Legislature(2017 - 2018)BARNES 124
03/10/2017 01:00 PM House RESOURCES
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| Presentation(s): Department of Revenue - the Competitivness Review Board (o&gcrb) | |
| Confirmation Hearings(s): Alaska Oil and Gas Conservation Commission (aogcc) | |
| HB111 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| += | HB 111 | TELECONFERENCED | |
HB 111-OIL & GAS PRODUCTION TAX; PAYMENTS; CREDITS
2:11:46 PM
CO-CHAIR TARR announced that the final order of business would
be HOUSE BILL NO. 111, "An Act relating to the oil and gas
production tax, tax payments, and credits; relating to interest
applicable to delinquent oil and gas production tax; and
providing for an effective date."
2:12:01 PM
CO-CHAIR JOSEPHSON moved to adopt the proposed committee
substitute (CS) for HB 111, Version 30-LS0450\N, Nauman,
3/10/17, as the working document.
2:12:19 PM
CO-CHAIR TARR objected for discussion purposes. She stated the
intent of the co-chairs is to give the committee an opportunity
to review the CS and, following that, the bill would be held in
committee.
[A discussion ensued regarding the committee's development and
handling of the CS.]
2:19:50 PM
LISA WEISSLER, Staff to Representative Andy Josephson, directed
attention to a document, entitled "Comparison of HB 111 with
Committee Substitute Work Draft (Resources)," dated 3/9/17, to
point out the side by side analysis/comparison. The first
change is an addition of intent language such that contingent on
the passage of a fiscal plan, a substantial portion of the
outstanding transferable and production tax credit certificates
would be purchased.
CO-CHAIR TARR interjected that another vehicle for establishing
legislative intent could be brought via a letter of intent;
however, having the language included in the bill provides a
stronger message in which to outline a means to address the
existing debt.
MS. WEISSLER said the interest statement in Section 1 became
Section 2 in the CS ("Version N"), without change. Section 2 in
the original bill raised the minimum tax from 4 percent to 5
percent; Section 6 in Version N would set the minimum tax at 5
percent, when the average Alaska North Slope (ANS) price is $50
or more, and at 4 percent, when the average ANS price is less
than $50, and it would remove the variable minimum tax rate.
2:22:46 PM
The committee took an at-ease from 2:22 p.m. to 2:24 p.m. due to
technical difficulties.
[A series of intermittent technical difficulties caused
interruptions and some testimony was lost.]
CO-CHAIR TARR commented that changing the minimum oil tax to
reflect a benchmark rate of $50.00 per barrel was done in
response to industry to better reflect the current low-price
environment.
2:25:11 PM
The committee took an at-ease from 2:25 p.m. to 2:34 p.m. due to
technical difficulties.
2:34:04 PM
MS. WEISSLER returned attention to the comparison and said there
was a mistake in Section 2 of the original bill, which ended the
minimum tax for oil in 2022 when the net production tax for gas
was slated to change to a gross value tax. Version N makes the
necessary correction to apply the minimum tax to oil
indefinitely and end it only for gas in 2022. A new section to
AS 43.55.011 related to reducing the minimum tax below the floor
was not changed. In order to stop industry's use of the per
barrel tax credit in months that would reduce their tax, Section
7 of Version N would delete language in AS 43.05.011(q) and add
new language in AS 43.05.011 (j) that better addresses the issue
of the credits being applied in different months. [Indisc. due
to audio recording technical difficulties.]
REPRESENTATIVE RAUSCHER asked whether per barrel tax credits are
being applied in the same fiscal or calendar year.
MS. WEISSLER answered that credits have been allowed during the
same calendar year.
2:37:36 PM
The committee took an at-ease from 2:37 p.m. to 2:42 p.m. due to
technical difficulties.
2:42:34 PM
MS. WEISSLER explained that HB 111 initially proposed, in
Section [5], to change the North Slope carry forward annual net
operating loss (NOL) credit rate, as established under AS
43.55.023(b), from 35 percent to 15 percent for the purpose of
matching the production tax rate with the carry forward or NOL
rate. Currently, the per barrel credits added in by Senate Bill
21 [passed in the Twenty-Eighth Alaska State Legislature]
distort the 35 percent matching rates. Ms. Weissler referred to
testimony by legislative consultants related to carry forward
losses, and noted that another provision of HB 111 was to
eliminate cash credits for NOLs.
REPRESENTATIVE RAUSCHER paraphrased a quote from a consultant,
stating, "If you're not allowed to recover your costs, that puts
Alaska on the bottom of the competition scale around the world."
