Legislature(2011 - 2012)BUTROVICH 205

02/24/2012 03:30 PM RESOURCES


Download Mp3. <- Right click and save file as

Audio Topic
03:34:48 PM Start
03:35:24 PM SB192
04:48:13 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 192 OIL AND GAS PRODUCTION TAX RATES TELECONFERENCED
Heard & Held
Amendments and Discussion
-- Testimony <Invitation Only> --
Bills Previously Heard/Scheduled
                            ALASKA STATE LEGISLATURE                                                                          
                      SENATE RESOURCES STANDING COMMITTEE                                                                     
                               February 24, 2012                                                                                
                                   3:34 p.m.                                                                                    
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Joe Paskvan, Co-Chair                                                                                                   
Senator Thomas Wagoner, Co-Chair                                                                                                
Senator Bill Wielechowski, Vice Chair                                                                                           
Senator Bert Stedman                                                                                                            
Senator Lesil McGuire                                                                                                           
Senator Hollis French                                                                                                           
Senator Gary Stevens                                                                                                            
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Senator Cathy Giessel                                                                                                           
Senator Joe Thomas                                                                                                              
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 192                                                                                                             
"An Act relating to the oil and gas production tax; and                                                                         
providing for an effective date."                                                                                               
                                                                                                                                
       - HEARD AND HELD                                                                                                         
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB 192                                                                                                                  
SHORT TITLE: OIL AND GAS PRODUCTION TAX RATES                                                                                   
SPONSOR(s): RESOURCES                                                                                                           
                                                                                                                                
02/08/12              (S)            READ THE FIRST TIME - REFERRALS                                                            
02/08/12              (S)            RES, FIN                                                                                   
02/10/12              (S)            RES AT 3:30 PM BUTROVICH 205                                                               
02/10/12              (S)            Heard & Held                                                                               
02/10/12              (S)            MINUTE(RES)                                                                                
02/13/12              (S)            RES AT 3:30 PM BUTROVICH 205                                                               
02/13/12              (S)            Heard & Held                                                                               
02/13/12              (S)            MINUTE(RES)                                                                                
02/14/12              (S)            RES AT 3:30 PM BUTROVICH 205                                                               
02/14/12              (S)            Heard & Held                                                                               
02/14/12              (S)            MINUTE(RES)                                                                                
02/15/12              (S)            RES AT 3:30 PM BUTROVICH 205                                                               
02/15/12              (S)            Heard & Held                                                                               
02/15/12              (S)            MINUTE(RES)                                                                                
02/16/12              (S)            RES AT 3:30 PM BUTROVICH 205                                                               
02/16/12              (S)            Heard & Held                                                                               
02/16/12              (S)            MINUTE(RES)                                                                                
02/17/12              (S)            RES AT 3:30 PM BUTROVICH 205                                                               
02/17/12              (S)            Heard & Held                                                                               
02/17/12              (S)            MINUTE(RES)                                                                                
02/21/12              (S)            RES AT 3:30 PM BUTROVICH 205                                                               
02/21/12              (S)            Heard & Held                                                                               
02/21/12              (S)            MINUTE(RES)                                                                                
02/22/12              (S)            RES AT 1:30 PM BUTROVICH 205                                                               
02/22/12              (S)            Heard & Held                                                                               
02/22/12              (S)            MINUTE(RES)                                                                                
02/22/12              (S)            RES AT 3:30 PM BUTROVICH 205                                                               
02/22/12              (S)            Heard & Held                                                                               
02/22/12              (S)            MINUTE(RES)                                                                                
02/23/12              (S)            RES AT 3:30 PM BUTROVICH 205                                                               
02/23/12              (S)            Heard & Held                                                                               
02/23/12              (S)            MINUTE(RES)                                                                                
02/24/12              (S)            RES AT 1:30 PM BUTROVICH 205                                                               
02/24/12              (S)            RES AT 3:30 PM BUTROVICH 205                                                               
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
MICHELLE SYDEMAN, Staff                                                                                                         
Senator Bill Wielechowski                                                                                                       
Alaska State Legislature                                                                                                        
Juneau, AK                                                                                                                      
POSITION STATEMENT: Provided details on Amendments: B.11, B.12                                                                
and   B.14   to   CSSB   192(RES)     version     B.                                                                            
                                                                                                                                
DON BULLOCK, Attorney                                                                                                           
Legislative Legal Services                                                                                                      
Legislative Affairs Agency                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, AK                                                                                                                      
POSITION STATEMENT: Commented on amendment B.11 to CSSB 192(RES)                                                              
version B.                                                                                                                      
                                                                                                                                
LISA WIESSLER, Staff                                                                                                            
Senator Hollis French                                                                                                           
Alaska State Legislature                                                                                                        
Juneau, AK                                                                                                                      
POSITION     STATEMENT:       Commented      on  amendment      B.16    to  CSSB    192(RES)                                  
version B.                                                                                                                      
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:34:48 PM                                                                                                                    
CO-CHAIR       JOE     PASKVAN      called      the     Senate      Resources       Standing                                  
Committee      meeting     to   order    at   3:34    p.m.    Present     at   the   call    to                                 
order were Senators Stedman, French, Wielechowski, Stevens, Co-                                                                 
Chair Wagoner and Co-Chair Paskvan.                                                                                             
                                                                                                                                
                    SB 192-OIL AND GAS PRODUCTION TAX RATES                                                                 
                                                                                                                              
3:35:24 PM                                                                                                                    
CO-CHAIR     PASKVAN     announced      SB   192   to  be   up   for   consideration.        He                                 
said    they     would     adopt    a   committee       substitute       (CS)    today     and                                  
begin    to   hear    the   amendments       proposed      by   committee      members.      He                                 
said   this    will   be   an   open   and   transparent       process.     There    will    be                                 
no   motion     to   move    any    amendment       either     today    or   tomorrow      and                                  
then    after    additional       consideration        and   discussions,        amendments                                     
may   or   may   not   be   included     in   a  forthcoming       CS.   He   said   all   the                                  
ideas     are     interesting        and    have     merit.      Ultimately       they     are                                  
required      to   determine       what    legislation       will    advance      from    this                                  
committee and he looked forward to an informative dialogue.                                                                     
                                                                                                                                
3:36:31 PM                                                                                                                    
CO-CHAIR      WAGONER      moved     to    adopt     CSSB    192(RES),       [labeled      27-                                  
LS1305\B].                                                                                                                      
                                                                                                                                
CO-CHAIR      PASKVAN      objected      for   purposes      of   discussion.        He   said                                  
the   CS   maintains      the   25   percent     base   rate    to   the   $30   production                                     
value    mark    (PTV)    and   the   current     progressivity        of   .4   percent     is                                 
changed     to   .35   percent     for   each    dollar    of   oil   price    increase      up                                 
to   50  percent     at   which   time    the   tax   rate   changes     to   a  .1  percent                                    
increase      for   each    $1   of  oil    price    increase.      This    applies     up   to                                 
the   60th    percentile      of   production       tax   rate;    there    is   no  further                                    
progressivity         beyond      the     60    percent.       He    then     removed      his                                  
objection      and    finding      no   further     objections,        stated     version     B                                 
was before the committee.                                                                                                       
                                                                                                                                
3:37:01 PM                                                                                                                    
SENATOR MCGUIRE joined the committee.                                                                                           
                                                                                                                                
CO-CHAIR     PASKVAN     stated     that   Senator     Giessel     was   in   the   audience                                    
as   well   as   Commissioner       Butcher     and   Deputy     Commissioner       Tangeman                                    
from the Department of Revenue (DOR).                                                                                           
                                                                                                                                
He    said     this     CS   focuses       on    one    lever     of    the     larger     tax                                  
structure,       the    issue     of   progressivity.          It   is   part     of   a   tax                                  
system     that   will    be   used   to   start    the   specific      discussion      about                                   
Alaska's      production        tax    structure       overall.      Before      discussing                                     
those     details      beyond     what    has    already      been    done,     they    would                                   
address     the   other    levers     that    have   not   been    addressed      in   the   CS                                 
that provide a competitive advantage to Alaska.                                                                                 
                                                                                                                                
He   explained       that    Alaska     has    a  low    royalty      rate,    12.5     to   16                                 
percent,     which    is   lower    than   Texas    and   North    Dakota.     The   royalty                                    
is   one   part    of   the   total    load    on   any   production       and   emphasized                                     
that is one component that remains unchanged.                                                                                   
                                                                                                                                
Alaska      continues       its    competitive        advantage        with     respect      to                                 
capital      expenditures         made    in    the    state     with     a   100    percent                                    
deduction      in   the    year    spent    for    every    qualified      CAPEX     made    in                                 
the   state.     An   additional      20   percent     credit    for    that   same    dollar                                   
goes    to    the    bottom     line     as   another      reward     for    investing       in                                 
capital      infrastructure         in   Alaska.      It   reduces      a   company's      tax                                  
load    and    reduces      monies     to   the    state     as   well,     but    it   makes                                   
Alaska attractive.                                                                                                              
                                                                                                                                
3:40:53 PM                                                                                                                    
Another      lever    not    changed     is   Alaska's      geological       risk.     Alaska                                   
has   been    identified      as   one   of   the   most    attractive      places     in  the                                  
world    in   this    aspect     of   its    fiscal     system.     Another     lever     that                                  
establishes       Alaska     as   an  attractive       location     is   royalty     relief.                                    
If   a  project      can   be   proven     to   be   non-economic,        but   needs     some                                  
help,     the    form    of    royalty     relief      is   available.       That     is   not                                  
changed.                                                                                                                        
                                                                                                                                
CO-CHAIR        PASKVAN       said      he    has      heard      and     believes        that                                  
progressivity        at   "high    oil    pricing"     needs     to  be   looked     at.   How                                  
one    defines     that    was    to   be    the   subject      of   both    economic      and                                  
political      discussion.        While    oil    prices     are   in   $120    range     that                                  
should     not   be   assumed     to   a  stable     floor    or   ceiling.      Oil   prices                                   
change over time as is evidence by the wide range of prices.                                                                    
                                                                                                                                
CO-CHAIR      PASKVAN     said    they    must    consider      the    amount     of   return                                   
the    state     gets     on   the    billions       of   dollars      it    has    made     in                                 
investments        through      its    CAPEX     credits     for    the    central      North                                   
Slope.     Those    numbers     well    through     the   next    fiscal    year    approach                                    
$5   billion.      Industry      must     not   ignore     the    financial       upside     to                                 
Alaska    through     its    direct    participation        in  the   long-term      success                                    
of    resource      development.         It   must     always      be   remembered        that                                  
Alaskans      are    the    resource       owners;      Alaska     has    a   world     class                                   
resource      that    will    be   extracted       for   many     decades     to   come    and                                  
welcomes responsible development.                                                                                               
                                                                                                                                
He   said    the   CS   provides      visible     benchmarks      for    a  discussion       on                                 
progressivity         and    amendments       that     affect      the    production       tax                                  
system.     He    expects     that    as   elected     officials       they    will    uphold                                   
their      fiduciary       duty      to    the     people      of     Alaska      in    their                                   
discussions       and   decisions.      Alaskans      expect    them    to  approach      this                                  
topic    as   a   sophisticated        owner    of   a  world    class     resource.      This                                  
topic    is   a  big   math    problem     that    needs    to   be   looked    at.    The   CS                                 
will    be   modeled,      probed     and   analyzed      as   it   should    be,    but   the                                  
main goal is to get it right.                                                                                                   
                                                                                                                                
CO-CHAIR      PASKVAN     said    the    information       in   the    CS   is   consistent                                     
with    information       they    have   received      from    professionals        who   have                                  
advised them in the last several weeks.                                                                                         
                                                                                                                                
3:45:00 PM                                                                                                                    
At ease from 3:45 to 3:49 p.m.                                                                                                  
                                                                                                                                
3:49:24 PM                                                                                                                    
CO-CHAIR     PASKVAN     said    there    would    be  no   formal    submission       of  the                                  
proposed       amendments,        but    he    would     look     to    the     members      to                                 
describe      their     thinking      on    each    one.     The    first    was    Item     1,                                 
labeled 27-LS1306\B.17, by Senator McGuire.                                                                                     
                                                                                                                                
                                                                      27-LS1305\B.17                                            
                                                                                                                                
                               A M E N D M E N T                                                                            
                                                                                                                                
       OFFERED IN THE SENATE                                                                                                    
       TO:  CSSB 192(RES), Draft Version "B"                                                                                    
                                                                                                                                
       Page l, line 1, following "tax;":                                                                                      
               Insert        "establishing            the       Oil       and       Gas                                       
       Competitiveness Review Board;"                                                                                         
                                                                                                                                
       Page 2, following line 5:                                                                                                
               Insert new bill sections to read:                                                                                
                  "* Sec. 2. AS 44.99 is amended by adding new                                                              
       sections to read:                                                                                                        
              Article 6. Oil and Gas Competitiveness Review Board.                                                            
               Sec. 44.99.600. Oil and Gas Competitiveness                                                                    
                 Review Board established. (a) The Oil and Gas                                                                
       Competitiveness Review Board is established.                                                                             
               (b)  The board shall consist of nine members as                                                                  
       follows:                                                                                                                 
                      (1)     one    senator     appointed      by   the   president                                            
       of the senate;                                                                                                           
                      (2)       one    representative         appointed       by    the                                         
       speaker of the house of representatives;                                                                                 
                      (3)     five   members     of   the   public     appointed     by                                         
       the    governor,      including      one   member     who   is   a  petroleum                                            
       engineer,       one   member      who   is   a   geologist,       one    member                                          
       who   is   an  economist,       and   one   member    who   is   a  member    of                                         
       an environmental or conservation group;                                                                                  
                      (4)      the    commissioner       of    natural     resources                                            
       or the commissioner's designee; and                                                                                      
                      (5)       the    commissioner         of   revenue      or    the                                         
       commissioner's designee.                                                                                                 
               (c)     The   senator     and    representative        appointed      to                                         
       the    board    under    (b)(1)     and    (2)   of   this    section     shall                                          
       be cochairs.                                                                                                             
               (d)       Each     legislative        member      serves      for    the                                         
       duration      of  the   legislature       during     which    the   member    is                                         
       appointed.       Each    public    member     serves     for   three     years.                                          
       An    individual       who    has    served      on   the    board     may    be                                         
       reappointed.                                                                                                             
               (e)     A   vacancy     on   the    board    shall     be   filled    in                                         
       the manner of the original appointment.                                                                                  
               (f)      A  member     of   the    board     may   be   removed      and                                         
       replaced      at    the   discretion       of    the   person      appointing                                            
       that member.                                                                                                             
               (g)       The    public      members      of    the     board     serve                                          
       without      compensation        but    shall    receive      per    diem    and                                         
       travel     expenses      authorized       for   boards     and   commissions                                             
       under AS 39.20.180.                                                                                                      
               (h)       The    board     may    enter     into     contracts       for                                         
       professional          services       and     may     employ       staff      for                                         
       administrative support for the board.                                                                                    
               Sec.    44.99.610.       Duties.     The    duties    of    the   board                                        
       include the following:                                                                                                   
                      (1)          review       historical,         current,        and                                         
       potential      levels     of   investment      in   the    state's     oil   and                                         
       gas sector;                                                                                                              
                      (2)     identify     factors     that    affect     investment                                            
       in     oil      and      gas     exploration,          development,          and                                         
       production        in    the    state,      including       tax     structure,                                            
       rates,          and        credits;          royalty          requirements;                                              
       infrastructure;         workforce      availability;        and    regulatory                                            
       requirements;                                                                                                            
                      (3)     review     the   competitive       position      of   the                                         
       state     to   attract      and   maintain      investment       in   the    oil                                         
       and     gas    sector      in    the    state     as    compared       to    the                                         
       competitive       position      of  other    regions     with    oil   and   gas                                         
       resources;                                                                                                               
                      (4)  in order to facilitate the work of the                                                               
       board,       establish        procedures        to     accept      and     keep                                          
       confidential         information        that    is    beneficial       to    the                                         
       work    of   the   board,     including      the   creation      of  a   secure                                          
       data    room    and   confidentiality         agreements       to   be   signed                                          
       by     individuals        having      access      to    the     confidential                                             
       information;                                                                                                             
                      (5)             make        written         findings          and                                         
       recommendations,          together      with    suggested       legislation,                                             
       to   the    Alaska     State    Legislature        before     December     1  of                                         
       each     year,      or   as    soon     thereafter        as    practicable,                                             
       regarding                                                                                                                
                      (A)  changes to the state's regulatory                                                                    
       environment        that     would     be    conducive       to   encouraging                                             
       increased      investment       while    protecting      the   interests      of                                         
       the people of the state and the environment;                                                                             
                      (B)  changes to the state's fiscal regime that would be conducive to                                      
                                                                                                                                
