Legislature(2023 - 2024)BUTROVICH 205
05/01/2024 03:30 PM Senate RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| SB69 | |
| HB50 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 50 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 69 | TELECONFERENCED | |
HB 50-CARBON STORAGE
4:05:59 PM
CO-CHAIR GIESSEL reconvened the meeting and announced the
consideration of CS FOR HOUSE BILL NO. 50(FIN) "An Act relating
to carbon storage on state land; relating to the powers and
duties of the Alaska Oil and Gas Conservation Commission;
relating to carbon storage exploration licenses; relating to
carbon storage leases; relating to carbon storage operator
permits; relating to enhanced oil or gas recovery; relating to
long-term monitoring and maintenance of storage facilities;
relating to carbon oxide sequestration tax credits; relating to
the duties of the Department of Natural Resources; relating to
carbon dioxide pipelines; and providing for an effective date."
CO-CHAIR GIESSEL solicited a motion.
4:06:25 PM
SENATOR CLAMAN moved to adopt [Amendment 1], work order 33-
GH1567\D.21.
33-GH1567\D.21
Dunmire
4/24/24
A M E N D M E N T 1
OFFERED IN THE SENATE BY SENATOR CLAMAN
TO: CSHB 50(FIN)
Page 2, following line 11:
Insert a new bill section to read:
"* Sec. 4. AS 31.05.030 is amended by adding a new
subsection to read:
(o) Each year, the commission shall
(1) prepare a report documenting each case
of oil and gas waste in the state during the preceding
calendar year and the actions taken by the commission
in response to the waste; and
(2) by the first day of each regular
session of the legislature, deliver the report
prepared under this subsection to the senate secretary
and the chief clerk of the house of representatives
and notify the legislature that the report is
available."
Renumber the following bill sections accordingly.
Page 35, line 2:
Delete "Section 39"
Insert "Section 40"
4:06:30 PM
CO-CHAIR GIESSEL objected for purposes of discussion.
4:07:20 PM
SENATOR CLAMAN said Amendment 1 is related to an ongoing debate
and court case regarding whether the Alaska Oil and Gas
Conservation Commission (AOGCC) is required to track waste in
the oil and gas industry - and to provide reports with this
data. He stated that AOGCC has at times taken the position that
it is not required to track waste once the product has passed
through the distributing station. He referred to a court case
involving AOGCC which clearly showed that waste tracking is part
of AOGCC's statutory duty. He said that Amendment 1 would ensure
that AOGCC executes this statutory duty by providing an annual
waste status report to the legislature.
4:08:44 PM
SENATOR WIELECHOWSKI pointed out that AS 31.05.030(b) states:
The commission shall investigate to determine whether
or not waste exists or is imminent, or whether or not
other facts exist which justify or require action by
it.
SENATOR WIELCHOWSKI asserted that AOGCC has not been meeting
this obligation. He stated that Amendment 1 would require AOGCC
to adhere to the current statutory requirement - and provide a
report to the legislature. He surmised that most could remember
massive waste in Cook Inlet, with leaks - which AOGCC did not
investigate. He opined that the legislature has a right to
ensure that the state's resources are being properly managed. He
argued that this is the legislature's constitutional obligation
and expressed support for Amendment 1.
4:09:36 PM
SENATOR KAUFMAN suggested that there may be a reason these
obligations have not been met. He questioned whether the
statutory reporting obligations are presenting a challenge - and
wondered if the requirement is impracticable.
4:10:22 PM
BRETT HUBER, Chair, Alaska Oil and Gas Conservation Commission
(AOGCC), Anchorage, Alaska, stated that this issue was subject
to litigation and was resolved. He explained that AOGCC
investigates waste as it relates to oil and gas production up to
the point of severance (i.e. when the oil and gas is sold).
After the point of severance, the pipeline responsibility
transfers to the Department of Environmental Conservation (DEC).
He clarified that AOGCC's waste responsibility applies to the
waste of any gas and/or oil resource that becomes a waste
insofar as it cannot be developed to its maximum potential. He
stated that AOGCC tracks waste by means of gas disposition
reports and briefly described this process. He said that oil
waste investigations are done via a "notice of violation"
investigation and briefly described this process. He emphasized
that AOGCC is fulfilling its statutory responsibility regarding
waste. He said that these reports are done monthly and are
available to the public via the AOGCC website. He expressed a
willingness to create an additional report containing this
information specifically for the legislature; however, he opined
that this report would be superfluous, as the information is
already made available.
4:12:52 PM
SENATOR KAUFMAN suggested that Amendment 1 may be a redundancy
on the current statutory requirement.
