Legislature(2011 - 2012)BUTROVICH 205
02/25/2012 01:00 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB192 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| = | SB 192 | ||
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
February 25, 2012
1:04 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 Dennis Egan
COMMITTEE CALENDAR
SENATE BILL NO. 192
"An Act relating to the oil and gas production tax; and
providing for an effective date."
- HEARD 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) -- MEETING CANCELED --
02/24/12 (S) RES AT 3:30 PM BUTROVICH 205
02/24/12 (S) Heard & Held
02/24/12 (S) MINUTE(RES)
WITNESS REGISTER
MARY JACKSON, Staff
Senator REPRESENTATIVE THOMPSON Wagoner
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Explained a proposed amendment B.2 to SB 192
for the committee.
MICHELLE SYDEMAN, Staff
Senator Bill Wielechowski
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Explained proposed amendment B.13 to SB 192.
ACTION NARRATIVE
1:04:03 PM
CO-CHAIR JOE PASKVAN called the Senate Resources Standing
Committee meeting to order at 1:04 p.m. Present at the call to
order were Senators French, McGuire, Stevens, Stedman,
Wielechowski, Co-chair Wagoner and Co-Chair Paskvan.
SB 192-OIL AND GAS PRODUCTION TAX RATES
1:04:27 PM
CO-CHAIR PASKVAN announced consideration of SB 192 [CSSB
192(RES), labeled 27-LS1305\B, was before the committee]. He
thanked committee members for their professionalism yesterday in
dealing with the amendments saying that it was important for
people to see and understand the process as they advance the
concept of this production tax bill. The goal has not changed;
these concepts are being advanced to make Alaska a better place
for Alaskans all across the state.
1:06:43 PM
CO-CHAIR PASKVAN said they would start today's conversation with
Senator McGuire's proposed amendments labeled 27-LS1305\B.5
(Item 9) and 27-LS1305\B.4 (Item 8).
27-LS1305\B.5
Nauman/Bullock
A M E N D M E N T
OFFERED IN THE SENATE
TO: CSSB 192(RES), Draft Version "B"
Page 1, line 1:
Delete "oil and gas production tax"
Insert "tax rates applicable to oil and gas
production when the average production tax value for a
BTU equivalent barrel of oil and gas is more than $30"
Page 1, line 3, through page 2, line 6:
Delete all material and insert:
"* Section 1. AS 43.55.011(g) is repealed and
reenacted to read:
(g) For each month of the calendar year for
which the producer's average monthly production tax
value under AS 43.55.160(a)(2) for each BTU equivalent
barrel of the taxable oil and gas is more than $30,
the amount of tax for purposes of (e)(2) of this
section is determined by multiplying the monthly
production tax value of the taxable oil and gas
produced during the month by the following tax rates,
as applicable:
(1) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is not more than
$42.50, the tax rate is 2.5 percent of the difference
between that average monthly production tax value of a
BTU equivalent barrel and $30;
(2) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $42.50
but not more than $55, the tax rates are
(A) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30; and
(B) 7.5 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $42.50;
(3) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $55 but
not more than $67.50, the tax rates are
(A) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30;
(B) 7.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel; and
(C) 12.5 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $55;
(4) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $67.50
but not more than $80, the tax rates are
(A) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30;
(B) 7.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(C) 12.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(D) 17.5 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $67.50;
(5) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $80 but
not more than $92.50, the tax rates are
(A) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30;
(B) 7.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(C) 12.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(D) 17.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel; and
(E) 22.5 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $80;
(6) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $92.50,
the tax rates are
(A) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30;
(B) 7.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(C) 12.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(D) 17.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(E) 22.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel; and
(F) 25 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $92.50.
* Sec. 2. The uncodified law of the State of Alaska
is amended by adding a new section to read:
APPLICABILITY. Section 1 of this Act applies to
oil and gas produced after December 31, 2012.
* Sec. 3. The uncodified law of the State of Alaska
is amended by adding a new section to read:
TRANSITION: REGULATIONS. The Department of
Revenue may adopt regulations to implement this Act.
The regulations take effect under AS 44.62
(Administrative Procedure Act), but not before the
effective date of the provision of this Act
implemented by the regulation.
* Sec. 4. Section 1 of this Act takes effect
January 1, 2013.
* Sec. 5. Except as provided in sec. 4 of this Act,
this Act takes effect immediately under
AS 01.10.070(c)."
And Item 8:
27-LS1305\B.4
Nauman/Bullock
2/24/12
A M E N D M E N T
OFFERED IN THE SENATE
TO: CSSB 192(RES), Draft Version "B"
Page 1, line 1:
Delete "oil and gas production tax"
Insert "tax rates applicable to oil and gas
production when the average production tax value for a
BTU equivalent barrel of oil and gas is more than $30"
Page 1, line 3, through page 2, line 6:
Delete all material and insert:
"* Section 1. AS 43.55.011(g) is repealed and
reenacted to read:
(g) For each month of the calendar year for
which the producer's average monthly production tax
value under AS 43.55.160(a)(2) for each BTU equivalent
barrel of the taxable oil and gas is more than $30,
the amount of tax for purposes of (e)(2) of this
section is determined by multiplying the monthly
production tax value of the taxable oil and gas
produced during the month by the following tax rates,
as applicable:
(1) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is not more than
$42.50, the tax rate is 2.5 percent of the difference
between that average monthly production tax value of a
BTU equivalent barrel and $30;
(2) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $42.50
but not more than $55, the tax rates are
(A) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30; and
(B) 7.5 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $42.50;
(3) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $55 but
not more than $67.50, the tax rates are
(A) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30;
(B) 7.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel; and
(C) 12.5 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $55;
(4) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $67.50
but not more than $80, the tax rates are
(A) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30;
(B) 7.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(C) 12.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(D) 17.5 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $67.50;
(5) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $80 but
not more than $92.50, the tax rates are
(A) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30;
(B) 7.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(C) 12.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(D) 17.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel; and
(E) 22.5 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $80;
(6) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $92.50
but not more than $105, the tax rates are
(A) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30;
(B) 7.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(C) 12.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(D) 17.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(E) 22.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel; and
(F) 25 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $92.50;
(7) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $105
but not more than $117.50, the tax rates are
(A) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30;
(B) 7.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(C) 12.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(D) 17.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(E) 22.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(F) 25 percent of the next higher $12.50 of
monthly production tax value for each BTU equivalent
barrel; and
(G) 30 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $105;
(8) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than
$117.50, the tax rates are
(A) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30;
(B) 7.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(C) 12.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(D) 17.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(E) 22.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(F) 25 percent of the next higher $12.50 of
monthly production tax value for each BTU equivalent
barrel;
(G) 30 percent of the next higher $12.50 of
monthly production tax value for each BTU equivalent
barrel; and
(H) 35 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $117.50.
* Sec. 2. The uncodified law of the State of Alaska
is amended by adding a new section to read:
APPLICABILITY. Section 1 of this Act applies to
oil and gas produced after December 31, 2012.
* Sec. 3. The uncodified law of the State of Alaska
is amended by adding a new section to read:
TRANSITION: REGULATIONS. The Department of
Revenue may adopt regulations to implement this Act.
The regulations take effect under AS 44.62
(Administrative Procedure Act), but not before the
effective date of the provision of this Act
implemented by the regulation.
* Sec. 4. Section 1 of this Act takes effect
January 1, 2013.
* Sec. 5. Except as provided in sec. 4 of this Act,
this Act takes effect immediately under
AS 01.10.070(c)."
SENATOR MCGUIRE explained that the part of the conversation they
were entering into today centered around the progressivity piece
of ACES (Alaska's Clear and Equitable Share) formula for
taxation. When ACES was adopted they looked at a base rate of 25
percent up to $30 a barrel progressing to .4 percent after that.
Later on in the ACES discussion they entering into a high oil
price environmental and came across the idea of a windfall tax
where the state would take more money at the upper end. Gaffney
Kline, the legislature's consultant, predicted a high oil price
environment for possibly the next two decades.
SENATOR EGAN joined the meeting.
SENATOR MCGUIRE said the concept was rooted in a reasonable idea
- that Alaskans owning the resources in common, as stated in the
Constitution, would share in the upside potential. She has heard
from both large and small gas and oil companies that even though
they are in an exploratory phase now, that to enter into the
next phase where production will occur the marginal rate of
taxation becomes uncompetitive at the higher brackets. She said
that another legislative consultant, Pedro van Meurs, in the
interim, presented a well-thought analysis of five ACES
deficiencies as follows:
1. PPT tax rates up to 75 percent in addition to the 41 percent
of corporate income tax are too high to stimulate efficiency in
operations.
2. The price base sliding scales result in a situation where
under high oil prices the producer is better off with a lower
price.
3. The excessive tax credits result in a situation where
Alaskans may end up paying all of the cost of a well (under
credits).
4. There is no low side for the state and under marginal
circumstances the ACES system actually creates a negative PPT.
In other words the state might lose money.
5. The BOE concept results in a situation where new gas
production could lead to massive losses of oil based revenues.
This issue is "decoupling," or separating oil and gas taxation.
Mr. Van Meurs called it cross-subsidization and said that under
the current system Alaska is losing money.
1:13:43 PM
SENATOR MCGUIRE said she was offering these two amendments on
behalf of those who believe the system is no longer competitive
based on the high progressivity rate. They would "bracket out
progressivity." The second one would create two higher brackets,
but both would begin the bracketing at $30 to $42.50 with a tax
rate of 2.5 percent; $42.50 to $55 with a tax rate of 7.5
percent; $55 to $67.50 with a 12.5 percent tax rate, $67.50 to
$80 with a 17.5 percent tax rate, $80 to $92.50 with a 22.5
percent tax rate, $92.50 to $105 would start the capped rate of
25 tax rate in Amendment B.5.
She explained that Amendment B.4 was different from B.5 in one
area; it adds two more brackets, which would result in more take
for the government of 30 percent for $105 to $117.50 oil and 35
percent tax above $117.50. This amendment was offered by
Representative Herron in the House; the testimony behind it
simply reflecting that people thought the government ought to
have more of a take at those higher two brackets.
1:17:21 PM
SENATOR MCGUIRE pointed out that yesterday oil was $129 barrel;
so we are right on the edge of tipping over into the top
bracket. She said the state's take would change as follows:
FY13 $700 million
FY14 $1.3 billion
FY15 $1.1 billion
FY16 $1.15 billion
FY17 $1.50 billion
FY18 $1.15 billion
1:18:50 PM
At ease from 1:18 to 1:19 p.m.
