Legislature(2005 - 2006)BUTROVICH 205

03/23/2006 10:00 AM RESOURCES


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10:11:37 AM Start
10:14:06 AM SB305
04:42:39 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to 10:00 am 3/24/06 --
= SB 305 OIL AND GAS PRODUCTION TAX
Heard & Held
Above Bill continued from 03/22/06 Mtg
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                         March 23, 2006                                                                                         
                           10:11 a.m.                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Thomas Wagoner, Chair                                                                                                   
Senator Ralph Seekins, Vice Chair                                                                                               
Senator Ben Stevens                                                                                                             
Senator Fred Dyson                                                                                                              
Senator Bert Stedman                                                                                                            
Senator Kim Elton                                                                                                               
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Albert Kookesh                                                                                                          
                                                                                                                                
OTHER MEMBERS PRESENT                                                                                                         
                                                                                                                                
Senator Lyda Green                                                                                                              
Senator Lyman Hoffman                                                                                                           
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 305                                                                                                             
"An Act repealing  the oil production tax and  gas production tax                                                               
and providing  for a production tax  on the net value  of oil and                                                               
gas; relating to the relationship  of the production tax to other                                                               
taxes; relating to the dates  tax payments and surcharges are due                                                               
under AS  43.55; relating  to interest  on overpayments  under AS                                                               
43.55; relating  to the treatment  of oil and gas  production tax                                                               
in a  producer's settlement with  the royalty owner;  relating to                                                               
flared gas, and to  oil and gas used in the  operation of a lease                                                               
or property, under AS 43.55;  relating to the prevailing value of                                                               
oil or gas under AS 43.55;  providing for tax credits against the                                                               
tax  due under  AS 43.55  for certain  expenditures, losses,  and                                                               
surcharges; relating to statements  or other information required                                                               
to be filed  with or furnished to the Department  of Revenue, and                                                               
relating  to the  penalty for  failure to  file certain  reports,                                                               
under  AS 43.55;  relating to  the  powers of  the Department  of                                                               
Revenue, and  to the disclosure  of certain  information required                                                               
to be  furnished to  the Department of  Revenue, under  AS 43.55;                                                               
relating   to  criminal   penalties   for  violating   conditions                                                               
governing access to and use  of confidential information relating                                                               
to the  oil and gas  production tax;  relating to the  deposit of                                                               
money  collected by  the Department  of Revenue  under AS  43.55;                                                               
relating to  the calculation of the  gross value at the  point of                                                               
production of  oil or gas;  relating to the determination  of the                                                               
net value  of taxable oil  and gas  for purposes of  a production                                                               
tax on the net value of  oil and gas; relating to the definitions                                                               
of  'gas,' 'oil,'  and certain  other  terms for  purposes of  AS                                                               
43.55;  making  conforming  amendments;   and  providing  for  an                                                               
effective date."                                                                                                                
     HEARD AND HELD                                                                                                             
                                                                                                                                
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB 305                                                                                                                  
SHORT TITLE: OIL AND GAS PRODUCTION TAX                                                                                         
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
02/21/06       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/21/06       (S)       RES, FIN                                                                                               
02/22/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/22/06       (S)       Heard & Held                                                                                           
02/22/06       (S)       MINUTE(RES)                                                                                            
02/23/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/23/06       (S)       Heard & Held                                                                                           
02/23/06       (S)       MINUTE(RES)                                                                                            
02/24/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/24/06       (S)       Heard & Held                                                                                           
02/24/06       (S)       MINUTE(RES)                                                                                            
02/25/06       (S)       RES AT 9:00 AM BUTROVICH 205                                                                           
02/25/06       (S)       -- Reconvene from 02/24/06 --                                                                          
02/25/06       (H)       RES AT 10:00 AM SENATE FINANCE 532                                                                     
02/25/06       (S)       Heard & Held                                                                                           
02/25/06       (S)       MINUTE(RES)                                                                                            
02/27/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/27/06       (S)       Heard & Held                                                                                           
02/27/06       (S)       MINUTE(RES)                                                                                            
02/28/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/28/06       (S)       Heard & Held                                                                                           
02/28/06       (S)       MINUTE(RES)                                                                                            
03/01/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/01/06       (S)       Heard & Held                                                                                           
03/01/06       (S)       MINUTE(RES)                                                                                            
03/02/06       (S)       RES AT 1:30 PM BUTROVICH 205                                                                           
03/02/06       (S)       Heard & Held                                                                                           
03/02/06       (S)       MINUTE(RES)                                                                                            
03/02/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/02/06       (S)       Heard & Held                                                                                           
03/02/06       (S)       MINUTE(RES)                                                                                            
03/03/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/03/06       (S)       -- Meeting Canceled --                                                                                 
03/04/06       (S)       RES AT 10:00 AM SENATE FINANCE 532                                                                     
03/04/06       (S)       Presentation by Legislative Consultants                                                                
03/06/06       (S)       RES AT 3:30 PM SENATE FINANCE 532                                                                      
03/06/06       (S)       Heard & Held                                                                                           
03/06/06       (S)       MINUTE(RES)                                                                                            
03/07/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/07/06       (S)       Heard & Held                                                                                           
03/07/06       (S)       MINUTE(RES)                                                                                            
03/08/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/08/06       (S)       -- Meeting Canceled --                                                                                 
03/09/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/09/06       (S)       -- Meeting Canceled --                                                                                 
03/10/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/10/06       (S)       -- Meeting Canceled --                                                                                 
03/11/06       (H)       RES AT 10:00 AM CAPITOL 106                                                                            
03/11/06       (H)       -- Meeting Canceled --                                                                                 
03/13/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/13/06       (S)       Heard & Held                                                                                           
03/13/06       (S)       MINUTE(RES)                                                                                            
03/14/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/14/06       (S)       Heard & Held                                                                                           
03/14/06       (S)       MINUTE(RES)                                                                                            
03/15/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/15/06       (S)       -- Testimony <Invitation Only> --                                                                      
03/16/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/16/06       (S)       -- Meeting Canceled --                                                                                 
03/17/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/17/06       (S)       Heard & Held                                                                                           
03/17/06       (S)       MINUTE(RES)                                                                                            
03/18/06       (H)       RES AT 10:00 AM CAPITOL 124                                                                            
03/18/06       (H)       -- Meeting Canceled --                                                                                 
03/19/06       (S)       RES AT 1:00 PM BUTROVICH 205                                                                           
03/19/06       (S)       Heard & Held                                                                                           
03/19/06       (S)       MINUTE(RES)                                                                                            
03/20/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/20/06       (S)       Heard & Held                                                                                           
03/20/06       (S)       MINUTE(RES)                                                                                            
03/21/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/21/06       (S)       -- Meeting Canceled --                                                                                 
03/22/06       (S)       RES AT 10:00 AM BUTROVICH 205                                                                          
03/22/06       (S)       -- Testimony <Invitation Only> --                                                                      
03/23/06       (S)       RES AT 10:00 AM BUTROVICH 205                                                                          
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
JOE BALASH                                                                                                                      
Staff to Legislative Budget and Audit Committee                                                                                 
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Commented on CSSB 305(RES).                                                                               
                                                                                                                                
MARVIN KIRSNER                                                                                                                  
Greenberg & Traurig LLC                                                                                                         
Tax Counsel to the Governor                                                                                                     
Office of the Governor                                                                                                          
PO Box 110001                                                                                                                   
Juneau AK 99811-0001                                                                                                            
POSITION STATEMENT: Commented on amendments to CSSB 305(RES).                                                                 
                                                                                                                                
CAROLYN FANAROFF                                                                                                                
Greenberg Traurig LLC                                                                                                           
Tax Counsel to the Governor                                                                                                     
Office of the Governor                                                                                                          
PO Box 110001                                                                                                                   
Juneau AK 99811-0001                                                                                                            
POSITION STATEMENT: Commented on amendments to CSSB 305(RES).                                                                 
                                                                                                                                
DAN DICKINSON, CPA                                                                                                              
Consultant to the Governor                                                                                                      
Office of the Governor                                                                                                          
PO Box 110001                                                                                                                   
Juneau AK  998811-0001                                                                                                          
POSITION STATEMENT: Commented on amendments to CSSB 305(RES).                                                                 
                                                                                                                                
ROGER MARKS, Economist                                                                                                          
Department of Revenue                                                                                                           
PO Box 110400                                                                                                                   
Juneau AK  99811-0400                                                                                                           
POSITION STATEMENT: Commented on amendments to CSSB 305(RES).                                                                 
                                                                                                                                
MARY JACKSON                                                                                                                    
Staff to Senate Resources Committee                                                                                             
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Commented on amendments to CSSB 305(RES).                                                                 
                                                                                                                                
ROBERT MINTZ, Assistant Attorney General                                                                                        
Department of Law                                                                                                               
PO Box 110300                                                                                                                   
Juneau AK  99811-0300                                                                                                           
POSITION STATEMENT: Commented on amendments to CSSB 305(RES).                                                                 
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR  THOMAS WAGONER  reconvened the  Senate Resources  Standing                                                             
Committee  meeting from  March 22  at 10:11:37  AM. Present  were                                                             
Senators Ben  Stevens, Stedman, Seekins,  Dyson, Elton  and Chair                                                               
Wagoner.                                                                                                                        
                                                                                                                                
               SB 305-OIL AND GAS PRODUCTION TAX                                                                            
                                                                                                                                
CHAIR WAGONER announced CSSB 305(RES), Version Y, to be up for                                                                  
consideration. The committee began by taking up Administrative                                                                  
Amendment 1 again as follows:                                                                                                   
                                                                                                                                
                   ADMINISTRATIVE AMENDMENT 1                                                                               
                                                                                                                                
OFFERED IN THE SENATE BY SENATOR WAGONER                                                                                        
TO: CSSB 305(RES), draft version 24-GS2052\Y                                                                                    
                                                                                                                                
Page 18, line 4: insert after "than zero":                                                                                      
                                                                                                                                
     If  a producer  does  not produce  taxable  oil or  gas                                                                    
     during  a month,  the producer  is  considered to  have                                                                    
     generated  a  positive  production  tax  value  if  the                                                                    
     calculation   described  in   this  subsection   yields                                                                    
     appositive  number  because   the  producer's  adjusted                                                                    
     lease expenditures for a month  are less than zero as a                                                                    
     result of the producer's  receiving a payment or credit                                                                    
     under (e) of this section or otherwise.                                                                                    
                                                                                                                                
Page 18, line 23: insert new paragraph (3):                                                                                     
                                                                                                                                
     (3) an  explorer that has  taken a tax credit  under AS                                                                    
     43.55.024(b) or  that has  obtained a  transferable tax                                                                    
     credit  certificate  under   AS  43.55.024(d)  for  the                                                                    
     amount  of  a  tax  credit  under  AS  43.55.024(b)  is                                                                    
     considered a producer, subject to  the tax levied under                                                                    
     AS  43.55.011(e),  to  the  extent  that  the  explorer                                                                    
     generates  a  positive  production  tax  value  as  the                                                                    
     result of the explorer's  receiving a payment or credit                                                                    
     described in (e) of this section.                                                                                          
                                                                                                                                
Page 19, line 29: replace (A) "outlays for capital assets" with:                                                                
                                                                                                                                
     (A) an  expenditure, when incurred, to  acquire an item                                                                    
     if  the acquisition  cost is  otherwise a  direct cost,                                                                    
     notwithstanding  that the  expenditure may  be required                                                                    
     to  be capitalized  rather than  treated as  an expense                                                                    
     for   financial  accounting   or  federal   income  tax                                                                    
     purposes;                                                                                                                  
                                                                                                                                
Page 21, line 9: replace "amounts that have not been paid" with:                                                                
                                                                                                                                
     amounts incurred                                                                                                           
                                                                                                                                
Page 21, lines 14 - 15: after "business entity" delete all                                                                      
material and insert:                                                                                                            
                                                                                                                                
     ,  whether or  not  the transaction  is  treated as  an                                                                    
     asset sale for federal income tax purposes.                                                                                
                                                                                                                                
Page 21, lines 16 - 17: replace "any payment of credit the                                                                      
producer receives for" with:                                                                                                    
                                                                                                                                
     Certain payments  or credits received by  the producer,                                                                    
     as provided in this subsection.  If one or more payment                                                                    
     or credits  subject to this subsection  are received by                                                                    
     a  producer  during  a  month or,  under  (f)  of  this                                                                    
     section,  during a  calendar  year, and  if either  the                                                                    
     total  amount of  the payments  or credits  exceeds the                                                                    
     amount  of the  producer's  lease  expenditures or  the                                                                    
     producer has no lease  expenditures, the producer shall                                                                    
     nevertheless  subtract those  payments or  credits from                                                                    
     the lease expenditures or  from zero, respectively, and                                                                    
     the  producer's adjusted  lease  expenditures for  that                                                                    
     moth or calendar  year are a negative  number and shall                                                                    
     be  applied  to  the  calculation  under  (a)  of  this                                                                    
     section as a negative  number. They payments or credits                                                                    
     that  a  producer  must subtract  from  the  producer's                                                                    
     lease   expenditures,   or   from  zero,   under   this                                                                    
     subsection  are payments  or  credits  received by  the                                                                    
     producer for                                                                                                               
                                                                                                                                
Page 21, lines 18 - 22: delete all material, insert:                                                                            
                                                                                                                                
     (1) the use by another  person of a production facility                                                                    
     in which the producer has  an ownership interest or the                                                                    
     management  by the  producer of  a production  facility                                                                    
     under   a  management   agreement  providing   for  the                                                                    
     producer to receive a management fee;                                                                                      
                                                                                                                                
Page 22, line 1: replace (n) with (m) and after "2006;" insert:                                                                 
                                                                                                                                
     For purposes of this  subsection, if a producer removes                                                                    
     from the  state, for  use outside  the state,  an asset                                                                    
     described in this subparagraph,  the value of the asset                                                                    
     at  the time  it  is removed  is  considered a  payment                                                                    
     received  by  the  producer for  the  transfer  of  the                                                                    
     asset;                                                                                                                     
                                                                                                                                
Page 23, line 28: insert "(b)," at the beginning of the line                                                                    
                                                                                                                                
Page  23, lines  29 -  30: replace  (d)(2)(L) with  (d)(2)(N) and                                                               
delete "or (d)(2)(M)"                                                                                                           
                                                                                                                                
Page  23, line  31: delete  "(d)(2)(L) or  (d)(2)(M)" and  insert                                                               
(e)(3)(A)                                                                                                                       
                                                                                                                                
Page 24, line 10: delete "(d)(2)(L) and replace with (d)(2)(N)                                                                  
                                                                                                                                
Page 24, line 4: insert after "Revenue Code":                                                                                   
                                                                                                                                
     as amended                                                                                                                 
                                                                                                                                
Page  24, lines  12 -  13: delete  all material  after "due"  and                                                               
insert:                                                                                                                         
                                                                                                                                
     If  a producer  fails to  comply with  a request  under                                                                    
     this   paragraph,  there   shall   be   added  to   any                                                                    
     underpayment  determined by  the department  under this                                                                    
     section a  penalty in the  amount of 20 percent  of the                                                                    
     underpayment.                                                                                                              
                                                                                                                                
Page 24, lines 14 - 27: delete all material and reorder                                                                         
                                                                                                                                
Page 24, lines 28 - 30: delete all material and insert:                                                                         
                                                                                                                                
