Legislature(2017 - 2018)BUTROVICH 205
04/17/2017 05:00 PM Senate RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| HB111 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 111 | TELECONFERENCED | |
HB 111-OIL & GAS PRODUCTION TAX; PAYMENTS; CREDITS
5:00:30 PM
CHAIR GIESSEL announced the consideration of HB 111. She noted
that a hearing with invited witnesses ended about 45 minutes
ago, and now the committee will hear public testimony. Testimony
will be limited to two minutes.
5:01:38 PM
CURTIS THAYER, President and CEO, Alaska Chamber of Commerce,
Anchorage, said the chamber is dedicated to improving the
environment for business in Alaska. Alaska's oil and gas
industry contributes $8 for every $1 invested, so Alaska has
reaped over $61 billion in taxes over the last nine years. He
said current fiscal policy needs to be competitive for an
industry that is right now discovering huge finds. The chamber
has concerns with HB 111. Alaskans should understand what new
taxes will mean to their employers and to the state's economy.
Businesses will not invest in an undisciplined state, he said.
The fiscal challenge the state is facing is not new. Alaska
needs to provide a stable fiscal policy to incentivize industry
to do business in Alaska. The state has encouraged new companies
to explore, but "we, as the state, needs to invest in ourselves
for the long term, not the short term." Does HB 111 increase oil
production? "No," he answered.
5:03:45 PM
PETE STOKES, representing himself, Anchorage, said he is opposed
to HB 111. He said he grew up on the Kenai Peninsula and is a
licensed petroleum engineer. He works as an oil and gas
consultant, and he has laid off 40 percent of his professional
staff since 2014, which can be turned around with increased oil
prices. He said HB 111 is the seventh major tax change in 12
years, and no sovereign changes its fiscal regime as often. This
is a very big increase in oil and gas taxes. The state is in a
budget crisis due to the low price of oil. Increasing taxes will
drive away investment to produce future projects, such as Smith
Bay and other major new developments. The companies may be
unable or unwilling to invest because of the state's ever-
changing position on oil taxes. They have other places to invest
that have more fiscal stability, he opined. Cashable credits are
not sustainable, but NOL credits with uplift should be in place
to encourage future exploration for the benefit of all Alaskans.
Think of NOLs as investments that are the future of Alaska oil
revenue, he suggested, and jobs for his offspring. On Saturday,
a consultant showed a chart of future Caelus Energy development
that would result in extending the lives of the pipeline into
the 2040s and beyond, which could result in $50 billion in
revenue to the state. The state made its fiscal terms attractive
to investments with the tax policy changes of SB 21, and it
resulted in North Slope production having no decline in 2015.
5:07:09 PM
KARL HANNEMAN, CEO, International Tower Hill Mines LTD.,
Fairbanks, said his company is working toward building a gold
mine just north of Fairbanks, and he is a board member of RDC
[Resource Development Council]. He understands that HB 111 would
be the seventh production tax change in twelve years, and the
last policy change produced tangible results. The recently
announced oil plays could result in much needed new oil in the
pipeline if Alaska maintains a stable tax policy that encourages
additional investment that will be needed for the next three
years. He said not to risk driving away investment at a time
when he would like to see a growth in oil production. The oil
industry pays most of the state taxes, and in his book, the
industry pays their fair share. Targeted taxes on any industry
would simply be sending the wrong message at the wrong time.
5:08:45 PM
JAMES MCMILAN, Teamsters Local 959, Fairbanks, said his union
represents active and retired members throughout Alaska. He said
he appreciates legislation addressing Alaska's budget shortfall
and the tough decision to balance its budget, including
adjustments to the permanent fund and new revenue sources. He
expressed concerns about negatively impacting exploration and
production of oil. Increasing the oil in the pipeline should be
a priority; more production means more revenue for teamster
members and more jobs. Consider the impact of current and future
production, especially during low oil prices. The teamsters
supported SB 21 and the industry invested in projects. Members
are working for ConocoPhillips and a new drill site west of CD5.
One of the teamster's largest contractors is building an eight-
mile gravel road and a pad. The GMT1 project has created over
250 jobs for members and others. ConocoPhillips kept its
commitment to the project even with declining oil prices. He
asked the committee not to move HB 111.
5:11:13 PM
SANDRA UDELHOVEN, representing herself Wasilla, said she is
against HB 111 because she has seen the oil industry contribute
to the state. It has grown and gone through ups and downs, just
like the people of Alaska. If this bill is not squashed, more
and more people will leave Alaska. The oil and gas industry can
go to foreign countries or to the Lower 48, and "as a matter of
fact, they have." They will continue to leave until Alaska
becomes a stable environment that is friendly to industry. As a
resident of Wasilla, she feels that Alaska is sending the wrong
message. Of the companies that support the oil industry, some
have grown, and some have gone away, and a lot of people are
leery to invest. "They are waiting to see what happens with you
guys in Juneau." Oil and gas has a huge impact on Alaska, and
she finds it incredible to be talking about this. From her
heart, she is asking the committee not to pass HB 111.