1:19:24 PM
SENATOR MCGUIRE said the concept was to make Alaska more
competitive and what the state lost up front would hopefully be
made up with the increase in investment. The committee struggled
with getting assurances from all the companies that under the
proposed formula they would invest billions. However, she feared
doing nothing and this amendment would not bring back the flow,
but it would help stem the tide.
SENATOR STEDMAN said he thought the capital credits would erase
all of the progressivity.
SENATOR MCGUIRE concurred, saying that backup data supports
that.
CO-CHAIR PASKVAN said he hoped Alaskan citizens understood that
the tax system as a whole has many levers and no one lever is
the silver bullet.
1:26:04 PM
CO-CHAIR PASKVAN invited Senator McGuire to explain Item 10,
Amendment B.7.
27-LS1305\B.7
Nauman/Bullock
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 "rate; relating to monthly installment
payments of the oil and gas production tax; relating
to oil and gas production tax credits, including
qualified capital credits for exploration,
development, and production"
Page 1, line 3, through page 2, line 6:
Delete all material and insert:
"* Section 1. AS 43.55.011(e) is amended to read:
(e) There is levied on the producer of oil or
gas a tax for all oil and gas produced each calendar
year from each lease or property in the state, less
any oil and gas the ownership or right to which is
exempt from taxation or constitutes a landowner's
royalty interest. Except as otherwise provided under
(f), (j), (k), and (o) of this section, the tax is
equal to the sum of
[(1)] the annual production tax value of
the taxable oil and gas
(1) produced from a lease or property not
described in (2) of this subsection as calculated
under AS 43.55.160(a)(1) multiplied by 25 percent, and
the sum, over all months of the calendar year, of the
tax amounts determined under (g)(1) of this section;
and
(2) produced during the first seven
consecutive years after the start of sustained
production or produced during the first seven years
after the effective date of this bill section,
whichever is later, from a lease or property
containing land that was not or previously had not
been within a unit or in commercial production as of
December 31, 2008, as calculated under
AS 43.55.160(a)(1) multiplied by 15 percent, and the
sum, over all months of the calendar year, of the tax
amounts determined under (g)(2) [(g)] of this section;
in this paragraph, "sustained production" has the
meaning given in AS 43.55.025(l).
* Sec. 2. AS 43.55.011(g) is repealed and reenacted
to read:
(g) For each month of the calendar year for
which the producer's average monthly production tax
value under AS 43.55.160(a)(2) for each BTU equivalent
barrel of the taxable oil and gas is more than $30,
the amount of tax for purposes
(1) of (e)(1) of this section is determined
by multiplying the monthly production tax value of the
taxable oil and gas produced during the month by the
tax rate calculated as follows:
(A) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is not more than
$92.50, the tax rate is 0.4 percent multiplied by the
number that represents the difference between that
average monthly production tax value of a BTU
equivalent barrel and $30; or
(B) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $92.50,
the tax rate is the sum of 25 percent and the product
of 0.1 percent multiplied by the number that
represents the difference between the average monthly
production tax value of a BTU equivalent barrel and
$92.50, except that the sum determined under this
subparagraph may not exceed 50 percent;
(2) of (e)(2) of this section is determined
by multiplying the monthly production tax value of the
taxable oil and gas produced during the month by the
following tax rates, as applicable:
(A) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is not more than
$42.50, the tax rate is 2.5 percent of the difference
between that average monthly production tax value of a
BTU equivalent barrel and $30;
(B) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $42.50
but not more than $55, the tax rates are
(i) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30; and
(ii) 7.5 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $42.50;
(C) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $55 but
not more than $67.50, the tax rates are
(i) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30;
(ii) 7.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel; and
(iii) 12.5 percent of the monthly
production tax value for each BTU equivalent barrel
that is greater than $55;
(D) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $67.50
but not more than $80, the tax rates are
(i) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30;
(ii) 7.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(iii) 12.5 percent of the next higher
$12.50 of monthly production tax value for each BTU
equivalent barrel;
(iv) 17.5 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $67.50;
(E) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $80 but
not more than $92.50, the tax rates are
(i) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30;
(ii) 7.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(iii) 12.5 percent of the next higher
$12.50 of monthly production tax value for each BTU
equivalent barrel;
(iv) 17.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel; and
(v) 22.5 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $80;
(F) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $92.50,
the tax rates are
(i) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30;
(ii) 7.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(iii) 12.5 percent of the next higher
$12.50 of monthly production tax value for each BTU
equivalent barrel;
(iv) 17.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(v) 22.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel; and
(vi) 25 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $92.50.
* Sec. 3. AS 43.55.020(a) is amended to read:
(a) For a calendar year, a producer subject to
tax under AS 43.55.011(e) - (i) shall pay the tax as
follows:
(1) an installment payment of the estimated
tax levied by AS 43.55.011(e), net of any tax credits
applied as allowed by law, is due for each month of
the calendar year on the last day of the following
month; except as otherwise provided under (2) of this
subsection, the amount of the installment payment is
the sum of the following amounts, less 1/12 of the tax
credits that are allowed by law to be applied against
the tax levied by AS 43.55.011(e) for the calendar
year, but the amount of the installment payment may
not be less than zero:
(A) for oil and gas produced from leases or
properties in the state outside the Cook Inlet
sedimentary basin but not subject to AS 43.55.011(o),
other than leases or properties subject to
AS 43.55.011(f), the greater of
(i) zero; or
(ii) the applicable tax rates in
AS 43.55.011(e) and (g) applied to [SUM OF 25 PERCENT
AND THE TAX RATE CALCULATED FOR THE MONTH UNDER
AS 43.55.011(g) MULTIPLIED BY] the remainder obtained
by subtracting 1/12 of the producer's adjusted lease
expenditures for the calendar year of production under
AS 43.55.165 and 43.55.170 that are deductible for the
leases or properties under AS 43.55.160 from the gross
value at the point of production of the oil and gas
produced from the leases or properties during the
month for which the installment payment is calculated;
(B) for oil and gas produced from leases or
properties subject to AS 43.55.011(f), the greatest of
(i) zero;
(ii) zero percent, one percent, two
percent, three percent, or four percent, as
applicable, of the gross value at the point of
production of the oil and gas produced from all leases
or properties during the month for which the
installment payment is calculated; or
(iii) the applicable tax rates in
AS 43.55.011(e) and (g) applied to [SUM OF 25 PERCENT
AND THE TAX RATE CALCULATED FOR THE MONTH UNDER
AS 43.55.011(g) MULTIPLIED BY] the remainder obtained
by subtracting 1/12 of the producer's adjusted lease
expenditures for the calendar year of production under
AS 43.55.165 and 43.55.170 that are deductible for
those leases or properties under AS 43.55.160 from the
gross value at the point of production of the oil and
gas produced from those leases or properties during
the month for which the installment payment is
calculated;
(C) for oil and gas produced from each
lease or property subject to AS 43.55.011(j), (k), or
(o), the greater of
(i) zero; or
(ii) the applicable tax rates in
AS 43.55.011(e) and (g) applied to [SUM OF 25 PERCENT
AND THE TAX RATE CALCULATED FOR THE MONTH UNDER
AS 43.55.011(g) MULTIPLIED BY] the remainder obtained
by subtracting 1/12 of the producer's adjusted lease
expenditures for the calendar year of production under
AS 43.55.165 and 43.55.170 that are deductible under
AS 43.55.160 for oil or gas, respectively, produced
from the lease or property from the gross value at the
point of production of the oil or gas, respectively,
produced from the lease or property during the month
for which the installment payment is calculated;
(2) an amount calculated under (1)(C) of
this subsection for oil or gas produced from a lease
or property subject to AS 43.55.011(j), (k), or (o)
may not exceed the product obtained by carrying out
the calculation set out in AS 43.55.011(j)(1) or (2)
or 43.55.011(o), as applicable, for gas or set out in
AS 43.55.011(k)(1) or (2), as applicable, for oil, but
substituting in AS 43.55.011(j)(1)(A) or (2)(A) or
43.55.011(o), as applicable, the amount of taxable gas
produced during the month for the amount of taxable
gas produced during the calendar year and substituting
in AS 43.55.011(k)(1)(A) or (2)(A), as applicable, the
amount of taxable oil produced during the month for
the amount of taxable oil produced during the calendar
year;
(3) an installment payment of the estimated
tax levied by AS 43.55.011(i) for each lease or
property is due for each month of the calendar year on
the last day of the following month; the amount of the
installment payment is the sum of
(A) the applicable tax rate for oil
provided under AS 43.55.011(i), multiplied by the
gross value at the point of production of the oil
taxable under AS 43.55.011(i) and produced from the
lease or property during the month; and
(B) the applicable tax rate for gas
provided under AS 43.55.011(i), multiplied by the
gross value at the point of production of the gas
taxable under AS 43.55.011(i) and produced from the
lease or property during the month;
(4) any amount of tax levied by
AS 43.55.011(e) or (i), net of any credits applied as
allowed by law, that exceeds the total of the amounts
due as installment payments of estimated tax is due on
March 31 of the year following the calendar year of
production.
* Sec. 4. AS 43.55.023(g) is amended to read:
(g) The issuance of a transferable tax credit
certificate under (d) of this section or former (m) of
this section or the purchase of a certificate under
AS 43.55.028 does not limit the department's ability
to later audit a tax credit claim to which the
certificate relates or to adjust the claim if the
department determines, as a result of the audit, that
the applicant was not entitled to the amount of the
credit for which the certificate was issued. The tax
liability of the applicant under AS 43.55.011(e) and
43.55.017 - 43.55.180 is increased by the amount of
the credit that exceeds that to which the applicant
was entitled, or the applicant's available valid
outstanding credits applicable against the tax levied
by AS 43.55.011(e) are reduced by that amount. If the
applicant's tax liability is increased under this
subsection, the increase bears interest under
AS 43.05.225 from the date the transferable tax credit
certificate was issued. For purposes of this
subsection, an applicant that is an explorer is
considered a producer subject to the tax levied by
AS 43.55.011(e).