       increased and  ongoing long-term  investment in and development   of the state's oil                                     
                                                                                                                                
       and gas resources; and                                                                                                   
                                                                                                                                
                      (C)  alternative means for increasing the                                                                 
       state's      ability     to   attract     and   maintain      investment      in                                         
       and development of the state's oil and gas resources.                                                                    
               Sec. 44.99.620. Information to be provided to                                                                  
       board.     (a)   The    commissioner       of   natural     resources,       the                                       
       commissioner           of     revenue,         the      commissioner          of                                         
       environmental         conservation,          and    other     commissioners                                              
       and    state     agencies      that    have    responsibility         for    and                                         
       maintain      information       related     to  oil   and    gas   investment                                            
       and   activity      in  the   state    shall,     at  the   request     of   the                                         
       board,      provide     information        required      by   the    board    to                                         
       carry out the duties described in AS 44.99.610.                                                                          
               (b)  At the request of the board, and except for                                                                 
       information       that    is   confidential       under    AS  43.05.230,       a                                        
       commissioner         may    disclose      to    the    board     information                                             
       that     is   otherwise      confidential        after     each    member     of                                         
       the    board     and   each     staff    member     for    the    board    with                                          
       access      to    the    information         signs     a   confidentiality                                               
       agreement        prepared      by    the     commissioner        making      the                                         
       disclosure.         Information        that    is    confidential         under                                          
       AS 43.05.230 may not be disclosed to the board.                                                                          
               Sec. 44.99.630. Definition. In AS 44.99.600 -                                                                  
       44.99.630,          "board"         means       the       Oil      and       Gas                                         
       Competitiveness Review Board.                                                                                            
               * Sec. 3. AS 44.99.600, 44.99.610, 44.99.620, and                                                              
       44.99.630 are repealed June 30, 2021."                                                                                   
                                                                                                                                
       Renumber the following bill section accordingly.                                                                         
                                                                                                                                
       Page 2, line 6:                                                                                                          
               Delete "This"                                                                                                    
               Insert "Section 1 of this"                                                                                       
                                                                                                                                
       Page 2, following line 6:                                                                                                
               Insert a new bill section to read:                                                                               
                "* Sec. 5. Except as provided in sec. 4 of this                                                             
                  Act, this Act takes effect immediately under                                                                  
       AS 01.10.070(c)."                                                                                                        
                                                                                                                                
SENATOR     MCGUIRE      said   this    amendment      would     establish      an   Oil   and                                  
Gas   Competitiveness         Review    Board;     it's   modeled     in   part   after    the                                  
Alberta      Competitiveness         Review      Board.     Industry      has    told     them                                  
that    the   progressivity        element      in   ACES   render     Alaska     no   longer                                   
competitive.        In   12   years,     oil   and    gas   policy     has   been    changed                                    
four    major    times,    and   she   suspected      they    would    continue     changing                                    
it because it represents 90 percent of Alaska's economy.                                                                        
                                                                                                                                
Even   though     the   Department      of   Revenue     (DOR)    has   a  lot   to  do   with                                  
taxation     they    have    challenges      regarding      confidentiality         in  other                                   
things.     So,   the   point    of  this    review    board    would    be   to  establish                                     
a   place     where     institutional         knowledge      can    be    kept    regarding                                     
trends and Alaska's competitiveness moving forward.                                                                             
                                                                                                                                
SENATOR     MCGUIRE     said    the   board    would    consist     of   nine    members     as                                 
follows:                                                                                                                        
               (1) one senator appointed by the president of the                                                                
       senate;                                                                                                                  
             (2) one representative appointed by the speaker of the                                                             
       house of representatives;                                                                                                
                (3) five members of the public appointed by the                                                                 
       governor.                                                                                                                
                                                                                                                                
She    related      that    Alberta's       parliament       established        a   windfall                                    
profits      tax   much    like     Alaska's      progressivity        at   the    time    oil                                  
shot    up   to   $100    a   barrel;     it   backfired       and   industry      took    its                                  
business       to    the    neighboring        province       of    Saskatchewan.         Many                                  
elected     officials      were   thrown     out   in  a  call    on   their    government;                                     
the    new   one    came    in    and   established        a  competitiveness          review                                   
board.     It   came    back   to   the    parliament      with    recommendations         for                                  
options     to  re-stimulate        the   oil   and   gas   economy.     That    is  how   she                                  
envisions      the   role    of   this   committee.       Nothing     in   this   amendment                                     
is meant to take away the legislature's power.                                                                                  
                                                                                                                                
She   said    the    five    members     of   the   public     would     be   appointed      by                                 
the   governor,      including      one    member    who   is   a  petroleum      engineer,                                     
one   member     who   is   a  geologist,       one   member     who   is   an   economist,                                     
and     one    member      who     is    a    member      of    an    environmental          or                                 
conservation       group,     the   commissioner       of   natural     resources      or  the                                  
commissioner's        designee;       and   the   commissioner        of  revenue      or  the                                  
commissioner's           designee.         The      senator       and      representative                                       
appointed      would    be   co-chairs      and    duration      of  the    term    would    be                                 
three    years.     Vacancies      to  the    board    would    be  filled     in   the   same                                  
manner as the original appointment.                                                                                             
                                                                                                                                
3:54:29 PM                                                                                                                    
Duties of the board:                                                                                                            
       (1)      review    historical,       current,      and   potential       levels                                          
       of investment in the state's oil and gas sector;                                                                         
       (2)      identify      factors      that    affect     investment       in   oil                                         
       and    gas    exploration,        development,        and    production       in                                         
       the     state,       including        tax     structure,        rates,       and                                         
       credits;          royalty         requirements;            infrastructure;                                               
       workforce availability; and regulatory requirements;                                                                     
       (3)      review     the   competitive       position      of   the   state    to                                         
       attract      and    maintain      investment       in   the    oil    and    gas                                         
       sector      in   the    state     as   compared      to   the    competitive                                             
       position of other regions with oil and gas resources;                                                                    
       (4)      in   order     to   facilitate       the    work    of   the    board,                                          
       establish       procedures       to   accept     and    keep    confidential                                             
       information        that     is   beneficial       to    the    work    of    the                                         
       board,     including       the    creation     of    a  secure     data    room                                          
       and     confidentiality           agreements         to    be     signed      by                                         
       individuals          having       access       to      the      confidential                                             
       information;                                                                                                             
       (5)         make     written       findings       and     recommendations,                                               
       together       with    suggested       legislation,         to   the     Alaska                                          
       State     Legislature       before     December     1   of   each    year,    or                                         
       as soon thereafter as practicable, regarding:                                                                            
                      (A)  changes to the state's regulatory                                                                    
       environment        that     would     be    conducive       to   encouraging                                             
       increased      investment       while    protecting      the   interests      of                                         
       the people of the state and the environment;                                                                             
                      (B)  changes to the state's fiscal regime                                                                 
       that    would    be   conducive     to   increased      and   ongoing     long-                                          
       term    investment       in  and    development       of   the   state's     oil                                         
       and gas resources; and                                                                                                   
                      (C)  alternative means for increasing the                                                                 
             state's ability to attract and maintain investment in                                                              
       and development of the state's oil and gas resources.                                                                    
                                                                                                                                
3:57:21 PM                                                                                                                    
SENATOR     MCGUIRE      said    Pedro    van    Meurs    said    the   State     of   Alaska                                   
needs    to   get   a   brochure      out   touting     its   opportunities         and   this                                  
board would have the ability to do that.                                                                                        
                                                                                                                                
CO-CHAIR PASKVAN thanked her.                                                                                                   
                                                                                                                                
CO-CHAIR      WAGONER     said    at   first    he   didn't    look    at   this    concept,                                    
but   the    more   he   has   seen    the   way    the   committee      has   worked     this                                  
year   he   thought     it  could    be   a  very   positive      thing    if  done    in  the                                  
right    manner.      He   said    if   Alaska     is   as   non-competitive         at   this                                  
time    as   they   are    being    told    by  some    people,     then    Alaskans      have                                  
been   asleep     at  the   switch     (but   he   wasn't    sure    they   were    that   far                                  
off).    That    is   what    this    board    would    do;    it   would    keep    it   from                                  
going asleep at the switch and he thought it was worth a try.                                                                   
                                                                                                                                
CO-CHAIR PASKVAN set the amendment aside.                                                                                       
                                                                                                                                
SENATOR EGAN joined committee.                                                                                                  
                                                                                                                                
3:59:00 PM                                                                                                                    
CO-CHAIR       PASKVAN       announced        consideration          of    Item      2,    27-                                  
LS1305\B.6 by Senator McGuire:                                                                                                  
                                                                                                                                
                                                                        27-LS1305\B.6                                           
                               A M E N D M E N T                                                                            
                                                                                                                                
       OFFERED IN THE SENATE                                                                                                    
       TO:  CSSB 192(RES), Draft Version "B"                                                                                    
                                                                                                                                
       Page 1, line 6:                                                                                                          
               Delete "$30"                                                                                                     
               Insert "the greater of $30 or the amount                                                                     
       determined under (p) of this section [$30]"                                                                          
                                                                                                                                
       Page 1, line 14:                                                                                                         
               Delete "$30"                                                                                                     
               Insert "the greater of $30 or the amount                                                                     
       determined under (p) of this section [$30]"                                                                          
                                                                                                                                
       Page 2, following line 5:                                                                                                
       Insert a new bill section to read:                                                                                       
            "*   Sec.    2.       AS  43.55.011       is   amended     by   adding     a                                    
       new subsection to read:                                                                                                  
               (p)  For a calendar year after 2013, the $30                                                                     
       amount     in  (g)   of   this    section    shall    be   adjusted     by   the                                         
       commissioner        as   soon    as   practicable        before     the   start                                          
       of    the     calendar      year     for     which     the    tax     will    be                                         
       determined       according      to   changes     in   the   Consumer      Price                                          
       Index      for    all     urban      consumers       for     the    Anchorage                                            
       metropolitan         area      compiled       by    the     United       States                                          
       Department       of   Labor,     Bureau     of   Labor     Statistics.       The                                         
       $30    amount     in   (g)   of    this    section     shall     be   adjusted                                           
       based     on   the    increase,      if   any,    between      the    consumer                                           
       price     index    for   January      through     June    of   2011    and   for                                         
       January     through     June    of   the   year   immediately       preceding                                            
       the    year     for    which    the    $30    amount      in   (g)    of   this                                          
       section is being adjusted."                                                                                              
                                                                                                                                
       Renumber the following bill section accordingly.                                                                         
                                                                                                                                
SENATOR      MCGUIRE      explained       this    amendment       would     allow     the    .4                                 
percent     to  be   adjusted     for   inflation      at   the   $30   trigger.     It   is  a                                 
practical      approach      to   providing      the    ability     to   make    a   cost    of                                 
living     adjustment      for   that    dollar.     She   explained      the    purpose     of                                 
the    progressivity        trigger      is   to   protect      a   certain     portion      of                                 
profits     that    come    back   to   industry      and   so   they    have   to   look    at                                 
inflation's effect on the trigger.                                                                                              
                                                                                                                                
4:00:40 PM                                                                                                                    
SENATOR     FRENCH     asked    what    other    static     pieces     in   ACES    tax   code                                  
this would bump up against, erode or enhance.                                                                                   
                                                                                                                                
SENATOR     MCGUIRE     replied     that    this    amendment      is   crafted     based    on                                 
the   current     ACES   structure      and   the   $30   trigger     is   the   only   place                                   
it   would    impact.      She   added     the   committee       may   want    to   consider                                    
another     portion     of   the   ACES    formula,     the    $92.58    threshold      where                                   
progressivity        declines     to   .1  percent     per   dollar     (to   preserve     the                                  
portion     of    the   oil    price    curve     that    is   subject     to   the    higher                                   
slope that is at 75 percent right now).                                                                                         
                                                                                                                                
SENATOR      FRENCH      commented        that     if    you     inflation-adjust          the                                  
trigger      point    without      adjusting       the    cap   you    could     eventually                                     
inflation-proof         yourself     out   of   any   progressivity        whatsoever.       So                                 
it would make sense to move them up together.                                                                                   
                                                                                                                                
This amendment was set aside.                                                                                                   
                                                                                                                                
4:03:06 PM                                                                                                                    
CO-CHAIR PASKVAN said they would next take up Item 3, labeled                                                                   
27-LS1305\B.11 by Senators Wielechowski and French.                                                                             
                                                                                                                                
                                                                      27-LS1305\B.11                                            
                                                                                                                                
                               A M E N D M E N T                                                                            
                                                                                                                                
       OFFERED IN THE SENATE                                                                                                    
       TO:  CSSB 192(RES), Draft Version "B"                                                                                    
                                                                                                                                
       Page 1, line 1, following "Act":                                                                                       
               Insert "relating to oil and gas or gas only                                                                    
       leasing;      requiring       that    a  minimum      work    commitment      be                                       
       included      in   each    oil    and   gas    and   gas    only    lease    and                                       
       that    a  proposed      plan    of  development       be   included      in  an                                       
       application for an oil and gas or gas only lease;"                                                                     
                                                                                                                                