5:13:24 PM
KATI CAPOZZI, representing herself, Eagle River, said the
industry has made it quite clear that HB 111 would not encourage
exploration or production. The tax policy in place has. When
industry succeeds, we all succeed. She urged the committee to
reject policies that will not contribute to Alaska success today
and in the future.
5:14:45 PM
GARVIN BUCARIA, representing himself, Wasilla, said the Alaska
Department of Labor reports that petroleum-related jobs last
year suffered a decline, and state government jobs also
declined. The petroleum industry is the number one industry in
Alaska and the state needs to encourage it. House Bill 111 is
too complex, and it must not increase taxes at low per-barrel
prices. He supports encouraging production in newly discovered
fields and incentivizing maximum production in existing fields.
He said not to increase oil taxes and to fund and pay oil tax
credits. Governor Walker's expenditures for an LNG pipeline is
contrary to economic logic, and funds should be cut. Natural gas
has to be reinjected to sustain oil production. He said he is
opposed to HB 111.
5:17:24 PM
DAVID SCOTT, representing himself, Juneau, said he has lived in
Alaska for eight years and is retired after 35 years working on
oil and gas infrastructure. He supports HB 111. Senate Bill 21
was a cancer and it is time to cut it away. He expressed
amazement of the people who support this bill and how little
they really know.
5:17:36 PM
RADA KHADJINOVA, representing herself, Anchorage, said she
serves on two boards and she manages an engineering consulting
company. She cares about the wellbeing of the state, and her
family loves Alaska. She recently graduated with a degree in
environmental permitting. She said she left Russia due to
upheaval and unpredictable policies in the early nineties. House
Bill 111 passed the House, so there are legislators who are
convinced that they are doing the right thing by striking a
balance given that oil prices are different. Alaska cannot
control the price of oil, but it can create a business climate
to encourage investment that will increase production. She said
HB 111 is like cutting open the golden goose to get eggs before
they mature in the form of projects that employ thousands of oil
workers. What legislators have been considering up to this point
is a tax model, she said. There is no systematic analysis, and
billions of dollars are at risk of going to other regions where
the price of doing business is lower and more predictable.
Legislators and citizens should know the facts before passing HB
111.
5:19:40 PM
MAYNARD TAPP, representing himself Anchorage, said Senator
Giessel represents him and does an amazing job. He asked the
committee to defeat any proposed taxes on the oil and gas
industry that challenge production, like HB 111. He said New
York is advertising a tax holiday to encourage investors, so it
does not make any sense for Alaska "to tax the people we want to
stay here." He said SB 21 slowed or stopped the reduction in oil
production. Alaskans should not break its word. Alaska cannot
afford to create an unending administrative bureaucracy to
collect taxes. He suggested increasing revenues by increasing
production of oil and gas in the pipeline.
5:21:47 PM
RENEE LIMOGE REEVE, Deputy Director, Alaska Support Industry
Alliance, Anchorage, said the alliance is a 40-year-old oil,
gas, and mining trade association. Members provide support to
those industries, but explorers, developers, and owner/operators
cannot be members of the alliance. She said HB 111 is a bad
bill, and the number one policy statement for her group is to do
no harm to oil tax policies. Policies should increase production
and attract investment and development. The revenue from that
activity is essential to the state, and the jobs are essential
to members of the alliance and other Alaskans. The bill goes far
beyond changing cashable credits, and it is a tax increase that
will negatively impact the oil and gas industry. She said she
will provide the committee with training numbers from the North
Slope training cooperative coupled with oil prices from 2008 to
2016. She noted that every operator on the North Slope requires
employees to have a cooperative card. The training number and
oil price for 2015 tell the real story, and that is that the
industry is hurting as are the members of the alliance. Any
policy that costs the industry will have a negative impact on
Alaska and on the oil industry, she stated. The training totals
will likely be lower with HB 111. She said to put HB 111 aside
and enact policies that increase oil development and jobs for
Alaskans.
5:24:25 PM
DAVID OTNESS, representing himself, Cordova, said he respects
the oil industry and what it has done for Alaska over the years.
He is a lifelong Alaskan who has worked on the pipeline and
participated in a lot of other oil-associated activities, but
Alaska is hurting as a result of SB 21. "If we're only taking in
$0.9 billion versus the $8 billion that went out to the
companies, there's something wrong with that equation." If the
industry is taking a hit, Alaska is taking one heck of a hit
disproportionately. As soon as SB 21 passed, BP laid off 200
people, and the oil companies knew what coming due to the
fracking explosion and the Saudi production. "We set ourselves
up for a fall," and the industry minimized their pain. Senator
Stedman and Representative Gara were aware and tried to bring
the issue up at the time. As far as oil companies being impacted
by this, he said, they plan ahead a lot further, and we are all
aware of that. People are complaining about Alaska changing its
taxes, but it was the industry that wanted change last time.