* Sec. 5. AS 43.55.023(l) is amended to read:
(l) A producer or explorer may apply for a tax
credit for a well lease expenditure incurred in the
state [SOUTH OF 68 DEGREES NORTH LATITUDE] after
December 31, 2012, and before January 1, 2023 [JUNE
30, 2010], as follows:
(1) notwithstanding that a well lease
expenditure incurred in the state
(A) south of 68 degrees North latitude may
be a deductible lease expenditure for purposes of
calculating the production tax value of oil and gas
under AS 43.55.160(a), unless a credit for that
expenditure is taken under (a) of this section,
AS 38.05.180(i), AS 41.09.010, AS 43.20.043, or
AS 43.55.025, a producer or explorer that incurs a
well lease expenditure in the state south of 68
degrees North latitude may elect to apply a tax credit
against a tax levied by AS 43.55.011(e) in the amount
of 40 percent of that expenditure;
(B) north of 68 degrees North latitude and
outside of a unit or in commercial production before
December 31, 2008, may be a deductible lease
expenditure for purposes of calculating the production
tax value of oil and gas under AS 43.55.160(a), unless
a credit for that expenditure is taken under (a) of
this section, AS 38.05.180(i), AS 41.09.010,
AS 43.20.043, or AS 43.55.025, a producer or explorer
that incurs a well lease expenditure in the state
north of 68 degrees North latitude and outside of a
unit or in commercial production before December 31,
2008, may elect to apply a tax credit against a tax
levied by AS 43.55.011(e) in the amount of 40 percent
of that expenditure; [A TAX CREDIT UNDER THIS
PARAGRAPH MAY BE APPLIED FOR A SINGLE CALENDAR YEAR;]
(2) a producer or explorer may take a
credit for a well lease expenditure under this
subsection incurred [IN THE STATE SOUTH OF 68 DEGREES
NORTH LATITUDE] in connection with geological or
geophysical exploration or in connection with an
exploration well only if the producer or explorer
(A) agrees, in writing, to the applicable
provisions of AS 43.55.025(f)(2); and
(B) submits to the Department of Natural
Resources all data that would be required to be
submitted under AS 43.55.025(f)(2).
* Sec. 6. AS 43.55.023(l) is repealed and reenacted
to read:
(l) A producer or explorer may apply for a tax
credit for a well lease expenditure incurred in the
state south of 68 degrees North latitude after
December 31, 2022, as follows:
(1) notwithstanding that a well lease
expenditure incurred in the state south of 68 degrees
North latitude may be a deductible lease expenditure
for purposes of calculating the production tax value
of oil and gas under AS 43.55.160(a), unless a credit
for that expenditure is taken under (a) of this
section, AS 38.05.180(i), AS 41.09.010, AS 43.20.043,
or AS 43.55.025, a producer or explorer that incurs a
well lease expenditure in the state south of 68
degrees North latitude may elect to apply a tax credit
against a tax levied by AS 43.55.011(e) in the amount
of 40 percent of that expenditure; a tax credit under
this paragraph may be applied for a single calendar
year;
(2) a producer or explorer may take a
credit for a well lease expenditure incurred in the
state south of 68 degrees North latitude in connection
with geological or geophysical exploration or in
connection with an exploration well only if the
producer or explorer
(A) agrees, in writing, to the applicable
provisions of AS 43.55.025(f)(2); and
(B) submits to the Department of Natural
Resources all data that would be required to be
submitted under AS 43.55.025(f)(2).
* Sec. 7. AS 43.55.023(n) is amended to read:
(n) For the purposes of (l) [AND (m)] of this
section, a well lease expenditure [INCURRED IN THE
STATE SOUTH OF 68 DEGREES NORTH LATITUDE] is a lease
expenditure that is
(1) directly related to an exploration
well, a stratigraphic test well, a producing well, or
an injection well other than a disposal well, [LOCATED
IN THE STATE SOUTH OF 68 DEGREES NORTH LATITUDE,] if
the expenditure is a qualified capital expenditure and
an intangible drilling and development cost authorized
under 26 U.S.C. (Internal Revenue Code), as amended,
and 26 C.F.R. 1.612-4, regardless of the elections
made under 26 U.S.C. 263(c); in this paragraph, an
expenditure directly related to a well includes an
expenditure for well sidetracking, well deepening,
well completion or recompletion, or well workover,
regardless of whether the well is or has been a
producing well; or
(2) an expense for seismic work conducted
within the boundaries of a production or exploration
unit.
* Sec. 8. AS 43.55.028(e) is amended to read:
(e) The department, on the written application
of a person to whom a transferable tax credit
certificate has been issued under AS 43.55.023(d) or
former AS 43.55.023(m) [(m)] or to whom a production
tax credit certificate has been issued under
AS 43.55.025(f), may use available money in the oil
and gas tax credit fund to purchase, in whole or in
part, the certificate if the department finds that
(1) the calendar year of the purchase is
not earlier than the first calendar year for which the
credit shown on the certificate would otherwise be
allowed to be applied against a tax;
(2) [REPEALED
(3) REPEALED
(4)] the applicant does not have an
outstanding liability to the state for unpaid
delinquent taxes under this title;
(3) [(5)] the applicant's total tax
liability under AS 43.55.011(e), after application of
all available tax credits, for the calendar year in
which the application is made is zero;
(4) [(6)] the applicant's average daily
production of oil and gas taxable under
AS 43.55.011(e) during the calendar year preceding the
calendar year in which the application is made was not
more than 50,000 BTU equivalent barrels; and
(5) [(7)] the purchase is consistent with
this section and regulations adopted under this
section.
* Sec. 9. AS 43.55.028(g) is amended to read:
(g) The department may adopt regulations to
carry out the purposes of this section, including
standards and procedures to allocate available money
among applications for purchases under this chapter
and claims for refunds under AS 43.20.046 when the
total amount of the applications for purchase and
claims for refund exceed the amount of available money
in the fund. The regulations adopted by the department
may not, when allocating available money in the fund
under this section, distinguish an application for the
purchase of a credit certificate issued under former
AS 43.55.023(m) or a claim for refund under
AS 43.20.046.
* Sec. 10. AS 43.55.023(m) is repealed.
* Sec. 11. The uncodified law of the State of
Alaska is amended by adding a new section to read:
APPLICABILITY. (a) Sections 4, 5, 7, and 10 of
this Act apply to expenditures incurred after
December 31, 2012.
(b) Sections 1 - 3 of this Act apply to oil and
gas produced after December 31, 2012.
(c) Section 6 of this Act applies to
expenditures incurred after December 31, 2022.
* Sec. 12. The uncodified law of the State of
Alaska is amended by adding a new section to read:
TRANSITION: REGULATIONS. The Department of
Revenue may adopt regulations to implement this Act.
The regulations take effect under AS 44.62
(Administrative Procedure Act), but not before the
effective date of the provision of this Act
implemented by the regulation.
* Sec. 13. Sections 1 - 5, 7 - 10, and 11(a) and
(b) of this Act take effect January 1, 2013.
* Sec. 14. Sections 6 and 11(c) of this Act take
effect January 1, 2023.
* Sec. 15. Except as provided in secs. 13 and 14 of
this Act, this Act takes effect immediately under
AS 01.10.070(c)."
SENATOR MCGUIRE said she offered this concept as hope for new
entrants. For instance, Armstrong has contracts that are
contingent upon Alaska becoming more competitive.
CO-CHAIR PASKVAN asked her to develop her seven year concept.
1:28:12 PM
SENATOR MCGUIRE responded a lot of discussion had taken place
about how long a company should have to prove up its resources
and seven years seemed to work, although the committee could
decide on a different number.
1:29:16 PM
CO-CHAIR PASKVAN said Senator Wielechowski would next comment on
Item 11.
27-LS1305\B.8
Nauman/Bullock
A M E N D M E N T
OFFERED IN THE SENATE
TO: CSSB 192(RES), Draft Version "B"
Page 1, line 3, through page 2, line 5:
Delete all material and insert:
"* Section 1. AS 43.55.011(g) is amended to read:
(g) For each month of the calendar year for
which the producer's average monthly production tax
value under AS 43.55.160(a)(2) for a [PER] BTU
equivalent barrel of the taxable oil and gas is more
than $30, the amount of tax for purposes of (e)(2) of
this section is determined by multiplying the monthly
production tax value of the taxable oil and gas
produced during the month by the tax rate calculated
as follows:
(1) if the producer's average monthly
production tax value for a [PER] BTU equivalent barrel
of the taxable oil and gas for the month is not more
than $92.50, the tax rate is 0.4 percent multiplied by
the number that represents the difference between that
average monthly production tax value for a [PER] BTU
equivalent barrel and $30; or
(2) if the producer's average monthly
production tax value for a [PER] BTU equivalent barrel
of the taxable oil and gas for the month is more than
$92.50, the tax rate is the sum of 25 percent and the
product of 0.1 percent multiplied by the number that
represents the difference between the average monthly
production tax value for a [PER] BTU equivalent barrel
and $92.50, except that the sum determined under this
paragraph may not exceed 35 [50] percent."
SENATOR WIELECHOWSKI said this amendment was crafted before
seeing the CS and it caps progressivity at 60 percent. He had
been persuaded by expert and industry testimony that the state's
tax structure is on the high end at about 60 percent. But given
that, a lot of countries are higher; Argentina and Pakistan, for
instance, take 100 percent after $60, Venezuela takes 90-95
percent, Libya, Russian, China, Kazakhstan and Angola take 90-
plus percent at high dollars. So, he didn't think Alaska's tax
structure was uncompetitive, but in order to make it more
competitive, a 60 percent cap on progressivity should be modeled
and considered.
Generally, he said the state has had a philosophy of low taxes
for decades. For example, the economic limit factor (ELF) that
didn't tax new fields was in place from the 1970s through 2006.
Kuparuk and Prudhoe were taxed at 12.5-15 percent of the gross.
Every year under the ELF, as the fields became "marginal" the
tax rate declined. But, regardless of the conventional wisdom,
low taxes didn't lead to more investment or production. Instead
production declined at a rate of 5.8 percent and by 2006, 15 out
of 19 fields were paying zero taxes on the North Slope. From
2001 - 2006 the price of oil more than tripled from $20 to over
$60 and yet production continued to decline at a rate of 8
percent.
SENATOR WIELECHOWSKI said since ACES passed (raising taxes), the
state has had all-time highs in jobs, investment and the number
of companies doing business on the North Slope, that tripled.
"We want more production," he said and this is an attempt to see
if lowering the tax rate would do that. At high dollars this is
a "big give." He had other amendments that he hoped passed in
conjunction with this one, because the state should be getting
something in return.
1:33:11 PM
SENATOR FRENCH said Senator Wielechowski did a good job of
explaining the philosophy behind the amendment and he is a co-
signer of it, but he wasn't sure he would support it without
seeing a model.
He stated that it's important for the public to remember how
progressivity works. Nothing gets taxed in Alaska until a profit
is turned. Every single expense in the oil field is deducted
from the price of a barrel of oil before paying tax. Once a
company starts making a dollar of profit, the first $30 doesn't
have progressivity. Like Senator Wielechowski, he said he had
reservations about this aspect of the reform, because it comes
with no strings and could result in zero extra dollars of
investment coming into the State of Alaska. For that reason he
was going to be very cautious in adjusting progressivity.