     (n)  For  purposes of  determining  the  amount of  the                                                                    
     adjustment  by  subtraction  that  must be  made  to  a                                                                    
     producer's  lease  expenditures  as  a  result  of  the                                                                    
     producer's   receiving  a   payment  or   credit  under                                                                    
     (e)(3)(A) of this section,                                                                                                 
                                                                                                                                
Page 25, lines 7 - 11: delete all material and reorder                                                                          
                                                                                                                                
10:14:06 AM                                                                                                                   
JOE  BALASH, staff  to Legislative  Budget  and Audit  Committee,                                                               
said  that  language on  page  4  of Administrative  Amendment  1                                                               
[that  applied to  page  24, lines  12 -  13,  of CSSB  305(RES),                                                               
Version Y] related  to items surrounding the  penalty for failure                                                               
to provide information requested  by the department in connection                                                               
with a Section 482-like audit -  that determines whether or not a                                                               
fair value  was assigned to the  asset in a transaction  that was                                                               
not at arm's length.                                                                                                            
                                                                                                                                
10:15:19 AM                                                                                                                   
CHAIR  WAGONER recapped  that  Senator Stedman  had  asked for  a                                                               
legal opinion and Jack Chenoweth  was working on that. He invited                                                               
Mr. Kirsner to testify.                                                                                                         
                                                                                                                                
MARVIN  KIRSNER, Greenberg  &  Traurig LLC,  Tax  Counsel to  the                                                               
Governor, said his colleague, Carol Fanaroff, was with him.                                                                     
                                                                                                                                
SENATOR BEN  STEVENS said the  committee left off  yesterday with                                                               
Senator  Stedman wanting  to make  all language  after "Page  21,                                                               
lines 18  - 22: delete  all material, insert:"  of Administrative                                                               
Amendment 1 a substantive amendment. So,  he now moved to do that                                                               
and then objected for discussion purposes.                                                                                      
                                                                                                                                
10:16:42 AM                                                                                                                   
He said the question was:                                                                                                       
                                                                                                                                
     If we're going  to do that, I guess the  question is do                                                                    
     we continue  to adopt the administrative  amendment and                                                                    
     then  continue  this discussion  when  we  get all  the                                                                    
     information on the substantive amendment.                                                                                  
                                                                                                                                
CHAIR  WAGONER  responded that  attorneys  are  available now  to                                                               
discuss the language and they may not be available later.                                                                       
                                                                                                                                
SENATOR BEN  STEVENS restated his  motion with  the understanding                                                               
that the committee would act on  the deleted language at a future                                                               
date.                                                                                                                           
                                                                                                                                
SENATOR ELTON wanted  Mr. Kirsner to be available  to discuss the                                                               
substantive amendment when it was taken up.                                                                                     
                                                                                                                                
10:18:24 AM                                                                                                                   
SENATOR BEN STEVENS removed his objection.                                                                                      
                                                                                                                                
CHAIR WAGONER announced without  further objection, the committee                                                               
had Administrative Amendment 1 before  it without the language on                                                               
page 4.                                                                                                                         
                                                                                                                                
10:18:49 AM                                                                                                                   
SENATOR BEN  STEVENS said Mr. Kirsner's  discussion would concern                                                               
the material on page 4  of Administrative Amendment 1 through the                                                               
end of the amendment - "(e)(3)(A)".                                                                                             
                                                                                                                                
MR. BALASH  explained that the penalty  item on the last  page of                                                               
Amendment 1 [regarding page 24, lines 12  - 13 of the CS], was an                                                               
issue by itself.                                                                                                                
                                                                                                                                
10:21:18 AM                                                                                                                   
SENATOR BEN STEVENS went to  page 3 of Administrative Amendment 1                                                               
and  said  a lot  of  the  pieces  that  refer to  (d)(2)(L)  and                                                               
(d)(2)(M) related to the information at  the bottom of page 4. He                                                               
didn't disagree  with Mr.  Balash that the  penalty was  an item,                                                               
but  he was  more concerned  about including  (L), (M),  (N), and                                                               
(e)(3)(A)  -  on  page  3  of  Administrative  Amendment  1  that                                                               
referred to page 22, line 1 of the CS.                                                                                          
                                                                                                                                
MR. BALASH explained  that replacing (n) with (m) was  due to the                                                               
deletion of  material on  page 24,  lines 14  - 27.  He explained                                                               
that  Mr. Kirsner  wrote a  memo  dated February  27, 2006,  that                                                               
addressed  a couple  of  potential  constitutional issues,  which                                                               
were  put  aside,  but  he  also identified  a  number  of  other                                                               
concerns  about capital  expenditures such  as how  to treat  the                                                               
stock   of   companies,   outlays  for   Capex,   related   party                                                               
transactions,   ownership   interests,   and  how   credits   and                                                               
reimbursement  adjustments  are  made.   All  his  concerns  were                                                               
embodied  in Section  26,  which  he offered  to  explain to  the                                                               
committee.                                                                                                                      
                                                                                                                                
10:24:56 AM                                                                                                                   
SENATOR BEN STEVENS  clarified that the affected  language in the                                                               
CS started on page 23, line 29,  and went through the top of page                                                               
24,  line  13;  he  wanted  to  hear  the  reasoning  behind  the                                                               
insertion of (l) on page 23, line 29.                                                                                           
                                                                                                                                
MR.  BALASH replied  that the  administration was  not trying  to                                                               
affect a  substantive issue in  Subsection (l), which  was beyond                                                               
the scope  of his charge;  it was the legislature's  policy call.                                                               
However,  he  supported striking  the  penalty  provision as  the                                                               
department requested.                                                                                                           
                                                                                                                                
CHAIR WAGONER  identified that  the section  started on  page 23,                                                               
line 29, and went through page 24, line 13.                                                                                     
                                                                                                                                
SENATOR BEN STEVENS  suggested that it extended  through page 25,                                                               
line 6.                                                                                                                         
                                                                                                                                
10:29:57 AM                                                                                                                   
SENATOR  SEEKINS  recalled  that   he  moved  the  amendment  and                                                               
objected. So, he removed his objection.                                                                                         
                                                                                                                                
MR.  BALASH  clarified  that  all that  has  been  stricken  from                                                               
Administrative Amendment 1 was the  penalty language, which would                                                               
be dealt  with as a separate  amendment; the rest of  the changes                                                               
corrected references.                                                                                                           
                                                                                                                                
SENATOR  BEN  STEVENS  further   corrected  that  the  conceptual                                                               
substantive amendment referred to page  23, line 29, through page                                                               
25, line 11.                                                                                                                    
                                                                                                                                
10:33:45 AM                                                                                                                   
SENATOR ELTON  suggested deleting  all language  after page  3 of                                                               
Administrative Amendment 1 starting with "Page 22, line 1:".                                                                    
                                                                                                                                
MR. BALASH said they must go  one paragraph higher to capture the                                                               
references  the   administration  requested  -  on   page  3  [of                                                               
Administrative Amendment 1] starting at "Page 21, line 18-22:".                                                                 
                                                                                                                                
10:36:02 AM                                                                                                                   
CHAIR WAGONER added  that deleted language could  be changed into                                                               
one substantive  and one technical  amendment. He  clarified that                                                               
that Administrative Amendment  1 dealt with items on  pages 1, 2,                                                               
and the first two lines on page 3 as follows:                                                                                   
                                                                                                                                
                   ADMINISTRATIVE AMENDMENT 1                                                                               
                                                                                                                                
OFFERED IN THE SENATE BY SENATOR WAGONER                                                                                        
TO: CSSB 305(RES), draft version 24-GS2052\Y                                                                                    
                                                                                                                                
Page 18, line 4: insert after "than zero":                                                                                      
                                                                                                                                
     If  a producer  does  not produce  taxable  oil or  gas                                                                    
     during  a month,  the producer  is  considered to  have                                                                    
     generated  a  positive  production  tax  value  if  the                                                                    
     calculation   described  in   this  subsection   yields                                                                    
     appositive  number  because   the  producer's  adjusted                                                                    
     lease expenditures for a month  are less than zero as a                                                                    
     result of the producer's  receiving a payment or credit                                                                    
     under (e) of this section or otherwise.                                                                                    
                                                                                                                                
Page 18, line 23: insert new paragraph (3):                                                                                     
                                                                                                                                
     (3) an  explorer that has  taken a tax credit  under AS                                                                    
     43.55.024(b) or  that has  obtained a  transferable tax                                                                    
     credit  certificate  under   AS  43.55.024(d)  for  the                                                                    
     amount  of  a  tax  credit  under  AS  43.55.024(b)  is                                                                    
     considered a producer, subject to  the tax levied under                                                                    
     AS  43.55.011(e),  to  the  extent  that  the  explorer                                                                    
     generates  a  positive  production  tax  value  as  the                                                                    
     result of the explorer's  receiving a payment or credit                                                                    
     described in (e) of this section.                                                                                          
                                                                                                                                
Page 19, line 29: replace (A) "outlays for capital assets" with:                                                                
                                                                                                                                
     (A) an  expenditure, when incurred, to  acquire an item                                                                    
     if  the acquisition  cost is  otherwise a  direct cost,                                                                    
     notwithstanding  that the  expenditure may  be required                                                                    
     to  be capitalized  rather than  treated as  an expense                                                                    
     for   financial  accounting   or  federal   income  tax                                                                    
     purposes;                                                                                                                  
                                                                                                                                
Page 21, line 9: replace "amounts that have not been paid" with:                                                                
                                                                                                                                
     amounts incurred                                                                                                           
                                                                                                                                
Page 21, lines 14 - 15: after "business entity" delete all                                                                      
material and insert:                                                                                                            
                                                                                                                                
     ,  whether or  not  the transaction  is  treated as  an                                                                    
     asset sale for federal income tax purposes.                                                                                
                                                                                                                                
Page 21, lines 16 - 17: replace "any payment of credit the                                                                      
producer receives for" with:                                                                                                    
                                                                                                                                
     Certain payments  or credits received by  the producer,                                                                    
     as provided in this subsection.  If one or more payment                                                                    
     or credits  subject to this subsection  are received by                                                                    
     a  producer  during  a  month or,  under  (f)  of  this                                                                    
     section,  during a  calendar  year, and  if either  the                                                                    
     total  amount of  the payments  or credits  exceeds the                                                                    
     amount  of the  producer's  lease  expenditures or  the                                                                    
     producer has no lease  expenditures, the producer shall                                                                    
     nevertheless  subtract those  payments or  credits from                                                                    
     the lease expenditures or  from zero, respectively, and                                                                    
     the  producer's adjusted  lease  expenditures for  that                                                                    
     moth or calendar  year are a negative  number and shall                                                                    
     be  applied  to  the  calculation  under  (a)  of  this                                                                    
     section as a negative  number. They payments or credits                                                                    
     that  a  producer  must subtract  from  the  producer's                                                                    
     lease   expenditures,   or   from  zero,   under   this                                                                    
     subsection  are payments  or  credits  received by  the                                                                    
     producer for                                                                                                               
                                                                                                                                
There were no objections and Administrative Amendment 1 was                                                                     
adopted.                                                                                                                        
                                                                                                                                
He said Mr. Kirsner would start his discussion on the deleted                                                                   
language of the amendment as follows:                                                                                           
                                                                                                                                
Page 21, lines 18 - 22: delete all material, insert:                                                                            
                                                                                                                                
     (1) the use by another  person of a production facility                                                                    
     in which the producer has  an ownership interest or the                                                                    
     management  by the  producer of  a production  facility                                                                    
     under   a  management   agreement  providing   for  the                                                                    
     producer to receive a management fee;                                                                                      
                                                                                                                                
Page 22, line 1: replace (n) with (m) and after "2006;" insert:                                                                 
                                                                                                                                
     For purposes of this  subsection, if a producer removes                                                                    
     from the  state, for  use outside  the state,  an asset                                                                    
     described in this subparagraph,  the value of the asset                                                                    
     at  the time  it  is removed  is  considered a  payment                                                                    
     received  by  the  producer for  the  transfer  of  the                                                                    
     asset;                                                                                                                     
                                                                                                                                
Page 23, line 28: insert "(b)," at the beginning of the line                                                                    
                                                                                                                                
Page 23, lines 29 - 30: replace (d)(2)(L) with (d)(2)(N) and                                                                    
delete "or (d)(2)(M)"                                                                                                           
                                                                                                                                
Page 23, line 31: delete "(d)(2)(L) or (d)(2)(M)" and insert                                                                    
(e)(3)(A)                                                                                                                       
                                                                                                                                
Page 24, line 10: delete "(d)(2)(L) and replace with (d)(2)(N)                                                                  
                                                                                                                                
Page 24, line 4: insert after "Revenue Code":                                                                                   
                                                                                                                                
     as amended                                                                                                                 
                                                                                                                                
Page 24, lines 12 - 13: delete all material after "due" and                                                                     
insert:                                                                                                                         
                                                                                                                                
     If  a producer  fails to  comply with  a request  under                                                                    
     this   paragraph,  there   shall   be   added  to   any                                                                    
     underpayment  determined by  the department  under this                                                                    
      section a penalty in the amount of 20 percent of the                                                                      
     underpayment.                                                                                                              
                                                                                                                                
Page 24, lines 14 - 27: delete all material and reorder                                                                         
                                                                                                                                
Page 24, lines 28 - 30: delete all material and insert:                                                                         
                                                                                                                                
     (n)  For  purposes of  determining  the  amount of  the                                                                    
     adjustment  by  subtraction  that  must be  made  to  a                                                                    
     producer's  lease  expenditures  as  a  result  of  the                                                                    
     producer's   receiving  a   payment  or   credit  under                                                                    
     (e)(3)(A) of this section,                                                                                                 
                                                                                                                                
Page 25, lines 7 - 11: delete all material and reorder                                                                          
                                                                                                                                
MR. KIRSNER explained  this provision dealt with  a facility that                                                               
was owned  by the producer  that leased it  to a third  party and                                                               
received  payments   for  it.  The  amounts   received  would  be                                                               
subtracted from  his costs.  However he  thought there  was still                                                               
potential  for  abuse saying  the  producer  might enter  into  a                                                               
management agreement  - like most  franchised hotels do.  In that                                                               
case, an  operator wouldn't need  an ownership interest  in order                                                               
to  receive fees  for  it and  that  then puts  him  in the  same                                                               
position as if it were leasing a facility.                                                                                      
                                                                                                                                
10:40:49 AM                                                                                                                   
CHAIR WAGONER  asked him to comment  on changes to page  22, line                                                               
1.                                                                                                                              
                                                                                                                                
MR.  KIRSNER  explained that  the  original  bill had  provisions                                                               
dealing with  deductions that  were taken  before a  property was                                                               
sold. He said that would avoid  the potential abuse by a producer                                                               
who purchased equipment  just in order to generate  a direct cost                                                               
he would be  able to deduct in order to  determine the profit for                                                               
each barrel of  oil. For example, a company might  buy a piece of                                                               
equipment, ostensibly for  use in Alaska, which  would entitle it                                                               
to a  deduction from  direct costs, but  then instead  of selling                                                               
it, it would ship  it out of Alaska for its own use  or use by an                                                               
affiliate  in some  other  state  or some  other  country -  like                                                               
Nigeria.                                                                                                                        
                                                                                                                                
10:42:31 AM                                                                                                                   
SENATOR SEEKINS asked  if the intent was to block  a company from                                                               
bringing  an  asset  into  Alaska  to get  the  credit  and  then                                                               
shipping it  someplace else to  use it  within a short  period of                                                               
time.                                                                                                                           
                                                                                                                                