Rather than tweaking ACES, the state ended up really hurting. It
is worth having another look at this.
5:27:11 PM
BOB SHAVELSON, representing himself, Homer, said he is concerned
about the wellbeing of his children. He has heard arguments
against HB 111 that are the same arguments that have been
repeated for decades regarding negative investment environments
and the loss of jobs. It is not a coincidence that those exact
arguments are being used by the oil companies in South Dakota,
Pennsylvania, Texas, and New York, because that is the standard
industry line. Corporations are expected to vigorously represent
shareholder interests and to maximize their return-that is their
fiduciary duty. At the same time, as understood by Jay Hammond,
it is the duty of the legislature to represent Alaskans as the
shareholders of our resources just as vigorously. Mr. Shavelson
said he is willing to pay an income tax to support seniors and
schools but not before the oil companies pay their fair share.
The profits of BP in Alaska are outrageous. Oil companies are
getting some of the highest returns in Alaska as compared to the
nation and the world. That is not fair; we need to support our
kids and our seniors. House Bill 111 is a step in the right
direction. The production tax should increase.
5:29:31 PM
MAKO HAGGERTY, representing himself, Homer, said the previous
speaker said much of what Mr. Haggerty wanted to say. He said he
is willing to pay an income tax, because he likes Alaska and
plans to spend the rest of his life in Alaska. He wants to
contribute to the health of the state. Alaska is not as healthy
economically as it used to be. It threw all its eggs into the
oil basket. The oil companies need to step up; every Alaskan is
being asked to step up right now, and there is no reason why the
industry shouldn't as well. He said he supports HB 111, and he
is thankful Representatives Josephson and Tarr brought it
forward.
5:30:57 PM
CORAL HOWE, representing herself, Fairbanks, said she owns a
small events business to bring joy to different events
throughout Alaska. She said her grandfather came to Alaska in
the gold rush. She said she has children and grandchildren in
the state, and they would all like to have good jobs. She said
HB 111 will create an environment where her family will have to
leave. It is frightening that young people will have to leave.
She made her money in Alaska, but she cannot say that will be
the case for her offspring. The oil companies "provide a
wonderful way for us to get this tremendous resource that we
have in the State of Alaska out and into the public hands." In
her business, 70 percent is related, somehow, to the money that
comes from the oil industry. In 2016, her "numbers" went down 25
percent, and most was due to all sorts of companies going down.
She said to not support HB 111.
5:33:40 PM
MARISA SHARRAH, President, Greater Fairbanks Chamber of
Commerce, Fairbanks, said the chamber advocates on a variety of
issues, but job creation is the common thread. The chamber
strongly opposes HB 111, which would bring the fifth tax
increase to the oil industry in ten years. Targeted taxes are
not supported by the chamber. The oil industry works in a
challenging and expensive environment, and a constantly changing
tax structure only compounds those challenges, she added. Oil
companies make five and ten-year plans on where to take their
billions of dollars, and Alaska's tax policies are not
attractive to the oil industry. It is a global market, and she
suggests comparing policies with other regions so that Alaska
can compete. Investors will choose the projects with the best
returns, and it is the legislature's responsibility to create an
environment to yield the maximum benefit for the state, which is
increased oil production. A bill like HB 111 is a step backward.
The state should focus on benefits to Alaska's treasury as well
as jobs. Industry has seen a loss of 4,000 jobs. Combining that
loss with the loss of thousands of indirect jobs shows that a
competitive tax structure is in the best interest of the state.
5:35:56 PM
CARL PORTMAN, representing himself, Anchorage, said he was
raised in Fairbanks. He is concerned about the economy and the
trans-Alaska pipeline, which is three quarters empty. The best
way to generate revenue is to increase oil production through
the pipeline. Alaska must first attract the investment required
to develop new prospects, and Alaska has to compete for that
investment. He opposes HB 111, because it raises the cost of
projects and will do nothing to encourage industry to move
forward with new fields. Higher taxes have a negative impact on
investment in Alaska and on revenue. The voter-approved tax
regime is working, he said. Production is expected to average
524,000 barrels per day, up from the fall forecast. The numbers
are 7 percent greater than the fall forecast and are expected to
go up in 2017, which will mark the second consecutive year of
increased production on the North Slope, the first time since
1988. Alaska could be on the cusp of an oil renaissance. There
are resources to grow production. To pull Alaska out of the
recession it needs a major injection of capital to bring new
fields on line. Unfortunately, HB 111 will likely kill new
investment and result in fewer jobs. He said he is a proud
"pipeliner" from 1975. The pipeline accounted for 20 percent of
domestic production and now the nearly empty pipe accounts for
much less, but with the right policy, Alaska can double
throughput.