4:13:11 PM
SENATOR CLAMAN replied that part of the issue is determining
whether AOGCC's waste reporting requirements continue after the
point of severance. He explained that the statute does not
specify that AOGCC's reporting requirements end at the point of
severance. He said that the issue in Cook Inlet was related to
waste after the point to severance and involved a line that was
leaking. He opined that this information should be included in
AOGCC's report - regardless of whether the resource is no longer
the state's property.
4:14:13 PM
CO-CHAIR GIESSEL stated that she does not mind the reporting
requirement included in Amendment 1; however, she expressed
concern with adding language to require post-severance
reporting, as this is deviating from the original intent of HB
50.
4:14:39 PM
SENATOR CLAMAN clarified that the statute would remain unchanged
and emphasized that he is most concerned with receiving a waste
report from AOGCC. He agreed that post-severance waste is not
the issue addressed by HB 50. He reiterated that the statute
does not specify where AOGCC's waste-reporting requirement ends.
He suggested that not reporting on post-severance waste may
result in additional questions - and may require follow-up in
the future.
4:15:09 PM
CO-CHAIR GIESSEL removed her objection; she found no further
objection and Amendment 1 was adopted.
4:15:18 PM
CO-CHAIR GIESSEL solicited a motion.
4:15:21 PM
SENATOR CLAMAN moved to adopt Amendment 2, work order 33-
GH1567\D.22.
33-GH1567\D.22
Dunmire
4/24/24
A M E N D M E N T 2
OFFERED IN THE SENATE BY SENATOR CLAMAN
TO: CSHB 50(FIN)
Page 10, following line 1:
Insert a new subsection to read:
"(j) The commissioner or department may not
issue a license under this section after June 30,
2029."
Page 10, following line 18:
Insert a new subsection to read:
"(d) The commissioner or department may not
issue a lease under this section after June 30, 2029."
Page 11, following line 10:
Insert a new subsection to read:
"(f) The commissioner or department may not
issue a lease under this section after June 30, 2029."
Page 21, following line 4:
Insert a new subsection to read:
"(g) The commission may not issue a new permit
under this section after June 30, 2029."
4:15:25 PM
CO-CHAIR GIESSEL objected for purposes of discussion.
4:15:29 PM
SENATOR CLAMAN said Amendment 2 is a sunset provision. He
pointed out that the intention of HB 50 is to create a structure
for carbon capture based on hypothetical scenarios - and
Amendment 2 would allow for ease of continuation (if what is put
in place now is working well in the future) or adjustment, if
needed. He expressed concern about legislation that is based on
hypothetical scenarios due to their inherent uncertainty and
emphasized the need for a sunset provision.
4:17:01 PM
JOHN BOYLE, Commissioner, Department of Natural Resources (DNR),
Anchorage, Alaska, said that DNR is opposed to Amendment 2 as it
is currently written. He emphasized that a five-year sunset
window is too brief, due to the newness of the industry. He
pointed out that there are no carbon capture, utilization, and
storage (CCUS) projects currently in place and suggested that
the sunset provision could lessen confidence within the
investment community as it considers Alaska CCUS projects. He
shared his belief that a short sunset window may drive investors
to consider longer, more secure options. He stated that, in
general, development projects can take up to ten years and
reiterated that five-years is too short. He added that this,
combined with no associated credits, is overly constrictive -
particularly when the intention is to encourage the market and
developers to visit Alaska and consider the opportunities that
are available. He expressed confidence in future legislatures'
ability to make changes as needed. He emphasized that Amendment
1 would dampen potential investments before the industry has
been established.
4:20:43 PM
CO-CHAIR BISHOP agreed that projects often take a decade to
begin, even without challenges.
4:21:03 PM
SENATOR KAUFMAN agreed that this would dampen the potential for
CCUS projects in Alaska and stated that he does not support
Amendment 2.
4:21:22 PM
SENATOR CLAMAN noted that Amendment 2 would not prohibit DNR
from entering into a carbon storage lease agreement that
extended well beyond the 5-year sunset date. He said that adding
a sunset date for the law does not mean the legislature could
terminate the lease agreement; rather, it would mean that the
legislature could renew the law under reasonable terms.
CO-CHAIR GIESSEL found the objection was maintained and asked
for a roll call vote.
4:22:33 PM
A roll call vote was taken. Senators Kawasaki, Dunbar, and
Claman voted in favor of Amendment 2 and Senators Wielechowski,
Kaufman, Bishop, and Giessel voted against it. The vote was 3:4.
4:22:35 PM
CO-CHAIR GIESSEL announced that Amendment 2 failed on a vote of
3 yeas and 4 nays.
4:22:38 PM
CO-CHAIR GIESSEL solicited a motion.