He noted that [the proposed change from 35 percent to 15
percent] represents a significant percentage drop.
CO-CHAIR TARR advised that the remainder of the presentation
should provide an understanding of how the consultant's
recommendation is being followed.
MS. WEISSLER restated the original intent of HB 111 was to
reduce NOLs to 15 percent and eliminate cash credits, which
would be "a very big hit to the independent producers." She
said the state seeks to keep independent producers operating in
Alaska; therefore, Version N, Sections 9 and 24-26, introduce
carry forward deductions. She continued, as follows:
We get rid of the net operating loss credits - people
carry the deduction forward. Now, typically that
would be 100 percent of someone's cost .... The issue
that we have here in Alaska is this distortion that we
refer to of a 35 percent tax rate with per barrel
credits and where the effective tax rate is lower than
that 35 percent. And so, speaking in the context of
major producers who have tax liability, if they came
to a point where they had a net operating loss that
was carry forward, where they got an uplift - and the
uplift, I should mention, and this will be in Section
26 of [Version] N, is 7 percent above the [U.S.
Federal Reserve System] rate - they'll get that
interest, they carry forward a hundred percent of
their net operating loss. However, when they accrued
that loss they would have only been paying an
effective tax rate of say 15, 17 percent. And so, to
... correct for that, ... because of our tax system,
it's being set at 50 percent of the net operating loss
carry forward, and that has the same effect as how the
original bill was written, ... taking 35 percent tax
rate, 15 percent net operating losses. So, ... that's
how this works.
For the major producers, it won't have a huge effect
... because they generally have tax liability; they
are able to take a hundred percent of their deductions
in a year. Now, we'll talk about the independents,
who don't have production, or the explorers. ...
They'll be able to carry 50 percent of their net
operating losses forward, they'll have the uplift -
this interest that will address the time value of
money - but they are getting 50 percent of their net
operating losses, where the major producers, who have
a tax liability, are getting a hundred percent. So,
this is essentially a policy call in terms of our tax
structure.
MS. WEISSLER pointed out that this structure has been set up in
an effort to level the playing field between majors and
independents, and she specified that the provision would apply
to operators only on the North Slope, not to those in Middle
Earth or Cook Inlet.
2:49:24 PM
CO-CHAIR TARR recalled the work session that included
information on the carry forward losses. By allowing the losses
to be carried forward, at the 100 percent level with the uplift
included, in seven years the value would be 200 percent. This
action represents a big commitment on the part of the state, she
opined, when an initial year investment, with interest, is able
to grow by 100 percent in value in seven years. A seven-year
timeframe is the acceptable time described for an oil project to
come on line. The effort here is to make Alaska attractive to
investors and to allow producers to recover 100 percent of their
losses and 200 percent of their investment over time. Other
considerations are to ensure that the state's tax policy is
sustainable, that it will allow the state to meet its
obligations, and that it will not result in a financial
circumstance of being overcommitted.
MS. WEISSLER, in response to Representative Birch, clarified a
portion of the language in Version N as described in the
comparison document.
2:55:12 PM
MS. WEISSLER returned attention to the comparison document, on
page 2, and said Section 6, removing the ability for taxpayers
to apply for purchase of NOL credits, remains the same and
appears in Version N as Section 11. She noted that Section 7,
with amendments to sliding scale per barrel credits, is found in
Section 14 of Version N.
CO-CHAIR TARR further explained that the current lower price
environment, which led to a change to the minimum tax, is also
reflected in changes to the per barrel credits. Currently, per
barrel credits "slide" from $8 to zero, which has been adjusted
down [from the highest oil price of $150 per barrel and above,
to $110 per barrel and above] to ensure the per barrel credit
can be applied in a lower price environment. The original bill
would have cut the credit to $5, which was deemed too extreme.
MS. WEISSLER explained that a dry hole credit was not previously
in HB 111, and now appears in Version N as Section 17. It is
designed to assist a company that explored in good faith but
realized no production. The language would allow an explorer to
take up to a 15 percent purchasable tax credit of exploration
expenditures incurred for drilling that results in a dry hole,
based on the following specific conditions: payment of all
service contracts; return of the lease to the state; proof the
explorer has no oil or gas production; and the expenditure is
not the basis for another credit claimed under the production
tax.
CO-CHAIR TARR added that the aforementioned measure was included
on the recommendation of the consultant to provide a means for
explorers that never see production to cover their costs.
MS. WEISSLER explained that Section 8, without change, became
Section 18 in Version N, and would amend the tax credit fund to
reflect the change that removes the ability for taxpayers to
apply for a cash payment for net operating loss credits.