       Page 1, following line 2:                                                                                                
       Insert new bill sections to read:                                                                                        
          "* Section 1. AS 38.05.180(h) is amended to read:                                                                 
               (h)  The commissioner shall [MAY] include terms                                                              
       in   a  [ANY]    lease    that    impose    [IMPOSING]      a   minimum    work                                  
       commitment        on   the    lessee      to   implement       the    plan    of                                     
       development       submitted      by   the   lessee     with    a  bid   for   an                                     
       oil    and     gas    or   gas    only     lease.     The    terms     of    the                                     
       minimum      work    commitment      must    [.   THESE     TERMS    SHALL    BE                                     
       MADE      PUBLIC      BEFORE       THE     SALE,      AND     MAY]     include                                           
       appropriate        penalty     provisions       to   take    effect     in   the                                         
       event     the    lessee     does    not    fulfill      the    minimum     work                                          
       commitment.        If   it    is   demonstrated        that    a   lease     has                                         
       been    proven     unproductive       by   actions     of   adjacent      lease                                          
       holders,        the    commissioner         may     set     aside      a   work                                          
       commitment.        The    commissioner        may   waive     for    a   period                                          
       not     to   exceed      one    two-year       period     any    term     of    a                                        
       minimum      work    commitment       if   the    commissioner        makes     a                                        
       written       finding      either       that     conditions        preventing                                            
       drilling       or    exploration         were     beyond      the     lessee's                                           
       reasonable       ability     to   foresee      or   control     or   that    the                                         
       lessee     has   demonstrated        through     good    faith    efforts     an                                         
       intent      and    ability      to    drill     or    develop      the    lease                                          
       during the term of the waiver.                                                                                           
          * Sec. 2. AS 38.05.180(x) is amended to read:                                                                       
               (x)  A lessee conducting or permitting any                                                                       
       exploration       for,    or   development       or   production       of,   oil                                         
       or    gas   on   state     land    shall     provide     the    commissioner                                             
       access     to   all   noninterpretive         data    obtained      from   that                                          
       lease;      shall    provide      the    commissioner        access     to   all                                     
       information        necessary      to   perform     an   economic      analysis                                       
       under     (ii)(2)     of   this   section,      including      the    capital,                                       
       operating,        production,       and    development        costs     and   an                                     
       estimate      of   total     reserves;      and    shall    provide      copies                                      
       of   that    data    and   information,       as   the   commissioner        may                                     
       request.          The        confidentiality             provisions           of                                         
       AS   38.05.035      apply     to   the    information       obtained      under                                          
       this subsection.                                                                                                         
            *   Sec.    3.   AS   38.05.180      is    amended     by    adding     new                                       
       subsections to read:                                                                                                     
               (hh)  The commissioner shall require each bidder                                                                 
       for    an   oil   and    gas   lease    or   gas    only    lease    and   each                                          
       lessee     applying      for   an   extension      or  renewal     of   an   oil                                         
       and    gas   lease     or   gas   only    lease    to   submit     a   plan   of                                         
       development        for    exploring,       developing,       and    producing                                            
       from    the    lease    within     the   period     of  the    lease    or   the                                         
       extension       or   renewal      of   the    lease.     The    commissioner                                             
       shall    review     each   plan    of   development      and   determine      if                                         
       the     proposed        plan      of    development         is     reasonably                                            
       expected      to   develop     the   lease    in   the   best    interest     of                                         
       the    state.     The   plan    of   development       shall     be   included                                           
       in   a  lease     along    with   penalties      for    failing     to   comply                                          
       with    the    plan    of   development       and    other    terms     of   the                                         
       lease.     A   bidder     may   not    be   a   "qualified       bidder"     for                                         
       the     purposes       of    (f)(1)       of    this     section       if    the                                         
       commissioner        finds    that   the   bidder     has   not   submitted      a                                        
       proposed       plan     of   development        that     is    in   the    best                                          
       interest       of     the    state      or    that      the    person      that                                          
       submitted       the    plan    of   development        is   not    reasonably                                            
       capable of implementing the plan.                                                                                        
               (ii)  The commissioner shall                                                                                     
                      (1)  review each oil and gas lease or gas                                                                 
       only    lease     each    year    for    the   purpose      of   determining                                             
       whether       a   lease      is    being     developed        in    the    best                                          
       interest      of  the   state,     whether     the   lessee    is   complying                                            
       with    the   plan    of   development       applicable      to   the    lease,                                          
       and    whether     revision      of  a   development       plan,    including                                            
       the    planned      rate     of   development,        would     provide      the                                         
       maximum benefit to the people of the state;                                                                              
                      (2)  every five years, perform an economic                                                                
       analysis       on    each     participating         area     and    determine                                            
       whether     the   participating        area    is  capable     of   increased                                            
       production       in   paying     quantities      over    the   current     rate                                          
       of production or plan of development;                                                                                    
                      (3)  enforce the terms of each oil and gas                                                                
       lease      or    gas     only     lease,      including       imposing       any                                         
       applicable       penalty     or   other     remedy    for    noncompliance,                                              
       within     a   reasonable      time    after     finding     that    a   lessee                                          
       is out of compliance with the terms of the lease;                                                                        
                      (4)  submit a report to the legislature                                                                   
       before      the    first     day    of   each     regular      session     that                                          
       lists     each    oil    and    gas    or   gas    only    lessee     that    is                                         
       found     to   be   out   of   compliance       and    the   action     by   the                                         
       commissioner        to   bring    the   lessee     back    into    compliance                                            
       or to terminate the lease.                                                                                               
               (jj)  For the purposes of (hh) and (ii) of this                                                                  
       section,      a   plan    of   development        for   a   cooperative       or                                         
       unit     under      (p)    of    this     section       is    the    plan     of                                         
       development        for    a    lease     within     the    cooperative        or                                         
       unit,     except    where    a   different      plan    of  development       is                                         
       established        for    a    lease     within     the    cooperative        or                                         
       unit.                                                                                                                    
               (kk)  For purposes of (ii) of this section,                                                                      
                      (1)  "participating area" means that part of                                                              
       an   oil   and   gas    lease    unit   area    to   which    production      is                                         
             allocated in the manner described in a unit agreement;                                                             
                      (2)  "production in paying quantities" means                                                              
       production       in   quantities      sufficient       to   yield    a   return                                          
       in    excess      of    drilling,       development,         and    operating                                            
       costs."                                                                                                                  
                                                                                                                                
       Page 1, line 3:                                                                                                          
               Delete "Section 1"                                                                                             
               Insert "Sec. 4"                                                                                                
                                                                                                                                
       Page 2, line 6:                                                                                                          
               Delete all material and insert:                                                                                  
            "*   Sec.     5.   The    uncodified        law    of   the    State     of                                     
       Alaska is amended by adding a new section to read:                                                                       
               APPLICABILITY. Section 1 of this Act and                                                                         
       AS   38.085.180(hh),          enacted      by   sec.     3   of    this    Act,                                          
       apply     to    a   proposed      lease     sale    and    the    renewal     or                                         
       extension      of   a  lease    on  or   after    the   effective      date   of                                         
       secs. 1 and 3 of this Act.                                                                                               
            *   Sec.     6.   Section       4   of   this     Act    takes      effect                                        
       January 1, 2013.                                                                                                         
            *  Sec.   7.   Except    as   provided     in   sec.   6  of   this   Act,                                        
       this Act takes effect July 1, 2013."                                                                                     
                                                                                                                                
SENATOR     WIELECHOWSKI       said    he  thought     one   of   the   biggest     problems                                    
with   the    oil   tax   structure     is   the   way   the   state    does   its   leases.                                    
It   almost    sets    up  an   adversarial      situation      between     the   state    and                                  
the   companies      taking    out   the   leases     and   he  said,    "I   think    we  can                                  
do   better     than    that."     They   could     set   up   a   structure      that    gets                                  
everyone on the same page right from the beginning.                                                                             
                                                                                                                                
SENATOR     WIELECHOWSKI       said    the   state's     exploration       leases    are   not                                  
being    treated      as   legal    obligations        to   explore;      they    are   being                                   
treated     as   options     to   explore.     Our    resource     provides      90  percent                                    
of   the   state's     revenue.     Leases     are   a  legal    contract      he   said   and                                  
when    the    State     of   Alaska     puts    a   lease     out    it   is   giving     the                                  
exclusive       right     to   a   company      or   organization        oil    company      to                                 
develop that piece of property.                                                                                                 
                                                                                                                                
The   state     cannot     go  back    on   its    lease.    What    it   gets    in   return                                   
for    that    is   that    that    company     is   under     a  legal     obligation       to                                 
explore;      and   then    if   they    make    a   find    they    are   under     a  legal                                   
obligation      to   develop.      There    are   two   problems      with   this;     one   is                                 
Pt.   Thomson,     currently      being    litigated      before     the   Alaska    Supreme                                    
Court.     It  is   an   example     of   a  lease    that    went    out   over    30  years                                   
and    sat    dormant      for    decades.      It    is   a   lease     that    the    state                                   
finally      took     back,     and    when    they     took    it    back    they     became                                   
engaged     in   a  lawsuit     that    has   been    going    on   for   years.     He   said                                  
this    is   not   how    the   state     should     do   its   leases     and   it   can    be                                 
changed with the changes in this amendment.                                                                                     
                                                                                                                                
Another     example     is   when   the    state    put   out   millions      of  acres    for                                  
lease    a   couple     of   months     ago;    one    company     took    out    dozens     of                                 
leases     and   in   the    very    next   week    it   was    reported      that   company                                    
said    they    weren't     sure    they    were    going    to   explore     on   those     34                                 
tracts     in   part   because      they   didn't     know    what    the   tax   structure                                     
was   going     to   be.   This    is   a  systemic      problem     that    can   be   fixed                                   
and   he   stated,    "We   should     never    let   anyone    leverage      us  for   lower                                   
tax rates."                                                                                                                     
                                                                                                                                
4:05:47 PM                                                                                                                    
SENATOR      WIELECHOWSKI       said     this    amendment      would     make    sure    that                                  
companies      agree    to   explore      when   they    take    out   the    leases.     Part                                  
two    is   a   trust     but   verify      provision      once    the    exploration        is                                 
done.     When    companies       say   they     are   not    developing       a   piece     of                                 
property     because     it's    not   economic,      the   lawmakers      have   no   way   of                                 
knowing     it   is   true.    Maybe     it  is   true,     but   they    have    no  way    of                                 
knowing     that.    This    would    require     the    administration        to   actually                                    
do   an   economic     analysis      and   determine       whether     or   not   the   lease                                   
holdings      are   currently      economic.       He  thought      this    would    lead    to                                 
more development and more oil in the pipeline.                                                                                  
                                                                                                                                
4:06:42 PM                                                                                                                    
SENATOR THOMAS joined the committee.                                                                                            
                                                                                                                                
4:07:01 PM                                                                                                                    
MICHELLE      SYDEMAN,     staff     Senator     Wielechowski,        provided      a  little                                   
more detail:                                                                                                                    
· One way to address declining oil production is to ensure that                                                                 
          oil and gas leases go to companies that will develop leases                                                           
    expeditiously and efficiently.                                                                                              
· Last year the Department of Natural Resources reported that of                                                                
    1,320 leases, 578 were part of production units or were                                                                     
    producing oil or gas, 404 had been sold in the preceding three                                                              
    years (so might still be in the planning stages), and 338                                                                   
    could be "idle," as lessees had not applied for any permits to                                                              
    explore or develop them.                                                                                                    
· This means more than 25% of existing leases could be sitting                                                                  
    idle, effectively warehousing Alaska's resources.                                                                           
· Under existing statutes, the DNR commissioner has the option                                                                  
         of including a minimum work commitment in a lease, along with                                                          
          a penalty provision in the event the lessee does not fulfill                                                          
    the work commitment.                                                                                                        
· This amendment requires that work commitments be part of a                                                                    
          lease, consistent with the Alaska Constitution's mandate to                                                           
          develop our natural resources for the maximum benefit of the                                                          
    people.                                                                                                                     
                                                                                                                                
4:09:35 PM                                                                                                                    
The    amendment       requires      bidders      for    an   oil    and    gas    lease     to                                 
submit     a  plan    of   development       for    exploring,       developing,       and/or                                   
producing      from   the   lease.     It   requires     the   commissioner       to   review                                   
each    bidder's      plan   of   development       and    determine      if   the   plan    is                                 
"reasonably       expected      to   develop     the   lease     in   the   best    interest                                    
of   the   state."      If  a   plan    were    not   found    to   be   consistent       with                                  
the     state's      needs     that     bidder      would      not    be    considered        a                                 
qualified      bidder.     DNR   would    also   look    at  the   bidder's      ability     to                                 
carry out the terms of the work plan.                                                                                           
                                                                                                                                
The    amendment      requires      that    these    plans     be   included      in   leases                                   
and    that    DNR   review     leases     annually      to    ensure     that    plans    are                                  
being    implemented.        It   enables     the    commissioner       to   waive    a   work                                  
commitment      if   conditions      preventing       drilling     or   exploration       were                                  
beyond     the   lessee's     reasonable       ability     to   foresee     or   control     or                                 
the   lessee     demonstrates       through     good    faith    efforts     an   intent     to                                 
drill or develop the lease in the following two years.                                                                          
                                                                                                                                
It   mandates      the    DNR    commissioner        to   analyze      the   economics       of                                 
each    Participating         Area    (a   unitized      reservoir       where    sustained                                     
production       is   occurring)      every     five    years    to   determine      whether                                    
the    Area    is   capable      of   increased       production.        Forty-two      areas                                   
have    been   designated      as   participating        areas    in  Alaska.     These    are                                  
areas     where     there     is    sustained      oil    and    gas    production.        The                                  
commissioner        would     perform      an   economic       analysis      to   determine                                     
whether additional development would be reasonably economic.                                                                    
                                                                                                                                
Finally,      it   requires       DNR   to    annually      submit     a   report     to   the                                  
legislature       that    lists    each   lease     found    to  be   out   of   compliance                                     
and    the   action     taken     by   the    commissioner        to   bring    the    lessee                                   
back into compliance.                                                                                                           
                                                                                                                                
4:11:02 PM                                                                                                                    
SENATOR     FRENCH     said    that    was   great    presentation,         but   he   wanted                                   
to   say    that    this    is    in   part    an    idea    they    brought      back    from                                  
Norway     where     the   government        tries    to   be    very    strong     partners                                    
with    the   industry.       But   they    also    understand       that    they    are   the                                  
landlord      and   the   oil   industry     is   the   tenant;     and   a   lease    is  the                                  
kind of thing that runs between a landlord and a tenant.                                                                        
                                                                                                                                
He    thought      the     state's      leases      should     have     a    minimum      work                                  
commitment       in   them    and    noted    language      on    page    1,   lines    9-12,                                   
that    says   the   commissioner       "shall"     include     terms    in   a  lease    that                                  
impose a minimum work commitment.                                                                                               
                                                                                                                                