MR. KIRSNER replied yes - that was a very big loophole.                                                                         
                                                                                                                                
He  moved   on  saying  the  next   technical  change  renumbered                                                               
(d)(2)(L)  with  (d)(2)(N).  The   next  changes  were  corrected                                                               
references to the Internal Revenue Code as amended.                                                                             
                                                                                                                                
MR. KIRSNER said  the next change dealt with what  he thought was                                                               
the  "greatest area  for  abuse,"  which he  would  also let  Ms.                                                               
Fanaroff  comment on.  It  covered  transactions between  related                                                               
entities.  For example,  a producer  could purchase  items at  an                                                               
inflated  cost.  It  could  buy  10 drill  bits  that  are  worth                                                               
$100,000 each,  but it  might pay  $2 million  for them  from the                                                               
related  entity.  This would  generate  an  inflated direct  cost                                                               
deduction of $1 million.                                                                                                        
                                                                                                                                
He  said  Section  482  of  the  IRS  Code  allowed  the  IRS  to                                                               
reallocate  income  between related  entities.  The  idea was  to                                                               
incorporate  the  IRS  provisions  or  allow  the  Department  of                                                               
Revenue  to promulgate  regulations incorporating  the provisions                                                               
of Section 482.  This is where the 20-percent  penalty came from.                                                               
He  then  let  his  colleague,   Carolyn  Fanaroff,  address  the                                                               
transfer pricing issues since her background was with the IRS.                                                                  
                                                                                                                                
CAROLYN  FANAROFF, Tax  Counsel, Greenberg  Traurig LLC,  focused                                                               
specifically  on the  penalties. She  explained that  Section 482                                                               
was started  by the IRS  to deal  with companies that  were using                                                               
offshore entities to maximize their expenses and income in low-                                                                 
tax or no-tax  areas. To enforce the transfer  pricing rules, the                                                               
IRS developed a penalty documentation rule, which she explained:                                                                
                                                                                                                                
     So,  it's  always a  two-step  process,  which is  that                                                                    
     first you have  to set your prices at  the right level;                                                                    
     but then, step two is that  you have to provide the IRS                                                                    
     with a roadmap  of how you did it. This  is because the                                                                    
     IRS agents would come in and  try to figure out how the                                                                    
     companies  structured their  transfer prices....  There                                                                    
     is no  way to  know because it's  just one  company and                                                                    
     they were  out to get a  lot of answers that  had to do                                                                    
     with  smoke-filled rooms  and private  negotiations. So                                                                    
     in  order  to  avoid  that,  Congress  enacted  Section                                                                    
     6662(e), which we  refer to here - which  has two parts                                                                    
     to it -  the part that's the penalty and  the part that                                                                    
     is the documentation. When  Congress enacted the rules,                                                                    
     the  clear intent  was not  to apply  the penalty,  but                                                                    
     rather to  encourage compliance with  the law.  So, the                                                                    
     goal  would be  that when  the  IRS came  to audit  the                                                                    
     company, they  would be able  to go to their  stuff and                                                                    
     pull out  from their stuff prepared  documentation that                                                                    
     was  contemporaneous at  the time  the  tax return  was                                                                    
     filed, hand it to the IRS,  and then the IRS would have                                                                    
     a  roadmap of  the  transaction.  That's basically  the                                                                    
     model that we've tried to  incorporate here, because it                                                                    
     is very  difficult to enforce these  principles without                                                                    
     a roadmap.                                                                                                                 
                                                                                                                                
CHAIR WAGONER asked  for questions and indicated  there were none                                                               
at this point.                                                                                                                  
                                                                                                                                
MS.  FANAROFF continued  saying the  only difference  is the  IRS                                                               
established  the  penalty for  the  valuation  statement where  a                                                               
company would value  its goods and services  incorrectly. That is                                                               
slightly   different  than   language  in   the  amendment   that                                                               
establishes a  penalty for underpayment. She  reiterated that the                                                               
intent was not  to have penalties, but rather  to have compliance                                                               
at the federal level.                                                                                                           
                                                                                                                                
MR. KIRSNER  added that  it would  be to  the state's  benefit to                                                               
piggyback on that body of federal law.                                                                                          
                                                                                                                                
10:52:16 AM                                                                                                                   
CHAIR  WAGONER  indicated there  were  no  further questions  and                                                               
thanked them for their testimony. He set that amendment aside.                                                                  
                                                                                                                                
10:53:40 AM                                                                                                                   
SENATOR SEEKINS moved to adopt Substantive Amendment 1.                                                                         
                                                                                                                                
                    SUBSTANTIVE AMENDMENT 1                                                                                 
                                                                                                                              
OFFERED IN THE SENATE RESOURCES COMMITTEE BY SENATOR WAGONER                                                                    
TO: CSSB 305(RES)(24-GS2052\Y)(3/26/06) Work Draft: Chenoweth)                                                                  
                                                                                                                                
Page 3, line 16, through page 4, line 23:                                                                                       
     Deleted all material.                                                                                                      
                                                                                                                                
Renumber the following bill sections accordingly.                                                                               
                                                                                                                                
Page 6, lines 18 - 27:                                                                                                          
     Delete all material.                                                                                                       
                                                                                                                                
Renumber the following bill sections accordingly.                                                                               
                                                                                                                                
Page 13, line 11, through page 14, line 7:                                                                                      
     Delete all material.                                                                                                       
                                                                                                                                
Renumber the following bill sections accordingly.                                                                               
                                                                                                                                
Make changes throughout the bill to conform to the deletions                                                                    
above.                                                                                                                          
                                                                                                                                
Page 17, line 26, following "(f)":                                                                                              
     Insert "and (i)"                                                                                                           
                                                                                                                                
Page 21, line 10:                                                                                                               
     Delete "(l)"                                                                                                               
     Insert "(n)"                                                                                                               
                                                                                                                                
Page 21, line 14:                                                                                                               
     Delete "(l) and (m)"                                                                                                       
     Insert "(n) and (o)"                                                                                                       
                                                                                                                                
Page 22, line 1:                                                                                                                
     Delete "(l) and (n)"                                                                                                       
     Insert "(n) and (p)"                                                                                                       
                                                                                                                                
Page 23, following line 14 - insert the following material:                                                                     
     "(i) For a month for which (12) the production tax                                                                         
value of the  taxable oil and gas produced  during the month                                                                    
calculated under (a)  of this section exceeds  zero, and (2)                                                                    
the total  quantity of  oil and gas,  including oil  and gas                                                                    
the ownership  or right  to which  is exempt  from taxation,                                                                    
produced  per  day  by  the  producer  from  all  leases  or                                                                    
properties in  the state averages  less than  55,000 barrels                                                                    
of oil  equivalent, a producer  that is qualified  under (j)                                                                    
of  this section  may  reduce the  production  tax value  by                                                                    
deducting an  allowance in an  amount calculated  under this                                                                    
subsection.  For purposes  of this  subsection, a  barrel of                                                                    
oil equivalent  is a barrel of  oil, in the case  of oil, or                                                                    
6, 000 cubic feet of gas,  in the case of gas. The allowance                                                                    
is equal  to the production  tax value calculated  under (a)                                                                    
of this section  multiplied by the fraction  that is yielded                                                                    
by  the following  formula,  except that  the  value of  the                                                                    
fraction may not be greater than one:                                                                                           
                (5,000 - 0.1*[ADP-5,000])/ADP                                                                                   
where ADP  is the  average for  the month  of the  number of                                                                    
barrels of oil  equivalent of the total quantity  of oil and                                                                    
gas, including oil  and gas the ownership or  right to which                                                                    
is exempt  from taxation, produced  per day by  the producer                                                                    
from all leases or properties in the state.                                                                                     
                                                                                                                                
     (j) Upon written application by a producer, including                                                                      
any information  the department may require,  the department                                                                    
shall determine  whether the  producer qualifies  under this                                                                    
subsection  for  a  calendar year.  To  qualify  under  this                                                                    
subsection, a  producer must demonstrate that  its operation                                                                    
in the state  or its ownership of an interest  in a lease or                                                                    
property in  the state as  a distinct producer  entity would                                                                    
not result in the  division among multiple producer entities                                                                    
or  any production  tax value  of  taxable oil  and gas,  as                                                                    
defined under (a) of this  section, that would be reasonably                                                                    
expected to  be attributed  to a  single producer  entity if                                                                    
the  allowance provision  of  (i) of  this  section did  not                                                                    
exist."                                                                                                                         
                                                                                                                                
Page 23, line 15:                                                                                                               
     Delete "(i)"                                                                                                               
     Insert "(k)"                                                                                                               
                                                                                                                                
Page 23, line 23:                                                                                                               
     Delete "(j)"                                                                                                               
     Insert "(l)"                                                                                                               
                                                                                                                                
Page 23, line 25:                                                                                                               
     Delete "(k)"                                                                                                               
     Insert "(m)"                                                                                                               
                                                                                                                                
Page 23, line 29:                                                                                                               
     Delete "(l)"                                                                                                               
     Insert "(n)"                                                                                                               
                                                                                                                                
Page 24, line 14:                                                                                                               
     Delete "(m)"                                                                                                               
     Insert "(o)"                                                                                                               
                                                                                                                                
Page 24, line 25:                                                                                                               
     Delete "(l)"                                                                                                               
     Insert "(n)"                                                                                                               
                                                                                                                                
Page 24, line 27:                                                                                                               
     Delete "(l)(1)"                                                                                                            
     Insert "(n)(1)"                                                                                                            
                                                                                                                                
Page 24, line 28:                                                                                                               
     Delete "(l)"                                                                                                               
     Insert "(n)"                                                                                                               
                                                                                                                                
Page 25, line 3:                                                                                                                
     Delete "(l)(1)"                                                                                                            
     Insert "(n)(1)"                                                                                                            
                                                                                                                                
Page 25, line 18:                                                                                                               
     Delete "(o)"                                                                                                               
     Inert "(q)"                                                                                                                
                                                                                                                                
Page 8, line 26:                                                                                                                
     Delete "AS 43.55.013(c),"                                                                                                  
     Insert "AS 43.55.011(a), 43.55.011(b), 43.55.013(c),"                                                                      
                                                                                                                                
     Following: 43.55.013(i),"                                                                                                  
     Insert "43.55.013(j),"                                                                                                     
                                                                                                                                
Make  changes  throughout the  bill  to  conform to  the  statute                                                               
repeals added on page 28, line 26, above.                                                                                       
                                                                                                                                
CHAIR  WAGONER objected  for discussion  purposes.  He said  that                                                               
Robert Mintz, Department of Law,  wrote this amendment that dealt                                                               
with the 5,000-barrel  amendment and replaces the  Cook Inlet tax                                                               
structure and the $73 million  standard deduction that was in the                                                               
governor's bill.                                                                                                                
                                                                                                                                
10:55:28 AM                                                                                                                   
MARY JACKSON, Staff to Senator  Wagoner, added that the chair had                                                               
worked with Dr. Pedro van Meurs  on this issue and that Mr. Mintz                                                               
was online to answer questions.                                                                                                 
                                                                                                                                
CHAIR WAGONER asked Mr. Mintz to review the concept.                                                                            
                                                                                                                                
ROBERT  MINTZ, Assistant  Attorney  General,  Department of  Law,                                                               
explained that  material on  page 1  of the  amendment eliminated                                                               
the component of  the production tax for Cook Inlet  and that the                                                               
heart of  the amendment  implemented a concept  of Dr.  Van Meurs                                                               
that was on page 2 through the top of page 3.                                                                                   
                                                                                                                                
The  concept  basically  has  a  tax-free  allowance  similar  in                                                               
magnitude to the $73 million  allowance, but scaled to the amount                                                               
of  production a  company has  in  Alaska. If  the average  daily                                                               
production of a  producer during a month were no  more than 5,000                                                               
barrels per  day, then there  would be  no production tax  on its                                                               
oil  and gas.  At  the other  end  of the  spectrum,  it gave  no                                                               
allowance to producers  with 55,000 barrels a day or  more of oil                                                               
and gas  production. The  intent was to  target the  allowance to                                                               
smaller producers where it was  really needed and it was designed                                                               
to be calculated on a monthly basis.                                                                                            
                                                                                                                                
10:59:39 AM                                                                                                                   
MR. MINTZ pointed out that line  17 referred to 55,000 barrels of                                                               
oil  being  equivalent  to  6,000   cf  of  gas.  Subsection  (j)                                                               
[referenced on  line 18]  was language  from the  governor's bill                                                               
that tried  to prevent  abuse of the  allowance. In  looking over                                                               
the   amendment,  he   realized  a   couple  of   refinements  in                                                               
terminology were needed. He said lines  15 and 26 of page 2, have                                                               
a  reference  to  "total  quantity   of  oil  and  gas"  and  the                                                               
production tax  statute actually uses  the term "amount"  when it                                                               
refers  to  how  much  oil  and gas  is  produced.  He  suggested                                                               
changing  "quantity"  to   "amount"  for  consistency.  Secondly,                                                               
language  on page  3, line  3  - the  anti-splitting provision  -                                                               
talks  about   production  tax  value  among   multiple  producer                                                               
entities. In  this case,  because the allowance  is based  on the                                                               
formula that  in turn depends  on the producer's total  amount of                                                               
oil  against production,  he suggested  inserting "any  amount of                                                               
oil or gas production or" after  "entities of" on page 3, line 3.                                                               
So, it would  read, "multiple producer entities of  any amount of                                                               
oil or gas production or any  production tax value of taxable oil                                                               
and  gas,". He  said the  rest  of the  amendment had  conforming                                                               
changes.                                                                                                                        
                                                                                                                                
CHAIR  WAGONER said  that converting  6,000 cf  of gas  to 55,000                                                               
barrels of  oil was a  pretty simplistic statement in  looking at                                                               
the volatility of  pricing for both commodities.  He thought they                                                               
might want to  look at a formula  the DOR could use  to change it                                                               
as prices changed.                                                                                                              
                                                                                                                                
11:04:45 AM                                                                                                                   
DAN DICKINSON,  CPA, supported  his observation  and said  he was                                                               
comfortable  with  using  a rough  approximation  that  could  be                                                               
modified.                                                                                                                       
                                                                                                                                
11:06:00 AM                                                                                                                   
SENATOR STEDMAN said  another issue of concern  was the financial                                                               
impact of the tier structure and  he suggested they might want to                                                               
cap  it at  $40  a  barrel. However,  since  it  was a  different                                                               
methodology from  the original $73 million  exemption, he thought                                                               
the idea needed to be analyzed more thoroughly.                                                                                 
                                                                                                                                
MR. DICKINSON said he had a  graph that would help illustrate it.                                                               
He  explained that  Roger  Marks, a  petroleum  economist at  the                                                               
Department  of  Revenue,  calculated that  the  break-even  point                                                               
between  the $73  million exemption  and the  $40 cap,  given the                                                               
current distribution of barrels, was  at about $30. "At more than                                                               
$30, this would yield a higher  allowance; at less than $30, this                                                               
would yield a lower allowance."                                                                                                 
                                                                                                                                
CHAIR WAGONER  observed that the  5,000-barrel equation  could go                                                               
quite high.                                                                                                                     
                                                                                                                                
11:08:13 AM                                                                                                                   
SENATOR STEDMAN  agreed and  he also thought  they should  have a                                                               
discussion on  the scope of  the exclusion since they  were going                                                               
to have one. Econ One had  come back with the $40 cap suggestion.                                                               
"It's controlling the size of it," he said.                                                                                     
                                                                                                                                