5:39:13 PM
BOBBY REDDELL, Udelhoven Oil Field System Services, Anchorage,
said he opposes HB 111. Alaska keeps on shifting its taxes based
on the government deficit. Businesses will find other locations
to invest where they can work in stable conditions. The oil
industry needs a stable tax policy to make investment decisions
for the future.
5:39:58 PM
CYNTHIA HENRY, representing herself, Anchorage, said she owns
retail stores in Fairbanks and Anchorage. She opposes HB 111.
The Senate has given her the confidence that it will help the
state with the fiscal challenges. She is dismayed that HB 11
passed the House, noting that it was by a razor thin margin.
Raising oil taxes will weaken Alaska's ability to attract new
investment and new production. The North Slope increased
production for the second consecutive season, and it has been 30
years since that has happened. That is a long time. She said SB
21 is working, and HB 111 would mean more job losses and a
deepening recession. That is not a recipe for a bright future
for Alaska.
5:41:48 PM
TERESA IMM, Senior Vice President, Arctic Slope Regional
Corporation, Anchorage, said she manages lands and resources for
the Arctic Slope Regional Corporation (ASRC), which is the
largest Alaskan-owned company and has about 5,000 in-state
employees. It is in a unique position as an [Alaska Native
Claims Settlement Act] corporation. It is a landowner, resource
owner, lessor, lessee, producer, and explorer, and ASRC provides
services to the oil industry. Passage of HB 111 will impact ASRC
in many ways. The majority of its revenue is based on oil, and
its investments stay in the state. She expressed concern that
ASRC's resources will become stranded with a policy like HB 111.
There has been a downturn in revenues along with lower oil
prices, and ASRC is diversifying its portfolio to counteract the
downturn. The decline in the TAPS throughput affects the entire
economy, "so we're at a pivotal point where we must reinvigorate
the industry that we all depend on and not further burden it
with higher oil taxes," she said. If the legislature fails to
take a pragmatic approach toward the oil industry, Alaska will
become an unattractive investment.
5:44:37 PM
GEORGE PIERCE, representing himself, Kasilof, said Alaska's
hostile environment is similar to Norway's hostile environment,
but Norway has made better decisions with its tax policy. Alaska
gives one third of its general fund to pay for credits to oil
and gas companies. For every dollar, Alaska gets back 45 cents.
"We are so friendly the Tax Foundation says we are number three
in business friendliness in all 50 states. How friendly do we
need to be?" He said Alaska needs to self-correct its net base
system when prices rise and fall. New oil pays zero taxes until
the price is $75 per barrel. "Net" means negative to the state,
he stated. Why did our cost structure double in the last 10
years? What big projects are coming on line? Bring data forward,
he said. Alaska is the only place that does the flip from gross
to net in the world, and HB 111 is against this pattern, "and I
agree with that." He stressed transparency and fixing the NOL.
He said to fix carry-forward losses, get rid of the credits, and
harden the floor to the tax. It takes seven to ten years to come
on line, "and they still get all these credits. That's bad for
Alaskans." The legislature and the governor took the permanent
fund dividend and gave it to the oil industry to develop
Alaska's resources. That is pretty sad. He said that someone
noted that people no longer have confidence in SB 21, and it is
because there is no revenue, to speak of, since it was passed.
He urged the committee to pass HB 111.
5:47:32 PM
DAVE HANSON, representing himself, Anchorage, said to step back
and not look at the bill as "for or against," but as an
adjustment. Part of the bill is a tax increase, he said, and
part of it is adjusting the tax credit program. "I do not
support HB 111 tax increases; I do support HB 111's modification
of the tax credit program, because I want it to be a
sustainable, long-term program as an economic tool." The tax
credit program is flawed; up to a third is spent on projects
that have little or no chance of ever leading to production.
Cash can be paid for credits even though a project may never owe
any production taxes, he stressed. Transparency has been
mentioned, and it is interesting that we do not know who gets
the money and what it is used for or how much stays in the state
or goes to dividend holders in New York City. "It's our money.
We have a right to know." Transparency should be a price of
receiving the credits-a choice an oil company can make. It is
like a gift. He said Alaska cannot afford the current program.
The state is accumulating a huge debt of over $1 billion, and no
one talks about how Alaska is going to pay for it. Some of this
is remedied through HB 111, and he encouraged a more careful
look at the bill and the portions that improve the tax credit
program.
5:52:07 PM
BRUCE BUSTAMANTE, President, Anchorage Chamber of Commerce,
Anchorage, said there are over 920 business members in the
chamber, and they believe that investors have to have a stable
environment, and HB 111 does not provide that. There have been
numerous attempts to change oil taxes in the last 12 years, and
the chamber has always advocated for a fair and stable tax
environment, which is critical to Alaska's economic stability.