4:22:45 PM
SENATOR WIELECHOWSKI moved to adopt Amendment 3, work order 33-
GH1567\D.29.
33-GH1567\D.29
Dunmire
4/30/24
A M E N D M E N T 3
OFFERED IN THE SENATE
TO: CSHB 50(FIN)
Page 12, following line 5:
Insert a new section to read:
"Sec. 38.05.740. Removal and restoration after
termination. Upon termination of a license under
AS 38.05.705 or a lease under AS 38.05.715 or
38.05.720, a licensee or lessee shall promptly remove
all improvements and equipment, except as otherwise
approved in writing by the commissioner, and shall
restore the land to a condition that is approved by
the commissioner."
4:22:50 PM
CO-CHAIR GIESSEL objected for purposes of discussion.
4:23:13 PM
SENATOR WIELECHOWSKI said that he worked with DNR to draft
Amendment 3, which relates to removal and restoration after
license and/or lease termination. He stated that DNR has
indicated support for the amendment.
4:23:30 PM
COMMISSIONER BOYLE said DNR has no objection to Amendment 3.
4:23:44 PM
CO-CHAIR GIESSEL removed her objection; she found no further
objection and Amendment 3 was adopted.
4:24:01 PM
CO-CHAIR GIESSEL solicited a motion.
4:24:17 PM
SENATOR WIELECHOWSKI moved to adopt Amendment 4, work order 33-
GH1567\D.34.
33-GH1567\D.34
Dunmire
4/30/24
A M E N D M E N T 4
OFFERED IN THE SENATE
TO: CSHB 50(FIN)
Page 8, line 9, following "proposal":
Insert ", including a proposal for the
authorization of subsurface storage of oil or gas
under AS 38.05.180(u),"
4:24:21 PM
CO-CHAIR GIESSEL objected for purposes of discussion.
4:24:26 PM
SENATOR WIELECHOWSKI said that he worked with DNR to draft
Amendment 4, which addresses the potential for competing wells
in Cook Inlet. He explained that this amendment would require
DNR to provide public notice when there is interest in an
exploratory license. This would help to ensure that a lease is
not inadvertently given for carbon storage in a gas storage well
that may be needed in Cook Inlet. He opined that it is in the
state's best interest to prioritize gas storage over carbon
storage in Cook Inlet. He clarified that Amendment 4 does not
prioritize gas storage; however, it provides notice when there
is interest. He opined that it is important to inform the
public.
4:25:15 PM
COMMISSIONER BOYLE said that DNR has no objection to Amendment
4.
4:25:26 PM
SENATOR KAUFMAN asked whether it is very likely for carbon
storage to compete with gas storage in this way - or whether
different formations would lend themselves to either carbon or
gas.
4:25:58 PM
JOHN CROWTHER, Deputy Commissioner, Department of Natural
Resources (DNR), Anchorage, Alaska, replied that DNR does not
believe this is a likely scenario; however, DNR appreciates the
intent to clarify this in statute. He stated that DNR has no
objection to Amendment 4.
4:26:22 PM
CO-CHAIR GIESSEL removed her objection; she found no further
objection and Amendment 4 was adopted.
4:26:38 PM
CO-CHAIR GIESSEL solicited a motion.
4:26:39 PM
SENATOR WIELECHOWSKI moved to adopt Amendment 5, work order 33-
GH1567\D.35.
33-GH1567\D.35
Dunmire
4/30/24
A M E N D M E N T 5
OFFERED IN THE SENATE
TO: CSHB 50(FIN)
Page 6, lines 10 - 14:
Delete all material.
Page 6, lines 30 - 31:
Delete "applicable to a carbon storage
exploration license under regulations adopted under
AS 38.05.700(c)"
Insert "that is at least $20 an acre"
Page 7, lines 5 - 6:
Delete "meet the requirements of regulations
adopted under AS 38.05.700(c)"
Insert "provide for
(A) an annual rent of at least $20 an acre;
and
(B) a charge on injected volumes of carbon
dioxide of at least $2.50 a ton"
Page 7, following line 22:
Insert a new subsection to read:
"(g) The dollar amounts in (c) of this section
shall increase every five years in proportion to the
Consumer Price Index for urban consumers for urban
Alaska, as determined by the United States Department
of Labor, Bureau of Labor Statistics. The index for
January 2024 is the reference base index."