MR. DICKINSON  pointed out that Econ  One suggested a cap,  not a                                                               
break-even point.                                                                                                               
                                                                                                                                
11:09:21 AM                                                                                                                   
SENATOR BEN STEVENS said he didn't  see an issue with running the                                                               
production up to a certain level,  but he wanted an analysis done                                                               
on "the impact of just essentially cutting off the tail."                                                                       
                                                                                                                                
11:10:52 AM                                                                                                                   
SENATOR SEEKINS  said he understood  the intent was  to encourage                                                               
new development, but  the effect is to  encourage new development                                                               
of people who  already aren't producing pretty  well. He objected                                                               
to  that on  an  issue of  fairness, because  he  wanted to  also                                                               
encourage those who are already producing to go out and do more.                                                                
                                                                                                                                
11:12:07 AM                                                                                                                   
CHAIR  WAGONER said  he thought  it treated  both parties  pretty                                                               
well.                                                                                                                           
                                                                                                                                
SENATOR  BEN STEVENS  said  he agreed  with  using incentives  to                                                               
attract new  producers, but questioned  how far the  state needed                                                               
to  go.  If you're  going  to  keep  incentives for  the  smaller                                                               
players, you  have to  decide what  is small  and keep  it small.                                                               
This would raise the amount for every company except three.                                                                     
                                                                                                                                
11:15:04 AM                                                                                                                   
SENATOR STEDMAN  thought maybe  the formula  could be  tweaked so                                                               
the tail accelerated at 5,000  until 30,000 or 25,000 or whatever                                                               
barrel-equivalent was decided.                                                                                                  
                                                                                                                                
MR.  DICKINSON said  that changing  the .001  to .002  would make                                                               
that steeper.                                                                                                                   
                                                                                                                                
11:17:10 AM                                                                                                                   
MR.   MINTZ  said   he  had   additional  points   in  explaining                                                               
Substantive  Amendment 1  in that  language on  page 1,  line 16,                                                               
said:  "Make  changes  throughout  the bill  to  conform  to  the                                                               
deletions above."  He didn't have enough  time to put in  all the                                                               
conforming  changes that  were needed  and suggested  making this                                                               
conceptual.                                                                                                                     
                                                                                                                                
Secondly,  he  said  the  original   allowance  language  in  the                                                               
governor's bill said that any  unused amount could not be carried                                                               
forward or be used  as a basis for a loss  credit.  That language                                                               
was not in this amendment and  he explained the reason it was not                                                               
necessary was because the allowance  is calculated per month and,                                                               
"There is never anything left  over that couldn't and wouldn't be                                                               
used in that month."                                                                                                            
                                                                                                                                
11:19:08 AM                                                                                                                   
SENATOR  SEEKINS  moved  to  adopt  Amendment  1  to  Substantive                                                               
Amendment 1  to change "quantity" on  lines 15 and 26,  of page 2                                                               
to "amount". There were no objections and it was adopted.                                                                       
                                                                                                                                
SENATOR  SEEKINS  moved  to  adopt  Amendment  2  to  Substantive                                                               
Amendment 1  to insert "any amount  of oil or gas  production or"                                                               
after "entities of"  on page 3, line 3. There  were no objections                                                               
and it was adopted.                                                                                                             
                                                                                                                                
11:21:47 AM                                                                                                                   
CHAIR WAGONER said he thought they  were going to review how this                                                               
provision had enticed small operators to Alaska in seven years.                                                                 
                                                                                                                                
11:22:14 AM                                                                                                                   
SENATOR  SEEKINS  moved  to  adopt   conceptual  Amendment  3  to                                                               
Substantive  Amendment  1  to  sunset   the  provisions  of  this                                                               
amendment seven years from the date of enactment.                                                                               
                                                                                                                                
CHAIR  WAGONER said  he would  hold this  amendment until  he got                                                               
further information this afternoon.                                                                                             
                                                                                                                                
MR. DICKINSON  recapped the three  points they wanted to  look at                                                               
later were what  happens if there's a cutoff at  30,000 BOE total                                                               
or a combination  of cutoff or rapid-slope decline  from the full                                                               
5,000 BOE  (instead of  tailing it off);  the fiscal  impact that                                                               
would have at  various prices; and the 6:1  valuation formula for                                                               
valuation of gas and oil.                                                                                                       
                                                                                                                                
CHAIR  WAGONER asked  if  there were  any  objections to  Senator                                                               
Seekins'  conceptual  Amendment  3   [the  sunset  provision]  to                                                               
Substantive  Amendment 1.  There were  no objections  and it  was                                                               
adopted.                                                                                                                        
                                                                                                                                
11:24:59 AM                                                                                                                   
CHAIR  WAGONER announced  Substantive Amendment  2 to  be up  for                                                               
consideration.  He  asked  Mr.  Mintz   to  explain  it  for  the                                                               
committee.                                                                                                                      
                                                                                                                                
                                                             24G-2                                                              
                                                          3/22/2006                                                             
                                                       (12:54 P.M.)                                                             
                                                                                                                              
                    SUBSTANTIVE AMENDMENT 2                                                                                 
                                                                                                                                
OFFERED IN THE SENATE RESOURCES         BY _____________________                                                                
       COMMITTEE                                                                                                                
     TO:  CSSB 305(RES) (24-GS2052\Y) (3/16/06 Work Draft:                                                                      
Chenoweth)                                                                                                                      
                                                                                                                                
Page 17, line 31, following "(2)", through Page 18, line 2:                                                                     
     Delete all material and insert "for a month that ends                                                                      
before  April 1, 2013,  and to  the extent  allowed under  (g) of                                                               
this  section,  less an  amount  of  the producer's  transitional                                                               
investment  expenditures that  has not  previously been  deducted                                                               
under this subsection."                                                                                                         
                                                                                                                                
Page 18, line 20:                                                                                                               
     Delete "(g)"                                                                                                               
     Insert "(g)(3)"                                                                                                            
                                                                                                                                
     Delete ", but not more than 1/48 of a producer's                                                                           
transitional  investment  expenditures  may be  deducted  in  any                                                               
month"                                                                                                                          
                                                                                                                                
Page 22, line 13:                                                                                                               
     Delete "January 1, 2003"                                                                                                   
     Insert "April 1, 2001"                                                                                                     
                                                                                                                                
Page 22, lines 18 - 19:                                                                                                         
     Delete "on or after January 1, 2003, and"                                                                                  
                                                                                                                                
Page 22, line 20:                                                                                                               
     Delete ", multiplied by"                                                                                                   
     Insert ";"                                                                                                                 
                                                                                                                                
Page 22, lines 21 - 26:                                                                                                         
     Delete all material and insert the following:                                                                              
               "(2)  an amount of a producer's transitional                                                                     
     investment expenditures may be deducted under (a) of this                                                                  
     section only to the extent that the amount does not exceed                                                                 
                    (A)  one-half of the producer's qualified                                                                   
          capital expenditures, as defined in AS 43.55.024, that                                                                
          are incurred during the month, if the producer does                                                                   
          not make an election under (f) of this section;                                                                       
                    (B)  1/24 of the producer's qualified                                                                       
          capital expenditures, as defined in AS 43.55.024, that                                                                
          are incurred during the calendar year, if the producer                                                                
         makes an election under (f) of this section;"                                                                          
                                                                                                                                
Page 22, line 27:                                                                                                               
     Delete "(2)  notwithstanding (1)"                                                                                          
     Insert "(3)  notwithstanding (2)"                                                                                          
                                                                                                                                
Page 29, following line 25:                                                                                                     
     Insert the following material:                                                                                             
     "(d)      Notwithstanding    any   contrary   provision   of                                                               
AS 43.55.160(g)(2), enacted by  sec. 26 of this Act,  for oil and                                                               
gas produced  on or  after April 1,  2006, and  before January 1,                                                               
2007,                                                                                                                           
          (1)  the number "1/24" in AS 43.55.160(g)(2(B),                                                                       
enacted by sec.  26 of this Act, shall be  replaced by the number                                                               
"1/18";                                                                                                                         
          (2)         the     phrase    "calendar     year"    in                                                               
AS 43.55.160(g)(2)(B), enacted by  sec. 26 of this  Act, shall be                                                               
replaced by the phrase "last nine months of the calendar year"."                                                                
                                                                                                                                
Page 29, line 26:                                                                                                               
     Delete "(d)"                                                                                                               
     Insert "(e)"                                                                                                               
                                                                                                                                
11:25:49 AM                                                                                                                   
MR.  MINTZ explained  that this  kind of  transitional investment                                                               
expenditure  concept is  sometimes  referred to  as the  clawback                                                               
provision. This language shortened  the look back that originally                                                               
started in  2003 and  provided that  only certain  percentages of                                                               
previous  expenditures   would  qualify  for  the   deduction  in                                                               
calculating taxable value. The concepts  that would be changed by                                                               
this amendment  would be first,  that the look back  period would                                                               
start  on April  1,  2001  [page 1,  lines  14-15 of  Substantive                                                               
Amendment 2];  second, that reducing the  deductible expenditures                                                               
to 25  percent, 50 percent  or 75  percent depending on  the year                                                               
would be eliminated  and it would all be  potentially 100 percent                                                               
[on page 2,  lines 20-21 of Substantive Amendment  2]; and third,                                                               
the new concept from Dr. Van Meurs referred to as the two-for-                                                                  
one concept  [page 2, line  3 -  12 of Substantive  Amendment 2].                                                               
This  concept says  the capital  investments  previously made  in                                                               
past years can only be deducted  to the extent that there are new                                                               
investment  expenditures,  referred   to  as  "qualified  capital                                                               
expenditures," in  the month and they  would have to be  twice as                                                               
much  as  the  tax  expenditure.   Further,  the  amount  of  the                                                               
producer's  traditional investment  expenditures, the  look back,                                                               
could be  deducted only to  the extent  that the amount  does not                                                               
exceed one-half of the  producer's qualified capital expenditures                                                               
that are incurred during a month.                                                                                               
                                                                                                                                
MR. MINTZ said  that subparagraphs (A) and (B)  have two options.                                                               
He  recalled that  subsection  (f)  of Section  160  says when  a                                                               
producer calculates  taxes on a  monthly basis during  a calendar                                                               
year, it  can be done  on the basis  of the actual  monthly lease                                                               
expenditures or it  could be an annualized approach,  which is to                                                               
say you look at your lease  expenditures over a calendar year and                                                               
each month deduct one-twelfth of them. He went on to explain:                                                                   
                                                                                                                                
     Subparagraph (B)  of the amendment  says if  a producer                                                                    
     elects  to  do it  on  an  annualized basis,  when  you                                                                    
     compare your  current capital expenditures to  the look                                                                    
     back or transitional  investment expenditures, then you                                                                    
     can  deduct  up  to  one-twenty-fourth  of  the  annual                                                                    
     current expenditures during a calendar year.                                                                               
                                                                                                                                
     And  then  the final  part  of  amendment is  simply  a                                                                    
     transitional provision  that would  be towards  the end                                                                    
     of  the bill,  not a  codified  part of  the statute  -                                                                    
     because the  first calendar year begins  in April, that                                                                    
     when   you're   doing   an   annualized   approach   to                                                                    
     calculating your  taxes, you  are only looking  at nine                                                                    
     months  of the  calendar year  and, therefore,  on your                                                                    
     deductible  look  back  expenditures, one-half  of  the                                                                    
     monthly expenditures  over nine  months, which  is one-                                                                    
     eighteenth rather  than one-twenty-fourth....  There is                                                                    
     a sunset on  this provision, which is shown  on line 2,                                                                    
     of  page 1.  And the  whole trigger  for being  able to                                                                    
     deduct transitional investment  expenditures is that it                                                                    
     has to be per month and that's for April 1, 2013.                                                                          
                                                                                                                                
11:30:54 AM                                                                                                                   
SENATOR SEEKINS moved to adopt Substantive Amendment 2.                                                                         
                                                                                                                                
SENATOR BEN STEVENS objected for discussion purposes.                                                                           
                                                                                                                                
SENATOR  ELTON  said  in  a  previous  amendment,  a  sunset  was                                                               
described  as seven  years  after enactment  and  he thought  the                                                               
committee might want to use that concept here for consistency.                                                                  
                                                                                                                                
SENATOR SEEKINS said  this assumes the effective date  of the tax                                                               
would be April  1, 2006 and it  was tied to that.  He renewed his                                                               
objection to both a retroactive tax and a retroactive credit.                                                                   
                                                                                                                                
11:32:26 AM                                                                                                                   
SENATOR STEDMAN  reminded members  that they  were looking  for a                                                               
balance  and clearly  the bill  would have  retroactivity in  tax                                                               
collection and an impact on the industry.                                                                                       
                                                                                                                                
SENATOR ELTON said one of the  advantages of an effective date of                                                               
April 1  or January 1,  for that matter,  is that it  does extend                                                               
credits  for winter  work that  is  being done  this winter.  So,                                                               
there is advantage for some  players to have an earlier effective                                                               
date, because  the credits  are more important  to them  than the                                                               
tax.                                                                                                                            
                                                                                                                                
SENATOR  STEDMAN  said it  is  hard  to  estimate how  quick  the                                                               
credits would be used up.                                                                                                       
                                                                                                                                
SENATOR STEVENS asked Mr. Mintz  to explain again the one twenty-                                                               
fourth he  talked about earlier  in section  (B) on page  2, line                                                               
10, of Substantive Amendment 2.                                                                                                 
                                                                                                                                
MR. MINTZ  explained that  that section  was trying  to reconcile                                                               
two  concepts.  The tax  is  paid  on  a  monthly basis.  But  in                                                               
calculating  it, the  producer is  allowed to  elect to  take the                                                               
annual  lease expenditure  and divide  by twelve  and each  month                                                               
deduct one-twelfth  of the annual  cost instead of  deducting 100                                                               
percent of the actual monthly costs. He explained further:                                                                      
                                                                                                                                
     So, there  is a one-twelfth that  appears in subsection                                                                    
     (f)[page 22,  line 8  of CSSB  305(RES)]. In  this look                                                                    
     back for  transitional investment  expenditure concept,                                                                    
     in any one  month that the amount of the  look back for                                                                    
     transitional  expenditures can  be deducted  is limited                                                                    
     to one-half  of the  new capital investment.  So, under                                                                    
     (A) [page  24, line 21  of CSSB 305(RES)],  that's just                                                                    
     very  direct and  when  you're doing  it  on a  monthly                                                                    
     basis, you look at  your capital expenditures made that                                                                    
     month and you  can't deduct more than  one-half of that                                                                    
     amount  in  transitional investment  expenditures.  But                                                                    
     when you're  annualizing your deductions  and deducting                                                                    
     each   month,   one-twelfth   of  that   year's   lease                                                                    
     expenditures, then again you're  only allowed to deduct                                                                    
     up  to one-half  of that  month's capital  expenditures                                                                    
     and  that's  one  twenty-fourth of  the  entire  year's                                                                    
     capital expenditures.                                                                                                      
                                                                                                                                
11:38:07 AM                                                                                                                   
SENATOR BEN STEVENS  asked where the ability to accrue  it to the                                                               
deduction was in the amendment.                                                                                                 
                                                                                                                                
MR.  MINTZ replied  that the  fundamental language  that provides                                                               
for  a deduction  of the  transitional lease  expenditures is  on                                                               
lines 2 - 4 on page 1.                                                                                                          
                                                                                                                                
SENATOR BEN  STEVENS noted that  language began on page  17, line                                                               
31 of the CS  and he didn't see the mechanism  equating it to the                                                               
transitional expenditure.                                                                                                       
                                                                                                                                