Trying to address the fiscal crisis by changing the tax
structure will make matters worse. The chamber would rather see
reductions in government jobs or the permanent fund, and
possibly a broad-based tax on residents. Right now, changing oil
taxes would discourage investment in the industry. Alaska should
encourage investments to help the economy and create more jobs.
"The Anchorage chamber will continue to oppose targeted taxes
and those targeted taxes on the oil and gas industry and
actively advocate on behalf of the members." He said Anchorage
Chamber of Commerce opposes HB 111 and has written comments.
CHAIR GIESSEL encouraged everyone to submit comments in writing.
5:52:30 PM
GAIL PHILLIPS, Board Member, Keep Alaska Competitive Coalition,
Anchorage, said the Keep Alaska Competitive Coalition is an
organization with 5,000 members, including Alaskans, business
groups, and Native organizations. Oil companies are not members,
and the group does not accept funds from them. The group is
concerned about HB 111 as it reads today. She has seen many of
Alaska's fiscal booms and busts and many versions of oil tax
legislation, and she urged the committee to amend the bill and
focus on making sure Alaska does not increase taxes on the oil
industry. The oil tax bill passed in 2013 opened the doors to
Alaska, and the industry responded. The current version of HB
111 will weaken the state's competitive position to develop new
prospects and increase productions. "We cannot increase oil
production by increasing taxes," she stated. The oil industry is
the biggest participant in Alaska's fiscal plan, and policies
must keep the oil industry strong and growing. The bill does not
do this. Alaska can control its business climate and the future
of Alaska-a future that encourages investment in Alaska and puts
more oil through the pipeline. She said she has a petition
signed by 600 Alaskans to reject the provisions that increase
oil taxes or create unworkable bureaucracy.
5:54:55 PM
CATHY DUXBURY, representing herself, Anchorage, said she has
sent many emails, and she is very opposed to HB 111. She does
not understand how "you guys go to Juneau and…the first thing on
your agenda is let's see how much more we can tax the oil
industry." The legislature has changed oil taxes seven or eight
times in 12 years. "I think the oil tax gets changed every 15
minutes," she said. People thought voting to uphold SB 21 in a
2014 referendum was the end of the story. Production started to
go up. She said she has been working a long time, and she has a
son with a new business and grandchildren in the school system.
In ten years, there will not be anyone left in Alaska to tax.
The oil industry is our bed and butter, and she is tired of
people who say they do not pay a fair share, because the oil
companies pay more than their fair share. Her company has laid
off over 500 employees, and it reduced its charitable giving by
up to 60 percent. She had high hopes for finding new oil, but
Alaska seems like it does not want new production. "You cannot
tax more oil into the pipeline, because if you could, our
pipeline would be full."
5:57:17 PM
JILL SCHAEFER, representing himself, Kenai, said she is a
contractor and an assembly member in Kenai. She opposes HB 111.
Its main goal is to bring money into the economy, but it will do
the opposite. The main goal of the bill is as a job killer.
Without jobs, people like herself will move, and there will be
no kids in the school, so Alaskans will not have to worry about
paying taxes. She encouraged a bill showing that Alaska has a
stable, industry-friendly environment.
5:58:35 PM
ALLEN ICET, representing himself, Anchorage, said he is opposed
to HB 111. All legislators would agree that the solution is more
oil in the pipeline and by raising taxes on something, you get
less. Over the past few years he has a number of friends who
work in the industry, but they lost jobs, and HB 111 does not
encourage the industry to hire more people.
5:59:52 PM
KATE BLAIR, Government and Public Affairs Manager, Tesoro
Alaska, Nikiski, said Tesoro Corporation is a Fortune 100
company and is an independent refinery marketer of petroleum
products. Tesoro operates seven refineries in the western US,
with a combined capacity of 895,000 barrels per day and an
ownership in a logistics business, which includes interest in
Tesoro Logistics. Its first refinery was in Nikiski, and it has
a crude capacity of 72,000 barrels per day. Tesoro Alaska assets
also include a 69-mile pipeline from Nikiski to Anchorage for
transporting its refined products, and that has helped the
growth of the international air cargo business. The refinery
meets most of the state's demand for gasoline and is a reliable
supply for Alaskans. The company has 250 family-wage jobs in
Alaska, with an Alaskan-hire rate of 97 percent. Tesoro does not
produce oil and gas in Alaska, so it doesn't weigh in on those
taxes, but in-state production matters. Any loss in production
would affect Tesoro, because it uses Alaska crude from Cook
Inlet and the North Slope. "We refine every drop of that Cook
Inlet crude, and we purchase North Slope crude." Declining
production would hurt the Tesoro refinery. The transparency
language in HB 111 would require Tesoro to disclose confidential
business information and may violate antitrust laws. The
language also requires the Department of Revenue to make public
the potential monetary benefits to the state of the projects
claimed under the refinery tax credit, and there is no clear
mechanism to calculate benefits, so it would be subjective and
open to political distortion. She told the committee to assess
how the bill will affect production, because production matters.