SENATOR      FRENCH     said     the    report      on   the    leases      should     go    to                                 
Senator     McGuire's      competitive       review    board    if   that   goes    forward.                                    
It    would     look     at   not     just    how    Alaska      compares       with    other                                   
jurisdictions,         but     with    how    industry       is    performing       here     in                                 
Alaska     and   if   they    are   honoring      the   commitments       they    made    when                                  
they took out leases.                                                                                                           
                                                                                                                                
CO-CHAIR      PASKVAN     questioned       with    respect     to   the   extension      of   a                                 
lease    if   a  lease    is  capable     of   producing     100   barrels     but   is   only                                  
producing      1  does   that    in  and   of   itself    extend     the   lease    or  would                                   
there    be   an  analysis      under    that    "duty    to   produce"     that    says   the                                  
production       of  only    1   when   you    can   produce     100   fails     to  satisfy                                    
that    duty    to   produce.     This    is   an   issue    that    goes    right    to   the                                  
heart    of   what   the   throughput       is   in  Alaska     and   where    that    can   be                                 
derived     in  analyzing      a  lease's     terms    both    at  its   original      and   at                                 
the extension.                                                                                                                  
                                                                                                                                
SENATOR      FRENCH     said     two    days     ago    many    of    them    thought      the                                  
exploration       on   the   North    Slope    was   being    driven     by   the   credits,                                    
improving      capital     markets     and   the   rise    in   the   price    of   a  barrel                                   
of   oil,   but   then    they   heard    from    Director     Barron    that    the   reason                                   
is   because      a   lot    of    those    North     Slope     leases      are   expiring.                                     
Tightening       up   this    kind    of   language      may   have     accelerated       that                                  
exploration       season     by   several      years.     Bottom     line    is   that    it's                                  
clear    the    terms    of   the   leases     drive    work    and    they    can   shape    a                                 
more    productive       North    Slope     exploration       and    development       agenda                                   
if   they     set   the    terms     more    clearly      at   the    beginning       of   the                                  
relationship.                                                                                                                   
                                                                                                                                
SENATOR     MCGUIRE      said    she   supports      coming     to   a  better     and    more                                  
transparent       agreement      between     industry      and   the    government      about                                   
expectations.        She    agreed     that    the    state    had    set    itself     up   in                                 
part    for   failure     in   that    relationship       by   not   being     as   clear    as                                 
they could be.                                                                                                                  
                                                                                                                                
4:14:49 PM                                                                                                                    
SENATOR      MCGUIRE     questioned       whether      in   directing       the   executive                                     
branch     with   a   "shall"     from    a  "may"    on   page    1,  line    9,   violated                                    
the state's Constitution.                                                                                                       
                                                                                                                                
SENATOR     WIELECHOWSKI        said    he   didn't    think     it   would    violate     the                                  
Constitution,        but   they   should     investigate       it   through     Legislative                                     
Legal.    He   said   Article     8,   Section     2  of  the    Constitution       says   the                                  
Legislature       is   responsible       for    ensuring      we   get   maximum     benefit                                    
from     our    resource       and    it    would     just     be    the     case    of    the                                  
Legislature       directing       how   it   wants     the   state's      resource      to   be                                 
developed.                                                                                                                      
                                                                                                                                
CO-CHAIR      PASKVAN     said   that    as   owners    of   the   resource,      if   Alaska                                   
is   tendering       control     over     portions      of   North     Slope    to   someone                                    
there     should     be   minimum      work    commitments       -   for    example,      work                                  
within a 10 year timeframe.                                                                                                     
                                                                                                                                
4:16:51 PM                                                                                                                    
DON    BULLOCK,       Legislative        Legal     Services,       Legislative       Affairs                                    
Agency,      said    he   didn't     see   a   problem      with    using    "shall";      the                                  
statutes      are   peppered      with    shalls     and    mays    and   discretion       and                                  
requirements.        He   said    Senator     Wielechowski        is   correct     that    the                                  
legislature        does    establish       the    policies      for    implementing        the                                  
provisions       requiring       that    resources       be   developed       in   the    best                                  
interests      of   the    state.     As   Director      Barron     pointed     out,    under                                   
current     law   if  someone     has   a  lease    they    don't    really    have    a  duty                                  
to   produce     until    the   end    of  the    lease    at   which    point    they    have                                  
to   be   in   production       and   show    they    are   actually      working     on   the                                  
lease in order to get it extended.                                                                                              
                                                                                                                                
This    amendment      would     give   the    state    an   idea    of   what    a  company                                    
plans    to   do   when    submitting       their     bid.    One   of   the    interesting                                     
things     is   that   they    have    to   submit    a   proposed     plan    before     they                                  
even    qualify      as   a   bidder     before     they    can    even    apply     for   the                                  
lease.      He   said    the   commissioner       maintains      the    discretion      as   to                                 
what   the    terms   of   the   lease    are   in  terms    of   the   bonuses     under    AS                                 
38.05.180(f).                                                                                                                   
                                                                                                                                
SENATOR     WIELECHOWSKI        said   the   original      idea    was   to  look    at   what                                  
is   done   in   some    other    countries,      like    Norway     for   instance,      that                                  
doesn't     take    bids.    They    simply    invite     the   oil   companies      to   come                                  
in   and   propose    plans    of   development       for   the   lease    tracts.     If  one                                  
company     says    they'll      do   one   well    over    five    years,     but   another                                    
says    they'll     do    five    wells    in   one    year,    and    it's    a  reputable                                     
company,     they    can   pick   the   one   that    will   truly    develop     it   in  the                                  
best interests of the country.                                                                                                  
                                                                                                                                
This amendment was set aside.                                                                                                   
                                                                                                                                
4:19:55 PM                                                                                                                    
CO-CHAIR      PASKVAN     said   that    Item    4,  labeled      as  27-LS1305\B.12         by                                 
Senators Wielechowski and French was up for consideration.                                                                      
                                                                                                                                
                                                                      27-LS1305\B.12                                            
                               A M E N D M E N T                                                                            
                                                                                                                                
       OFFERED IN THE SENATE                                                                                                    
       TO:  CSSB 192(RES), Draft Version "B"                                                                                    
                                                                                                                                
       Page 1, line 1, following "tax;":                                                                                      
               Insert "relating to participation by the Alaska                                                                
       Industrial        Development        and    Export     Authority       in    the                                       
       development of oil and gas resources in the state;"                                                                    
                                                                                                                                
       Page 2, following line 5:                                                                                                
               Insert new bill sections to read:                                                                                
            "*   Sec.   2.   AS  44.88.080      is   amended     by   adding     a  new                                     
       paragraph to read:                                                                                                       
                      (32)  to acquire an interest in a project as                                                              
       necessary      or   appropriate       to  provide     working     or   venture                                           
       capital      for   an   oil   or   natural     gas   development       project                                           
       under     AS  44.88.650       -   44.88.660,      whether      by   purchase,                                            
       gift, or lease;                                                                                                          
            *   Sec.     3.    AS   44.88     is    amended       by    adding      new                                       
       sections to read:                                                                                                        
               Sec. 44.88.650. Acquisition of interest in                                                                     
       businesses.        (a)    The     authority      may     acquire,      through                                         
       purchase      or    other    means,     an   interest      in   an    in-state                                           
       asset     of   a  corporation       or   other     business      entity    that                                          
       has   a  lease    interest      in  an   oil   or  natural     gas   field    in                                         
       the    state     that    has    been     explored,      but    only     if   the                                         
       authority         determines         the      leaseholder          has     made                                          
       reasonable         efforts      to     obtain      financing        from     the                                         
       private      sector    to   develop     the   lease     and   those    efforts                                           
       have,      in    whole      or    part,      been     unsuccessful.          The                                         
       authority      shall    exercise      due   diligence      in  acquiring      an                                         
       interest       in   an   in-state      asset     of   a   business       entity                                          
       under this section.                                                                                                      
               (b)  If the authority acquires an interest in an                                                                 
       in-state        asset     of     a   business        entity      under     this                                          
       section,      the   authority      may   use   the   authority's       assets,                                           
       as   appropriate,        to   aid   in   the   development        of   the   oil                                         
       or   natural     gas   field     in  which    the    business     entity     has                                         
       a lease interest.                                                                                                        
               Sec. 44.88.660. Alaska resource development fund.                                                              
       (a)      The      Alaska       resource        development          fund      is                                         
       established         in    the    authority        for    the     purpose      of                                         
       developing        oil    and    gas    resources,        and    consists      of                                         
       appropriations         to  the   fund.    The    authority     shall     manage                                          
       the    fund    and   may    create    separate      accounts      within     it.                                         
       Income     of   the   fund    or  of   enterprises       of   the   authority                                            
       shall       be    separately         accounted        for     and     may     be                                         
       appropriated to the fund.                                                                                                
               (b)  The authority may use money from the fund to                                                                
       carry     out   the   fund's     purposes      set   out   in   (a)    of  this                                          
       section.                                                                                                                 
          * Sec. 4. AS 44.88.900(9) is amended to read:                                                                       
                      (9)  "project" means                                                                                      
                      (A)  a plant or facility used or intended                                                                 
       for     use      in    connection         with     making,       processing,                                             
       preparing,       transporting,         or   producing      in   any    manner,                                           
       goods,     products,       or  substances       of   any    kind    or   nature                                          
       or    in     connection       with      developing       or    utilizing        a                                        
       natural          resource,          or        extracting,           smelting,                                            
       transporting,         converting,       assembling,       or   producing      in                                         
       any      manner,       minerals,        raw     materials,         chemicals,                                            
       compounds,       alloys,      fibers,     commodities       and    materials,                                            
       products, or substances of any kind or nature;                                                                           
                      (B)  a plant or facility used or intended                                                                 
       for use in connection with a business enterprise;                                                                        
                      (C)  commercial activity by a business                                                                    
       enterprise;                                                                                                              
                      (D)  a plant or facility demonstrating                                                                    
       technological         advances      of   new   methods      and    procedures                                            
       and      prototype         commercial         applications          for      the                                         
       exploration,        development,         production,       transportation,                                               
       conversion, and use of energy resources;                                                                                 
                      (E)  infrastructure for a new tourism                                                                     
       destination       facility      or  for   the   expansion      of   a  tourism                                           
       destination        facility;       in   this    subparagraph,         "tourism                                           
       destination        facility"       does     not    include      a   hotel     or                                         
       other overnight lodging facility;                                                                                        
                      (F)  a plant or facility, other than a plant                                                              
       or    facility      described      in   (D)    of   this    paragraph,       for                                         
       the          generation,             transmission,              development,                                             
       transportation,            conversion,          or      use      of      energy                                          
       resources;                                                                                                               
                      (G)  a plant or facility that enhances,                                                                   
       provides       for,    or   promotes       economic      development       with                                          
       respect      to    transportation,         communications,          community                                            
       public       purposes,        technical        innovations,         prototype                                            
       commercial       applications        of    intellectual        property,      or                                         
       research;                                                                                                                
                      (H)  a plant or facility used or intended                                                                 
       for    use    as    a   federal      facility,       including      a    United                                          
       States       military,       national        guard,      or    coast      guard                                          
       facility;                                                                                                                
                      (I)  development of an oil and gas lease by                                                           
       providing       working     or   venture      capital     in   exchange      for                                     
       an equity interest;                                                                                                  
            *  Sec.   5.   The   uncodified      law   of   the   State    of   Alaska                                        
       is amended by adding a new section to read:                                                                              
               ANALYSIS AND REPORT ON ALASKA RESIDENT INVESTMENT                                                                
       PROGRAM.      The   Alaska     Industrial       Development       and    Export                                        
       Authority      shall    research      the   possibility       of  creating      a                                        
       program      through     which     a   resident      of   the   state     could                                          
       invest     the   resident's      permanent      fund    dividend     or   other                                          
       funds    in   an   in-state     oil    or  gas    asset    acquired     by   the                                         
       authority       under    AS   44.88.650      and    report     its    findings                                           
       to the legislature on December 31, 2012."                                                                                
                                                                                                                                
       Renumber the following bill section accordingly.                                                                         
                                                                                                                                
       Page 2, line 6:                                                                                                          
               Delete "This"                                                                                                    
               Insert "Section 1 of this"                                                                                       
                                                                                                                                
SENATOR     WIELECHOWSKI        said    the   legislature       wanted     wildcatters       to                                 
come     up    to    Alaska     and     explore      and    develop;       and    after      it                                 
developed      ACES   the   number     of  companies      doing    business      in  the   oil                                  
patch    went    up  over    250   percent.      But   they    also   had   the   financial                                     
meltdown      in  2008;    he   has   heard    from    a  lot   of   people    in   industry                                    
that     they    are     having     a   hard     time     attracting       capital.       This                                  
amendment      enables      the   Alaska     Industrial       Development       and    Energy                                   
Authority       (Alaska     Industrial        Development       and    Export     Authority                                     
(AIDEA))     to   provide     venture     capital     to  ensure     that   new   oil   comes                                   
on    line    as    quickly      as   possible.       This     is    not    novel;     it    is                                 
something        that      Alaska       Industrial        Development          and     Export                                   
Authority      (AIDEA)     does    in   a  variety     of   different      spectrums.      For                                  
instance,       Alaska     Industrial        Development        and    Export     Authority                                     
(AIDEA)      owns     a   Cook    Inlet     rig;     they're      invested      in    an   oil                                  
terminal      in    Skagway,      a    mining     road     in   a   port     in   Northwest                                     
Alaska, a shipyard in Ketchikan and many others.                                                                                
                                                                                                                                
Just    last     year    legislation        proposed       by   Governor      Parnell      was                                  
enacted      to    expand      Alaska      Industrial       Development         and    Export                                   
Authority      (AIDEA)'s      authority      to   invest     in   economic      development                                     
projects.      This     is   the   State     of   Alaska     using     its   billions      and                                  
billions      of   dollars     and   helping     out    projects     "that     just   need    a                                 
little     push."     The   is   already     the   largest     investor      on   the   North                                   
Slope,    investing      60   and   80   percent     through     its   credits    structure                                     
in      development       projects      on    the   North     Slope.     This     gives    the                                  
state    an    opportunity       to   align     with    industry     and    to   be   at   the                                  
table when decisions are made.                                                                                                  
                                                                                                                                
SENATOR     FRENCH    said    this   idea    was   borne    out   of  a  desire     to  get   a                                 
take   a   different     approach      than   what    is  in   HB  110   where    there    was                                  
an   enormous      amount      of   dollars      flowing     from     the   state     to   the                                  
industry      without      any   concomitant        work    commitments.        Maybe     they                                  
could    create     a   resource      development       corporation       that    takes    the                                  
$2   billion     that    they    would    otherwise      push    across     the   table    and                                  
invest     it    ourselves.       Seeing      how    Norway     does     business      really                                   
catalyzed      the   idea.    Norway    does    two   things:     it  has   a   state-owned                                     
oil    company     called     Statoil      that    owns    and    operates      oil    fields                                   
just   like    any   other    oil   company     does.    Alaska    won't    ever    do  that.                                   
Besides     Statoil,      Norway     has   a  wing    of   their    government       that    is                                 
just    like   an   investment      bank.    It   provides     state    direct    financial                                     
investment       in   fields.      He   said    it's    an    idea    that    needs     to   be                                 
looked     at   and    if   people     see    the   state     investing      maybe     others                                   
will follow.                                                                                                                    
                                                                                                                                