Page 7, line 29:
Delete "under regulations adopted under
AS 38.05.700(c)"
Insert "that satisfy the requirements of
AS 38.05.705(c)(3)"
Page 10, line 12:
Delete "or in regulation"
Page 10, following line 12:
Insert a new subsection to read:
"(c) Notwithstanding (b) of this section, if the
commissioner determines that a carbon storage project
is in the best interests of the state and would not be
economically feasible under the commercial terms set
by the license, the commissioner may issue the carbon
storage lease under alternative commercial terms. A
lease issued under this subsection must be supported
by a written finding that contains specific factual
details justifying the decision, an explanation of the
commissioner's reasons for issuing the lease, and a
description of the original terms and the alternative
terms of the lease. The finding must be published on
the commissioner's publicly available Internet
website."
Reletter the following subsection accordingly.
Page 10, lines 14 - 15:
Delete "as set out in the commissioner's finding
under AS 38.05.710(c)"
Page 10, lines 30 - 31:
Delete "as required by regulations adopted under
AS 38.05.700(c)"
Insert "that satisfy the requirements of
AS 38.05.705(c)(3)"
4:26:46 PM
CO-CHAIR GIESSEL objected for purposes of discussion.
4:26:51 PM
SENATOR WIELECHOWSKI said that he worked with DNR to draft
Amendment 5, which adds back minimum terms that were removed in
the House. In addition, it contains a mechanism by which the
commissioner can lower these terms, if it is in the best
interest of project economics. He said that HB 50 provides that
the acreage and exploration fees are established by the
commissioner - and this would create a minimum $20 per acre CCUS
license fee and an injection fee of $2.50 per ton. This amount
would be increased every five years, based on the Consumer Price
Index (CPI). He reiterated that the commissioner would be able
to lower these terms if the project is deemed uneconomic - and
if it is determined to be in the best interest of the state. He
shared his understanding that DNR is in support of this
amendment.
4:28:29 PM
COMMISSIONER BOYLE expressed appreciation to Senator
Wielechowski for working with DNR on Amendment 4. He said that
historically, DNR has opposed set minimums, as the project
economics are unknown. He opined that there are myriad CCUS
opportunities - and each scenario can have markedly different
project economics and cost structures. He explained that having
no set minimum allows for greater project flexibility and opined
that the provision allowing the commissioner to consider the
minimum on a project-by-project basis is a good solution. He
stated that DNR supports Amendment 4.
4:30:00 PM
CO-CHAIR BISHOP asked how the state would gather revenue if the
fees went below the minimums.
4:30:17 PM
COMMISSIONER BOYLE offered a hypothetical situation and stated
that in some cases - though the state may recognize a
significant source of revenue - the minimum fees may not be
economically feasible for the other party. In that case, if the
fees can be lowered such that the state would receive something
less than the minimum - but more than zero - this would be in
the state's best interest.
4:31:39 PM
CO-CHAIR GIESSEL removed her objection; she found no further
objection and Amendment 5 was adopted.
4:31:54 PM
CO-CHAIR GIESSEL solicited a motion.
4:31:59 PM
SENATOR WIELECHOWSKI moved to adopt Amendment 6, work order 33-
GH1567\D.39.
33-GH1567\D.39
Dunmire
5/1/24
A M E N D M E N T 6
OFFERED IN THE SENATE BY SENATOR WIELECHOWSKI
TO: Amendment D.35 to CSHB 50(FIN)
Page 1, before line 1 of the amendment:
Insert new material to read:
"Page 2, following line 15:
Insert a new bill section to read:
"* Sec. 5. AS 37.13.010(a) is amended to read:
(a) Under art. IX, sec. 15, of the state
constitution, there is established as a separate fund
the Alaska permanent fund. The Alaska permanent fund
consists of
(1) 25 percent of all mineral lease
rentals, royalties, royalty sale proceeds, net profit
shares under AS 38.05.180(f) and (g), and federal
mineral revenue sharing payments received by the state
from mineral leases issued on or before December 1,
1979, and 25 percent of all bonuses received by the
state from mineral leases issued on or before
February 15, 1980;
(2) 50 percent of all mineral lease
rentals, royalties, royalty sale proceeds, net profit
shares under AS 38.05.180(f) and (g), carbon storage
injection royalties required under
AS 38.05.705(c)(3)(B), and federal mineral revenue
sharing payments received by the state from mineral
leases issued after December 1, 1979, and 50 percent
of all bonuses received by the state from mineral
leases issued after February 15, 1980; and
(3) any other money appropriated to or
otherwise allocated by law or former law to the Alaska
permanent fund."
Renumber the following bill sections accordingly."
Page 1, line 17 of the amendment:
Delete "a new subsection"
Insert "new subsections"
Page 1, line 21 of the amendment:
Delete """
Page 1, following line 21 of the amendment:
Insert a new subsection to read:
"(h) A charge on injected volumes of carbon
dioxide required under (c)(3)(B) of this section is a
royalty for the purposes of the Alaska permanent fund
under AS 37.13.010.""