1:35:12 PM
CO-CHAIR PASKVAN reiterated that he thought it was appropriate
and important to put this concept on the table so it could be
discussed thoroughly. He then asked Senator Wielechowski to
explain the concept in Item 18.
27-LS1305\B.18
Bullock
A M E N D M E N T
OFFERED IN THE SENATE
BY SENATOR WIELECHOWSKI
TO: CSSB 192(RES), Draft Version "B"
Page 1, line 3, through page 2, line 5:
Delete all material and insert:
"* Section 1. AS 43.55.011(g) is amended to read:
(g) For each month of the calendar year for
which the producer's average monthly production tax
value under AS 43.55.160(a)(2) of a [PER] BTU
equivalent barrel of the taxable oil and gas is more
than $30, the amount of tax for purposes of (e)(2) of
this section is determined by multiplying the monthly
production tax value of the taxable oil and gas
produced during the month by the tax rate calculated
as follows:
(1) if the producer's average monthly
production tax value of a [PER] BTU equivalent barrel
of the taxable oil and gas for the month is not more
than $67.50 [$92.50], the tax rate is 0.4 percent
multiplied by the number that represents the
difference between that average monthly production tax
value of a [PER] BTU equivalent barrel and $30; [OR]
(2) if the producer's average monthly
production tax value of a [PER] BTU equivalent barrel
of the taxable oil and gas for the month is more than
$67.50 but is not more than $92.50, the tax rate is
the sum of 15 [25] percent and the product of 0.35
[0.1] percent multiplied by the number that represents
the difference between the average monthly production
tax value of a [PER] BTU equivalent barrel and $67.50;
or
(3) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $92.50,
the tax rate is the sum of 23.75 percent and the
product of 0.1 percent multiplied by the number that
represents the difference between the average monthly
production tax value of a BTU equivalent barrel and
$92.50, except that the sum determined under this
paragraph may not exceed 35 [50] percent."
1:36:22 PM
SENATOR WIELECHOWSKI said he didn't know if he would support
this until he saw it modeled, but B.18 addresses a couple of
problems. It lowers progressivity at 60 percent like the
previous amendment, but it does a couple of other things, as
well. He explained that industry has repeatedly expressed that
the marginal tax rate is too high and this amendment would
"slightly bend" the marginal tax rate curve at about 85 percent.
He related that industry says that marginal tax rates impact
investment. They can also create a significant gold plating risk
for the state in terms of potentially paying more than 100
percent of a company's incremental investment. So, this
amendment solves that problem by capping progressivity from 75
percent down to 60 percent. The base tax rate would remain the
same at 25 percent up through the 40 percent for $102 oil. The
Governor said he thinks the current ACES tax structure is
competitive at $60-80and that it became high at $100 compared to
North America, which is good, but Senator Wielechowski said he
wasn't sure North America was what Alaska should compare itself
to.
This amendment reduces the progressivity from .4 percent in the
tax curve at around $102 to .35 percent. Once $92.50 is met, the
progressivity is reduced to .1 percent. This solves three
problems: the issue of high marginal tax rate, too high of a cap
and gold platting; and he will know better when it is modeled
whether those statements are accurate.
1:39:47 PM
CO-CHAIR PASKVAN found no questions on B.18 and asked Senator
Wielechowski to explain Item 12.
27-LS1305\B.9
Nauman/Bullock
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 "providing for a reduction in production
tax value for certain oil;"
Page 2, following line 5:
Insert new bill sections to read:
"* Sec. 2. AS 43.55.160(a) is amended to read:
(a) Except as provided in (b) of this section
and subject to an adjustment under AS 43.55.162, for
the purposes of
(1) AS 43.55.011(e), the annual production
tax value of the taxable
(A) oil and gas produced during a calendar
year from leases or properties in the state that
include land north of 68 degrees North latitude is the
gross value at the point of production of the oil and
gas taxable under AS 43.55.011(e) and produced by the
producer from those leases or properties, less the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil and gas
produced by the producer from those leases or
properties, as adjusted under AS 43.55.170; this
subparagraph does not apply to gas subject to
AS 43.55.011(o);
(B) oil and gas produced during a calendar
year from leases or properties in the state outside
the Cook Inlet sedimentary basin, no part of which is
north of 68 degrees North latitude, is the gross value
at the point of production of the oil and gas taxable
under AS 43.55.011(e) and produced by the producer
from those leases or properties, less the producer's
lease expenditures under AS 43.55.165 for the calendar
year applicable to the oil and gas produced by the
producer from those leases or properties, as adjusted
under AS 43.55.170; this subparagraph does not apply
to gas subject to AS 43.55.011(o);
(C) oil produced during a calendar year
from a lease or property in the Cook Inlet sedimentary
basin is the gross value at the point of production of
the oil taxable under AS 43.55.011(e) and produced by
the producer from that lease or property, less the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(D) gas produced during a calendar year
from a lease or property in the Cook Inlet sedimentary
basin is the gross value at the point of production of
the gas taxable under AS 43.55.011(e) and produced by
the producer from that lease or property, less the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the gas produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(E) gas produced during a calendar year
from a lease or property outside the Cook Inlet
sedimentary basin and used in the state is the gross
value at the point of production of that gas taxable
under AS 43.55.011(e) and produced by the producer
from that lease or property, less the producer's lease
expenditures under AS 43.55.165 for the calendar year
applicable to that gas produced by the producer from
that lease or property, as adjusted under
AS 43.55.170;
(2) AS 43.55.011(g), the monthly production
tax value of the taxable
(A) oil and gas produced during a month
from leases or properties in the state that include
land north of 68 degrees North latitude is the gross
value at the point of production of the oil and gas
taxable under AS 43.55.011(e) and produced by the
producer from those leases or properties, less 1/12 of
the producer's lease expenditures under AS 43.55.165
for the calendar year applicable to the oil and gas
produced by the producer from those leases or
properties, as adjusted under AS 43.55.170; this
subparagraph does not apply to gas subject to
AS 43.55.011(o);
(B) oil and gas produced during a month
from leases or properties in the state outside the
Cook Inlet sedimentary basin, no part of which is
north of 68 degrees North latitude, is the gross value
at the point of production of the oil and gas taxable
under AS 43.55.011(e) and produced by the producer
from those leases or properties, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil and gas
produced by the producer from those leases or
properties, as adjusted under AS 43.55.170; this
subparagraph does not apply to gas subject to
AS 43.55.011(o);
(C) oil produced during a month from a
lease or property in the Cook Inlet sedimentary basin
is the gross value at the point of production of the
oil taxable under AS 43.55.011(e) and produced by the
producer from that lease or property, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(D) gas produced during a month from a
lease or property in the Cook Inlet sedimentary basin
is the gross value at the point of production of the
gas taxable under AS 43.55.011(e) and produced by the
producer from that lease or property, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the gas produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(E) gas produced during a month from a
lease or property outside the Cook Inlet sedimentary
basin and used in the state is the gross value at the
point of production of that gas taxable under
AS 43.55.011(e) and produced by the producer from that
lease or property, less 1/12 of the producer's lease
expenditures under AS 43.55.165 for the calendar year
applicable to that gas produced by the producer from
that lease or property, as adjusted under
AS 43.55.170.
* Sec. 3. AS 43.55 is amended by adding a new
section to read:
Sec. 43.55.162. Adjustment to production tax
value for increasing oil production. (a) The
production tax value of oil delivered to and
transported by the Trans Alaska Pipeline System, as
calculated under AS 43.55.160(a)(1)(A) and (B) and
AS 43.66.160(a)(2)(A) and (B), may be reduced by an
amount determined by the department under this
section.
(b) A producer shall report to the department
the total adjusted amount of annual oil production and
adjusted amount of the average daily statewide oil
production delivered by the producer for transport to
the Trans Alaska Pipeline System for both the calendar
year immediately preceding the year for which the tax
is being determined and the year for which the tax is
being determined. The report shall be filed at the
time the statement required under AS 43.55.030(a) is
filed.
(c) When calculating the
(1) adjusted amount of the average daily
statewide production under (b) of this section, the
producer shall exclude from the calculation the days
on which the rate of production is significantly
reduced and the volume of production on those days for
which the rate of production is significantly reduced;
for the purposes of this paragraph, the rate of
production is significantly reduced when the
production of oil delivered by the producer to the
Trans Alaska Pipeline System for the day is less than
one-half of the average daily production for the year
calculated by dividing the total oil production that
is produced by the producer and delivered to the Trans
Alaska Pipeline System for the year by the number of
days in the year;
(2) adjusted amount of total annual oil
production that is delivered by the producer to the
Trans Alaska Pipeline System, the producer shall
multiply the adjusted amount of average daily
production determined under (1) of this subsection by
the number of days in the applicable calendar year;
and
(3) adjusted amount of total annual oil
production that is delivered by the producer to the
Trans Alaska Pipeline System for the year for which
the tax is being determined under (2) of this
subsection, the producer may not include the amount of
production resulting from the purchase, merger, or
other acquisition of another producer and any
production attributable to the producer from a unit in
which the producer did not participate in the calendar
year immediately preceding the year for which the tax
is being determined; however, the increased production
that may not be included by a producer under this
paragraph may be included in the adjusted amount of
total annual oil production for the year when
determining the amount by which production increases
in the next succeeding year.
(d) After receiving a report by the producer
under (b) of this section, the department may reduce
the production tax value determined under
(1) AS 43.55.160(a)(1)(A) and (B) by $10
for each barrel of oil delivered by the producer to
the Trans Alaska Pipeline system during the year for
which the tax is being determined that exceeds the
adjusted total annual production for the calendar year
immediately preceding the year for which the tax is
being determined; and
(2) AS 43.55.160(a)(2)(A) and (B) by $10
for each barrel of oil delivered to the Trans Alaska
Pipeline System for each month in the year for which
the tax is being determined that exceeds 1/12 of the
number of barrels by which the adjusted total annual
production for the year for which the tax is being
determined exceeds the adjusted total annual
production for the calendar year immediately preceding
the year for which the tax is being determined.
(e) The department shall notify the producer of
the amount of tax reduction allowed as a result of a
reduction in production tax value determined by the
department under (d) of this section. At the request
of the producer, the department may refund any amount
due to the producer as a result of the reduction in
production tax value or credit the amount of the tax
reduction against the liability of the taxpayer for a
tax due under this title.
(f) A tax reduction that results from a
reduction in the production tax value under this
section may not be considered when a producer is
required to calculate and pay any amount due under
AS 43.55.020(a). However, at the request of the
producer, a credit allowed under (e) of this section
may be applied against a payment due under
AS 43.55.020(a) for a period after the department
determines the amount of reduction in the production
tax value.