4:26:14 PM                                                                                                                    
MS.    SYDEMAN     explained      that    this    amendment       gives    the    AIDEA    the                                  
authority       to   provide      venture      capital     for    and    take    an    equity                                   
position      in  oil   and    gas   development       projects.      In   recent    years    a                                 
growing     number     of  independent       oil    companies      have   come    to   Alaska                                   
in   search     of  a   small    but   still    significant        pockets     of   oil   that                                  
remain     on   the   North    Slope.     In   some    cases,    they    have    discovered                                     
substantial        quantities       but    have    lacked     the    capital      needed     to                                 
begin    development       particularly        during     the   recent     credit    crunch.                                    
This    amendment       would    enable      Alaska     Industrial       Development       and                                  
Export    Authority      (AIDEA)     to   partner     with   them    to  ensure     that   new                                  
oil production comes on line.                                                                                                   
                                                                                                                                
Alaska      Industrial        Development        and     Export      Authority       (AIDEA)                                    
already      invests       in   a    variety      of    development        projects       from                                  
shipyards      to   oar   terminals      to   mining    roads    and    ports.    Last    year                                  
Governor       Parnell      proposed       legislation        that     further      expanded                                    
Alaska      Industrial       Development        and    Export      Authority      (AIDEA)'s                                     
ability to invest in development projects.                                                                                      
                                                                                                                                
She   said    before    making     the   decision     to   invest     in  an   oil   and   gas                                  
project      this     amendment       would     require      AIDEA     to    exercise      due                                  
diligence       and    ensure     the    investment        is   in    the    state's      best                                  
interest.      It   would    also    need   to   determine      that    the   lease    holder                                   
had   made    reasonable      efforts     to  obtain     financing      from   the   private                                    
sector      and    that     those     efforts       had    been     unsuccessful.         This                                  
amendment      also   directs     AIDEA    to   look   at   the   idea   of   establishing                                      
a  program      where    Alaskans      could    also    invest     their    own   resources                                     
in any project in which AIDEA is a partner.                                                                                     
                                                                                                                                
4:27:43 PM                                                                                                                    
MS.    SYDEMAN      recalled      that     Bradford      Keithley      [consultant        with                                  
Perkins     Coie]     said    earlier     that    such    an   approach      would     create                                   
greater      alignment      between      the   state     and    the    oil   industry      and                                  
would     truly     lay    the    groundwork       for    increased       investment       and                                  
expanded      oil    and   gas    production       and    that    such    public     private                                    
partnerships       exist    all   around     the   world    and   are   very    successful.                                     
She    said    direct     partnerships        would     also    increase       the   state's                                    
understanding         of    how     oil    companies        invest      in    and    develop                                    
projects      leading     to   better     decisions      on   the   state's      part   about                                   
how to manage Alaska's resources.                                                                                               
                                                                                                                                
SENATOR     FRENCH     commented      when   AIDEA    was    buying    a  jack    up   rig   he                                 
talked     with    them   about     the   mechanics      of   the   financial       deal.    He                                 
brought     up    some    of   the   difficulties        the    state    had    on   its   own                                  
over     the     years     with     grain     terminals        and    fish     plants.       It                                 
typically       failed,      but    when    it    has    participated        with    private                                    
sector     and   each    side    has   some    of   its   own   money     at   work   it   has                                  
done    a  lot   better.     This    is   an   opportunity       for   the   state     to  get                                  
alongside        smart     driven       folks     like      BP,    ConocoPhillips          and                                  
ExxonMobil       or   smaller      more    nimble     players      and   help     them    make                                  
investments       that     are   just    out    of   reach     and   still     profit     from                                  
their expertise.                                                                                                                
                                                                                                                                
SENATOR WIELECHOWSKI said that AIDEA is a state corporation.                                                                    
                                                                                                                                
CO-CHAIR     WAGONER     commented      that    this   would    be   an  excellent      model                                   
to   follow    to   see   if   partnering      with    industry     is   where    the   state                                   
wants    to   go.   The   jack   up   rig   AIDEA    is  participating        in  will    have                                  
its entire investment back after five wells are drilled. This                                                                   
may have far reaching benefits such as roads into Ambler and                                                                    
Umiat - and they would get done faster.                                                                                         
                                                                                                                                
4:31:52 PM                                                                                                                    
CO-CHAIR PASKVAN said they would next take up Item 5, labeled                                                                   
27-LS1305\B.14 by Senators Wielechowski and French.                                                                             
                                                                                                                                
                                                                      27-LS1305\B.14                                            
                               A M E N D M E N T                                                                            
                                                                                                                                
       OFFERED IN THE SENATE                                                                                                    
       TO:  CSSB 192(RES), Draft Version "B"                                                                                    
                                                                                                                                
       Page 1, line 1 following "tax;":                                                                                       
               Insert "relating to the oil and gas corporate                                                                  
       income     tax;     relating      to   the   credits      against     the    oil                                       
       and     gas     corporate        income      tax;     making       conforming                                          
       amendments;"                                                                                                           
                                                                                                                                
