on the reserves, and to an
extent a slow steady decline. Business in the Lower 48 is buy
acreage today, have a rig there in a week, and have production
on line in 30 days. But it's production that declines 60-80
percent in the first two years. North Dakota had the same fiscal
system forever until the production picked up and that was due
to the shale technology. But they drilled tens of thousands of
wells. And if you look at North Dakota production today, it is
falling off faster than it rose, because the rigs have stopped
with the drop in the price of oil.
SENATOR STEDMAN said he wanted to hear more from Mr. Ruggiero on
some of the newer changes internationally that the industry is
dealing with as far as disclosure. It would be very beneficial
to keep up with what is going on around the planet.
CHAIR GIESSEL held SB 44 in committee, adding that she would
invite Mr. Ruggiero back.
5:00:54 PM
CHAIR GIESSEL adjourned the Senate Resources Committee meeting
at 5:00 p.m.