6:03:43 PM
KEVIN DURLING, President, Petroleum Equipment and Services,
Inc., Anchorage, said he is the past president of the Alaska
Support Industry Alliance and a board member of the March of
Dimes. He said he opposes HB 111, and he asked why new taxes
would be levied on an industry that has paid more in taxes than
it has generated in revenue. Why would we penalize the oil
industry that spends $3 to $4 billion a year to produce oil with
little or no return on investment? At what point does the
government look at the industry that has flattened a production
decline that was projected to be 5 to 8 percent and turned it
around to an increase? How will the industry survive if
corporations are required to release well costs? Many companies
will be unable to work on the project, he said, because it will
be contrary to their contracts that require confidentiality. He
noted that his business has been hard hit by low oil prices, and
his revenue is down 20 percent and has 10 fewer Alaskans working
for him. Oil prices are slowly moving up. He said he is an
optimist, and Alaska activity levels will begin an upward trend,
but by changing the rules, the upward trend will be blunted and
the 7,000 Alaskans who have lost their jobs will be looking for
work in other states. He said to look to the permanent fund and
other sources for funding, including unfilled positions.
6:06:53 PM
TOM WALSH, Managing Partner and Founder, Petro-technical
Resources of Alaska, Anchorage, said Petro-technical Resources
of Alaska (PRA) is an oil and gas consulting firm and has worked
with a number of entities, including Native corporations, the
government, and oil and gas companies. His business celebrated
its 20th anniversary in Alaska last week. This year, the
business is down about 50 percent from prior years because of
the price of oil. He expressed hope that the policies made in
Juneau will not exacerbate the problem. The Lower 48 is
recovering handsomely right now, he said. He opposes HB 111,
which is a major tax increase to all of PRA's clients, and it
undoes all of the progress to attract new investors to Alaska,
including financial institutions that fund the industry. The
bill represents the seventh change to the tax system in 13
years. The intent to reduce Alaska's cash credit payments is
understandable, but it is flawed because the state has shared in
the pain of the prolonged oil price collapse. He has heard that
SB 21 has brought in more revenue than ACES would have in the
low prices. The widely-held belief that the state cannot afford
to pay tax credits should be countered with the question of if
it can afford not to invest in the oil industry. The concept of
the credit system did not cause the state's financial crisis. He
said he is baffled by testimony downplaying the impact of total
government take on projects. The tax burden is a major impact to
net present values and projects. The projects are marginal.
6:10:02 PM
JEANINE ST. JOHN, representing herself, Anchorage, said she is
giving personal testimony today in opposition to tax increases
from SB 21. She said she understands the need to eliminate
cashable credits for now, but she believes in paying the
outstanding credits as a moral obligation of the state. Alaska
has a valuable resource, and it should be encouraging more oil
in the pipeline, so Alaska can have jobs and royalties. She said
she looks forward to amendments to HB 111. She thanked everyone
for trying to understand complex tax policy, and encouraged
simplifying the process. Put the jobs back in place and keep oil
flowing, she requested.
6:12:01 PM
ALICIA SIIRA, Deputy Director, Alaska Miners Association (AMA),
Anchorage, said the AMA represents the mining industry
throughout Alaska, with 1,500 members, including miners,
geologists, oil and gas service companies, and others. She said
a healthy oil and gas industry is crucial to a healthy mining
industry. One of the issues of concern to AMA is tax policies
that incentivize oil and gas production, and HB 111 is not that
kind of policy. It is the seventh change in 12 years and is
punitive to the oil and tax industry, resulting in less
investments and a deepening recession. She said to abandon HB
111 and look for a sustainable budget by reducing spending,
using the permanent fund, and instituting broad-based taxes,
except for taxes on existing taxpayers who are already a part of
the revenue base.
6:14:10 PM
BILL BREDAR, representing himself, Anchorage, said he is a
petroleum geologist and explored for oil beginning in 1976. He
is a full-time resident raising four children, and he is against
HB 111. The investment timeframe for oil explorers and
developers is 30 years, and Prudhoe Bay will be celebrating 40
years in June. When investing, there are many risks that must be
taken into account, he explained, including geologic risk. He
listed developments he was involved in. A stable taxation regime
is a key component for investing in the long life of an oil
field, and HB 111 can be described as ACES for low oil prices,
he said. Hardening the minimum tax floor would increase taxes at
a time when the oil industry is hurting and will show that
Alaska is not to be trusted. Changing the tax regime now will
send a negative signal and increase risk.