MR.  MINTZ said  the  existing  CS doesn't  allow  more than  one                                                               
forty-eighth of the total in  any month. That is getting replaced                                                               
with a  new limit, which  compares to new capital  investment for                                                               
the  month and  no  more  than one-half  of  that  amount can  be                                                               
deducted.                                                                                                                       
                                                                                                                                
SENATOR  BEN STEVENS  asked  if the  fact  that the  transitional                                                               
expenditure  can't be  used to  bring  the ratepayers'  liability                                                               
down to zero was not being addressed.                                                                                           
                                                                                                                                
MR. MINTZ replied  that language was still in the  CS on page 18,                                                               
lines 3 - 4.                                                                                                                    
                                                                                                                                
11:40:43 AM  Recess 11:41:35 AM                                                                                             
                                                                                                                                
CHAIR WAGONER  called the meeting  back to order at  11:41:35 and                                                               
announced that  the committee had  a motion to  adopt Substantive                                                               
Amendment  2 before  it. Seeing  no  objections, he  said it  was                                                               
adopted.                                                                                                                        
                                                                                                                                
11:42:13 AM Recess 2:07:19 PM                                                                                               
                                                                                                                                
CHAIR WAGONER called the meeting back  to order at 2:07:24 PM. He                                                             
announced that the committee would  take up Substantive Amendment                                                               
1  am again.  He recapped  that it  eliminated the  separation of                                                               
Cook Inlet and the $73 million standard deduction.                                                                              
                                                                                                                                
2:08:55 PM                                                                                                                    
SENATOR STEDMAN  said further  analysis had  been brought  to the                                                               
committee on  the way  the formula was  written. It  excluded the                                                               
first 5,000 barrels a day from  PPT tax, but this exclusion would                                                               
have slowly  tapered down in  an exponential fashion to  55,000 a                                                               
day before it hit zero.                                                                                                         
                                                                                                                                
He  moved to  adopt Amendment  4  to Substantive  Amendment 1  to                                                               
change the multiple  factor in the formula of .1  (or 10 percent)                                                               
to .2,  which would  steepen that curve  and would  still exclude                                                               
5,000 barrels, but it would end at 30,000 barrels a day.                                                                        
                                                                                                                                
CHAIR WAGONER said that Roger Marks authored the analysis.                                                                      
                                                                                                                                
2:10:17 PM                                                                                                                    
ROGER   MARKS,  Petroleum   Economist,  Department   of  Revenue,                                                               
explained that the  first page of his power  point, Producer 2005                                                             
Daily Production (BOE Equivalents),  just showed the date-set for                                                             
2005. It  showed each producer in  the state and their  barrel of                                                               
oil equivalent. He commented, "What is  shown here is that at the                                                               
55,000  barrel-limit,  everyone  except BP,  ConocoPhillips,  and                                                               
ExxonMobil would get some tax free allowance."                                                                                  
                                                                                                                                
He  said the  next page,  Allowance Mechanisms,  showed what  the                                                             
curve looked like  in terms of allowance  percentage depending on                                                               
average daily production. The proposed  amendment, with the 5,000                                                               
barrels and  the .1 multiplier  and no  cut off, showed  at 5,000                                                               
barrels a day, a producer  would get a 100-percent allowance, but                                                               
that dropped pretty rapidly to 50  percent up to a 9,000 barrels-                                                               
a-day  spectrum when  it  would  decline at  a  slower rate.  The                                                               
proposed amendment tapered  off to zero at 55,000  barrels a day.                                                               
It also illustrated a cutting off  at 30,000, where it just about                                                               
dropped straight off the graph.  The other idea was to substitute                                                               
.2 for  the .1 that  would cause the allowance  to go to  zero in                                                               
30,000 barrels  a day.  He explained that  it still  dropped fast                                                               
initially,  but  then  kind  of tapered  off  more  quickly  than                                                               
before.                                                                                                                         
                                                                                                                                
2:13:56 PM                                                                                                                    
MR.  MARKS said  his third  graph,  Amendments -  Annual Cost  to                                                             
State  ($millions), showed  the effects  in annual  costs to  the                                                             
state. Chevron  was the  only company that  had more  than 30,000                                                               
and less than 55,000 barrels a  day. At 45,000 barrels a day, its                                                               
tax-free percentage was only about 2 percent. He explained:                                                                     
                                                                                                                                
     In  terms  of revenues,  it  doesn't  make much  of  an                                                                    
     impact.... the general slope of  that line is for every                                                                    
     $1  increase  in prices,  it's  about  $1.9 million  of                                                                    
     revenue less to the state.                                                                                                 
                                                                                                                                
The other  approach, he said,  would be to change  the multiplier                                                               
to .2  and having a more-rapid  drop off. The costs  to the state                                                               
are reduced - the graph showing  that for every $1 in price, it's                                                               
about $1.2  million a year  less to  the state. He  suspected the                                                               
annual revenue numbers would drop  with declining production each                                                               
year.                                                                                                                           
                                                                                                                                
2:16:03 PM                                                                                                                    
Finally, Mr.  Marks pointed  out how this  compares with  the $73                                                               
million  in the  governor's  bill. He  estimated seven  companies                                                               
would get full  allowances originally, but thought  about it more                                                               
and  changed  that  to  nine   full  allowances.  A  $73  million                                                               
allowance with a 20 percent  deduction would amount to about $130                                                               
million per year.  He estimated that about 98 percent  of the oil                                                               
hits that  $73 million peak at  fairly low prices -  of about $20                                                               
to $25 and higher.                                                                                                              
                                                                                                                                
2:17:30 PM                                                                                                                    
MR.  MARKS  corrected  his  earlier   estimate  reported  by  Mr.                                                               
Dickinson for  a crossover point at  about $35 per barrel  and he                                                               
had  mistakenly  thought that  the  5,000  barrels  a day  was  a                                                               
credit, not an  allowance. When he realized it  was an allowance,                                                               
that made  the crossover point  go much higher  - to about  $85 a                                                               
barrel.                                                                                                                         
                                                                                                                                
2:17:59 PM                                                                                                                    
SENATOR BEN  STEVENS asked if  he assumed the $130  million would                                                               
be  the maximum  loss to  the  state, because  all the  companies                                                               
might not use the full deduction.                                                                                               
                                                                                                                                
MR. MARKS replied  that was the difference  between the structure                                                               
in the governor's  bill and the structure of  the amendment. Once                                                               
the $73  million allowance  is hit with  the governor's  bill, it                                                               
stops; under the amendment it continues going up with the price.                                                                
                                                                                                                                
MR. DICKINSON  explained that $130  million was the  estimate for                                                               
nine full  equivalents using all the  credits. Fourteen companies                                                               
were actually listed  and six of those would  get partial credit.                                                               
It was an estimate of the aggregate.                                                                                            
                                                                                                                                
SENATOR BEN STEVENS  reiterated that was the point  he was trying                                                               
to make. The $130 million would  be the maximum amount of loss to                                                               
the state, but it would be an aggregate of the 14 companies.                                                                    
                                                                                                                                
SENATOR BEN  STEVENS asked  if Mr.  Marks' calculations  could be                                                               
carried out on  actual costs given the known  BOE equivalents. He                                                               
asked if the yellow line on page 3 was an estimate.                                                                             
                                                                                                                                
MR. MARKS replied  that the yellow line was his  estimate of what                                                               
the revenues would be with the  .2 multiplier. "The reason at $15                                                               
ANS, the  amount is zero,  is we  estimate average cost  of about                                                               
$15 a barrel to get from the market to net income."                                                                             
                                                                                                                                
SENATOR BEN  STEVENS asked if  the assumptions on the  input were                                                               
taken  from current  production scales  (on page  1 of  the power                                                               
point).                                                                                                                         
                                                                                                                                
MR. MARKS replied yes.                                                                                                          
                                                                                                                                
SENATOR STEDMAN asked  if altering the slope  reduced the state's                                                               
financial exposure by one-third at the high end.                                                                                
                                                                                                                                
MR. MARKS  replied yes and that  comes to about $1.2  million per                                                               
$1 ANS price from $1.9 million - about 37 percent.                                                                              
                                                                                                                                
SENATOR STEDMAN asked if that  would still give a 5,000-barrel a-                                                               
day exclusion for the start up companies.                                                                                       
                                                                                                                                
MR. MARKS  replied yes. He said  everybody on his list  on page 1                                                               
that  is producing  5,000 barrels  or  less would  still get  100                                                               
percent  of  their production  excluded.  He  reminded them  that                                                               
Kerr-McGhee and Pioneer were starting  up with 20,000 barrels, so                                                               
under that proposal,  about 10 percent of  their production would                                                               
be excluded, or about 2,000 barrels.                                                                                            
                                                                                                                                
2:24:10 PM                                                                                                                    
CHAIR WAGONER said it looked like  at that level of production, a                                                               
company was getting a relatively small credit.                                                                                  
                                                                                                                                
2:26:00 PM                                                                                                                    
SENATOR  STEDMAN   objected  to  the  amendment   for  discussion                                                               
purposes and  said that by  changing the multiplier  and dropping                                                               
the slope  and driving  the allowance to  zero barrels  at 30,000                                                               
exponentially  versus the  cliffing-approach of  the other  style                                                               
would  be in  the  best interests  of the  state  and still  give                                                               
benefit to  the industry  on the  smaller producing  fields. Even                                                               
the larger  producing fields get a  little bit of a  break in the                                                               
beginning.                                                                                                                      
                                                                                                                                
SENATOR BEN  STEVENS asked what  the average BOE equivalent  of a                                                               
satellite on the North Slope was.                                                                                               
                                                                                                                                
MR. MARKS replied  just in Prudhoe Bay there  are five satellites                                                               
currently producing an  average of about 6,600 barrels  per day -                                                               
Midnight Sun, Polaris, Orion, Aurora, and Borealis.                                                                             
                                                                                                                                
SENATOR  BEN  STEVENS  asked  if  that  would  put  them  at  the                                                               
seventieth percentile on their chart.                                                                                           
                                                                                                                                
MR. MARKS replied  that the satellites belong to  the Prudhoe Bay                                                               
producers  and because  this was  a company-wide  allowance, they                                                               
would not get an allowance themselves.                                                                                          
                                                                                                                                
SENATOR BEN  STEVENS asked if  the intent of the  legislation and                                                               
the  in-field  allowance  was to  promote  development  of  small                                                               
fields  and satellites,  (most recently  Pioneer and  Oooguruk at                                                               
about 20,000 barrel per day).  He wondered if this would actually                                                               
serve those  it was  designed for  because it  was a  pretty slow                                                               
mechanism for cost recovery.                                                                                                    
                                                                                                                                
MR. MARKS replied that even  under the governor's proposal of $73                                                               
million  that   was  company-wide,  the  satellites   were  small                                                               
operations of the big three  and probably wouldn't see a benefit.                                                               
Part  of  the  governor's  goal  was to  attract  small  and  new                                                               
companies and he believed that should continue.                                                                                 
                                                                                                                                
2:30:21 PM                                                                                                                    
SENATOR BEN  STEVENS suggested that  this provision  allowed them                                                               
to maintain that benefit, but in a different way.                                                                               
                                                                                                                                
MR. MARKS agreed.                                                                                                               
                                                                                                                                
SENATOR  BEN  STEVENS  asked if  this  amendment  replicated  the                                                               
result for the small operators.                                                                                                 
                                                                                                                                
MR.  MARKS responded  that the  governor's bill  was designed  to                                                               
replicate  the result  of the  ELF and  this amendment  would not                                                               
replicate that result.                                                                                                          
                                                                                                                                
SENATOR  BEN  STEVENS refined  his  question  and asked  if  this                                                               
amendment   replicated  the   result   for  smaller   independent                                                               
operator.                                                                                                                       
                                                                                                                                
MR. MARKS replied  yes for those producing under  5,000 barrels a                                                               
day.                                                                                                                            
                                                                                                                                
SENATOR BEN  STEVENS said  it was  recognized that  the heartburn                                                               
behind the  $73 million  allowance was  that it  was company-wide                                                               
and he asked  if this treated smaller  companies differently than                                                               
the bigger ones.                                                                                                                
                                                                                                                                
MR. MARKS replied that Kerr-McGhee  and Pioneer would still pay a                                                               
tax  under  the  governor's  bill  once  their  $73  million  was                                                               
achieved,  but they  would  start paying  tax  sooner under  this                                                               
amendment.                                                                                                                      
                                                                                                                                
SENATOR BEN  STEVENS asked,  "At any form  of the  amendment? Not                                                               
any of the  three proposals that you  have - the one  that was in                                                               
the original amendment, the 30,000 or the .2 multiplier?"                                                                       
                                                                                                                                
MR. MARKS replied, "That's correct."                                                                                            
                                                                                                                                
SENATOR BEN STEVENS asked if he said they would pay sooner.                                                                     
                                                                                                                                
MR. MARKS replied, "I believe so."                                                                                              
                                                                                                                                
2:33:28 PM                                                                                                                    
SENATOR  SEEKINS  said  the  first $73  million  based  on  5,000                                                               
barrels a day at $40 a  barrel under the governor's bill was tax-                                                               
free and applied to everyone.                                                                                                   
                                                                                                                                
CHAIR WAGONER agreed.                                                                                                           
                                                                                                                                
SENATOR  SEEKINS continued  saying that  this amendment  provided                                                               
that once  a company hits 30,000  barrels a day, it  would get no                                                               
tax relief all the way back to  the first barrel. Only if it kept                                                               
production under 5,000 barrels a day  would it get 100 percent of                                                               
the tax  relief and  that would  quickly go  down from  there, so                                                               
that  at 20,000  barrels a  day a  company would  have to  pay 90                                                               
percent of the tax.                                                                                                             
                                                                                                                                
MR. DICKINSON  replied under the  governor's proposal,  at 20,000                                                               
barrels assuming a  $40 price, a company would  get 5,000 barrels                                                               
tax-free. But  because the amendment  gives 10 percent  credit to                                                               
20,000 barrels, that drops the tax-free barrels to 2,000.                                                                       
                                                                                                                                
2:35:15 PM                                                                                                                    
CHAIR WAGONER  said he originally  talked to Dr. Van  Meurs about                                                               
everyone  getting  the  5,000-barrel deduction  under  a  55,000-                                                               
barrel ceiling  and he came  up with this formula  that basically                                                               
reduced more of the credit from the medium producers.                                                                           
                                                                                                                                
2:35:57 PM                                                                                                                    
SENATOR  SEEKINS  said  his  concern  was  that  a  big  producer                                                               
wouldn't have incentive to open up a new field.                                                                                 
                                                                                                                                
CHAIR WAGONER  said he  wanted to give  an allowance  to everyone                                                               
for production under 55,000 barrels.                                                                                            
                                                                                                                                
2:38:23 PM                                                                                                                    
CHAIR WAGONER reminded the committee  that the amendment adopting                                                               
the  .2-multiplier  was before  it  [Amendment  4 to  Substantive                                                               
Amendment  1].  A  roll  call vote  was  taken.  Senators  Dyson,                                                               
Stedman, Elton,  and Wagoner voted  yea; Senator Ben  Stevens and                                                               
Seekins voted nay; so the amendment was adopted.                                                                                
                                                                                                                                
2:39:41 PM                                                                                                                    
SENATOR SEEKINS moved  to adopt conceptual Amendment  5 to insert                                                               
the equivalent value of $40 a barrel.                                                                                           
                                                                                                                                