(g) The department may adopt regulations
specifying the information that must be included in
the report filed by a producer under (b) of this
section and other regulations necessary for the
administration of this section.
* Sec. 4. The uncodified law of the State of Alaska
is amended by adding a new section to read:
APPLICABILITY. The reduction in production tax
value under AS 43.55.162, enacted by sec. 10 of this
Act, applies to qualifying oil produced after
December 31, 2012. In this section, "qualifying oil"
means oil delivered to the Trans Alaska Pipeline
System the production tax value of which is calculated
under AS 43.55.160(a)(1)(A) and (B) and
43.55.160(a)(2)(A) and (B)."
Renumber the following bill section accordingly.
SENATOR WIELECHOWSKI deferred the explanation to Senator French.
SENATOR FRENCH said this amendment is designed to do what the
progressivity amendment does not do, which is actually reward
new oil with a reduced tax. There were a lot of different ways
to go about that and he was looking forward to debating them.
Essentially, this amendment says measure the amount of oil that
a company produced last year; if they increase it they get a $10
"bonus," but in the amendment it is called an "allowance." It
comes off the production tax value. For example, if a company
produced 100,000 barrels of oil in 2012 and increased that in
2013 to 110,000, the company would be eligible for that bonus on
10,000 barrels. The DOR would determine the average daily
statewide production for each producer in the previous year. It
would be adjusted by eliminating days when there was a
significant slowdown due to events beyond the company's control,
a shutdown of the pipeline, for example. If you beat your number
one year, the next year you get the bonus - and you can't merge
with another company.
1:41:52 PM
SENATOR FRENCH said this expires after a year, so if shale oil
comes on like gang busters, the bonus is paid for the first
year, but the second year the tax returns to what it was. It's a
one-time quick stimulus to reduce the tax burden on new oil.
He explained that he realized the time value of money to
investors in oil operations on the North Slope when the oil
industry informed him and Senator Wielechowski that it takes
five to seven years to see new production in Alaska and it's a
much shorter time in Texas, for instance.
1:43:38 PM
SENATOR STEDMAN recalled testimony in a joint meeting of the
Senate Finance and Resources committees that their consultant
talked about an allowance concept up to $25 barrel. Maybe those
models could be run before having the conversation on
incremental oil production.
SENATOR FRENCH agreed that they saw a powerful presentation from
Pedro van Meurs who had five different allowances, which seemed
unwieldy. One of the phrases he worked on last year was "No
reduction (in taxes) without more production," and this captures
that concept.
1:46:27 PM
CO-CHAIR WAGONER said this amendment is similar in some cases to
what his staff would present to the committee in a few minutes.
He also hoped to get a range of modeling for the tax credits.
SENATOR FRENCH said they were working out a method of
communication between the committee and consultants and asked
them to run some numbers if they were listening.
SENATOR MCGUIRE asked for a model of the state's exposure at one
to seven years.
1:47:59 PM
CO-CHAIR PASKVAN invited Ms. Jackson to explain Item 16, labeled
27-LS1305\B.2, since these two amendments have the same general
concept but a little different approach.
27-LS1305\B.2
Nauman/Bullock
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 an adjustment to the gross
value at the point of production for oil production
from certain leases or properties; relating to the
determination of the production tax value of oil and
gas;"
Page 2, following line 5:
Insert new bill sections to read:
"* Sec. 2. AS 43.55.160(a) is amended to read:
(a) Except as provided in (b) of this section
and subject to an adjustment under AS 43.55.162, for
the purposes of
(1) AS 43.55.011(e), the annual production
tax value of the taxable
(A) oil and gas produced during a calendar
year from leases or properties in the state that
include land north of 68 degrees North latitude is the
gross value at the point of production of the oil and
gas taxable under AS 43.55.011(e) and produced by the
producer from those leases or properties, less the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil and gas
produced by the producer from those leases or
properties, as adjusted under AS 43.55.170; this
subparagraph does not apply to gas subject to
AS 43.55.011(o);
(B) oil and gas produced during a calendar
year from leases or properties in the state outside
the Cook Inlet sedimentary basin, no part of which is
north of 68 degrees North latitude, is the gross value
at the point of production of the oil and gas taxable
under AS 43.55.011(e) and produced by the producer
from those leases or properties, less the producer's
lease expenditures under AS 43.55.165 for the calendar
year applicable to the oil and gas produced by the
producer from those leases or properties, as adjusted
under AS 43.55.170; this subparagraph does not apply
to gas subject to AS 43.55.011(o);
(C) oil produced during a calendar year
from a lease or property in the Cook Inlet sedimentary
basin is the gross value at the point of production of
the oil taxable under AS 43.55.011(e) and produced by
the producer from that lease or property, less the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(D) gas produced during a calendar year
from a lease or property in the Cook Inlet sedimentary
basin is the gross value at the point of production of
the gas taxable under AS 43.55.011(e) and produced by
the producer from that lease or property, less the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the gas produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(E) gas produced during a calendar year
from a lease or property outside the Cook Inlet
sedimentary basin and used in the state is the gross
value at the point of production of that gas taxable
under AS 43.55.011(e) and produced by the producer
from that lease or property, less the producer's lease
expenditures under AS 43.55.165 for the calendar year
applicable to that gas produced by the producer from
that lease or property, as adjusted under
AS 43.55.170;
(2) AS 43.55.011(g), the monthly production
tax value of the taxable
(A) oil and gas produced during a month
from leases or properties in the state that include
land north of 68 degrees North latitude is the gross
value at the point of production of the oil and gas
taxable under AS 43.55.011(e) and produced by the
producer from those leases or properties, less 1/12 of
the producer's lease expenditures under AS 43.55.165
for the calendar year applicable to the oil and gas
produced by the producer from those leases or
properties, as adjusted under AS 43.55.170; this
subparagraph does not apply to gas subject to
AS 43.55.011(o);
(B) oil and gas produced during a month
from leases or properties in the state outside the
Cook Inlet sedimentary basin, no part of which is
north of 68 degrees North latitude, is the gross value
at the point of production of the oil and gas taxable
under AS 43.55.011(e) and produced by the producer
from those leases or properties, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil and gas
produced by the producer from those leases or
properties, as adjusted under AS 43.55.170; this
subparagraph does not apply to gas subject to
AS 43.55.011(o);
(C) oil produced during a month from a
lease or property in the Cook Inlet sedimentary basin
is the gross value at the point of production of the
oil taxable under AS 43.55.011(e) and produced by the
producer from that lease or property, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the oil produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(D) gas produced during a month from a
lease or property in the Cook Inlet sedimentary basin
is the gross value at the point of production of the
gas taxable under AS 43.55.011(e) and produced by the
producer from that lease or property, less 1/12 of the
producer's lease expenditures under AS 43.55.165 for
the calendar year applicable to the gas produced by
the producer from that lease or property, as adjusted
under AS 43.55.170;
(E) gas produced during a month from a
lease or property outside the Cook Inlet sedimentary
basin and used in the state is the gross value at the
point of production of that gas taxable under
AS 43.55.011(e) and produced by the producer from that
lease or property, less 1/12 of the producer's lease
expenditures under AS 43.55.165 for the calendar year
applicable to that gas produced by the producer from
that lease or property, as adjusted under
AS 43.55.170.
* Sec. 3. AS 43.55 is amended by adding a new
section to read:
Sec. 43.55.162. Adjustments to the gross value at
the point of production for certain oil. (a) If the
volume of taxable oil produced by a producer during a
calendar year from leases or properties described in
AS 43.55.160(a)(1)(A) is greater than the annual
target volume of taxable oil production determined
under this section for the calendar year, the gross
value at the point of production for the taxable oil
produced during
(1) the calendar year for the purpose of
determining the annual production tax value under
AS 43.55.160(a)(1), shall be reduced by a percentage
equal to the percentage by which the volume of taxable
oil produced during the calendar year exceeds the
target volume of production for the calendar year; and
(2) a calendar month for the purpose of
determining the production tax value for the calendar
month under AS 43.55.160(a)(2), shall be reduced by a
percentage equal to the percentage by which the volume
of taxable oil produced during the calendar month
exceeds the target volume of production for the
calendar month.
(b) Subject to adjustment under (e) of this
section, the target volume of taxable oil production
by a producer for a calendar year equals the volume of
taxable oil produced by the producer from leases or
properties described in AS 43.55.160(a)(1)(A) during
the calendar year immediately preceding the calendar
year for which the tax is being determined, multiplied
by the applicable factor determined under (c)(1) - (4)
of this section.
(c) For the purpose of determining the target
volume of taxable oil production under (b) of this
section, for a producer having taxable oil production
from a lease or property described in
AS 43.55.160(a)(1)(A)
(1) during the calendar year immediately
preceding the calendar year for which the tax is being
determined and the fourth calendar year preceding the
calendar year for which the tax is being determined,
the factor is equal to the cube root of the ratio of
the volume of taxable oil produced by the producer
from the leases or properties described in
AS 43.55.160(a)(1)(A) during the calendar year
immediately preceding the calendar year for which the
tax is being determined to the volume of taxable oil
produced from the leases or properties described in
AS 43.55.160(a)(1)(A) during the fourth calendar year
preceding the year for which the tax is being
determined;
(2) during the calendar year immediately
preceding the calendar year for which the tax is being
determined and the third calendar year preceding the
calendar year for which the tax is being determined,
but not during the fourth year preceding the calendar
year for which the tax is being determined, the factor
is equal to the square root of the ratio of the volume
of taxable oil produced by the producer from the
leases or properties described in
AS 43.55.160(a)(1)(A) during the calendar year
immediately preceding the year for which the tax is
being determined to the volume of taxable oil produced
from the leases or properties described in
AS 43.55.160(a)(1)(A) during the third calendar year
preceding the calendar year for which the tax is being
determined;
(3) during the calendar year immediately
preceding the calendar year for which the tax is being
determined and the second calendar year preceding the
year for which the tax is being determined, but not
during the third or fourth calendar years preceding
the year for which the tax is being determined, the
factor is equal to the ratio of the volume of taxable
oil produced by the producer from the leases or
properties described in AS 43.55.160(a)(1)(A) during
the calendar year immediately preceding the calendar
year for which the tax is being determined to the
volume of taxable oil produced from the leases or
properties described in AS 43.55.160(a)(1)(A) during
the second calendar year preceding the calendar year
for which the tax is being determined;
(4) during the calendar year immediately
preceding the year for which the tax is being
determined but not during the second, third, or fourth
calendar years preceding the calendar year for which
the tax is being determined, the factor is equal to
one.