Page 2, following line 26 of the amendment:
Insert new material to read:
"Page 11, line 27, following "provided":
Insert "in AS 38.05.705(h) or"
Page 35, line 2:
Delete "Section 39"
Insert "Section 40""
4:32:03 PM
CO-CHAIR GIESSEL objected for purposes of discussion.
4:32:06 PM
SENATOR WIELECHOWSKI said that Amendment 6 amends Amendment 5.
He explained that lines 14-15 explicitly declares that injection
charges generated as revenue for the state are considered a
royalty share for use of the state's mineral resources. He
surmised that there may be some question of whether these are
royalties, since they are going into the state's pore space -
and opined that this provides clarity. He shared his
understanding that DNR is accepting of these changes.
4:33:02 PM
CO-CHAIR GIESSEL said that Amendment 6 refers to AS
38.05.705(c)(3)(b), which can be found in lines 9-14 of
Amendment 5.
4:33:50 PM
COMMISSIONER BOYLE said that DNR considers this to be a valid
legislative policy and does not oppose Amendment 6.
4:34:14 PM
SENATOR WIELECHOWSKI pointed out that there is a minor drafting
error in Amendment 6. He said that this amendment provides for
carbon storage injection royalties under AS 38.05.705 (c)(3)(b);
however, the drafter did not account for the commissioner's
ability to alter this under AS 38.05.715 (c).
4:34:49 PM
SENATOR WILECHOWSKI moved to adopt Conceptual Amendment 1 to
Amendment 6, which would add a provision to Page 1, line 15
stating, "or as altered by the commissioner under AS 38.05.715
(c)".
4:35:16 PM
CO-CHAIR GIESSEL objected for purposes of discussion.
4:35:25 PM
CO-CHAIR GIESSEL removed her objection. [She found no further
objection and Conceptual Amendment 1 to Amendment 6 was
adopted.]
CO-CHAIR GIESSEL returned the committee's attention to Amendment
6, as amended.
4:35:42 PM
CO-CHAIR GIESSEL removed her objection; she found no further
objection and Amendment 6, as amended, was adopted.
4:36:12 PM
At ease
4:37:25 PM
CO-CHAIR GIESSEL reconvened the meeting.
4:37:31 PM
CO-CHAIR GIESSEL solicited a motion.
4:37:41 PM
SENATOR WIELECHOWSKI moved to adopt Amendment 7, work order 33-
GH1567\D.36.
33-GH1567\D.36
Dunmire
4/30/24
A M E N D M E N T 7
OFFERED IN THE SENATE BY SENATOR WIELECHOWSKI
TO: CSHB 50(FIN)
Page 1, line 5, following "credits;":
Insert "relating to the oil and gas production
tax;"
Page 32, following line 13:
Insert a new bill section to read:
"* Sec. 38. AS 43.55.165(e) is amended to read:
(e) For purposes of this section, lease
expenditures do not include
(1) depreciation, depletion, or
amortization;
(2) oil or gas royalty payments, production
payments, lease profit shares, or other payments or
distributions of a share of oil or gas production,
profit, or revenue, except that a producer's lease
expenditures applicable to oil and gas produced from a
lease issued under AS 38.05.180(f)(3)(B), (D), or (E)
include the share of net profit paid to the state
under that lease;
(3) taxes based on or measured by net
income;
(4) interest or other financing charges or
costs of raising equity or debt capital;
(5) acquisition costs for a lease or
property or exploration license;
(6) costs arising from fraud, wilful
misconduct, gross negligence, violation of law, or
failure to comply with an obligation under a lease,
permit, or license issued by the state or federal
government;
(7) fines or penalties imposed by law;
(8) costs of arbitration, litigation, or
other dispute resolution activities that involve the
state or concern the rights or obligations among
owners of interests in, or rights to production from,
one or more leases or properties or a unit;
(9) costs incurred in organizing a
partnership, joint venture, or other business entity
or arrangement;
(10) amounts paid to indemnify the state;
the exclusion provided by this paragraph does not
apply to the costs of obtaining insurance or a surety
bond from a third-party insurer or surety;
(11) surcharges levied under AS 43.55.201
or 43.55.300;
(12) an expenditure otherwise deductible
under (b) of this section that is a result of an
internal transfer, a transaction with an affiliate, or
a transaction between related parties, or is otherwise
not an arm's length transaction, unless the producer
establishes to the satisfaction of the department that
the amount of the expenditure does not exceed the fair
market value of the expenditure;
(13) an expenditure incurred to purchase an
interest in any corporation, partnership, limited
liability company, business trust, or any other
business entity, whether or not the transaction is
treated as an asset sale for federal income tax
purposes;
(14) a tax levied under AS 43.55.011 or
43.55.014;
(15) costs incurred for dismantlement,
removal, surrender, or abandonment of a facility,
pipeline, well pad, platform, or other structure, or
for the restoration of a lease, field, unit, area,
tract of land, body of water, or right-of-way in