       Page 1, following line 2:                                                                                                
               Insert new bill sections to read:                                                                                
          "* Section 1. AS 29.60.599(1) is amended to read:                                                                 
                      (1)  "barrel," when used with reference to                                                            
       oil,    means    the   quantity      of   oil   contained      in   42   United                                      
       States     gallons     of  231   cubic    inches     each,    measured     at   a                                    
       temperature        of   60   degrees     Fahrenheit       and    an   absolute                                       
       pressure       of    14.65     pounds      a   square      inch     [HAS     THE                                     
       MEANING GIVEN IN AS 43.20.072];                                                                                          
          * Sec. 2. AS 41.09.010(b) is amended to read:                                                                       
               (b)  An exploration incentive credit extended                                                                    
       under (a) of this section may be applied against                                                                         
                      (1)  a payment or obligation against which a                                                              
       credit authorized by AS 38.05.180(i) may be claimed;                                                                     
                      (2)  taxes payable under AS 43.20 or                                                                  
       AS 43.21, as applicable; and                                                                                         
                      (3)  oil and gas bonus payments due the                                                                   
       state under AS 38.05.180(f).                                                                                             
            *  Sec.    3.   AS  43.20.011       is   amended     by   adding     a  new                                       
       subsection to read:                                                                                                      
               (g)  For purposes of calculating the tax under                                                                   
       (e)     of     this     section,       the     taxable       income      of     a                                        
       corporation           engaged          in      the        production          or                                         
       transportation         of   crude     oil    or   natural     gas    shall    be                                         
       determined in accordance with AS 43.21.                                                                                  
          * Sec. 4. AS 43.20.073(f) is amended to read:                                                                       
               (f)  This section does not apply to taxpayers                                                                    
       subject to AS 43.21 [AS 43.20.072 ENGAGED IN                                                                         
                      (1)  THE PRODUCTION OF OIL OR GAS FROM A                                                                  
       LEASE OR PROPERTY IN THE STATE; OR                                                                                       
                      (2)  THE TRANSPORTATION OF OIL OR GAS BY                                                                  
       REGULATED PIPELINE IN THE STATE].                                                                                        
            *   Sec.     5.    AS   43.21     is    amended       by    adding      new                                       
       sections to read:                                                                                                        
                  Article 1. Determination of Taxable Income.                                                                 
               Sec. 43.21.200. Application. This chapter applies                                                              
       to   every    corporation       doing     business     in   the   state    that                                          
       derives     income     from    the   production       of  oil    or  gas   from                                          
       a   lease    or  property      in   the   state    or   from   the    pipeline                                           
       transportation         of    oil   or   gas    in   the    state.     The    tax                                         
       calculated       under    this   chapter     is   measured     by   the   total                                          
       taxable       income     of    the     corporation        during      the    tax                                         
       period     as   defined      by  AS   43.21.210      -   43.21.240      and   is                                         
       calculated           at      the       rates        established           under                                          
       AS 43.20.011(e).                                                                                                         
               Sec. 43.21.210. Determination of taxable income                                                                
       from    oil   and   gas   production.       (a)   The   taxable     income    of                                       
       a   corporation       from   the    production      of   oil   and   gas   from                                          
       a   lease    or   property     in   the   state    is   the   corporation's                                              
       net     income       as    calculated         by    the     department        in                                         
       accordance with this section.                                                                                            
               (b)  Gross income of a corporation from oil and                                                                  
       gas    production       is    the    gross     value    at    the    point    of                                         
       production        of   oil    or   gas    produced      from     a   lease    or                                         
       property        in    the     state.      The     department        shall     by                                         
       regulation       determine      a   uniform     method     of   establishing                                             
       the    gross    value     at   the    point    of   production.       For    the                                         
       purpose     of   determining       the   gross    value    at  the   point    of                                         
       production       under    this    subsection,      the    department      shall                                          
       use       AS   43.55.150          for       the       determination           of                                         
       transportation costs.                                                                                                    
               (c)  Net income from oil and gas production shall                                                                
       be    determined       by    the    department        by   deducting       from                                          
       gross income the following:                                                                                              
                      (1)  royalties paid in kind or in value;                                                                  
                      (2)  taxes imposed under AS 43.55 that are                                                                
       actually      paid    or    incurred      by   the   corporation        on   the                                         
       production from a lease or property in the state;                                                                        
                      (3)  taxes imposed under AS 29.45.080 -                                                                   
       29.45.090        and    AS  43.56      that    are     actually       paid    or                                         
       incurred      by   the   corporation       on   property      used    directly                                           
       in    the    production       of    oil    or    gas    from    a   lease     or                                         
       property       in    the    state,     including       property       used    in                                         
       production,        gathering,        treatment,       or    preparation       of                                         
       the    oil   or   gas    for   pipeline      transportation,         but   only                                          
       if    those    property      tax    payments      were    due   and    payable                                           
       only    after    the    date   of   commercial       production      from    the                                         
       lease      or     property       with      which      the     property       was                                         
       associated;                                                                                                              
                      (4)  the direct costs incurred by or for the                                                              
       corporation         in    operating        the     lease      or    property,                                            
       including       the    direct     costs     of   producing,        gathering,                                            
       treating,       or   preparing       the    oil    or   gas    for    pipeline                                           
       transportation,          but   net    of   any   payments      received      for                                         
       those     activities       and   not    including      any    indirect     cost                                          
       or overhead expense;                                                                                                     
                      (5)  depreciation, using the percentage                                                                   
       depletion       basis    under    26   U.S.C.     613   (Internal      Revenue                                           
       Code)     or   another     reasonable       method     as   the    department                                            
       may   by   regulation       establish,      on   property     used    directly                                           
       in      the       production,          gathering,          treatment,         or                                         
       preparation          of     the      oil     or     gas      for      pipeline                                           
       transportation,          including      amortization        of   capitalized                                             
       interest      for    investments       in    that    property      at   a  rate                                          
       not    to    exceed     the    average      cost    to   the    taxpayer      of                                         
       borrowed      capital     during    the   year    in  which    the    interest                                           
       is capitalized;                                                                                                          
                      (6)  the amortization of lease acquisition                                                                
       payments         and      taxes        paid      or      incurred         under                                          
       AS   29.45.080,         29.45.090,         or     AS   43.56,       including                                            
       capitalized        interest,      for    or   on   producing       properties                                            
       before     the    commencement       of   commercial       production      from                                          
       the    lease    or  property      for   which    the    property     is   being                                          
       used;                                                                                                                    
                      (7)  interest expense of the corporation,                                                                 
       not    capitalized       during    construction,         that   was    paid   or                                         
       incurred       in   connection       with     property      in    the    state;                                          
       however,       unless      (f)    of    this     section      applies,       the                                         
       interest      expense      may    not   exceed     that    portion      of   the                                         
       total     interest      paid    by    the   consolidated        business      of                                         
       which      the     corporation        is     a    part,     determined        by                                         
       multiplying        the    total      interest      by    a   fraction,       the                                         
       numerator       of   which    is   the   value     of   the   corporation's                                              
       real    and    tangible      personal      property      used    directly     in                                         
       the    production      of   oil   or   gas   from   a   lease    or   property                                           
       in   the   state    and   the   denominator       of  which    is   the   value                                          
       of    all    real    and    tangible       personal      property      of    the                                         
       consolidated          business;       in     this     paragraph,         "total                                          
       interest      paid    by   the    consolidated        business"      does    not                                         
       include       interest      expense       arising      from     intercompany                                             
       obligations       within     the   consolidated       business      except    to                                         
       the    extent    that    the   interest      expense     reflects      a  pass-                                          
       through      of  interest      on   a  third-party       borrowing      by   the                                         
       parent      or   other    member      of   the    consolidated        business                                           
       with    the   purpose,      expressed      at   the   time    of  the    third-                                          
       party    borrowing,       of   financing      Alaska    business      activity                                           
       of the taxpayer corporation;                                                                                             
                      (8)  expenses incurred by the corporation                                                                 
       after     December     31,    2012,     of   unsuccessful        exploration                                             
       of   oil   or   gas   in   the   state,     including      the   acquisition                                             
       costs    of   abandoned      properties,       dry   hole   costs,     and   the                                         
       costs     of   geologic     and    geophysical       exploration       related                                           
       to those abandoned properties;                                                                                           
                      (9)  general overhead or administrative                                                                   
       expense      incurred      by    the    corporation       attributable        to                                         
       deriving      income    from    the   production      of   oil   or  gas   from                                          
       a  lease    or   property     in   the   state    to   the   extent,     except                                          
       as   provided      in   (f)   of   this    section,      that    the   general                                           
       overhead       or   administrative          expense      does    not     exceed                                          
       that      portion       of    the     total      general       overhead       or                                         
       administrative          expense      incurred      by    the    consolidated                                             
       business        of     which      the     corporation         is     a    part,                                          
       determined       by   multiplying        the   total     general      overhead                                           
       or   administrative        expense     by   a  fraction,      the   numerator                                            
       of   which     is   the    value    of   the    corporation's        real    and                                         
       tangible        personal       property       used     directly        in    the                                         
       production       of   oil   or   gas   from    a   lease    or   property     in                                         
       the   state    and   the   denominator       of   which    is  the   value    of                                         
       all     real     and     tangible       personal       property        of    the                                         
       consolidated business;                                                                                                   
                      (10)  the amount of income from the                                                                       
       production       of    oil   and    gas    from    a   lease    or    property                                           
       that    is   divided     among    the   regional     Native     corporations                                             
       under     43    U.S.C.      1606(i)      (sec.     7(i),     Alaska      Native                                          
       Claims Settlement Act, P.L. 92-203).                                                                                     
               (d)  Deductions from gross income under this                                                                     
       section      may    not   include      expenses      previously       deducted                                           
       on a return filed under AS 43.20.                                                                                        
               (e)  If a corporation subject to this chapter                                                                    
       shares      the   production       or    proceeds      of   the    production                                            
       from    a   lease    or   property      through     a   working     interest,                                            
       royalty        interest,          overriding         royalty        interest,                                            
       production         payment,        net      profit       interest,        joint                                          
       venture,       or    other     agreement,        the    department        shall                                          
       allocate      the   deductions       from    gross    income     between     the                                         
       corporation       and    the   persons     with    whom    the   corporation                                             
       has    the   agreement      in   accordance      with    the   terms    of   the                                         
       agreement.                                                                                                               
               (f)  If a corporation demonstrates to the                                                                        
       satisfaction        of    the    department       that    the    corporation                                             
       paid    or   incurred      actual     expenses      for   interest      or   for                                         
       general       overhead      or    administration          attributable        to                                         
       deriving      income    from    the   production      of   oil   or  gas   from                                          
       a   lease    or  property      in   the   state    in   an  amount     greater                                           
       than    the   amount    determined       under    (c)(7)    or   (9)   of  this                                          
       section,      the    department       may   allow     the   corporation       to                                         
       deduct the greater amount.                                                                                               
               Sec. 43.21.220. Determination of income from oil                                                               
       and     gas      pipeline       transportation.           (a)     Except      as                                       
       provided       in    (c)     of    this     section,       taxable       income                                          
       attributable         to     the    transportation          of     oil     in    a                                        
       pipeline      engaged     in   interstate       commerce     in   this    state                                          
       shall    be   determined      by   the   department      and   shall    be   the                                         
       amount      reported       or    that     would     be    required       to   be                                         
       reported      to    the   Federal      Energy     Regulatory       Commission                                            
       or   its   successors       as   net   operating      income,     less    those                                          
       portions        of     interest        and      general       overhead        or                                         
       administrative          expense      attributable        to    the    pipeline                                           
       transportation          of    oil     in    the     state,      except     that                                          
       taxable     income     shall    also   include     taxes    on   or   measured                                           
       by   income.      The   department       shall    establish      regulations                                             
       governing       the    determination         of   interest      and    general                                           
       overhead       or    administrative          expense      attributable        to                                         
       pipeline transportation of oil in the state.                                                                             
               (b)  Except as provided in (c) of this section,                                                                  
       taxable      income     attributable        to   the    transportation        of                                         
       natural       gas    in     a   pipeline       engaged       in    interstate                                            
       commerce       in   this     state     shall     be   determined       by    the                                         
       department       and    shall     be   the   amount     reported      or   that                                          
       would    be   required     to   be   reported     to   the   Federal     Energy                                          
       Regulatory        Commission       as   net    operating       income,     less                                          
       that     portion      of    interest       and    general       overhead      or                                         
       administrative           expense        attributable          to      pipeline                                           
       transportation         in   the    state,     except     that    the   taxable                                           
       income      shall     also    include      taxes     on    or   measured      by                                         
       income.       The    department        shall     establish       regulations                                             
       governing       the    determination         of   interest      and    general                                           
       overhead       or    administrative          expense      attributable        to                                         
       pipeline transportation of natural gas in the state.                                                                     
               (c)  Taxable income attributable to the                                                                          
       transportation         of   oil   or  natural      gas   in   this   state    of                                         
       a    corporation        not     under     the     jurisdiction         of    the                                         
       Federal        Energy      Regulatory         Commission,         or     of     a                                        
       corporation         under     the    jurisdiction         of    the    Federal                                           
       Energy      Regulatory       Commission        but    not    reporting       the                                         
       operation       of   pipelines       in   the    state    separately       from                                          
       the     operation        of     pipelines        elsewhere,        shall      be                                         
       determined       by   the   department      and    shall    be   based    on  an                                         
       amount      equal     to    the     amount     that     would      have    been                                          
       reported      to    the   Federal      Energy     Regulatory       Commission                                            
       under      (a)     of    this     section       in    the     case     of    oil                                         
       pipelines,       or   under    (b)    of   this   section,      in   the   case                                          
       of   natural     gas   pipelines,      had   the    corporation      been,    in                                         
       fact,     under     the    jurisdiction        of    the    Federal      Energy                                          
       Regulatory         Commission        for     the     taxable       year      and                                         
       required      to    report     on   the   operation       of   pipelines      in                                         
       the    state    separately       from    the    operation      of   pipelines                                            
       elsewhere.                                                                                                               
               Sec. 43.21.230. Determination of income from                                                                   
       activities        other      than     oil    and     gas     production       or                                       
       pipeline       transportation.           (a)    Taxable       income      of    a                                      
       corporation       subject     to   this   chapter     from    activities      in                                         
       this     state    other     than    the    production       of   oil    or   gas                                         
       from    a  lease    or   property      in  the    state    or  the    pipeline                                           
       transportation         of    oil   or   gas    in   the    state     shall    be                                         
       determined       in   accordance       with    the    method     established                                             
       in    art.    IV   of    AS  43.19.010       and    in   AS  43.20.071,       as                                         
       modified by (b) - (d) of this section.                                                                                   
               (b)  The total taxable income of a consolidated                                                                  
       business      is  its   entire     income    less    the   portion     of  that                                          
       entire     income    attributable        to   worldwide      production      and                                         
       pipeline       transportation          of    oil     and    gas.     In    this                                          
       subsection,        for    a  member      of   a   consolidated        business                                           
       who is                                                                                                                   
                      (1)  required to file under the Internal                                                                  
       Revenue      Code,     "entire      income"      means      the    taxpayer's                                            
       taxable      income    as   the    term    is  used    in   AS   43.20.011      -                                        
       43.20.065;                                                                                                               
                      (2)  not required to file under the Internal                                                              
       Revenue        Code,      "entire       income"       means       an     income                                          
       determination         prepared       in   accordance        with    generally                                            
       accepted      accounting      principles,       except     that   a   taxpayer                                           
       may    elect     to   report      income     as   the    income      would    be                                         
       determined under (1) of this subsection.                                                                                 
               (c)  The numerator and denominator of the                                                                        
       property       factor,     of    the   payroll      factor,      and    of   the                                         
       sales     factor    shall     be  calculated       without     reference      to                                         
       that    portion      of   property,      payroll,      or   sales     directly                                           
       related      to  the    production      of   oil    or  gas    from    a  lease                                          
       of      property        in      the      state       or      the      pipeline                                           
       transportation of oil or gas in the state.                                                                               
               (d)     The   value    attributed      to   vessels     transporting                                             
       Alaska     oil   or   gas   of   a  consolidated        business     that    are                                         
       not    owned     or    effectively       owned     by    the    consolidated                                             
       business shall be excluded from the property factor.                                                                     
               Sec.     43.21.240.         Applicability          of    tax     to     a                                      
       consolidated        business.      The    provisions      of   this    chapter                                         
       apply     to   a   consolidated        business      whether     or   not    the                                         
       taxpayer is the parent or controlling corporation.                                                                       
                    Article 2. Calculation of Tax; Returns.                                                                   
               Sec.   43.21.300.       Assessment      of   income    and   tax.    (a)                                       
       The    department        shall    assess      taxable      income     and    the                                         
       amount      of   tax    payable      on    that    taxable      income.      The                                         
       amount     of    the   tax    payable     shall     be   determined       using                                          
       the tax rates in AS 43.20.011(e).                                                                                        
               (b)      On   or   before     August     15   of   each    year,     the                                         
       department        shall     send    to    every     corporation        taxable                                           
       under     this   chapter     a   notice    of   assessment       showing     the                                         
       amount     of    income     taxable     under     this    chapter     for    the                                         
       previous      year    and    the   amount     of   tax    payable     on   that                                          
       taxable income.                                                                                                          
               (c)    For   purposes      of   this   chapter,      the   department                                            
       may    combine     taxable     income     of   corporations       subject     to                                         
       tax     under     this    chapter      who     are    part     of   the    same                                          
       consolidated business.                                                                                                   
               (d)          If     the     methods        of     allocation         and                                         
       apportionment         provided      in   this    chapter     do   not    fairly                                          
       represent        the    extent      of     a   corporation's          business                                           
       activity      in    the   state,      the   corporation        may    petition                                           
       for    or   the   department       may   require,      in   respect     to   all                                         
       or   any   part    of  the   corporation's        business     activity,      if                                         
       reasonable,        the    employment       of   any    method      authorized                                            
       under     art.    IV,   sec.    18,    AS  43.19.010       (Multistate       Tax                                         
       Compact),       to    carry     out   an    equitable       allocation       and                                         
       apportionment           of     the     corporation's           income.       The                                         
       commissioner         shall      include       in    the     annual       report                                          
       required       in    AS   43.21.410       a    report      on    all     relief                                          
       granted      under     this     subsection,        including,       for    each                                          
       case,     a   statement       of    the    changes      in   tax    liability                                            
       resulting       from    the   granting      of   relief,     the    tax   years                                          
       involved,        and      a    description         of     the     method      of                                         
       determining        taxable      income     that    was    substituted        for                                         
       the methods provided in this chapter.                                                                                    
               Sec.      43.21.320.          Credits.        A     credit        under                                        
       AS   43.20.043,       43.20.044,        or    43.20.046       may     also    be                                         
       applied      against      the    tax    levied     under     this     chapter,                                           
       unless      a   credit     for    the    same     expenditure       has    been                                          
             taken against a tax levied under AS 43.20 or AS 43.55.                                                             
               Sec. 43.21.330. Returns. On or before April 15 of                                                              
       each     year,    a   corporation        subject      to   tax    under    this                                          
       chapter     shall     submit    a   return    in   a  form    prescribed      by                                         
       the   department       setting     out   information       required     by   the                                         
       department       to   determine       taxable     income.      For    purposes                                           
       of      this      chapter,        the      department         may      require                                           
       corporations        subject      to   tax    under     this    chapter     that                                          
       are    part    of   the   same    consolidated       business      to   file    a                                        
       single return.                                                                                                           
               Sec. 43.21.340. Payment of tax. The tax levied                                                                 
       under     this   chapter     is   payable     to   the   department       on  or                                         
       before     September      30   of   each    year    or   in   installments,                                              
       including       prepayments       of   estimated      tax,    at    the   times                                          
       and     under      the     conditions        the     department        may    by                                         
       regulation       require.     The   tax   is   payable     on  the   due   date                                          
       set    out   in   this   section     even    though     the   assessment      is                                         
       under      appeal      or    the     validity,       enforceability,          or                                         
       application        of   this   chapter      or   any   provision      of   this                                          
       chapter      is  challenged       before     the   department      or   in   the                                         
       courts.                                                                                                                  
                       Article 3. Administrative Matters.                                                                     
               Sec. 43.21.400. Regulations. The department shall                                                              
       adopt       regulations          in     accordance         with       AS  44.62                                          
       (Administrative           Procedure        Act)     as     appropriate        to                                         
       administer and enforce this chapter.                                                                                     
               Sec. 43.21.410. Public reporting. (a) The                                                                      
       commissioner          shall      compile       and     transmit       to     the                                         
       legislature       an   annual     report     of  state     revenue     and   the                                         
       implementation           of     taxation        policies        under      this                                          
       chapter.       The     report      must     include       total     aggregate                                            
       income      tax     paid     by    corporations         subject      to    this                                          
       chapter       and     aggregate        income       and     deductions        by                                         
       category,          classified         so      as      to      prevent        the                                         
       identification of particular returns or reports.                                                                         
               (b)  The legislative auditor shall notify the                                                                    
       legislature       on   or  before     the   first    day   of   each   regular                                           
       session      that    the   annual     report     reviewing       the   actions                                           
       of    the    department       in    administering        this     chapter     is                                         
       available.                                                                                                               
               Sec.        43.21.420.            Information            disclosure.                                           
       Notwithstanding           AS  43.05.320,        the     department        shall                                          
       disclose       to    a   legislator,         on   request,       information                                             
       collected from a taxpayer to the extent that                                                                             
                      (1)  the taxpayer is a publicly traded                                                                    
       company;                                                                                                                 
                      (2)      the    information        has   been     filed     in   a                                        
       quarterly,        annual,     or    other     periodic      report     to    the                                         
       United States Securities Exchange Commission; and                                                                        
                      (3)     the   information       has   been   made    public    by                                         
       the United States Securities Exchange Commission.                                                                        
               Sec. 43.21.499. Definitions. Unless the context                                                                
       requires        otherwise,        the     definitions         contained       in                                         
       AS   43.55.900       are     applicable        to     this     chapter.       In                                         
       addition, in this chapter,                                                                                               
                      (1)          "consolidated          business"        means       a                                        
       corporation       or   group     of  corporations        having     more   than                                          
       50   percent     common     ownership,       direct    or   indirect,      or   a                                        
       group      of    corporations         in     which     there      is     common                                          
       control,      either    direct     or  indirect,      as   evidenced      by  an                                         
       arrangement, contract, or agreement;                                                                                     
                      (2)    "Internal  Revenue   Code"   has   the  meaning   given  in                                        
       AS 43.20.340."                                                                                                           
                                                                                                                                
       Page 1, line 3:                                                                                                          
               Delete "Section 1"                                                                                             
               Insert "Sec. 6"                                                                                                
                                                                                                                                
       Page 2, line 6:                                                                                                          
               Delete all material and insert:                                                                                  
          "* Sec. 7. AS 43.82.210(a) is amended to read:                                                                    
               (a)  If the commissioner approves an application                                                                 
       and     proposed      project       plan     under     AS  43.82.140,        the                                         
       commissioner        may   develop      proposed     terms     for   inclusion                                            
       in   a   contract     under    AS   43.82.020      for   periodic      payment                                           
       in    lieu    of   one   or    more    of   the   following       taxes    that                                          
       otherwise        would      be    imposed       by     the     state     or     a                                        
       municipality        on   the   qualified       sponsor     or   member     of   a                                        
       qualified         sponsor        group       as     a     consequence         of                                         
       participating in an approved qualified project:                                                                          
                      (1)      oil    and   gas    production       taxes    and    oil                                         
       surcharges under AS 43.55;                                                                                               
                      (2)      oil    and    gas    exploration,        production,                                             
       and     pipeline        transportation          property       taxes      under                                          
       AS 43.56;                                                                                                                
                      (3)     oil   and    gas   corporate      income     tax   under                                      
       AS 43.21; [REPEALED]                                                                                                 
                      (4)  Alaska net income tax under AS 43.20;                                                                
                      (5)       municipal        sales     and    use     tax    under                                          
       AS 29.45.650 - 29.45.710;                                                                                                
                      (6)            municipal         property         tax      under                                          
       AS 29.45.010 - 29.45.250 or 29.45.550 - 29.45.600;                                                                       
                      (7)  municipal special assessments under                                                                  
       AS 29.46;                                                                                                                
                      (8)  a comparable tax or levy imposed by the                                                              
       state or a municipality after June 18, 1998;                                                                             
                      (9)  other state or municipal taxes or                                                                    
       categories of taxes identified by the commissioner.                                                                      
          * Sec. 8. AS 43.20.072 is repealed.                                                                                 
            *  Sec.   9.   The   uncodified      law   of   the   State    of   Alaska                                        
       is amended by adding a new section to read:                                                                              
               APPLICABILITY. AS 43.21, added by sec. 5 of this                                                                 
       Act,     applies      to    taxable      income     earned      or    received                                           
       after December 31, 2012.                                                                                                 
            *   Sec.    10.    The    uncodified        law    of   the    State     of                                       
       Alaska is amended by adding a new section to read:                                                                       
               REGULATIONS. (a) The Department of Revenue may                                                                   
       adopt      regulations        necessary       to    implement       AS   43.21,                                          
       added     by    sec.    5   of   this     Act.    The    regulations       take                                          
       effect     under     AS  44.62     (Administrative         Procedure      Act),                                          
       but     not     before       the    effective        date      of    the     law                                         
       implemented by regulation.                                                                                               
               (b)  The Department of Revenue shall provide by                                                                  
       regulation       for   a   transition      for    a  corporation       subject                                           
       to    tax    under     AS  43.20     before     December      31,    2012,    to                                         
       avoid     double     taxation       of   the    same    income     or    double                                          
       deduction      of   the   same    expense     of   the   corporation       as   a                                        
       result      of    becoming      subject      to    tax    under     AS   43.21,                                          
       added by sec. 5 of this Act.                                                                                             
            *   Sec.    11.    Section      10   of   this     Act    takes     effect                                        
       immediately under AS 01.10.070(c).                                                                                       
            *  Sec.    12.    Except     as   provided     in    sec.   11   of   this                                        
       Act, this Act takes effect January 1, 2013."                                                                             
                                                                                                                                