SENATOR  STEDMAN  objected  for  further  discussion  because  he                                                               
wasn't sure that was needed.                                                                                                    
                                                                                                                                
SENATOR ELTON agreed  with Senator Stedman and  reasoned that the                                                               
one-third  difference  in  revenue  to the  state  seemed  pretty                                                               
constant  with each  of  the  values along  the  bottom axis  and                                                               
putting in a specific price would distort it.                                                                                   
                                                                                                                                
2:41:25 PM                                                                                                                    
SENATOR SEEKINS pointed  out that according to the  graph, at $40                                                               
a barrel  it would  cost the  state $30 million  and under  $60 a                                                               
barrel, it would cost the state  about $55 million. He noted that                                                               
Robynn  Wilson, Director  of the  Tax Division,  was nodding  her                                                               
head yes.                                                                                                                       
                                                                                                                                
2:42:48 PM                                                                                                                    
SENATOR  BEN  STEVENS  said  he thought  this  component  in  the                                                               
original bill  gave relief up  to $14.3 million per  taxpayer and                                                               
that was it. He asked Senator Seekins to restate his motion.                                                                    
                                                                                                                                
2:43:41 PM                                                                                                                    
SENATOR  SEEKINS stated  that it  was a  conceptual amendment  to                                                               
limit the tax  credit at an equivalent of $40  a barrel, in terms                                                               
of dollars.  "Either we go  to a  floating or a  fixed somewhere.                                                               
I'm not  necessarily opposed to a  floating barrel as long  as we                                                               
understand exactly the size of the credit we're looking at."                                                                    
                                                                                                                                
SENATOR  STEDMAN pointed  out that  the credit  had been  reduced                                                               
substantially from the governor's numbers.                                                                                      
                                                                                                                                
CHAIR WAGONER added  that it had nothing to do  with the price of                                                               
oil per barrel for anyone producing less than 5,000 barrels.                                                                    
                                                                                                                                
SENATOR  SEEKINS said  he  wanted  it on  the  record that  their                                                               
intent was  to fix it at  some range or  to allow it to  slide if                                                               
this model were adopted.                                                                                                        
                                                                                                                                
2:45:38 PM                                                                                                                    
SENATOR  STEDMAN  said  the  graph was  geared  to  barrels,  not                                                               
dollars, so  the cost estimate line  was in the future  and could                                                               
be skewed one way or the other.                                                                                                 
                                                                                                                                
2:45:59 PM                                                                                                                    
SENATOR  ELTON  said  the  way  he  understood  Senator  Seekins'                                                               
amendment was that there would be  a fourth line that would climb                                                               
at the same rate  the yellow line did, but when  it reached $40 a                                                               
barrel, it would flat-line across the rest of the graph.                                                                        
                                                                                                                                
SENATOR SEEKINS said he had  accomplished getting this discussion                                                               
on  the record,  which  is what  he  wanted to  do,  and then  he                                                               
withdrew his amendment.                                                                                                         
                                                                                                                                
2:46:53 PM                                                                                                                    
CHAIR WAGONER thought they should  look further at his amendment,                                                               
because  if a  company were  producing  5,000 barrels  a day,  it                                                               
would get  a certain  credit at  $40 a barrel.  If the  price was                                                               
allowed to  float at $60  a barrel,  it would get  one-third more                                                               
credit. At $80 a barrel, it would get a double-credit.                                                                          
                                                                                                                                
2:47:38 PM                                                                                                                    
SENATOR  BEN  STEVENS   said  he  objected  to   the  motion.  He                                                               
elaborated that  an infield  allowance is  not an  unusual credit                                                               
and the  $73 million  allowance was designed  to address  the new                                                               
explorer  to the  North  Slope  and to  the  Alaska industry.  He                                                               
argued that  both history  and recent  testimony indicate  that a                                                               
substantial amount  of investment comes  over six or  seven years                                                               
before  there  is  any  income.   The  smaller  fields  won't  be                                                               
ratepayers and this is designed  for the small independent to get                                                               
the capital cost  recovery it needs to stay in  business. He said                                                               
the  discussion was  beginning to  drift  off the  intent of  the                                                               
provision,  which  was  towards attracting  investment  from  new                                                               
players  and  "putting  parameters   and  constraints  that  just                                                               
continually shrink and  shrink and shrink on  the incentive, it's                                                               
not going to have any impact.  So, therefore, I object to the $40                                                               
limit."                                                                                                                         
                                                                                                                                
SENATOR SEEKINS said he already withdrew the amendment.                                                                         
                                                                                                                                
SENATOR BEN STEVENS said he thought it was brought back.                                                                        
                                                                                                                                
2:50:08 PM                                                                                                                    
SENATOR  ELTON agreed  that  they  must look  at  whom they  were                                                               
incentivizing.                                                                                                                  
                                                                                                                                
2:51:20 PM                                                                                                                    
SENATOR  SEEKINS  moved  to  adopt  Substantive  Amendment  1  as                                                               
amended. SENATOR  BEN STEVENS objected  because of  the reduction                                                               
of the multiplier. A roll  call vote was taken; Senators Stedman,                                                               
Elton, Dyson,  and Wagoner  voted yea;  Senators Ben  Stevens and                                                               
Seekins voted nay; so Substantive Amendment 1 am was adopted.                                                                   
                                                                                                                                
2:54:53 PM at ease 2:56:19 PM                                                                                               
                                                                                                                                
CHAIR WAGONER called the meeting  back to order and announced the                                                               
committee would take  up deleted language on page 3,  line 24, of                                                               
Technical  Amendment   1  that   was  divided   into  Substantive                                                               
Amendment 5.                                                                                                                    
                                                                                                                                
MS. JACKSON, staff  to the Senate Resources  Committee, said this                                                               
language concerned how  to calculate gross value at  the point of                                                               
production  (POP).   The  governor's  bill  (page   11,  line  1)                                                               
authorized  three methods  of calculating  gross  value. One  was                                                               
using  an RSA  (royalty settlement  agreement) between  the state                                                               
and a single  producer; the second was using  a royalty valuation                                                               
that was  acceptable to  DNR or the  Department of  the Interior;                                                               
and the third  used a formula that was developed  by the DOR that                                                               
had estimates  of values  based on  factors like  published price                                                               
indices,  quality differentials,  and transportations  costs. She                                                               
said flag  on using RSAs for  two counts. The first  was an issue                                                               
of equal protection - which is just a matter of fairness.                                                                       
                                                                                                                                
MS. JACKSON explained that courts  generally require taxpayers to                                                               
be  treated  similarly in  similar  situations.  Now, Alaska  has                                                               
producers  that have  RSAs and  those that  don't. Moreover,  the                                                               
ones that have  RSAs are not all the same.  So, there are several                                                               
sets of dissimilarities.  The Department of Law  raised that same                                                               
question according to Dan Dickinson.                                                                                            
                                                                                                                                
She said the  second issue raised about using RSAs  was that Econ                                                               
identified as much as 40 cents  a barrel difference in some cases                                                               
that would  amount to about  $300 million  over 10 years  under a                                                               
25/20 plan, for instance.                                                                                                       
                                                                                                                                
3:01:32 PM                                                                                                                    
MS.  JACKSON noted  that RSAs  were  not allowed  in language  on                                                               
pages 16  - 17  of the  CS, but it  unfortunately got  twisted to                                                               
allow  RSAs  for one  methodology  but  not  the other.  So,  the                                                               
technical  amendment that  was  before  the committee  yesterday,                                                               
placed the phrase  - "may not incorporate by  reference a royalty                                                               
value,   royalty   value   methodology  or   royalty   settlement                                                               
agreement"  -  so  that  it applied  to  either  the  methodology                                                               
developed by the DNR or by  the Department of Interior or another                                                               
formula that might be developed by the Department of Revenue.                                                                   
                                                                                                                                
3:03:21 PM                                                                                                                    
SENATOR BEN STEVENS  said he appreciated the  explanation, but he                                                               
didn't  agree with  the outcome.  He said  SB 305  originally had                                                               
three sections  under AS 43.45.150  (d) [page  11, lines 1  - 26]                                                               
that said roughly:                                                                                                              
                                                                                                                                
    1. a royalty value determined under a royalty settlement                                                                    
      agreement between a producer and the state, with                                                                          
      adjustments if appropriate:                                                                                               
    2. a formula prescribed by the Department of Revenue or                                                                     
      Department of Interior; or                                                                                                
    3. another formula described by the Department of Revenue                                                                   
      which reasonably estimates a value for the oil or gas at a                                                                
      specific geological location such as a point of tender or                                                                 
      point of delivery.                                                                                                        
                                                                                                                                
He  went back  to Mr.  Puliam's  presentation that  had the  best                                                               
reasoning, which said half of the  oil the state gets its revenue                                                               
from  is royalty  oil and  about half  of that  is under  royalty                                                               
settlement  agreements.   Then  the  other  half   is  under  the                                                               
severance system; and in reality,  there are three main severance                                                               
payers  and nine  or  10  other little  ones  that operate  under                                                               
similar,  but  different  agreements  that aren't  RSAs.  So,  he                                                               
interpreted Mr. Puliam's  presentation to say one  of the reasons                                                               
this is  so complex  is because the  state has  three ratepayers,                                                               
one, which pays  under an RSA under a  tax valuation methodology.                                                               
So, putting it all under a  RSA methodology would be an effort to                                                               
simplify the  valuation calculation of liability  owed whether it                                                               
be an RSA  or a severance agreement. He summarized  that they are                                                               
trying to simplify  the proposed system, but  the existing system                                                               
is  already complicated.  He interpreted  this section  as giving                                                               
the department the  discretion to use the price  established in a                                                               
settlement agreement across the board  for the same ratepayer and                                                               
to get  rid of the complications.  He said the royalty  payer has                                                               
different payment streams  depending on which field  the oil came                                                               
from.  "So,  there's  all  kinds   of  reasons  for  the  40-cent                                                               
variation and where it's produced, who the partners are...."                                                                    
                                                                                                                                
He pointed  out that the RSAs  have been litigated and  agreed to                                                               
as a  way to price oil  that is coming  out of the ground  and he                                                               
didn't understand  why the  proposers of  this amendment  were so                                                               
opposed to giving the department the  ability to use them when it                                                               
came to calculating a production tax obligation.                                                                                
                                                                                                                                
3:08:09 PM                                                                                                                    
SENATOR ELTON said:                                                                                                             
                                                                                                                                
     The compelling  argument is that  we don't want  to get                                                                    
     ourselves   into  a   position   where  two   different                                                                    
     companies  operating in  the same  field  may have  two                                                                    
     different tax  rates based on royalty  settlements that                                                                    
     one has  and one  may not  have or  royalty settlements                                                                    
     that both have  that just provide a  different value to                                                                    
     the royalty  oil. To me  it adds complexity.  That's my                                                                    
     view  of the  language  in the  governor's  bill. I  do                                                                    
     think  the obvious  solution is  the  solution that  is                                                                    
     part of this substantive amendment.                                                                                        
                                                                                                                                
3:09:43 PM                                                                                                                    
SENATOR BEN  STEVENS said  that each  taxpayer has  different tax                                                               
calculations,  because they  have different  shipping costs,  for                                                               
one thing; and he restated his question:                                                                                        
                                                                                                                                
     What is  the reason  why royalty  settlement agreements                                                                    
     that  have  been litigated  in  court,  that have  been                                                                    
     agreed  upon   by  the  state,   agreed  upon   by  the                                                                    
     ratepayer, what is the  reasoning for not incorporating                                                                    
     it? I haven't seen it.                                                                                                     
                                                                                                                                
SENATOR SEEKINS  inserted that he  understood the CS on  page 17,                                                               
lines  22 -  23 said:  "(B) may  not incorporate  by reference  a                                                               
royalty   value,  royalty   valuation  methodology,   or  royalty                                                               
settlement agreement." and that  "incorporate by reference" meant                                                               
to make  a part of  the agreement.  He believed they  were saying                                                               
when  this methodology  was agreed  to,  it couldn't  incorporate                                                               
another agreement that was already  in place somewhere. "In other                                                               
words, it has to be new all to itself."                                                                                         
                                                                                                                                
SENATOR BEN  STEVENS agreed. But  he said the original  bill said                                                               
previous agreements could  be used "in whole or in  part" and "or                                                               
portions of it may be used".                                                                                                    
                                                                                                                                
SENATOR  SEEKINS  agreed   with  that,  but  said   they  way  he                                                               
understood it,  the whole agreement  couldn't be  incorporated by                                                               
reference.                                                                                                                      
                                                                                                                                
SENATOR BEN STEVENS  said he didn't read that  in the substantive                                                               
amendment.                                                                                                                      
                                                                                                                                
SENATOR SEEKINS said he didn't either.                                                                                          
                                                                                                                                
ROBYNN WILSON, Director, Tax Division,  DOR, said she didn't have                                                               
much  experience with  royalty agreements  or rates.  She thought                                                               
Mr. Mintz might have more information on this point.                                                                            
                                                                                                                                
3:12:38 PM                                                                                                                    
CHAIR WAGONER  asked if he was  still online and said  the debate                                                               
was  to  keep the  original  language  or  keep the  CS  language                                                               
because some companies don't have royalty settlement agreements.                                                                
                                                                                                                                
MR.  MINTZ advised  that it  was unlikely  the courts  would find                                                               
equal   protection  problems   in   the  tax   arena  under   the                                                               
administration's bill  because of  similar situations  already in                                                               
existence. He  used Proposition  13 in  California as  an example                                                               
where  two people  could live  in identical  houses next  door to                                                               
each other and  one could be paying 10 times  as much in property                                                               
taxes  than  the  other  because the  houses  were  purchased  on                                                               
different dates. However, he thought  there might be other policy                                                               
reasons  why the  legislature  would not  want  to allow  royalty                                                               
settlement formulas to be used.                                                                                                 
                                                                                                                                
He  said that  Senator Ben  Stevens had  accurately characterized                                                               
this  is   a  way  of   simplifying  calculations   and  avoiding                                                               
duplication. However,  he express some uncertainty  about how the                                                               
amendment would  work because  it said that  a formula  under (d)                                                               
may not incorporate a reference  to royalty value or methodology,                                                               
but   yet  (d)(1)   still  referred   to   a  royalty   valuation                                                               
methodology. The two seemed to contradict.                                                                                      
                                                                                                                                
MS. JACKSON said all three  pieces were before the committee. The                                                               
governor's  bill,  the  CS,   which  already  eliminated  royalty                                                               
settlements as a method of  valuation, and the amendment that was                                                               
directed at the CS.                                                                                                             
                                                                                                                                
3:17:44 PM                                                                                                                    
SENATOR SEEKINS  replied that  he thought  there was  a conflict.                                                               
The  amendment  says  you  can't  even talk  about  RSAs  in  the                                                               
agreement and he  thought that would be a big  mistake. He didn't                                                               
object to  an RSA being  brought into  the new agreement,  but he                                                               
objected  to saying  they  should  not be  able  to  "refer to  a                                                               
royalty   value,   royalty   valuation  or   royalty   settlement                                                               
agreement".                                                                                                                     
                                                                                                                                
MS. JACKSON  remarked that two  attorney said you have  a problem                                                               
and two have said you don't.                                                                                                    
                                                                                                                                
SENATOR BEN  STEVENS said  public policy  should not  be designed                                                               
around  an   entity  with   a  tax   liability  that   is  trying                                                               
intentionally to circumvent the law and stated further:                                                                         
                                                                                                                                