conjunction with dismantlement, removal, surrender, or
abandonment; a cost is not excluded under this
paragraph if the dismantlement, removal, surrender, or
abandonment for which the cost is incurred is
undertaken for the purpose of replacing, renovating,
or improving the facility, pipeline, well pad,
platform, or other structure;
(16) costs incurred for containment,
control, cleanup, or removal in connection with any
unpermitted release of oil or a hazardous substance
and any liability for damages imposed on the producer
or explorer for that unpermitted release; this
paragraph does not apply to the cost of developing and
maintaining an oil discharge prevention and
contingency plan under AS 46.04.030;
(17) costs incurred to satisfy a work
commitment under an exploration license under
AS 38.05.132;
(18) that portion of expenditures, that
would otherwise be qualified capital expenditures, as
defined in AS 43.55.023, incurred during a calendar
year that are less than the product of $0.30
multiplied by the total taxable production from each
lease or property, in BTU equivalent barrels, during
that calendar year, except that, when a portion of a
calendar year is subject to this provision, the
expenditures and volumes shall be prorated within that
calendar year;
(19) costs incurred for repair,
replacement, or deferred maintenance of a facility, a
pipeline, a structure, or equipment, other than a
well, that results in or is undertaken in response to
a failure, problem, or event that results in an
unscheduled interruption of, or reduction in the rate
of, oil or gas production; or costs incurred for
repair, replacement, or deferred maintenance of a
facility, a pipeline, a structure, or equipment, other
than a well, that is undertaken in response to, or is
otherwise associated with, an unpermitted release of a
hazardous substance or of gas; however, costs under
this paragraph that would otherwise constitute lease
expenditures under (a) and (b) of this section may be
treated as lease expenditures if the department
determines that the repair or replacement is solely
necessitated by an act of war, by an unanticipated
grave natural disaster or other natural phenomenon of
an exceptional, inevitable, and irresistible
character, the effects of which could not have been
prevented or avoided by the exercise of due care or
foresight, or by an intentional or negligent act or
omission of a third party, other than a party or its
agents in privity of contract with, or employed by,
the producer or an operator acting for the producer,
but only if the producer or operator, as applicable,
exercised due care in operating and maintaining the
facility, pipeline, structure, or equipment, and took
reasonable precautions against the act or omission of
the third party and against the consequences of the
act or omission; in this paragraph,
(A) "costs incurred for repair,
replacement, or deferred maintenance of a facility, a
pipeline, a structure, or equipment" includes costs to
dismantle and remove the facility, pipeline,
structure, or equipment that is being replaced;
(B) "hazardous substance" has the meaning
given in AS 46.03.826;
(C) "replacement" includes renovation or
improvement;
(20) costs incurred to construct, acquire,
or operate a refinery or crude oil topping plant,
regardless of whether the products of the refinery or
topping plant are used in oil or gas exploration,
development, or production operations; however, if a
producer owns a refinery or crude oil topping plant
that is located on or near the premises of the
producer's lease or property in the state and that
processes the producer's oil produced from that lease
or property into a product that the producer uses in
the operation of the lease or property in drilling for
or producing oil or gas, the producer's lease
expenditures include the amount calculated by
subtracting from the fair market value of the product
used the prevailing value, as determined under
AS 43.55.020(f), of the oil that is processed;
(21) costs of lobbying, public relations,
public relations advertising, or policy advocacy;
(22) costs incurred as part of a capital
expenditure or other action taken for a carbon
management purpose under AS 38.05.081 or a carbon
offset project under AS 38.95.400 - 38.95.499;
(23) costs incurred to construct, acquire,
modify, operate, dismantle, or remove a facility for
carbon capture, carbon utilization, or carbon storage,
including construction and modification of new or
existing infrastructure as well as costs associated
with obtaining, operating, or maintaining a license or
lease under AS 38.05.700 - 38.05.795, fees incurred
under AS 41.06.160, or surcharges incurred under
AS 41.06.175."
Renumber the following bill sections accordingly.
Page 35, line 2:
Delete "Section 39"
Insert "Section 40"
4:37:46 PM
CO-CHAIR GIESSEL objected for purposes of discussion.