(d) The target volume of taxable oil production
by a producer for a calendar month is equal to 1/12 of
the annual target volume of taxable oil production for
the calendar year, except as otherwise provided in
(e)(4) of this section.
(e) For purposes of this section, for a producer
that produced taxable oil during a calendar year from
a lease or property described in
AS 43.55.160(a)(1)(A),
(1) if the producer did not produce taxable
oil from a lease or property described in
AS 43.55.160(a)(1)(A) during the calendar year
immediately preceding the calendar year for which the
tax is being determined, there is no target volume of
taxable oil production for the calendar year or
calendar month during the year and no reduction in the
gross value at the point of production for that oil
production for the purposes of AS 43.55.160(a)(1) for
the year for which the tax is being determined, unless
the production of taxable oil during the entire
calendar year was interrupted because of force
majeure;
(2) if the producer did not produce taxable
oil from a lease or property described in
AS 43.55.160(a)(1)(A) during the calendar year
immediately preceding the calendar year for which the
tax is being determined because the production of
taxable oil during the entire calendar year was
interrupted because of force majeure, the target
volume of taxable oil production for the current year
must be determined under (c) of this section based on
the fourth, third, or second preceding calendar year,
as applicable, in which the producer produced taxable
oil from a lease or property described in
AS 43.55.160(a)(1)(A);
(3) for a producer that produced taxable
oil from leases or properties described in
AS 43.55.160(a)(1)(A) during a prior year that would
have been used in the applicable calculation under (b)
of this section, except that there was no taxable oil
production for 30 days or more during that calendar
year because the producer first produced taxable oil
from those leases or properties during that calendar
year or because production from the leases or
properties was interrupted by force majeure for 30
days or more during that calendar year, the producer's
volume of taxable oil production from leases or
properties described in AS 43.55.160(a)(1)(A) during
that prior year is multiplied by a fraction, the
numerator of which is the number of days during that
prior year and the denominator of which is the number
of days during that prior year on which the producer
had oil production from a lease or property described
in AS 43.55.160(a)(1)(A);
(4) for a producer that has production of
taxable oil that is interrupted by force majeure for
30 days or more during the year for which the tax is
being determined, the target volume of taxable oil
production for the current year that would otherwise
be applicable shall be reduced by a percentage equal
to the percentage of days during the year that the
production was interrupted, and the producer's monthly
target volume of taxable oil production for the
current year is the target volume of taxable oil
production for the current year determined under this
paragraph divided by a fraction, the numerator of
which is the number of days during the year when the
producer had production from leases or properties
described in AS 43.55.160(a)(1)(A), and the
denominator of which is 30.4375.
(f) The determination of the adjustment to the
gross value at the point of production in this section
is based on the location of a lease or property within
the area described in AS 43.55.160(a)(1)(A) and is
made without regard as to whether taxable oil is
produced from a particular lease or property during
more than one year.
(g) The negligence or recklessness of a producer
or operator that prevents the production of taxable
oil does not constitute force majeure. However, if
there is a sufficient cause for the cessation of
production because of force majeure, the negligence or
recklessness of the producer, the operator, or the
producer and operator does not prohibit treating the
inability to produce oil or the suspension of oil
production as having been caused by force majeure for
the purposes of this section.
(h) In this section, "force majeure" means a
cause beyond the reasonable ability of a producer, an
operator, or a producer and operator of a lease or
property to avoid or control that prevents the
producer from producing oil or having oil produced for
the producer from the lease or property for a period
of 24 or more consecutive hours; "force majeure"
includes an act of God, war, martial law,
insurrection, terrorism, sabotage, government
restriction, order of a court or an administrative or
regulatory body having jurisdiction over the lease or
property or production from the lease or property, a
strike or other labor action, or a failure or omission
on the part of a third-party supplier, contractor,
subcontractor, carrier, or other third party."
Renumber the following bill section accordingly.
1:48:34 PM
MARY JACKSON, staff to Senator Wagoner, explained that his goal
with B.2 was to increase production by making some sort of tax
break. She explained that last year SB 85 was predicated on the
tax holiday from Alberta that was working. They had that
language and during the interim they worked with Senator
McGuire's staff and the Alaska Oil Gas Association (AOGA) to see
if there was any way that this language could work and amendment
B.2 is the result. The premise was very simple: quid pro quo.
SENATOR FRENCH remarked, "This for that."
MS. JACKSON said the bottom line is "we give, we get." This
amendment establishes a "target volume" annually. It's based on
the prior years' actuals and adjusted by the percentage of the
decline. So, for 2013 you look at 2012 numbers and reduce it by
the decline for the previous three years. It's simple math,
although it shows up in the bill as a "cube root," a statistical
measurement. If there are only two years of production, the bill
covers that, but eventually everybody goes to a three-year
rolling average done annually. If your production increases by 2
percent over your target volume, the result is to reduce the
gross value by 2 percent - quid pro quo. There are no credits or
transfers.
This amendment introduces the term "force majeure," meaning an
interruption in the pipeline needs to be taken into account in
terms of computing the decline figure.
CO-CHAIR PASKVAN said this is a great example to let the people
of Alaska know that people have been thinking about this topic
for a long time. The goal is to have a more efficient overall
system.
CO-CHAIR WAGONER said he liked Senator French's approach as well
as his own and that they have to arrive at the most
understandable concept when dealing with an incentive to
increase production. Either way would be a step forward in
showing industry and Alaskans they are willing to work with the
industry to try and bring up the production level in the pipe.
1:54:28 PM
CO-CHAIR PASKVAN said that was what he was hoping for in an open
and transparent dialogue both within the committee and with the
citizens of Alaska.
SENATOR FRENCH said he appreciated Senator Wagoner's comments.
and asked him to explain how it worked.
MS. JACKSON explained that there is an arithmetic averaging:
year one minus year two divided by year one; year two minus year
three divided by year two. If 2013 is the target year, 2012 is
the year that you have actual production numbers. So the cube
root is the geometric mean that is applied from 2009, 2010 and
2011 resulting in the decline of those three. The decline number
is then applied to 2012 production. It could be seven years, but
three years seemed to be a reasonable minimum and one year is
not sufficient to establish norms.
1:56:57 PM
SENATOR WIELECHOWSKI commented that who sets the decline curve
is a critical issue, because you have maintenance issues. Pedro
van Meurs recommended this concept and said that many
jurisdictions use it effectively.
SENATOR STEDMAN responded to Senator Wielechowski's comment that
PFC Energy would be looking at the question of incremental
production with a couple of the major producers Monday and
Tuesday in Anchorage.
1:58:56 PM
CO-CHAIR PASKVAN said they would next take up Item 13 that
establishes a gross minimum.
27-LS1305\B.13
Nauman/Bullock
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 minimum tax on oil and
gas production; relating to the availability of funds
from the oil and gas production tax for appropriation
to the community revenue sharing fund;"
Page 1, following line 2:
Insert new bill sections to read:
"* Section 1. AS 29.60.850(b) is amended to read:
(b) Each fiscal year, the legislature may
appropriate to the community revenue sharing fund an
amount equal to the lesser of 20 percent of the money
received by the state during the previous calendar
year under AS 43.55.011(g) or the difference between
the amount of money received by the state during the
previous calendar for oil and gas production subject
to AS 43.55.011(f) and 25 percent of the production
tax value determined under AS 43.55.160 for oil and
gas production subject to AS 43.55.011(f) produced
during the previous calendar year, except the
difference may not be less than zero. The amount
appropriated may not exceed
(1) $60,000,000; or
(2) the amount that, when added to the fund
balance on June 30 of the previous fiscal year, equals
$180,000,000.
* Sec. 2. AS 43.55.011(f) is repealed and reenacted
to read:
(f) Except for oil and gas subject to (i) of
this section and gas subject to (o) of this section,
the provisions of this subsection apply to oil and gas
produced from each lease or property within a unit or
nonunitized reservoir that has cumulatively produced
1,000,000,000 BTU equivalent barrels of oil or gas by
the close of the most recent calendar year and from
which the average daily oil and gas production from
the unit or nonunitized reservoir during the most
recent calendar year exceeded 100,000 BTU equivalent
barrels. Notwithstanding any contrary provision of
law, a producer may not apply tax credits to reduce
its total tax liability under (e) and (g) of this
section for oil and gas produced from all leases or
properties within the unit or nonunitized reservoir
below 10 percent of the total gross value at the point
of production of that oil and gas. If the amount of
tax calculated by multiplying the tax rates in (e) and
(g) of this section by the total production tax value
of the oil and gas taxable under (e) and (g) of this
section produced from all of the producer's leases or
properties within the unit or nonunitized reservoir is
less than 10 percent of the total gross value at the
point of production of that oil and gas, the tax
levied by (e) and (g) of this section for that oil and
gas is equal to 10 percent of the total gross value at
the point of production of that oil and gas."
Page 1, line 4:
Delete "Section 1"
Insert "Sec. 3"
Renumber the following bill sections accordingly.