SENATOR     WIELECHOWSKI       said    a  current     piece    of  legislation       on   this                                  
issue    was   referred     to   the   Finance     Committee      and   he  thinks     it's   a                                 
good   idea    for   this   committee      to   have   an   understanding        of  what    it                                 
does    because      it   impacts     what    they    are    doing.     He   explained       it                                 
reinstitutes       separate      accounting      method     of   calculating      corporate                                     
income      tax     paid     by    the     oil     industry.       This     was     strongly                                    
recommended by Pedro van Meurs.                                                                                                 
                                                                                                                                
MS.   SYDEMAN     explained      that    since    oil   production       in   Alaska    began                                   
the     state     has    been     strongly       urged      by    industry       to    use    a                                 
proportion       of   world-wide       profits     for    a  unitary      tax   method     for                                  
calculating       their     income     tax.    In   1978,    Alaska     realized      it   was                                  
losing     significant        revenue      under     the    unitary      system.      So   the                                  
legislature          passed       separate         accounting.          Under       separate                                    
accounting       revenues      generated      in    Alaska     less    expenses      are   the                                  
basis     for     the     9.4    percent      corporate        income      tax.     The    oil                                  
companies      sued   and   lost    in  lower    court,     and   then   appealed      to  the                                  
State     Supreme      Court.     Four    years     later     the    state     reverted      to                                 
unitary      system      because      the     legislature        feared      there     was    a                                 
potential      cost    of   $1.8    billion     if   the    state    lost.    At   the    time                                  
the   legislature       saw   that    as   too   great    a  liability      with    the   1981                                  
treasury      balance.     However,      in   1985    the   state    won    on   all   points                                   
with    the   Alaska    Supreme      Court    and   the   US   Supreme     Court    declined                                    
the    oil   companies      appeal     request      stating     there     was   no   federal                                    
issue.       Unfortunately,          separate       accounting         has     never      been                                  
reinstated.                                                                                                                     
                                                                                                                                
For    years     the    companies      have     said    they    couldn't       do   separate                                    
accounting       since     they    did    not   track     their     revenues      and   costs                                   
that    way.    That    may   have    been    true    under    the   old    ELF   gross    tax                                  
system     but    it's    not   true    under     the   profits      based    PPT    or   ACES                                  
systems.     They    also   know    the   oil   companies      do   separate     accounting                                     
for other oil provinces like Norway.                                                                                            
                                                                                                                                
MS.   SYDEMAN      said   if   they    take    just    the   $1.8    billion     difference                                     
between     the   income    tax    these    corporations       paid   under    the   unitary                                    
system     and    separate      accounting       between      the   years     of   1978    and                                  
1981    and    divide     that    by   four    years     it   equals     an   underpayment                                      
during     those    years    of   about     $450    million     per   year.     Multiplying                                     
that    by   the   30   years    that    separate     accounting       has   now    not   been                                  
in   effect,    the   state    may   have    lost   up   to  $13.5    billion,      which    is                                 
more    than   the    total    unfunded     liability      for   the    state's     PERS   and                                  
TRS retirement systems.                                                                                                         
                                                                                                                                
4:36:02 PM                                                                                                                    
In   the   year    2000,     the   DOR    did   an   analysis      and   determined       that                                  
the   state    had    probably     lost    $4.7   billion     between      1982   and   1997.                                   
She    contacted      the    economist       this    morning      that    conducted       that                                  
analysis     to   ask   him   whether     he   thought     separate     accounting      would                                   
still     yield     more     revenue      for    the    state      today     accounted       to                                 
determine      if   separate      accounting      would    still    yield     more   revenue                                    
for   the    state    today    as   he   had   determined      back    then    and   he   said                                  
yes.                                                                                                                            
                                                                                                                                
Internationally           acclaimed        oil     consultant        Pedro      van     Meurs                                   
recently      said    he   believes     the    unitary     method     is   cumbersome;       it                                 
is   an   obstacle      to   new    investment       and   it's    not    in   the   state's                                    
best    interests.      Recently      they   also    have    heard    from    oil   industry                                    
representatives         who    have    stated     that     Alaska     has    comparatively                                      
strong     margins.      So,    that    is   an   indication       that    the    state    may                                  
still    be   losing    revenue     under    the   unitary     tax   method.     If  this    is                                 
so,   the    income    taxes     in   Alaska    would     be  effectively        lowered     by                                 
the   less    profitable      investments       around    the   world.     Conversely,       if                                 
oil   development        in  Alaska     is   less    profitable       than    elsewhere      as                                 
some    of   have    stated,      this    would     result     in   a  tax    cut    for   oil                                  
industry.      Either    way,    this   method     of  accounting       is  more    straight                                    
forward     sensible      and   a   fairer     way   of   determining       the   corporate                                     
income tax.                                                                                                                     
                                                                                                                                
4:37:41 PM                                                                                                                    
CO-CHAIR PASKVAN announced consideration of Item 6 by Senators                                                                  
French and Wielechowski, labeled 27-LS1305\B.15.                                                                                
                                                                                                                                
                                                                      27-LS1305\B.15                                            
                               A M E N D M E N T                                                                            
                                                                                                                                
       OFFERED IN THE SENATE                                                                                                    
       TO:  CSSB 192(RES), Draft Version "B"                                                                                    
                                                                                                                                
       Page 1, line 1, following "tax;":                                                                                      
               Insert "relating to information concerning oil                                                                 
       and       gas       taxes,        including         information           about                                        
       expenditures        that    must    be   provided      in   order    to   claim                                        
       an    oil     and     gas    production        tax    credit      for     those                                        
       expenditures,         and   relating      to   the    disclosure      of   that                                        
       information;"                                                                                                          
                                                                                                                                
       Page 2, line 6:                                                                                                          
               Delete all material and insert:                                                                                  
          "* Sec. 2. AS 43.55.030(a) is amended to read:                                                                    
               (a)  A producer that produces oil or gas from a                                                                  
       lease    or   property     in   the   state    during    a   calendar     year,                                          
       whether       or     not     any     tax     payment       is     due     under                                          
       AS   43.55.020(a)       for    that    oil   or   gas,    shall     file   with                                          
       the    department       on    March   31    of   the    following       year    a                                        
       statement,       under     oath,     in   a   form    prescribed        by   the                                         
       department,       giving,     with    other    information       required     by                                     
       the     department       under      a   regulation        adopted      by    the                                     
       department, the following:                                                                                           
                      (1)  a description of each lease or property                                                              
       from     which    oil    or   gas    was    produced,      by   name,     legal                                          
       description,          lease       number,       or     accounting         codes                                          
       assigned by the department;                                                                                              
                      (2)  the names of the producer and, if                                                                    
       different, the person paying the tax, if any;                                                                            
                      (3)  the gross amount of oil and the gross                                                                
       amount     of    gas   produced      from    each    lease     or   property,                                            
       and    the   percentage      of   the   gross    amount     of   oil   and   gas                                         
       owned by the producer;                                                                                                   
                      (4)        the    gross      value     at    the     point     of                                         
       production       of    the   oil    and    of   the    gas   produced      from                                          
       each    lease     or  property      owned     by  the    producer      and   the                                         
       costs of transportation of the oil and gas;                                                                              
                      (5)     the   name   of   the   first    purchaser      and   the                                         
       price     received      for    the    oil   and    for    the   gas,     unless                                          
       relieved      from    this   requirement       in   whole    or   in   part   by                                         
       the department;                                                                                                          
                      (6)         the     producer's         qualified        capital                                           
       expenditures,        as   defined      in   AS  43.55.023,       other    lease                                          
       expenditures         under     AS  43.55.165,       and     adjustments       or                                         
       other payments or credits under AS 43.55.170;                                                                            
                      (7)      the    production      tax    values     of   the    oil                                         
       and gas under AS 43.55.160;                                                                                              
                      (8)       any     claims      for    tax    credits       to   be                                         
       applied; [AND]                                                                                                           
                      (9)      calculations         showing     the    amounts,      if                                         
       any,    that     were    or   are   due    under     AS  43.55.020(a)        and                                         
       interest on any underpayment or overpayment; and                                                                     
                      (10)     for   each    expenditure       that   is   the   basis                                      
       for    a  credit     claimed     under    AS   43.55.023      or   43.55.025,                                        
       a     description         of      the     expenditure,          a     detailed                                       
       description        of   the   purpose     of   the    expenditure,       and    a                                    
       description        of   the    lease     or   property      for    which     the                                     
       expenditure              was          incurred;            notwithstanding                                           
       AS   43.05.230(a),          information        submitted        under      this                                      
       paragraph      may    be  disclosed      to   the   public     and   shall    be                                     
       disclosed       to    the    legislature       in    a   report     submitted                                        
       within     10  days    after    the   convening      of  the    next   regular                                       
       legislative       session      following      the   date    a  statement      is                                     
       filed under this section.                                                                                            
          * Sec. 3. AS 43.55.030(e) is amended to read:                                                                       
               (e)  An explorer or producer that incurs a lease                                                                 
       expenditure        under    AS   43.55.165      or   receives      a   payment                                           
       or    credit     under    AS   43.55.170      during      a  calendar      year                                          
       but    does     not    produce      oil    or    gas    from    a   lease     or                                         
       property      in   the    state    during     the   calendar      year    shall                                          
       file    with    the   department       on  March    31   of   the   following                                            
       year    a  statement,       under    oath,    in   a  form    prescribed      by                                         
       the      department,         giving,        with      other      information                                             
       required      by   the   department       under    a  regulation       adopted                                       
       by the department, the following:                                                                                    
                      (1)         the     producer's         qualified        capital                                           
       expenditures,        as   defined      in   AS  43.55.023,       other    lease                                          
       expenditures         under     AS  43.55.165,       and     adjustments       or                                         
       other payments or credits under AS 43.55.170; [AND]                                                                      
                      (2)  if the explorer or producer receives a                                                               
       payment       or    credit     under      AS  43.55.170,        calculations                                             
       showing     whether     the   explorer      or  producer      is  liable     for                                         
       a   tax    under     AS  43.55.160(d)        or   43.55.170(b)        and,    if                                         
       so, the amount; and                                                                                                  
                      (3)  for each expenditure that is the basis                                                           
       for   a   credit    claimed     under    this    chapter,     a  description                                         
       of    the    expenditure,         a   detailed      description        of    the                                     
       purpose      of   the   expenditure,        and   a   description       of   the                                     
       lease      or    property       for     which     the     expenditure        was                                     
       incurred;       notwithstanding         AS  43.05.230(a),        information                                         
       submitted      under    this    paragraph      may   be  disclosed      to   the                                     
       public     and   shall    be   disclosed      to   the   legislature       in   a                                    
       report     submitted      within    10   days   after    the   convening      of                                     
       the    next     regular      legislative        session      following       the                                     
       date a statement is filed under this section.                                                                        
            *  Sec.    4.  Sections      2  and   3  of   this    Act   take    effect                                        
       July 1, 2012.                                                                                                            
            *   Sec.     5.   Section       1   of   this     Act    takes      effect                                        
       January 1, 2013."                                                                                                        
                                                                                                                                
SENATOR     FRENCH     explained      that   basically       this   is   grounded      in  the                                  
idea    that    the   legislature       is   not    getting     enough     information       on                                 
the    credits     they    are    issuing,      and   they     amount     to   billions      of                                 
dollars.       The    state's       oil    and     gas     production       tax     includes                                    
incentives      to   increase     production       and   exploration       in  the   form    of                                 
generous       tax    credits      -    the    20    percent      credit      for    capital                                    
expenditures        enables     companies      to   deduct    their     capital     expenses                                    
twice:     once     to   reduce      taxable     income      and    again    as    a   credit                                   
against     a   portion     of   their    taxes     on   that    income.     If   a  company                                    
incurring      an    expense     has    insufficient        income     against     which     to                                 
apply    a   tax   credit,     they    can   sell    it  to   another     firm,     carry    it                                 
forward     or   apply     for   a   refund     from    the   state.     Companies      carry                                   
losses     forward     forever.     The    state    has   approved      about    $4  billion                                    
in   credits     over    the   last    several      years    -  that    is   a   $4  billion                                    
investment       by    the    state    -,    and    yet    there     is   scant     publicly                                    
available        information          letting       Alaskans        know      where       this                                  
investment       is   going.     The   amendment      requires      that    producers      who                                  
apply    for   a  tax   credit     against     their    production      tax   liability      to                                 
describe      what    they   did    with   the    expenditure       and   where     they   did                                  
it    and    the    purpose      of   it.    The    information        provided       may    be                                 
disclosed      to  the   public     and   must   be   reported     to   the   legislature.                                      
With    this   publicly      available     information       the   public     and   decision                                    
makers     can   ensure    that    state    dollars     are    being    used    effectively                                     
to increase production of Alaska's oil and gas resources.                                                                       
                                                                                                                                
4:40:10 PM                                                                                                                    
CO-CHAIR PASKVAN announced consideration of Item 7 by Senator                                                                   
French, labeled 27-LS1305\B.16.                                                                                                 
                                                                                                                                
                                                                      27-LS1305\B.16                                            
                               A M E N D M E N T                                                                            
                                                                                                                                
       OFFERED IN THE SENATE                                                                                                    
       TO:  CSSB 192(RES), Draft Version "B"                                                                                    
                                                                                                                                