     With that  said, the royalty settlement  agreements are                                                                    
     agreements between  the state  and the  individuals who                                                                    
     owe   a  liability   under  those   royalty  settlement                                                                    
     agreements and they are in  agreement on a valuation of                                                                    
     the production that is being  transferred at a point of                                                                    
     value.  To  preempt the  use  of  the agreement  as  it                                                                    
     transfers into liabilities  under other statutory rules                                                                    
     and  obligations that  we create  as a  legislature, to                                                                    
     me, doesn't make sense. Why should  we say we can do it                                                                    
     here, but  you can't use  that method here. But  if you                                                                    
     want to  use that method here  and it works and  it's a                                                                    
     settlement agreement and there's  been no litigation or                                                                    
     violation, we'll take a look  at it. It doesn't say the                                                                    
     department "shall"; it just says the department "may".                                                                     
                                                                                                                                
     The  other  thing is  on  the  equal protection,  under                                                                    
     Blacks Law,  on the definition of  equal protection, it                                                                    
     has a couple different rationale  and basis tests. If I                                                                    
     might, Mr. Chairman, it says:  'In all equal protection                                                                    
     cases,  the crucial  question is  whether  there is  an                                                                    
     appropriate  governmental  interest suitably  furthered                                                                    
     by the  differential treatment.'  I believe there  is a                                                                    
     governmental   interest   suitable   for   differential                                                                    
     treatment  under this  case as  demonstrated. And  with                                                                    
     that, Mr.  Chairman, I'm finished. Thank  you very much                                                                    
     for your patience.                                                                                                         
                                                                                                                                
3:21:52 PM                                                                                                                    
SENATOR ELTON  said he  supported the  amendment, because  it was                                                               
counterintuitive to  believe that a  taxpayer wouldn't  elect the                                                               
lowest value because  that would be in his best  interest. But if                                                               
they do that,  in fact, based on a  royalty settlement agreement,                                                               
two companies could easily be operating  in the same field and be                                                               
paying  two  different  tax  rates  creating  a  fairness  issue.                                                               
Without this  amendment, companies would be  encouraged to battle                                                               
out royalty values.                                                                                                             
                                                                                                                                
3:23:22 PM                                                                                                                    
SENATOR ELTON moved to adopt Substantive Amendment 5.                                                                           
                                                                                                                                
SENATOR  DYSON said  he  thought this  amendment  should be  held                                                               
until  they get  to another  amendment that  is already  in their                                                               
stack of amendments.                                                                                                            
                                                                                                                                
3:24:06 PM                                                                                                                    
SENATOR ELTON withdrew his motion.                                                                                              
                                                                                                                                
CHAIR WAGONER said he would hold this amendment until the                                                                       
committee dealt with Section 20.                                                                                                
                                                                                                                                
3:25:30 PM recess  3:39:04 PM                                                                                               
                                                                                                                                
CHAIR  WAGONER called  the meeting  back to  order and  announced                                                               
Substantive  Amendment 3  by  Senator Stedman  to  be before  the                                                               
committee. It  consisted of two  options -  3A and 3B;  one would                                                               
replace the  progressivity issue. He suggested  they discuss both                                                               
options before adopting one of them.                                                                                            
                                                                                                                                
                                                     24-GS2052\Y.39                                                             
                                                         Chenoweth                                                              
                                                       3/22/06                                                                  
                                                                                                                                
                    SUBSTANTIVE AMENDMENT 3A                                                                                
                                                                                                                                
OFFERED IN THE SENATE                        BY SENATOR STEDMAN                                                                 
     TO:  CSSB 305(RES), Draft Version "Y"                                                                                      
Page 5, line 30, through page 6, line 5:                                                                                        
     Delete all material and insert:                                                                                            
          "(g) In addition to the taxes levied under (e) and (f)                                                                
     of this section, there is levied  upon the producer of oil a                                                               
     tax for  oil produced during  that month from each  lease or                                                               
     property in the  state, less any oil the  ownership or right                                                               
     to which is exempt from  taxation. The tax levied under this                                                               
     subsection is equal to                                                                                                     
      ((ANS wellhead price - $40) x .0025)  x  ANS wellhead price                                                               
                           x  (1 - PPT rate)                                                                                    
     where                                                                                                                      
               (1)  "ANS wellhead price" means the prevailing                                                                   
     value for oil produced in the Alaska North Slope area; and                                                                 
               (2)  the PPT, or production property tax, rate is                                                                
     25 percent."                                                                                                               
                                                                                                                                
Page 6, line 10:                                                                                                                
     Delete "West Texas Intermediate"                                                                                           
     Insert "Alaska North Slope"                                                                                                
                                                                                                                                
Page 6, lines 11 - 12:                                                                                                          
     Delete "West Texas Intermediate"                                                                                           
     Insert "Alaska North Slope"                                                                                                
                                                                                                                                
Page 6, lines 16 - 17:                                                                                                          
     Delete "United States Gulf Coast price of West Texas                                                                       
Intermediate"                                                                                                                   
     Insert "price of Alaska North Slope"                                                                                       
                                                                                                                                
AND                                                                                                                             
                                                                                                                                
                                                     24-GS2052\Y.41                                                             
                                                         Chenoweth                                                              
                                                            9/6/06                                                              
                                                                                                                                
                                                                                                                                
                    SUBSTANTIVE AMENDMENT 3B                                                                                
                                                                                                                                
                                                                                                                                
OFFERED IN THE SENATE                        BY SENATOR STEDMAN                                                                 
     TO:  CSSB 305(RES), Draft Version "Y"                                                                                      
                                                                                                                                
Page 5, line 30, through page 6, line 5:                                                                                        
     Delete all material and insert:                                                                                            
          "(g) In addition to the taxes levied under (e) and (f)                                                                
     of this  section, there is  levied upon the producer  of oil                                                               
     or gas a tax for oil  or gas produced during that month from                                                               
     each lease  or property in the  state, less any oil  and gas                                                               
     the ownership  or right  to which  is exempt  from taxation.                                                               
     The tax levied under this subsection is equal to                                                                           
 ((WTI price - $40) x .002)  x  ANS wellhead price  x  (1 - PPT                                                                 
                             rate)                                                                                              
     where                                                                                                                      
               (1)  "WTI price" means the average price for the                                                                 
     month of West Texas Intermediate crude oil;                                                                                
               (2)  "ANS wellhead price" means the prevailing                                                                   
     value for oil produced in the Alaska North Slope area; and                                                                 
               (3)  the PPT, or production property tax, rate is                                                                
     25 percent."                                                                                                               
                                                                                                                                
Page 6, lines 16 - 17:                                                                                                          
     Delete "United States Gulf Coast"                                                                                          
                                                                                                                                
SENATOR STEDMAN noted a drafting error in the formula on the                                                                    
line 7 that says ".002". It should be ".2". He said there were                                                                  
two options, but one idea.                                                                                                      
                                                                                                                                
SENATOR BEN STEVENS asked, as a point of order, if the amendment                                                                
was being edited now.                                                                                                           
                                                                                                                                
CHAIR WAGONER replied yes.                                                                                                      
                                                                                                                                
3:41:55 PM                                                                                                                    
SENATOR STEDMAN said the way  to counter the declining government                                                               
take figure at  high prices was to modify the  25 percent PPT. He                                                               
did  this   by  adding  a   slight  multiplier  to   the  formula                                                               
established by Econ  One when the price of oil  hit $40 WTI (West                                                               
Texas  Intermediate). That  price was  used for  several reasons.                                                               
One, the WTI is an  actively traded market and, therefore, easily                                                               
identified; and two,  it is very difficult  to artificially move.                                                               
He said  it was also  possible to use  the price of  Alaska North                                                               
Slope  crude  (ANS),  which  is  $2  less.  He  argued  that  the                                                               
advantage to  the state  of having  a progressivity  feature when                                                               
oil prices  advance is  that it  provides stability  because when                                                               
the  tax gets  out  of balance  like ELF  did,  one side  becomes                                                               
disadvantaged and wants to reopen or renegotiate.                                                                               
                                                                                                                                
3:46:28 PM                                                                                                                    
SENATOR DYSON said using the  consumer price index (CPI) had been                                                               
discussed.                                                                                                                      
                                                                                                                                
SENATOR STEDMAN responded that he  didn't think using the CPI was                                                               
a good idea  because it didn't correlate with oil  prices and the                                                               
trigger point might  need to be moved quickly  to keep everything                                                               
in balance.                                                                                                                     
                                                                                                                                
SENATOR  DYSON added  that  costs  to the  producers  go up  with                                                               
rising labor, material, and fuel costs.                                                                                         
                                                                                                                                
SENATOR ELTON said  he understood the first half  of the equation                                                               
on line 7, but he didn't  understand the rationale for the second                                                               
half.                                                                                                                           
                                                                                                                                
3:51:00 PM                                                                                                                    
SENATOR STEDMAN explained:                                                                                                      
                                                                                                                                
     This is  a deductible tax  that goes against  the gross                                                                    
     value  instead  of the  net  like  the PPT  does.  It's                                                                    
     deductible  against the  PPT. We  have to  work through                                                                    
     the mathematics and look at the net effect.                                                                                
                                                                                                                                
3:52:14 PM                                                                                                                    
SENATOR  SEEKINS said  starting the  multiplier at  $40 a  barrel                                                               
without the  rest of  the formula,  at the  current price  of oil                                                               
being in the $60-range would emulate  a 30/20 PPT. He didn't know                                                               
if that was the intent of the amendment or not.                                                                                 
                                                                                                                                
SENATOR STEDMAN  replied that Econ One  did quite a bit  of chart                                                               
work on this. He explained:                                                                                                     
                                                                                                                                
     When  you  take  into account  the  state's  royalties,                                                                    
     property  taxes  and  corporate  income  tax  from  the                                                                    
     industry, that's  when they get  a true picture  of the                                                                    
     dynamics of  what this  is doing.  The royalty  and tax                                                                    
     scenario the state uses is  regressive in nature, so as                                                                    
     the price of oil goes  up, the state take declines. So,                                                                    
     in order  to counteract  that without  totally removing                                                                    
     that  system,  we've  got   to  make  something  that's                                                                    
     progressive enough to outweigh that and to flatten it.                                                                     
                                                                                                                                
SENATOR BEN STEVENS said he opposed the amendment and explained                                                                 
why:                                                                                                                            
                                                                                                                                
     And I question  the reasoning why a tax  is exempt from                                                                    
     a tax. It  is really just an attempt to  separate a new                                                                    
     revenue stream  out of the  existing equation  we have.                                                                    
     This  could easily  be in  addition to  subsection (e),                                                                    
     which is the formula and  the item that says there will                                                                    
     be  a  rate  -  the  tax  is  equal  to  a  percent  of                                                                    
     production tax -  it could be easily added on  to - the                                                                    
     whole amendment could  just be added under  (e) and not                                                                    
     be  a new  subsection  and, therefore,  it wouldn't  be                                                                    
     exempt from  taxation. I am questioning  the reason why                                                                    
     we  need to  segregate this  additional revenue  stream                                                                    
     from  the  same  formula,  the  same  taxation.  That's                                                                    
     number one.                                                                                                                
                                                                                                                                
     Number  two -  I have  issue  with WTI  as the  trigger                                                                    
     price  mechanism  and  ANS wellhead  as  the  valuation                                                                    
     method for the  taxation itself. I have  issues with it                                                                    
     for a  number of reasons,  but mainly the reason  is is                                                                    
     that we've  heard throughout  testimony, over  the last                                                                    
     couple  of weeks,  a whole  variety of  different costs                                                                    
     deducted  from  WTI  to  ANS  wellhead.  We  heard  one                                                                    
     economist say it's $7; we  heard one economist say it's                                                                    
     $6; we heard  one say it's $4.25; and then  we have $2.                                                                    
     So what  is the  differentiation there?  And as  far as                                                                    
     I'm  concerned  the  WTI  is  a  trigger-happy  hunter,                                                                    
     because it initiates the  progressivity clause prior to                                                                    
     the price  that we're taxing  all the other  oil that's                                                                    
     valued. So, as  far as I'm concerned, I  don't think we                                                                    
     need to have  the second half of the  equation based on                                                                    
     the fact that I don't think  it needs to be exempt from                                                                    
     the  tax that  they're already  being taxed  on and  it                                                                    
     should just be WTI. I think  it would be a much simpler                                                                    
     methodology - and without question - I oppose line 13,                                                                     
     so I'll take the opportunity to say it again....                                                                           
                                                                                                                                
3:58:39 PM                                                                                                                    
SENATOR DYSON asked to see a WTI and an ANS price at $60.                                                                       
                                                                                                                                
SENATOR  BEN STEVENS  interrupted saying,  "I did  the math  - 28                                                               
percent. The  effective rate at  $60 under this formula  would be                                                               
28 percent. It would be a 3 percent increase or $1.67 a barrel."                                                                
                                                                                                                                
SENATOR  DYSON asked  if he  was referring  to this  paragraph by                                                               
itself or in addition to the 25 percent.                                                                                        
                                                                                                                                
SENATOR BEN STEVENS replied the $1.67  would be the result of the                                                               
formula on line  7 at $60 would  equate to a 28  percent PPT; and                                                               
he used $4.25 as the difference between WTI and ANS.                                                                            
                                                                                                                                
4:00:13 PM                                                                                                                    
SENATOR  STEDMAN said,  "Econ One  has  calculated the  effective                                                               
rate at 25/20  without an escalator at $60 at  17.6 and with this                                                               
escalator it would be  moved from 17.6 to 20.6 -  at $60; at $50,                                                               
it would  move from  15.9 percent  to 17.4  percent; and  then at                                                               
$40,  it's 13.6  and  there's no  effect at  $30  other than  the                                                               
trigger point.                                                                                                                  
                                                                                                                                
He added  Econ One's rationale  for using WTI  was that it  was a                                                               
fluid market  versus the relatively  inactive market of  ANS. The                                                               
$40 trigger could be moved sometime later on.                                                                                   
                                                                                                                                
4:02:03 PM                                                                                                                    
SENATOR  STEDMAN  discussed  Substantive  Amendment  3A  and  his                                                               
concerns   with  the   complexity   of  dealing   with  the   tax                                                               
deductibility. He  asked Econ One  to create the same  slope from                                                               
that  $40 trigger  with a  multiplier and  they inserted  the ANS                                                               
price, which  moved the  factor from  .002 to  a .025  factor. He                                                               
thought using  ANS would  be easier  conceptually, but  the fluid                                                               
market would be lost.                                                                                                           
                                                                                                                                
4:03:41 PM                                                                                                                    
SENATOR DYSON  asked him to  explain the process he  went through                                                               
with Econ One to decide on the $40-trigger.                                                                                     
                                                                                                                                
SENATOR  STEDMAN said  he is  comfortable with  using $40-trigger                                                               
because that is the top in a range  of prices from $30 - $40 that                                                               
industry uses  for its economic  modeling. The  entire government                                                               
take number generated  by Econ One had a  slight regressive bent;                                                               
that's why  he selected  $40. It is  also at the  top end  of the                                                               
industry range and would have  minimal effects on their long-term                                                               
planning. It takes the belly out of the government take numbers.                                                                
                                                                                                                                