Page 2, following line 5:
Insert a new bill section to read:
"* Sec. 4. AS 43.55.020(a) is amended to read:
(a) For a calendar year, a producer subject to
tax under AS 43.55.011(e) - (i) shall pay the tax as
follows:
(1) an installment payment of the estimated
tax levied by AS 43.55.011(e), net of any tax credits
applied as allowed by law, is due for each month of
the calendar year on the last day of the following
month; except as otherwise provided under (2) of this
subsection, the amount of the installment payment is
the sum of the following amounts, less 1/12 of the tax
credits that are allowed by law to be applied against
the tax levied by AS 43.55.011(e) for the calendar
year, but the amount of the installment payment may
not be less than zero:
(A) for oil and gas produced from leases or
properties in the state outside the Cook Inlet
sedimentary basin but not subject to AS 43.55.011(o),
other than leases or properties subject to
AS 43.55.011(f), the greater of
(i) zero; or
(ii) the sum of 25 percent and the tax rate
calculated for the month under AS 43.55.011(g)
multiplied by the remainder obtained by subtracting
1/12 of the producer's adjusted lease expenditures for
the calendar year of production under AS 43.55.165 and
43.55.170 that are deductible for the leases or
properties under AS 43.55.160 from the gross value at
the point of production of the oil and gas produced
from the leases or properties during the month for
which the installment payment is calculated;
(B) for oil and gas produced from leases or
properties subject to AS 43.55.011(f), 10 percent of
the gross value at the point of production of that oil
and gas [THE GREATEST OF
(i) ZERO;
(ii) ZERO PERCENT, ONE PERCENT, TWO
PERCENT, THREE PERCENT, OR FOUR PERCENT, AS
APPLICABLE, OF THE GROSS VALUE AT THE POINT OF
PRODUCTION OF THE OIL AND GAS PRODUCED FROM ALL LEASES
OR PROPERTIES DURING THE MONTH FOR WHICH THE
INSTALLMENT PAYMENT IS CALCULATED; OR
(iii) THE SUM OF 25 PERCENT AND THE TAX
RATE CALCULATED FOR THE MONTH UNDER AS 43.55.011(g)
MULTIPLIED BY THE REMAINDER OBTAINED BY SUBTRACTING
1/12 OF THE PRODUCER'S ADJUSTED LEASE EXPENDITURES FOR
THE CALENDAR YEAR OF PRODUCTION UNDER AS 43.55.165 AND
43.55.170 THAT ARE DEDUCTIBLE FOR THOSE LEASES OR
PROPERTIES UNDER AS 43.55.160 FROM THE GROSS VALUE AT
THE POINT OF PRODUCTION OF THE OIL AND GAS PRODUCED
FROM THOSE LEASES OR PROPERTIES DURING THE MONTH FOR
WHICH THE INSTALLMENT PAYMENT IS CALCULATED];
(C) for oil and gas produced from each
lease or property subject to AS 43.55.011(j), (k), or
(o), the greater of
(i) zero; or
(ii) the sum of 25 percent and the tax rate
calculated for the month under AS 43.55.011(g)
multiplied by the remainder obtained by subtracting
1/12 of the producer's adjusted lease expenditures for
the calendar year of production under AS 43.55.165 and
43.55.170 that are deductible under AS 43.55.160 for
oil or gas, respectively, produced from the lease or
property from the gross value at the point of
production of the oil or gas, respectively, produced
from the lease or property during the month for which
the installment payment is calculated;
(2) an amount calculated under (1)(C) of
this subsection for oil or gas produced from a lease
or property subject to AS 43.55.011(j), (k), or (o)
may not exceed the product obtained by carrying out
the calculation set out in AS 43.55.011(j)(1) or (2)
or 43.55.011(o), as applicable, for gas or set out in
AS 43.55.011(k)(1) or (2), as applicable, for oil, but
substituting in AS 43.55.011(j)(1)(A) or (2)(A) or
43.55.011(o), as applicable, the amount of taxable gas
produced during the month for the amount of taxable
gas produced during the calendar year and substituting
in AS 43.55.011(k)(1)(A) or (2)(A), as applicable, the
amount of taxable oil produced during the month for
the amount of taxable oil produced during the calendar
year;
(3) an installment payment of the estimated
tax levied by AS 43.55.011(i) for each lease or
property is due for each month of the calendar year on
the last day of the following month; the amount of the
installment payment is the sum of
(A) the applicable tax rate for oil
provided under AS 43.55.011(i), multiplied by the
gross value at the point of production of the oil
taxable under AS 43.55.011(i) and produced from the
lease or property during the month; and
(B) the applicable tax rate for gas
provided under AS 43.55.011(i), multiplied by the
gross value at the point of production of the gas
taxable under AS 43.55.011(i) and produced from the
lease or property during the month;
(4) any amount of tax levied by
AS 43.55.011(e) or (i), net of any credits applied as
allowed by law, that exceeds the total of the amounts
due as installment payments of estimated tax is due on
March 31 of the year following the calendar year of
production."
Renumber the following bill section accordingly.
SENATOR WIELECHOWSKI explained that for decades Alaska had a
gross tax; when they went to the net tax under PPT and
reaffirmed that under ACES, that was a "huge leap of faith" for
the state, because of auditing and lease expenditure issues.
Many had concerns, even the governor. The governor's bill
actually had a gross floor of 10 percent. The idea was to
protect the state at the low end. But if you move one thing at
one end it impacts the other end and in ACES they agreed to give
up the low end, because they got more at the high end. "That was
the absolute bargain that was struck," he said. It exposes the
state by hundreds of millions of dollars. If oil was $50 barrel
right now, they would be having a very different conversation.
SENATOR WIELECHOWSKI said they hadn't contemplated that at high
ends they were a little high, but by the same token they didn't
accurately contemplate that at $40 or $50 barrel the system
would not be durable. He reminded them that in February, 2009
ANS was trading at $42.78 and in January it was trading at
$39.01. Perhaps they should be trying to create a more durable
system and he thought this was "a fair compromise."
2:01:49 PM
MICHELLE SYDEMAN, staff to Senator Wielechowski, explained that
proposed amendment B.13 established a production tax floor of 10
percent of gross value at the point of production for legacy
fields in Alaska; it would only apply to fields that have
already produced 1 billion barrels of oil and are still
producing an average of 100,000 barrels a day. Prudhoe Bay and
Kuparuk are the only fields that currently meet that definition.
About 80 percent of Alaska's oil production comes from these
fields and most facilities associated with them were fully
depreciated years ago. The sponsors of this amendment wanted to
stress that it does not apply to new fields or to smaller fields
to avoid any potential of putting new field development or
development of small reservoirs at risk.
MS. SYDEMAN said that ACES already has 0-4 percent production
tax floor, depending on the price of oil. But it can be brought
even lower by credits. This means the state could actually owe
companies production tax in a low price environment when at the
same time the state is struggling to pay for the most essential
of state services with a deficit budget. This amendment
addressees that potential and would not allow legacy field
producers to apply tax credits to reduce their production taxes
below the 10 percent gross floor. She said the state may take in
more with a 10 percent gross floor than with ACES.
She added that initial rough modeling indicates that at $40
barrel, ACES would generate negative production taxes with net
operating losses and capital credits of $640 million while the
10 percent gross floor would raise $103 million more or $163
million in production taxes. She said these numbers assume
explorers would claim $250 million of capital credits and net
operating losses. The calculations were rough and sponsors were
grateful that PFC Energy would be performing more detailed
analyses.
2:07:47 PM
CO-CHAIR PASKVAN found no questions and asked Senator French to
explain Amendment B.10, the gold plating issue.
27-LS1305\B.10
Nauman/Bullock
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 "limiting the amount of certain tax
credits applicable to the oil and gas production tax;"
Page 2, following line 5:
Insert new bill sections to read:
"* Sec. 2. AS 43.55.023(a) is amended to read:
(a) A producer or explorer may take a tax credit
for a qualified capital expenditure as follows:
(1) except as limited by (p) of this
section, notwithstanding that a qualified capital
expenditure may be a deductible lease expenditure for
purposes of calculating the production tax value of
oil and gas under AS 43.55.160(a), unless a credit for
that expenditure is taken under AS 38.05.180(i),
AS 41.09.010, AS 43.20.043, or AS 43.55.025, a
producer or explorer that incurs a qualified capital
expenditure may also elect to apply a tax credit
against a tax levied by AS 43.55.011(e) in the amount
of 20 percent of that expenditure; however, not more
than half of the tax credit may be applied for a
single calendar year;
(2) a producer or explorer may take a
credit for a qualified capital expenditure incurred in
connection with geological or geophysical exploration
or in connection with an exploration well only if the
producer or explorer
(A) agrees, in writing, to the applicable
provisions of AS 43.55.025(f)(2); and
(B) submits to the Department of Natural
Resources all data that would be required to be
submitted under AS 43.55.025(f)(2).
* Sec. 3. AS 43.55.023(d) is amended to read:
(d) Except as limited by (i) and (p) of this
section, a person that is entitled to take a tax
credit under this section that wishes to transfer the
unused credit to another person or obtain a cash
payment under AS 43.55.028 may apply to the department
for transferable tax credit certificates. An
application under this subsection must be in a form
prescribed by the department and must include
supporting information and documentation that the
department reasonably requires. The department shall
grant or deny an application, or grant an application
as to a lesser amount than that claimed and deny it as
to the excess, not later than 120 days after the
latest of (1) March 31 of the year following the
calendar year in which the qualified capital
expenditure or carried-forward annual loss for which
the credit is claimed was incurred; (2) the date the
statement required under AS 43.55.030(a) or (e) was
filed for the calendar year in which the qualified
capital expenditure or carried-forward annual loss for
which the credit is claimed was incurred; or (3) the
date the application was received by the department.
If, based on the information then available to it, the
department is reasonably satisfied that the applicant
is entitled to a credit, the department shall issue
the applicant two transferable tax credit
certificates, each for half of the amount of the
credit. The credit shown on one of the two
certificates is available for immediate use. The
credit shown on the second of the two certificates may
not be applied against a tax for a calendar year
earlier than the calendar year following the calendar
year in which the certificate is issued, and the
certificate must contain a conspicuous statement to
that effect. A certificate issued under this
subsection does not expire.
* Sec. 4. AS 43.55.023(l) is amended to read:
(l) Except as limited by (p) of this section, a
[A] producer or explorer may apply for a tax credit
for a well lease expenditure incurred in the state
south of 68 degrees North latitude after June 30,
2010, as follows:
(1) notwithstanding that a well lease
expenditure incurred in the state south of 68 degrees
North latitude may be a deductible lease expenditure
for purposes of calculating the production tax value
of oil and gas under AS 43.55.160(a), unless a credit
for that expenditure is taken under (a) of this
section, AS 38.05.180(i), AS 41.09.010, AS 43.20.043,
or AS 43.55.025, a producer or explorer that incurs a
well lease expenditure in the state south of 68
degrees North latitude may elect to apply a tax credit
against a tax levied by AS 43.55.011(e) in the amount
of 40 percent of that expenditure; a tax credit under
this paragraph may be applied for a single calendar
year;
(2) a producer or explorer may take a
credit for a well lease expenditure incurred in the
state south of 68 degrees North latitude in connection
with geological or geophysical exploration or in
connection with an exploration well only if the
producer or explorer
(A) agrees, in writing, to the applicable
provisions of AS 43.55.025(f)(2); and
(B) submits to the Department of Natural
Resources all data that would be required to be
submitted under AS 43.55.025(f)(2).
* Sec. 5. AS 43.55.023 is amended by adding a new
subsection to read:
(p) The amount of credit for a capital
expenditure under (a) or (l) of this section for an
expenditure that is also a lease expenditure under
AS 43.55.165 is reduced by the amount necessary so
that the tax benefit percentage is not more than 65
percent of the capital expenditure. The amount of
credit for a capital expenditure under (a) or (l) of
this section that may not be taken because of the
limitation in this subsection may not be applied in a
later calendar year under (c) of this section and may
not be included in an application for a tax credit
certificate under (d) of this section. In this
subsection, "tax benefit percentage" means the sum of
the average monthly tax rate under AS 43.55.011(e) and
(g) for the calendar year in which the credit is taken
and the percentage of the capital expenditure that may
be taken as a credit under (a) or (l) of this section.