4:37:50 PM
SENATOR WIELECHOWSKI said that the fundamental changes made by
Amendment 7 can be found on Page 4, lines 17-22. He said that
previous testimony indicated that CCUS projects are expensive
and therefore uneconomic. He pointed out that, according to DNR
and DOR, there are no CCUS projects (although they can currently
be done) as a result. He said that the lease expenditure statute
is contorted by the fact that an extremely expensive (and thus
uneconomic) project will likely become economic as 45Q tax
credits become available. (He noted that these credits have been
available; however, the technology is just now reaching a place
where companies are able to use them.) He referred to a
prospective field on the North Slope - and shared his
understanding that several companies are considering this field.
However, previous testimony indicated that the state would face
over $400 million in lost revenue. He noted that the Willow
Project was rushed through during the previous legislative
session and received unanimous support. He surmised that not
many were aware that the state does not receive royalties for
that project; however, the lease expenditures cost $600 million
in 2024 and are projected to cost $550 million in 2025 and will
continue to cost similar amounts in the succeeding years.
4:40:25 PM
SENATOR WIELECHOWSKI stated that Amendment 7 is an attempt to
prevent this kind of significant budget loss from happening
again. He acknowledged that this may not occur; however, he
opined that there is no problem with adding provisions to help
avoid this. He said that he has spoken with DNR and the
Department of Revenue (DOR) about these changes and is committed
to working with them. He reiterated that he does not want this
to be restrictive and reiterated his concerns regarding 45Q tax
credits. He argued that this has the potential to cost the state
hundreds of millions of dollars - or even billions of dollars -
in lost revenue. He said that DNR can speak to concerns
regarding the language. He expressed concern about the state
potentially funding billions of dollars' worth of projects that
are also receiving 45Q tax credits. He clarified that CCUS
projects should not be (and are not) receiving these credits -
which could be confirmed by DNR. He opined that it is in the
state's best interest to ensure that this does not happen. He
expressed a desire to support enhanced oil recovery (EOR) but
expressed doubt that EOR with carbon would become more economic
for the state.
4:42:57 PM
COMMISSIONER BOYLE said that DNR is opposed to Amendment 7 as
currently written. He explained that HB 50 would authorize the
leasing and regulation of underground, permanent CO2 storage. He
said that this provides an opportunity to grow the state's
economy and monetize a resource that has not been utilized. He
clarified that the 45Q tax credit program has been in place
since 2008. The amount of the credit is set to increase - and
this will provide additional incentive for companies to consider
the various options available to them. He explained that there
is a $60 credit for captured carbon that is utilized in enhanced
oil recovery - and there are no restrictions on this credit.
Currently, companies qualified for this credit are also entitled
to a state credit, because the current state tax code has
adopted section 45Q of the federal tax code.
4:45:50 PM
COMMISSIONER BOYLE said that the current version of HB 50 has
closed the state portion of this credit, reducing the total
amount companies would receive. He said that market economics
and project viability are the primary barriers to these
projects. He briefly discussed lease expenditures and shared his
understanding that CCUS projects would not be able to claim
these expenditures as lease expenditures under the existing
production tax code. He stated that Amendment 7 would remove the
ability for companies to utilize the 45Q tax credit.
4:47:45 PM
COMMISSIONER BOYLE expressed concern that the language of
Amendment 7 is extremely broad and may inadvertently impact
existing, ongoing, EOR efforts - rather than simply applying to
projects that are utilizing captured carbon for EOR. He stated
that DNR understands the concerns behind the amendment. He
indicated a willingness to put a mechanism in place that would
ensure that the state is not potentially losing revenue from
lease expenditures - while also leaving the door open for
beneficial projects.
4:50:40 PM
MR. CROWTHER noted that the hypothetical situation discussed at
the previous hearing featured a project that covered all North
Slope activity and involved roughly 2 million tons of CO2
capture. He stated that a project of this size is unlikely to
happen more than once in Alaska.
4:51:31 PM
CO-CHAIR GIESSEL asked him to elaborate on the complexity of
utilizing CO2 for EOR, and the costs of the technology used.
4:51:54 PM
COMMISSIONER BOYLE explained that CO2 can be corrosive when
hydrated or associated with water and therefore poses a
challenge for use in EOR. He said that the facilities,
pipelines, and injection wells that handle CO2 are built to
specifications that surpass those of typical oil and gas
infrastructure. He explained that, while CO2 alone creates
myriad challenges, CO2 can be mixed with polymers and other
additions that would then allow for its use in EOR. He surmised
that a lack of projects - in spite of available credits - is a
good indication that CO2 for EOR is not economic at this time.
He reiterated that CO2 can be mixed with various additives and
opined that it should be considered as a potential feed stock
for EOR.
4:54:55 PM
MR. CROWTHER referred again to the hypothetical project
presented at the previous meeting and said that the majority of
the costs were associated with CO2 capture - rather than
operations in the field. He clarified that in the international
conversation regarding these types of projects, CO2 capture is
the cost driver.