     The intent here is not to  get an excessively - put the                                                                    
     state in  a position of  high oil prices where  we take                                                                    
     all the  upside away from  the industry. The  idea here                                                                    
     is just  to keep the  balance and give them  the upside                                                                    
     percentage along  with the state's.  If oil  prices end                                                                    
     up  at  $70  or   $80,  our  percentage  share  doesn't                                                                    
     decline,  because there's  a multiple  effect that  the                                                                    
     industry gets  by allowing  that to  happen. But  in my                                                                    
     personal  opinion,  that  shouldn't  happen  to  either                                                                    
     side.                                                                                                                      
                                                                                                                                
SENATOR DYSON said he appreciated  that and didn't want the state                                                               
to suffer the dip.                                                                                                              
                                                                                                                                
SENATOR STEDMAN reiterated that $40 is good number.                                                                             
                                                                                                                                
SENATOR BEN STEVENS  commented that the effective  rates they are                                                               
talking about are all based on assumptions.                                                                                     
                                                                                                                                
     The  only thing  we should  be calculating  on, because                                                                    
     the only  thing everybody is  looking at is  that 20/25                                                                    
     and what  the effect of  the escalator is going  to be.                                                                    
     And  the  way  I  calculate it,  this  makes  it  under                                                                    
     current prices to be at  28 percent and that's probably                                                                    
     on the low  side because I'm not a  very good economist                                                                    
     or  mathematician. Thank  you  Mr.  Chairman, and  I'll                                                                    
     maintain my objection.                                                                                                     
                                                                                                                                
4:10:31 PM                                                                                                                    
SENATOR  STEDMAN   said  Econ  One   indicated  that   the  total                                                               
government take from  2007 to 2016 at $60 a  barrel, with a 25/20                                                               
scenario,   was  about   60   percent   (including  the   federal                                                               
government) and 40  percent profit to the industry.  With the .2-                                                               
escalator on it, the government take  goes to 61.8 percent, a 1.8                                                               
percent change.                                                                                                                 
                                                                                                                                
SENATOR BEN STEVENS asked if that 1.8 referred to dollars.                                                                      
                                                                                                                                
SENATOR STEDMAN replied  that it referred to a  percent, but that                                                               
figure could  be moved  into dollars, which  would be  figured on                                                               
volume  and  price.  "The  bigger  the  volume,  the  bigger  the                                                               
dollars."                                                                                                                       
                                                                                                                                
SENATOR BEN STEVENS  said his figures indicated  that it referred                                                               
to dollars.                                                                                                                     
                                                                                                                                
4:11:45 PM                                                                                                                    
SENATOR ELTON said he thought  the difference Senator Stedman was                                                               
talking about  in going  from $60 to  $61.8 was  total government                                                               
take;  Senator  Ben  Stevens  was   talking  about  what  is  the                                                               
percentage of the state's take and  he thought that might go up 3                                                               
percent under this formula.                                                                                                     
                                                                                                                                
4:12:31 PM                                                                                                                    
SENATOR  STEDMAN  reiterated that  the  combined  effect of  both                                                               
state and  federal government on  the industry was 1.8  percent -                                                               
using Econ One numbers.                                                                                                         
                                                                                                                                
4:16:10 PM                                                                                                                    
SENATOR STEDMAN moved  Substantive Amendment 3B that  used WTI in                                                               
the formula.                                                                                                                    
                                                                                                                                
CHAIR WAGONER and SENATOR BEN STEVENS both objected.                                                                            
                                                                                                                                
4:16:55 PM                                                                                                                    
SENATOR DYSON  said he favored  using this amendment with  ANS in                                                               
both places.                                                                                                                    
                                                                                                                                
SENATOR  STEDMAN   withdrew  his   motion  and  moved   to  adopt                                                               
Substantive Amendment 3A.                                                                                                       
                                                                                                                                
SENATOR DYSON  moved to change  the multiplier rate  from ".0025"                                                               
to ".0020" on line 7.                                                                                                           
                                                                                                                                
SENATOR STEDMAN said he had no objection to that.                                                                               
                                                                                                                                
SENATOR  ELTON objected.  He  said that  change  resulted in  two                                                               
fairly significant changes. He elaborated:                                                                                      
                                                                                                                                
     I mean we had before us  two different ways of doing an                                                                    
     amendment that  produced two lines that  were the same.                                                                    
     And what  we have  done if we  accept the  amendment to                                                                    
     the amendment is  we now have two  different lines, one                                                                    
     of  them flatter  than  the other.  And  so that's  the                                                                    
     reason for my  objection. I prefer a  steeper line, Mr.                                                                    
     Chairman.                                                                                                                  
                                                                                                                                
SENATOR  DYSON defended  his amendment  to  the amendment  saying                                                               
that ANS is a more stable  price to use and more closely reflects                                                               
what Alaska's product brings on the market. And further he said:                                                                
                                                                                                                                
     The wider swings of WTI, I  don't know that it gains us                                                                    
     anything and  I think the .002  multiplier accomplishes                                                                    
     exactly what  Senator Stedman wants,  which is  to take                                                                    
     the  dip out  of  the line  in the  out  at the  higher                                                                    
     prices and so that was my reasoning.                                                                                       
                                                                                                                                
SENATOR STEDMAN  said that moving  the multiplier down  would not                                                               
adversely affect taking the belly out  of the line; it would move                                                               
the  government  take numbers  down  slightly,  but he  was  very                                                               
comfortable with it.                                                                                                            
                                                                                                                                
4:20:02 PM                                                                                                                    
SENATOR BEN STEVENS said he didn't object to the amendment.                                                                     
                                                                                                                                
CHAIR WAGONER asked  for a roll call vote.  Senators Ben Stevens,                                                               
Dyson, Stedman, and  Wagoner voted yea; Senator  Elton voted nay;                                                               
and the Amendment 1 to Substantive Amendment 3A was adopted.                                                                    
                                                                                                                                
4:21:18 PM                                                                                                                    
SENATOR BEN STEVENS  moved to place the tax in  this amendment on                                                               
top of the  exiting tax in section (e) beginning  on page 4, line                                                               
25, of  CSSB 305(RES)  and delete  "or right  to which  is exempt                                                               
from taxation"  on page 4,  lines 27 -  28. His intention  was to                                                               
take  away  the  tax  exemption and  separation  of  the  revenue                                                               
streams and simply add to the production tax rate.                                                                              
                                                                                                                                
SENATOR STEDMAN said  he knew if they  tried to make it  a tax on                                                               
net  instead of  a tax  on gross,  the formula  would be  altered                                                               
substantially  and  Substantive Amendment  3A  would  have to  be                                                               
rewritten.                                                                                                                      
                                                                                                                                
4:24:10 PM                                                                                                                    
SENATOR BEN  STEVENS removed his  motion so it could  be properly                                                               
drafted.                                                                                                                        
                                                                                                                                
4:25:19 PM                                                                                                                    
CHAIR  WAGONER said  the  committee  would go  ahead  and act  on                                                               
Substantive Amendment  3A am  and allow  Senator Stevens  to come                                                               
back with a redrafted amendment and consider it at that time.                                                                   
                                                                                                                                
SENATOR  STEDMAN   said  he   wanted  Econ   One  to   check  the                                                               
calculations to make  sure they know the effect of  what they are                                                               
doing.                                                                                                                          
                                                                                                                                
4:26:20 PM                                                                                                                    
Chair WAGONER said that could be done in the Finance Committee.                                                                 
                                                                                                                                
SENATOR BEN STEVENS said, "Not by me; I'm not on Finance."                                                                      
                                                                                                                                
CHAIR  WAGONER  announced  that  the  committee  had  Substantive                                                               
Amendment 3A  amended before it. He  asked for a roll  call vote.                                                               
Senators Elton,  Seekins, Dyson, Stedman, and  Wagoner voted yea;                                                               
Senator Ben Stevens voted nay; so it was adopted.                                                                               
                                                                                                                                
4:28:15 PM                                                                                                                    
CHAIR  WAGONER announced  Substantive Amendment  4 to  be up  for                                                               
consideration.                                                                                                                  
                                                                                                                                
                    SUBSTANTIVE AMENDMENT 4                                                                                 
                                                                                                                                
OFFERED IN THE SENATE RESOURCES COMMITTEE     BY SENATOR WAGONER                                                                
                                                                                                                                
Page 45, line 4, delete:                                                                                                        
     "the provision of this subsection apply for a lessor's                                                                     
royalty interest under an oil and gas lease as follows:                                                                         
     (1) the rate of tax levied on oil and gas produced                                                                         
          (A) from the Cook Inlet basin, as that term is                                                                        
               defined in (a) of this section, is 1.5 percent;                                                                  
          (B) except as provided in (A) of this paragraph, is 5                                                                 
               percent;                                                                                                         
     (2) the rate of tax is applied to                                                                                          
          (A) the amount of royalty paid to the owner by the                                                                    
               producer; or                                                                                                     
          (B) the value, in the case of royalty oil or gas                                                                      
               taken in kind by the royalty owner, of that                                                                      
               royalty oil or gas determined                                                                                    
                (i)     in accordance with the royalty valuation                                                                
                        methodology in the lease or other                                                                       
                        governing agreement between the owner and                                                               
                       the producer; and                                                                                        
                (ii)    at the point of delivery of that royalty                                                                
                        oil or gas to the owner;"                                                                               
Page 5, line 4, following "taxation", insert:                                                                                   
For oil and  gas produced from the Cook  Inlet Sedimentary basin,                                                               
the tax is equal to one and a  half percent of the gross value at                                                               
the point  of production of  the oil and  gas. For all  other oil                                                               
and gas, the tax  is equal to five percent of  the gross value at                                                               
the  point of  production of  the oil  and gas.  However, if  the                                                               
department  determines   that,  for  purposes  of   reducing  the                                                               
producer's tax liability under this  subsection, the producer has                                                               
received   or  will   receive  consideration   from  the   lessor                                                               
offsetting all  or a part  of the producer's  royalty obligation,                                                               
other than a  deduction under AS 43.55.020(d) of the  amount of a                                                               
tax paid,  the tax under this  subsection is equal to  20 percent                                                               
of the gross value at the point  of the production of the oil and                                                               
gas.                                                                                                                            
                                                                                                                                
MS. JACKSON  explained that Substantive  Amendment #4  dealt with                                                               
private  royalty  on  the committee's  roadmap.  She  said,  "The                                                               
problem with the  CS is that the language that  was given did not                                                               
match what  ended up  in the  CS." So, that  was the  first thing                                                               
that  was worked  out between  members of  AOGA and  some private                                                               
royalty  owners. The  department that  came up  with a  number of                                                               
small concerns.  The reason this  is a substantive  amendment was                                                               
because it  dealt with  private royalty.  She explained  that the                                                               
amendment kept the 1.5 percent  tax in the Cook Inlet Sedimentary                                                               
basin, but  a 5 percent tax  in all other areas.  The addition is                                                               
on page 2, line 2, where it reads:                                                                                              
                                                                                                                                
     However,  if   the  department  determines   that,  for                                                                    
     purposes  of  reducing  the  producer's  tax  liability                                                                    
     under  this subsection,  the producer  has received  or                                                                    
     will receive  consideration from the  lessor offsetting                                                                    
     all  or a  part of  the producer's  royalty obligation,                                                                    
     other  than a  deduction under  AS 43.55.020(d)  of the                                                                    
     amount of a tax paid,  the tax under this subsection is                                                                    
     equal to 20 percent of the  gross value at the point of                                                                    
     the production of the oil and gas.                                                                                         
                                                                                                                                
She  said  that this  penalty  provision  of 20  percent  applied                                                               
essentially  to situations  when the  producer and  royalty owner                                                               
entered into an agreement in an attempt to game the system.                                                                     
                                                                                                                                
4:31:20 PM                                                                                                                    
MS.  JACKSON  said  the  department is  comfortable  with  the  5                                                               
percent language,  but hasn't expressed  anything one way  or the                                                               
other in terms  of the 1.5 percent for the  Cook Inlet basin. The                                                               
chairman  elected  to  put  that   into  the  bill.  The  current                                                               
percentage tax  rate in the  Cook Inlet basin is  approximately a                                                               
1.2 percent (on private royalty).                                                                                               
                                                                                                                                
4:32:08 PM                                                                                                                    
SENATOR BEN  STEVENS referenced page  5, line  7, of the  CS that                                                               
said "gas" was at 1.5 percent and all other was at 5 percent.                                                                   
                                                                                                                                
CHAIR WAGONER  said he was  not aware that  there was any  oil at                                                               
the time, but he was asked to put it in.                                                                                        
                                                                                                                                
MS.  JACKSON added  that she  was told  this insertion  of "gas",                                                               
which was  requested initially by  the department,  was incorrect                                                               
on the CS.                                                                                                                      
                                                                                                                                
SENATOR  BEN  STEVENS  asked  if  most  of  the  private  royalty                                                               
ownership in the Inlet is currently gas.                                                                                        
                                                                                                                                
CHAIR WAGONER replied yes and the  majority of it is in the Kenai                                                               
gas field.                                                                                                                      
                                                                                                                                
SENATOR  BEN STEVENS  asked then  if  the other  5 percent  would                                                               
apply to mainly oil production on the Slope.                                                                                    
                                                                                                                                
CHAIR WAGONER replied yes - that was his understanding.                                                                         
                                                                                                                                
SENATOR BEN  STEVENS asked if  they could agree to  interpret the                                                               
1.5 percent as a gas tax and the 5 percent as an oil tax.                                                                       
                                                                                                                                
CHAIR WAGONER  said he didn't  know if  they agreed upon  it, but                                                               
that's the way it was explained to him.                                                                                         
                                                                                                                                
4:35:01 PM                                                                                                                    
SENATOR BEN  STEVENS said this  has huge impacts on  state policy                                                               
and he  wanted people  to know  that as  they move  forward. They                                                               
were essentially saying the state's  tax on gas equals 30 percent                                                               
of its tax on oil.                                                                                                              
                                                                                                                                
SENATOR SEEKINS  asked if they are  just looking at gas,  why did                                                               
the administration want to put oil into the equation.                                                                           
                                                                                                                                
MS.  JACKSON  replied  that  it  didn't want  to  at  first.  The                                                               
original CS had "oil and  gas"; then the administration wanted to                                                               
insert "gas"; then  it came back and wanted "oil  and gas", which                                                               
is where they are now.                                                                                                          
                                                                                                                                
CHAIR  WAGONER said  he thought  it was  a matter  of consistency                                                               
more than anything else.                                                                                                        
                                                                                                                                
4:37:04 PM                                                                                                                    
SENATOR SEEKINS moved to adopt Substantive Amendment 4.                                                                         
                                                                                                                                
SENATOR  STEDMAN  pointed out  that  line  5  on  page 1  of  the                                                               
amendment referred to "Cook Inlet  basin" and line 20 referred to                                                               
"Cook Inlet Sedimentary basin".                                                                                                 
                                                                                                                                
MS.  JACKSON  explained  that  line   5  was  being  deleted  and                                                               
"Sedimentary" was reinserted on line 20.                                                                                        
                                                                                                                                
4:38:06 PM                                                                                                                    
SENATOR BEN STEVENS reiterated that this is a significant policy                                                                
change and he wanted to be consistent.                                                                                          
                                                                                                                                
SENATOR SEEKINS said he thought the tax would be applied to this                                                                
one sedimentary basin and not anywhere else in the state.                                                                       
                                                                                                                                
4:41:33 PM                                                                                                                    
CHAIR WAGONER said he would  get that question answered. He noted                                                               
there were no further objections  and Substantive Amendment 4 was                                                               
adopted. He  recessed the meeting  until 10 a.m.  tomorrow, March                                                               
24, at 4:42:39 PM.                                                                                                            

Document Name Date/Time Subjects