6:16:38 PM
LARRY HOWELL, representing himself, Anchorage, said he has lived
in Alaska since before the pipeline. He said HB 111 is the same
tax structure of ACES at low oil prices. When he was the general
manager of the Alaska Support Industry Alliance, ACES did not
work. There is something wrong with a state that changes a tax
regime seven times in over 40 years, which equates to an
unstable investment environment. Alaska is taxing away the
industry. When he was 19 years old, he was out of money. No one
had ever attended college in his family. He left Oregon on funds
borrowed from a professor, hitch-hiked to Fairbanks, camped on
the Chena River, and made the rounds at the union halls. He was
hired by the pipeline union and worked 60 weeks. He sold "booze"
in the camps and earned a six-figure income. "I'm the guy in the
Alaska pipeline movie that bootlegged that whiskey north of the
Yukon River," he said. The oil industry created the first
college graduate in his family. He lived the dream with his wife
and kids and helped with community projects, including a
homeless shelter in Anchorage. He said his 33-year-old son works
for Boeing in Seattle and told him it does not seem like things
are going well in Alaska. He said, "Dad, I'm thinking Alaska is
not the land of opportunity that it was for you and mom." Alaska
can control its business environment, but HB 111 will do nothing
more than discourage investment in oil.
6:20:01 PM
MARLEANNA HALL, Executive Director, Resource Development
Council, Anchorage, said her members are the lifeblood of
Alaska's economy. Raising taxes on companies during low prices
is not sound fiscal policy, and it adds instability. The bill
will increase costs for the largest private industry in Alaska
and will send Alaska to the bottom of the competitive scale. She
said an oil company testified earlier about its investments
since 2013 when SB 21 was passed. The bill was affirmed by
Alaskans in 2014. Another company spoke to the recent
opportunities and reflected on the need for investor confidence
with regard to prices, tax policy, and other uncertainties.
Increasing taxes on the oil and gas industry will not increase
throughput in the pipeline or encourage new development on the
North Slope. Taxes will deter investments and create lower state
revenue over the long run. "When you incentive something, you
get more of it." She said to incentivize drilling and aim for
next year's production to be higher. She urged rejection of HB
111.
6:22:32 PM
LAURIE FAGNANI, President, MSI Communications, Anchorage, said
she has been a small business owner for over 20 years, and her
23 employees depend on the oil and gas industry. She has seen a
steady reduction in the level of spending by the oil and gas
sector, and it is increasingly difficult to run a business in
this environment and keep Alaskans on the payroll. Low oil
prices have hurt, as have restrictions on oil and gas activity
on federal lands. What has hurt even more is the state's
changing tax structures, she stated. When the price of oil goes
down and the cost of business goes up, something has to give.
When the legislature raises taxes, it is people like her and her
staff who shoulder the burden. She asks herself what the economy
would be like if instead of taxing the industry, the state
worked with industry to increase production. She listed oil
companies and said, "they have given us hope," but HB 111 is
sending the wrong signal that Alaska is not a stable place to
invest.
6:24:51 PM
ALEX HALL, representing himself, Anchorage, said he wants to
live in Alaska, and "we need jobs." He said he opposes HB 111.
6:25:46 PM
DAVE CRUZ, President and CEO, Cruz Companies of Alaska, Palmer,
said his firm develops resources and said that HB 111 is bad for
the industry. "We have no ability to create stability when in
six times we changed the rules in 11 years, and we wonder why
companies are not interested in doing business up here." He
spent three years trying to get SB 21 passed, so he is asking
that the Senate kill HB 111.
6:27:06 PM
CHRISTOPHER BEHNKE, representing himself, Fairbanks, said he is
a third generation Alaskan and a graduate student at UAF, which
has suffered outrageous cuts in the last couple of years, but
big oil receives large subsidies. He said he supports HB 111 and
rigorous tax reform. The Alaska oil industry does not pay its
fair share compared to the rest of the world, despite what some
people have said. "Stability" seems to be bandied about
haphazardly by those in the industry, but there is no stability
in global oil production. It is a fundamentally volatile
industry, and Alaska needs an adaptive tax regime that accounts
for volatility and does not require taking the permanent fund
dividend away from Alaskans for big oil subsidies. The resources
belong to Alaskans, not oil corporations. Alaska's constitution
allows for resources to benefit Alaskans, not big oil. As a
fiscal conservative, he said he is opposed to subsidies and
handouts, and subsidizing the most profitable corporations in
the world is offensive. Next year, Alaska will pay three
quarters of a billion dollars in subsidies to companies that
have slashed employment. Except for some independent companies,
the majors have virtually ignored exploration. It is an outrage
that oil subsidies are the third largest item in Alaska's
budget, and the legislature will only cut the PFD, cut
university spending. Alaska needs tax reforms that are not
designed by oil lobbyists; it needs aggressive solutions besides
corporate handouts. He said he supports HB 111.
6:29:06 PM
TOM BOUTIN, representing himself, Juneau, said he is opposed to
changing oil taxes unless it increases production. He recalled
the state changing from an oil severance tax to a profits tax.