       Page 1, line 1, following "Act":                                                                                       
               Insert "relating to the duties of the Alaska Oil                                                               
       and     Gas      Conservation         Commission;         relating       to     a                                      
       petroleum       information        management       system;     relating      to                                       
       the   duties     of   the   Department      of   Natural     Resources,      the                                       
       Department       of  Revenue,      and   the   Department      of   Labor    and                                       
       Workforce       Development        that     relate     to    providing       the                                       
       Alaska       Oil    and     Gas     Conservation         Commission        with                                        
       certain information relating to oil and gas;"                                                                          
                                                                                                                                
       Page 1, following line 2:                                                                                                
               Insert new bill sections to read:                                                                                
            *  Section      1.   AS   31.05.030      is   amended      by   adding     a                                      
       new subsection to read:                                                                                                  
               (n)  The commission shall develop and maintain                                                                   
       the    petroleum       information       management       system      required                                           
       under AS 31.05.031.                                                                                                      
            *   Sec.    2.    AS  31.05     is    amended      by   adding      a   new                                       
       section to read:                                                                                                         
               Sec. 31.05.031. Petroleum information management                                                               
       system.      (a)   The   commission       shall    develop     and    maintain                                         
       an   electronic       petroleum      information        management       system                                          
       to    collect,      secure,     distribute,       store,     retrieve,       and                                         
       archive        information          related        to      oil      and      gas                                         
       exploration,        development,       and   production       in  the    state.                                          
       The    purposes      of   the    petroleum      information        management                                            
       system     are    to   improve      the   administration         of   the    oil                                         
       and    gas   production       tax   and   to   facilitate       exploration,                                             
       development,        and   production       of   oil   and   gas    resources.                                            
       The    petroleum      information        management       system     shall    be                                         
       accessible by the public.                                                                                                
               (b)  To the extent the information is available                                                                  
       and    is    not    confidential,         the    petroleum       information                                             
       management          system       must       include        the      following                                            
       information:                                                                                                             
                      (1)  unit and joint operating agreements;                                                                 
                      (2)  state oil and gas exploration licenses                                                               
       and oil and gas leases;                                                                                                  
                      (3)  for exploration activities,                                                                          
                      (A)  exploration work programs and budgets;                                                               
                      (B)  seismic data;                                                                                        
                      (C)  drilling reports;                                                                                    
                      (D)  logs;                                                                                                
                      (E)  well tests;                                                                                          
                      (F)  geological models and maps;                                                                          
                      (4)  for development activities,                                                                          
                      (A)  development plans with operating and                                                                 
       capital expenditure projections;                                                                                         
                      (B)  construction progress reports;                                                                       
                      (C)  drilling reports;                                                                                    
                      (D)  reservoir characterization;                                                                          
                      (5)  for production activities,                                                                           
                      (A)  production work programs and budgets;                                                                
                      (B)  oil and gas sales, revenue, and                                                                      
       pricing;                                                                                                                 
                      (C)  transportation agreements;                                                                           
                      (D)  production data;                                                                                     
                      (E)  injection data;                                                                                      
                      (F)  operating and capital expenditures;                                                                  
                      (G)  facility maps and studies;                                                                           
                      (6)  for abandonment of oil and gas wells,                                                                
       leases, and production and transportation facilities,                                                                    
                      (A)  abandonment plans and budgets;                                                                       
                      (B)  progress reports;                                                                                    
                      (7)  for oil and gas related employment                                                                   
       information,                                                                                                             
                      (A)  the number of resident and nonresident                                                               
       hires for each year;                                                                                                     
                      (B)  training opportunities; and                                                                          
                      (8)  other information the commission                                                                     
       determines       necessary      and    relevant      to   the   oil   and    gas                                         
       production        tax   and    to    the    exploration,        development,                                             
       and production of oil and gas resources.                                                                                 
               (c)  The Department of Natural Resources, the                                                                    
       Department       of  Revenue,      and   the   Department      of   Labor    and                                         
       Workforce        Development,          in     consultation         with      the                                         
       commission,       shall    provide     information       described      in   (b)                                         
       of    this    section     that    is   not    confidential        and    within                                          
       each      department's         control       to    the     commission        for                                         
       inclusion        in    the     petroleum       information         management                                            
       system.     The   information       provided      by  a   department      under                                          
       this    subsection       shall     be   in   a  form    suitable      for    the                                         
       commission        to   include      in    the    petroleum       information                                             
       management system.                                                                                                       
          * Sec. 3. AS 31.05.093(c) is amended to read:                                                                       
               (c)  The commission shall determine the                                                                          
       regulatory       cost    charges      levied     under    this    section     so                                         
       that     the   total     amount     to   be    collected      approximately                                              
       equals     the   appropriations        made    for   the   operating      costs                                          
       of    the   commission       under     this    chapter     for    the    fiscal                                          
       year.     For    the   purpose      of   determining        the    regulatory                                        
       costs     charges      under      this    subsection,        the    operating                                        
       costs     for   the   petroleum       information       management       system                                      
       (AS   31.05.031)       may    not    be   included      in   the    operating                                        
       costs of the commission."                                                                                            
                                                                                                                                
       Page 1, line 3:                                                                                                          
               Delete "Section 1"                                                                                             
               Insert "Sec. 4"                                                                                                
                                                                                                                                
       Page 2, following line 5:                                                                                                
       Insert a new bill section to read:                                                                                       
            "*   Sec.     5.   The    uncodified        law    of   the    State     of                                     
       Alaska is amended by adding a new section to read:                                                                       
               IMPLEMENTATION OF THE PETROLEUM INFORMATION                                                                      
       MANAGEMENT          SYSTEM;       RECOMMENDATION           FOR      STATUTORY                                            
       CHANGES.        The      Alaska       Oil      and     Gas      Conservation                                             
       Commission       shall    develop     and   implement      a  work   plan    for                                         
       the      development          of      the      petroleum         information                                             
       management       system    required      by   AS  31.05.031,      enacted     by                                         
       sec.    2  of   this    Act,   so   that    the   system    is   operational                                             
       before January 1, 2014."                                                                                                 
                                                                                                                                
       Renumber the following bill section accordingly.                                                                         
                                                                                                                                
4:40:36 PM                                                                                                                    
LISA    WIESSLER,      staff    to   Senator     French,     explained      that    concerns                                    
have    been    raised    about    the    amount    of   information       that    is   or   is                                 
not   available       to  legislators       and    the   public     in   terms    of   making                                   
decisions      on    the   oil    taxes    and    how    the   fields     are    developed.                                     
While    a  lot   of   the   information       is   confidential       under    the    law,   a                                 
lot   of   it   is  public,     but   it   is   scattered      among    several     agencies                                    
and is very difficult to find.                                                                                                  
                                                                                                                                
She   said    this   amendment      begins    the    process    of   making     information                                     
more    available      to  the    public,     decision     makers,     and   to   other    oil                                  
and    gas    companies      who    might     want    to    do   business      in   our    oil                                  
fields.      It    calls     for     the    Alaska      Oil    and     Gas    Conservation                                      
Commission         (AOGCC)        to     develop        an     electronic         petroleum                                     
information         management         (PIMS)       that      would       obtain       public                                   
information       that     is   currently      gathered      by   the    commission,       the                                  
Departments       of   Revenue     and   Natural     Resources      and    the   Department                                     
of   Labor    and   Workforce      Development      (DOLWD)     and   to   consolidate       it                                 
for   the   purpose     of   oil   and   gas    production      tax   and   to   facilitate                                     
exploration,         development         and      production        of     oil     and     gas                                  
resources.                                                                                                                      
                                                                                                                                
She    said    the   information        going    into    the    system     is   limited      to                                 
what    is  currently      available      and   is  not   confidential.        The   list    in                                 
subsection        (b)    on   page     2   contains       everything       they     hope     to                                 
eventually       see    in   the    system     as   it   becomes      available      through                                    
statutory       or   other     changes.      This     list    is    taken    from     a   2007                                  
Gaffney      Kline     report      that     provided      an    overview      of    how    the                                  
acquisition,       distribution        and   publication       of  oil   company     data    is                                 
handled in other oil and gas producing regimes.                                                                                 
                                                                                                                                
In   subsection      (c)   on  page    3  the   departments       that   have    control     of                                 
the   information       are   directed     to   provide     what   is   not   confidential                                      
to   the    commission        in   a   form     that    is    suitable      for    this    new                                  
information        system.      Section       (3)    addresses       an    administrative                                       
concern,      because      the    commission       currently       charges      industry      a                                 
regulatory       cost   charge     and   determines       it  based     on  the   operating                                     
costs.     It  was   suggested      that    PIMS    might    not   be   suitable     for   use                                  
of   these     funds.     So    those    costs     will     not   be    included      in   the                                  
calculation.         Section      (5)    directs      the     AOGCC     to    develop      and                                  
implement the system so it's operational before January 1, 2014.                                                                
                                                                                                                                
MS.   WEISSEL     said    the   idea    is   to   have   an   easy    one-stop      shop   for                                  
people     who   maybe    want   to   do   business     in   Alaska's      oil   fields    and                                  
to    continue       developing         ways     to    release       more     confidential                                      
information into the system.                                                                                                    
                                                                                                                                
SENATOR     FRENCH     stated     that   the    AOGCC    is   not   begging     to   get   for                                  
this    to  be   situated     in   their    domain,     but   it   has   to   go  somewhere                                     
and   they    are    the   leading      independent       oil    and   gas   entity     right                                   
now.    He  said    this   information       should    not    be  scattered      throughout                                     
many    places     and   this    could     be   the   genesis      for   addressing       some                                  
issues     talked     about    yesterday      where    a   SARB   board     is   charged     to                                 
set     the     value      of    a    pipeline       dealing       with     an    extremely                                     
recalcitrant        Department        of    Revenue      that    feels     its     bound     by                                 
confidentiality          statutes      to    not    reveal     anything      to    the    SARB                                  
board    that   could    help    another     state    agency    perform     its   very    job.                                  
It    also     dovetails        with     Senator       McGuire's       proposal        for    a                                 
competitiveness review board.                                                                                                   
                                                                                                                                
This amendment was set aside.                                                                                                   
                                                                                                                                
4:46:19 PM                                                                                                                    
CO-CHAIR     PASKVAN     announced      consideration        of   Item   15,   labeled     27-                                  
LS1305\B.1 by Senator Wagoner.                                                                                                  
                                                                                                                                
                                                                            27-LS1305\B.1                                       
                                                                                                                                
                               A M E N D M E N T                                                                            
                                                                                                                                
       OFFERED IN THE SENATE                                                                                                    
       TO:  CSSB 192(RES), Draft Version "B"                                                                                    
       Page 1, line 1, following "tax;":                                                                                      
               Insert        "relating           to      certain          additional                                          
       nontransferable oil and gas production tax credits;"                                                                   
                                                                                                                                
       Page 2, following line 5:                                                                                                
               Insert a new bill section to read:                                                                               
          "* Sec. 2. AS 43.55.024(d) is amended to read:                                                                    
               (d)  A producer may not take a tax credit under                                                                  
              (c) of this section for any calendar year after the                                                               
       later of                                                                                                                 
                      (1)  2021 [2016]; or                                                                                  
                      (2)  if the producer did not have commercial                                                              
       oil    or  gas   production       from    a  lease    or   property     in   the                                         
       state     before     April    1,   2006,     the    ninth    calendar      year                                          
       after     the     calendar      year     during     which     the     producer                                           
       first     has     commercial       oil    or    gas    production        before                                          
       May   1,    2021     [2016],       from     at    least     one     lease     or                                     
       property in the state."                                                                                                  
                                                                                                                                
       Renumber the following bill section accordingly.                                                                         
                                                                                                                                
CO-CHAIR      WAGONER     explained      that   this    extends     the   sunset     date    of                                 
a   PPT    and    ACES    credit     that     incentivizes        small     producers      for                                  
another     five    years    from    2016   to   2021.    The   credit     for   production                                     
can   be   up   to   $12   million     annually      based    on   production       volumes.                                    
He   asked    that    the   department      bring    them    information       on   how   much                                  
this       credit       has      been       used.       The      commissioner          nodded                                   
affirmatively.                                                                                                                  
                                                                                                                                
CO-CHAIR      PASKVAN     said   the    committee      had   moved    through     the   items                                   
that    didn't     directly      impact    progressivity         and   would    take    those                                   
up tomorrow. [SB 192 was held in committee.]                                                                                    
                                                                                                                                
4:48:13 PM                                                                                                                    
CO-CHAIR       PASKVAN       adjourned        the     Senate       Resources        Standing                                    
Committee meeting at 4:48 p.m.                                                                                                  

Document Name Date/Time Subjects
CS SB 192_27-LS1305 B.pdf SRES 2/24/2012 3:30:00 PM
SB 192
B-1 Extend Sunset of Small Prod New Area Credit_Wagoner.pdf SRES 2/24/2012 3:30:00 PM
SB 192
B-4 Progressivity Bracketed_35% Top_McGuire.pdf SRES 2/24/2012 3:30:00 PM
SB 192
B-3 Tax Credit Based on Capital Cost_Wagoner.pdf SRES 2/24/2012 3:30:00 PM
SB 192
B-5 Progressivity Bracketed_25% Top_McGuire.pdf SRES 2/24/2012 3:30:00 PM
SB 192
B-2 Gross Value at Point of Prod Tax Holiday_Wagoner.pdf SRES 2/24/2012 3:30:00 PM
SB 192
B-6 Inflation Adjusting the $30_McGuire.pdf SRES 2/24/2012 3:30:00 PM
SB 192
B-7 Adjusted Base Plus_McGuire.pdf SRES 2/24/2012 3:30:00 PM
SB 192
B-8 Simple Progressivity_Wielechowski and French.pdf SRES 2/24/2012 3:30:00 PM
SB 192
B-9 Rewarding Increased Production_Wielechowski and French.pdf SRES 2/24/2012 3:30:00 PM
SB 192
B-10 Capping Credits to Avoid Gold Plating_Wielechowski and French.pdf SRES 2/24/2012 3:30:00 PM
SB 192
B-11 Changes to Leasing Laws_Wielechowski and French.pdf SRES 2/24/2012 3:30:00 PM
SB 192
B-12 SDFI_Wielechowski and French.pdf SRES 2/24/2012 3:30:00 PM
SB 192
B-13 Gross Minimum Tax_Wielechowski and French.pdf SRES 2/24/2012 3:30:00 PM
SB 192
B-14 Separate Accounting_Wielechowski.pdf SRES 2/24/2012 3:30:00 PM
SB 192
B-15 Info About Use of Tax Credits_Wielechowski and French.pdf SRES 2/24/2012 3:30:00 PM
SB 192
B-16 Oil Info System_French.pdf SRES 2/24/2012 3:30:00 PM
SB 192
B-17 Comp Review Board_McGuire.pdf SRES 2/24/2012 3:30:00 PM
SB 192
Amendment List - CS for Senate Bill 192 Oil and Gas Production Tax Values_Friday and Saturday.pdf SRES 2/24/2012 3:30:00 PM
SB 192