4:55:59 PM
DAN STICKEL, Chief Economist, Department of Revenue (DOR),
Juneau, Alaska, said that DOR allows direct costs of oil and gas
production as lease expenditure deductions in the oil and gas
production tax. He noted that AS 43.55.165 contains a list of
items that the legislature has disallowed as lease expenditure
deductions. He explained that Amendment 7 would add any carbon-
capture related costs to the list of items that are not
allowable lease expenditures.
4:56:55 PM
CO-CHAIR BISHOP asked if Amendment 7 delineates between point
source capture and capture for EOR purposes.
4:57:13 PM
MR. STICKEL replied that this distinction is the key point for
DOR. He explained that, in current law, a standalone carbon
capture facility would not be an allowable lease expenditure. He
noted that HB 50 would not change this. However, current law
does allow lease expenditure deductions for a portion of the
costs from carbon capture facilities that are tied in with EOR.
He explained that these costs must be deemed "ordinary and
necessary, upstream, direct costs related to EOR." He stated
that Amendment 7 would disallow any costs associated with carbon
capture, regardless of whether the carbon capture is associated
with EOR. He said that DOR opposes Amendment 7 and added that
the purpose of HB 50 is to establish the framework for
standalone carbon capture, whereas the amendment changes how
carbon capture is treated under current law.
4:58:34 PM
SENATOR WIELECHOWSKI agreed that Amendment 7 does address
ordinary and necessary costs - which are currently allowable. He
argued that the ordinary and necessary costs for carbon capture
EOR are extraordinarily expensive. He pointed out that many
recent policy decisions have indicated that these costs are not
supported by the legislature. He listed several states that do
not allow these types of lease expenditure deductions. He said
that, while there are no current projects - and if future
projects are unlikely - Amendment 7 would simply offer
additional support to ensure that the state's interests are
protected. He pointed out that even one project at the level
presented by DNR at the previous hearing would cost the state
$400-$800 million. He said that he would be happy to work with
DOR to address this issue and come up with a solution. He
expressed concern and reiterated that federal tax credits could
potentially cost the state hundreds of millions - or billions -
of dollars in lost revenue.
5:01:26 PM
MR. STICKEL replied that DOR does not seek to make changes to
current law that would disincentivize investors. He expressed a
willingness to discuss this further and hopefully come to a
compromise.
5:01:51 PM
CO-CHAIR BISHOP asked if modeling and quantification are sought
to ensure that any changes made do not disincentivize
investments.
5:02:05 PM
MR. STICKEL replied that DNR has done some modeling of potential
projects. He acknowledged that any project with a carbon capture
facility associated with EOR would be eligible for partial-cost
lease expenditure deductions - and this could potentially impact
state revenues at a future time. He reiterated that DOR seeks to
maintain a positive investment climate.
5:02:53 PM
CO-CHAIR GIESSEL noted that Amendment 7 to HB 50 was pending
adoption.
5:03:19 PM
[CO-CHAIR GIESSEL held HB 50 in committee.]
5:03:49 PM
There being no further business to come before the committee,
Co-Chair Giessel adjourned the Senate Resources Standing
Committee meeting at 5:03 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 50 Public Testimony Rec'd as of 4.30.24.pdf |
SRES 5/1/2024 3:30:00 PM |
HB 50 |
| SB 69 Public Testimony Rec'd as of 05.01.24.pdf |
SRES 5/1/2024 3:30:00 PM |
SB 69 |
| SB 69 CS Workdraft Version R.pdf |
SRES 5/1/2024 3:30:00 PM |
SB 69 |
| SB 69 Explanation of Changes Ver. A to Ver. R.pdf |
SRES 5/1/2024 3:30:00 PM |
SB 69 |
| HB 50 Amendment #D.21.pdf |
SRES 5/1/2024 3:30:00 PM |
HB 50 |
| HB 50 Amendment #D.22.pdf |
SRES 5/1/2024 3:30:00 PM |
HB 50 |
| HB 50 Amendment #D.34.pdf |
SRES 5/1/2024 3:30:00 PM |
HB 50 |
| HB 50 Amendment #D.35.pdf |
SRES 5/1/2024 3:30:00 PM |
HB 50 |
| HB 50 Amendment #D.39.pdf |
SRES 5/1/2024 3:30:00 PM |
HB 50 |
| HB 50 Amendment #D.36.pdf |
SRES 5/1/2024 3:30:00 PM |
HB 50 |
| HB 50 Amendment #D.29.pdf |
SRES 5/1/2024 3:30:00 PM |
HB 50 |