Section 9, without change, became [Section 19] in Version N, and
would change the limit on cash payment of tax credits from a $70
million cap to a $35 million cap per company and limit
purchasable credits to companies with not more than 15,000
barrels per day production, which is down from 50,000 barrels.
She pointed out that this provision applies only to Middle Earth
[non-North Slope, non-Cook Inlet areas of the state], and to
qualified capital expenditure credits and well lease expenditure
credits.
MS. WEISSLER directed attention to Section 27, "Assignment of
Tax Credit Certificates," in Version N, which would repeal the
2013 statute that allowed for the assignment of production tax
credits to a third-party assignee. This provision is required
because a change in current statute that was intended to apply
to gas in Cook Inlet actually applied to the entire state; as a
result of the current statute, the state has been placed in the
position with banks holding credits, which Alaska must now pay
for in cash.
REPRESENTATIVE RAUSCHER asked if this measure will be
retroactive.
CO-CHAIR TARR replied no.
2:59:54 PM
MS. WEISSLER continued to Sections 20 and 21, "Tax Credit
Information," two new sections in Version N, which would allow
certain information related to tax credits to be made public,
and to Sections 3-5, "Confidential Tax Information," also new
sections of Version N, which would allow certain confidential
taxpayer information to be disclosed to legislators in executive
session in conformance with a signed confidentially agreement.
CO-CHAIR TARR informed the committee the foregoing language was
the same as was used [for House Bill 247, passed in the Twenty-
Ninth Alaska State Legislature] and was drafted with the
participation of the Alaska Oil and Gas Association (AOGA).
MS. WEISSLER continued to Section 26, "Net Operating Loss Carry
Forward," a new section in Version N which would direct the
Department of Natural Resources (DNR) to develop regulations to
establish a review process for agency preapproval of lease
expenditures that would generate a carry forward annual loss.
Finally, Section 28 in Version N would establish a legislative
working group to analyze the Cook Inlet fiscal regime.
CO-CHAIR TARR added that a Cook Inlet working group is needed to
review the tax regime in Cook Inlet; currently, there is a
dollar per barrel oil tax, but no gas tax, and the working group
will meet on this issue during the legislative interim period.
Membership in the working group is open to industry.
3:02:56 PM
CO-CHAIR TARR removed her objection to the motion to adopt the
proposed committee substitute (CS) for HB 111, Version 30-
LS0450\N, Nauman, 3/10/17, as the working document. There being
no further objection, Version N was before the committee.
3:04:28 PM
REPRESENTATIVE BIRCH asked for clarification on the uplift
provision in the bill.
CO-CHAIR TARR said the consultant recommended seven years as the
average timeframe for a project to come on line. There were
other options discussed, and the decision was made to use the
same interest rate that is applied to delinquent tax payments.
CO-CHAIR TARR said the upcoming hearing schedule on HB 111 would
be adjusted as necessary to accommodate forthcoming amendments.
[HB 111 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB111 Supporting Document - Alaska's Oil and Gas Competitiveness Report 2015 3.7.17.pdf |
HRES 3/10/2017 1:00:00 PM |
HB 111 |
| Seamount ReAppointment Thank you022317.pdf |
HRES 3/10/2017 1:00:00 PM |
|
| Seamount Resume0317.pdf |
HRES 3/10/2017 1:00:00 PM |
|
| Seamount Biography0317.pdf |
HRES 3/10/2017 1:00:00 PM |
|
| HB 111- CS Comparison.pdf |
HRES 3/10/2017 1:00:00 PM |
HB 111 |
| French Oil Field Experience_Redacted.pdf |
HRES 3/10/2017 1:00:00 PM |
|
| Resume Hollis French_Redacted.pdf |
HRES 3/10/2017 1:00:00 PM |
|
| Daniel Seamount, Jr. 2016_Redacted.pdf |
HRES 3/10/2017 1:00:00 PM |
|
| Seamount re-appointment request 2017_Redacted.pdf |
HRES 3/10/2017 1:00:00 PM |
|
| Hollis French_Redacted.pdf |
HRES 3/10/2017 1:00:00 PM |
|
| HB111 Version N 3.10.17.pdf |
HRES 3/10/2017 1:00:00 PM HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM |
HB 111 |
| HB 111- CS Ver N Comparison 3.10.17.pdf |
HRES 3/10/2017 1:00:00 PM HRES 3/13/2017 1:00:00 PM HRES 3/14/2017 3:00:00 PM |
HB 111 |