* Sec. 6. AS 43.55.025(a) is amended to read:
(a) Subject to the terms and conditions of this
section and except as limited by (n) of this section,
a credit against the production tax levied by
AS 43.55.011(e) is allowed for exploration
expenditures that qualify under (b) of this section in
an amount equal to one of the following:
(1) 30 percent of the total exploration
expenditures that qualify only under (b) and (c) of
this section;
(2) 30 percent of the total exploration
expenditures that qualify only under (b) and (d) of
this section;
(3) 40 percent of the total exploration
expenditures that qualify under (b), (c), and (d) of
this section;
(4) 40 percent of the total exploration
expenditures that qualify only under (b) and (e) of
this section; or
(5) 80, 90, or 100 percent, or a lesser
amount described in (l) of this section, of the total
exploration expenditures described in (b)(1) and (2)
of this section and not excluded by (b)(3) and (4) of
this section that qualify only under (l) of this
section.
* Sec. 7. AS 43.55.025 is amended by adding a new
subsection to read:
(n) The amount of credit for an exploration
expenditure under (a)(1) - (4) of this section for an
expenditure that is also a lease expenditure under
AS 43.55.165 is reduced by the amount necessary so
that the tax benefit percentage is not more than 65
percent of the exploration expenditure. The amount of
credit for an exploration expenditure under (a)(1) -
(4) of this section that may not be taken because of
the limitation in this subsection may not be
transferred, conveyed, or sold under (g) of this
section. In this subsection, "tax benefit percentage"
means the sum of the average monthly tax rate under
AS 43.55.011(e) and (g) for the calendar year in which
the credit is taken and the percentage of the
exploration expenditure that may be taken as a credit
under (a)(1) - (4) of this section."
Renumber the following bill section accordingly.
2:06:10 PM
SENATOR FRENCH said beginning in 2003 with the exploration
incentive credit and accelerating in 2006 and 2007 with the
conversion to a net profit system, Alaska has offered tax
credits to encourage investment by the oil industry. It has been
wildly successful in that almost $4 billion in tax credits have
been earned. However, this extraordinary state investment raises
three questions:
1. Is the industry investing in activities that will increase
production and by extension increased revenue to the state?
2. Is the high level of state participation creating an
excessive subsidy potentially incentivizing wasteful or
inefficient projects?
3. Is there an imbalance in the benefit received by explorers
versus active producers?
SENATOR FRENCH said when a company makes an investment the state
participates financially in at least two different ways. One,
the expenditure reduces their taxable income, so the company
reduces its taxes by the amount of the investment multiplied by
its tax rate and then the state also pays a tax credit of a
percentage of the investment. This amendment establishes a
mechanism that caps the sum total of these two tax reductions so
that the state doesn't pay directly more than 65 percent of the
cost of an investment. If the cap figure is exceeded, any earned
credits are reduced to reach the 65 percent level. The cap would
not take effect until the tax rate exceeds 45 percent in the
typical investment in a producing oil field, which combined with
the 20 percent capital investment credit would equal the 65
percent cap. Under ACES, this rate is reached when the
production tax value or profit equals $80 barrel.
For explorers without taxable income the amendment, Senator
French said, won't have any significant impact. Such companies
do not pay a progressive tax rate, because they don't have any
income to tax. But, instead they now receive a flat 25 percent
net operating loss credit. Explorers can add this to either the
capital investment credit of 20 percent or the exploration
incentive credit, which is up to 40 percent, but regardless, it
wouldn't go over the 65 percent cap. This helps balance what
some consider the unequal distribution of credits between
producers and explorers and it does not touch Cook Inlet.
SENATOR STEDMAN stated that Pedro van Meurs has said that the
state is exposed to negative taxes from capital credits, but
other progressive issues might have to be solved first. Some
order of building the adjustments might be needed, but the gold
plating needs a test run no matter what they do.
2:11:10 PM
SENATOR FRENCH agreed and said they must look for the perfect
balance, because the state shouldn't be paying the whole cost of
any given investment. Reflecting on his visit to Norway, he said
even those patriots wouldn't do it.
SENATOR MCGUIRE observed that when she and Senator Wagoner put
the Cook Inlet credits together for the jack-up rigs, SB 309
required a 50 percent repayment upon success. They recognized
that it was important to partner in the risk of bringing in such
a large undertaking.
2:13:49 PM
CO-CHAIR PASKVAN invited Senator Wagoner to explain Item 17,
labeled 27-LS1305\B.3.
27-LS1305\B.3
Nauman/Bullock
A M E N D M E N T
OFFERED IN THE SENATE
TO: CSSB 192(RES), Draft Version "B"
Page 1, following "tax;":
Insert "providing for a tax credit applicable to
the oil and gas production tax based on the capital
cost of developing new oil and gas production;"
Page 1, following line 2:
Insert a new bill section to read:
"* Section 1. AS 43.20.043(g) is amended to read:
(g) A taxpayer that obtains a credit for a
qualified capital investment or cost incurred for
qualified services under this section may not also
claim a tax credit or royalty modification for the
same qualified capital investment or cost incurred for
qualified services under AS 38.05.180(i),
AS 41.09.010, AS 43.55.023, [OR] 43.55.025, or
43.55.026. However, a taxpayer may elect not to obtain
a credit under this section in order to qualify for a
credit provided under AS 38.05.180(i), AS 41.09.010,
AS 43.55.023, [OR] 43.55.025, or 43.55.026."
Page 1, line 3:
Delete "Section 1"
Insert "Sec. 2"
Page 2, line 6:
Delete all material and insert:
"* Sec. 3. AS 43.55 is amended by adding a new
section to read:
Sec. 43.55.026. Development cost credit. (a) This
section applies to a credit for a qualified
development expenditure incurred before 2018 and
before the start of sustained production that is
taxable under AS 43.55.011(e). The qualified
development expenditure must be incurred for
development outside of the Cook Inlet sedimentary
basin and outside of the Point Thomson unit
established under AS 38.05.180(p) as the area of the
Point Thomson unit existed on December 31, 2010. The
qualified development expenditure must be for the
development of a
(1) lease or property that, as of
December 31, 2010, contains land that is not or
previously had not been within a unit or is not or had
not previously been involved directly in sustained
production; or
(2) pool that, as of December 31, 2010, is
not directly involved in or had not previously been
involved directly in sustained production.
(b) The total amount of the credits under this
section is equal to 100 percent of the qualified
development expenditures that are incurred after the
completion of the first well drilled that discovers a
pool capable of commercial production from the lease
or property and before the start of sustained
production, less the amount of credits taken under
AS 43.55.023(a) and (b). In consultation with the
Alaska Oil and Gas Conservation Commission, the
department shall determine the date
(1) on which the first well drilled
discovered a pool capable of production; and
(2) of the start of sustained production
from the pool, lease, or property.
(c) A credit under this section may be applied
against the tax levied by AS 43.55.011(e) for the
pool, lease, or property that is the basis for the
credit until the credit for qualified development
expenditures has been fully applied.
(d) A qualified development expenditure that is
taken as a credit under this section may not be used
as an expenditure for which a credit may be taken
under AS 43.20.043. A credit under AS 43.55.023 may
not be taken against the tax levied by AS 43.55.011(e)
for the pool, lease, or property that is the basis for
a credit during the same month in which a credit is
taken under this section.
(e) A credit or portion of a credit under this
section is not transferable and may not be used to
reduce a person's tax liability under AS 43.55.011(e)
to below zero for any calendar year.
(f) The department shall adopt regulations
describing the procedures for determining the amount
of the credit, record keeping, verification of the
accuracy of the credit claimed, allocating
expenditures to a pool eligible for a credit under
(a)(2) of this section, and other regulations
necessary to administer this section.
(g) If a pool, lease, or property for which a
credit may be taken under this section subsequently
becomes a part of a unit, or a pool that is in a unit
first begins sustained production after December 31,
2010, the credit may be applied only against the tax
levied by AS 43.55.011(e) for the production of oil
and gas attributable to the pool, lease, or property
that qualified for the credit. For the purpose of
applying the credit, the tax shall be allocated to the
pool, lease, or property that qualified for the credit
in proportion to the volume of production from that
pool lease or property within the unit.
(h) In this section,
(1) "pool" has the meaning given in
AS 31.05.170;
(2) "qualified development expenditure"
means an expenditure, other than an expenditure for
exploring for new oil or gas reserves, that may be
recognized as a qualified capital expenditure as
defined in AS 43.55.023;
(3) "sustained production" has the meaning
given in AS 43.55.025(l).
* Sec. 4. AS 43.55.180(a) is amended to read:
(a) The department shall study
(1) the effects of the provisions of this
chapter on oil and gas exploration, development, and
production in the state, on investment expenditures
for oil and gas exploration, development, and
production in the state, on the entry of new producers
into the oil and gas industry in the state, on state
revenue, and on tax administration and compliance,
giving particular attention to the tax rates provided
under AS 43.55.011, the tax credits provided under
AS 43.55.023 - 43.55.026 [AS 43.55.023 - 43.55.025],
and the deductions for and adjustments to lease
expenditures provided under AS 43.55.160 - 43.55.170;
and
(2) the effects of the tax rates under
AS 43.55.011(i) on state revenue and on oil and gas
exploration, development, and production on private
land, and the fairness of those tax rates for private
landowners.
* Sec. 5. Section 2 of this Act takes effect
January 1, 2013.
* Sec. 6. Except as provided in sec. 5 of this
Act, this Act takes effect immediately under
AS 01.10.070(c)."
2:13:47 PM
CO-CHAIR WAGONER said the concept of this amendment came from
his SB 85 on explorer credits; if a company comes into Alaska
and explores and finds hydrocarbon that is producible and
commercial, then all expenses up to that point are subject to a
tax write off against production taxes for five years.
He said he thought this would really incentivize the explorers
to go to production, because now, they explore and find
producible hydrocarbons, but just try to flip and sell it. So,
the state still pays the high cost of exploration through
credits. If this were structured right, it would eliminate
paying those credits by saying they are not applicable. The
facilities for treating the oil would also be deductible, so
they wouldn't have to worry about making a discovery and then
having to negotiate facilities access to treat their oil before
putting it in the pipeline.
CO-CHAIR PASKVAN said that was the end of the concept
presentations. [SB 192 was held in committee.]
2:18:12 PM
CO-CHAIR PASKVAN adjourned the Senate Resources Standing
Committee meeting at 2:18 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| B-18 Simple Progressivity 2_Wielechowski.pdf |
SRES 2/25/2012 1:00:00 PM |
SB 192 |
| B-4 and B-5 Back-Up_McGuire.pdf |
SRES 2/25/2012 1:00:00 PM |
SB 192 |