He said he went door-to-door three years ago to explain why
Ballot Measure 1 was a bad idea (the referendum on SB 21). The
change to a profits tax worked as intended: when oil prices were
high, Alaskans shared in the upside, and even when profits are
low, income flows into the state. Now that prices are lower, the
state wants to renege on the deal. Not paying the credits is
wrong and addresses a problem that does not exist. Alaska does
not have a cash flow problem, it has an imbalance between
amounts available for ongoing appropriations. The state came
close to a cash flow problem in 2003, but it is not there now.
Unless the Department of Natural Resources buys oil rigs, the
state will continue to depend on the oil companies. The state
should ask the companies what it can do to help make Alaska more
economic.
6:31:03 PM
CYNTHIA DAU, representing herself, Juneau, said she is against
HB 111 as written. She is "feeling the pinch" by living in
Juneau, and she asked the committee to remove tax breaks from
big oil companies. "We need to find our footing as residents. We
need our senior homes. They are the very people who built this
great state." She asked that the committee not overburden their
constituents with further taxation and lowering PFDs. She said a
family friend is thinking that Alaska is not a place she can
afford to return to. Ms. Dau suggested looking at an education
tax. Alaska needs oil but not oil company tax breaks. She said
to take another look at HB 111.
6:32:43 PM
KAREN GLASS, representing herself, Douglas, said her parents
were Alaskan homesteaders in 1946. She strongly supports HB 111
because oil companies must pay Alaska for the oil removed from
the state at huge profits. It is not fair for Alaskans to suffer
with reduced PFDs, education cuts, increased taxes, and
drastically reduced government services. The state employs many,
and she is a public health microbiologist. Oil prices will
likely not increase due to alternative energy sources, so the
state will continue to pay oil companies for their drilling
costs. Because of SB 21, the state pays out more in oil credits
than it is receiving in production taxes. This is not fair to
Alaskans. "Why are we making all Alaskans suffer to pay state
dollars to the richest companies in the world?" If HB 111 does
not change this, and if oil prices do not go up significantly,
Alaska will continue to subsidize oil companies at the expense
of residents. Senate Bill 21 is not working, and that is why the
state has a huge budget deficit with many vital government
services like the pioneer homes and public health and other
vital services being cut.
6:35:48 PM
WOLFGANG FALKE, representing himself, Fairbanks, said he worked
on the pipeline. It is not a good idea to throw good money after
bad. There is a problem due to the price of oil. If oil cannot
be pumped out with a reasonable return, leave it there. It will
not go bad, he said. Futures generations may use it, but others
think that the sun is a better source of energy. The state
should make good on its promise of tax credits, but it could be
changed as it is very bad business sense.
6:37:45 PM
WYCHE FORD, Alaska General Manager, Fluor Alaska, Anchorage,
said Fluor Alaska provides engineering and construction services
to oil and gas and mining infrastructure. He urged the committee
to reject HB 111. Current tax policy could use some adjustments,
but HB 111 imposes major changes once again. Particularly
harmful to the bright spot of helping independents and
differential to the majors, changing tax policy really affects
the ability to progress projects. Unlike the majors, they rely
more on outside financing. The long-time horizon for projects
makes it difficult to use outside financing. It increases the
hurdle for what really is a bright spot right now. He suggested
stability and tweaks to the tax regime, but the major changes in
HB 111 will be harmful to the bright spot of successful
exploration by independents.
6:39:21 PM
JUDY CRONDAHL, representing himself, Juneau, said she is the
grandmother of 6th-generation Alaskans. She spoke in favor of HB
111. She was amused to hear a testifier say if her business
changed its prices frequently, she would lose her business. Ms.
Crondahl said that every time she fills the gas tank in her car,
the price changes, but she still fills her tank. Changing price
does not have a lot to do with it. Without changes to the oil
tax and credit system, the legislature is going to be demanding
that every Alaskan give up more than $1,000 of their permanent
fund dividend. Every Alaskan-from a newborn to the elderly
living in poverty, from students who are saving for college, to
students who are in college-and yet the state wants to continue
this favorable tax and credit policy for the wealthiest industry
in the world. These are our resources; we deserve to get a fair
price for them. You can change the price that you charge the oil
industry. It is our oil. It is our money. You represent us.
6:41:27 PM
BRYAN CLEMENZ, Senior Vice President, Bristol Bay Industrial,
Anchorage, said he is the past chair for the University of
Alaska, College of Engineering and Mines, and he is the current
president of the Support Industry Alliance. He said Alaska needs
an oil and gas policy that incentivizes investment with jobs and
the promise of economic diversity at its very core. Companies
that he has worked for employ thousands of Alaskans. Day after
day, week after week, he hears of individuals who have already
left Alaska due to lost jobs or who are waiting for a job, as
well as those who have jobs and are considering leaving the
state. We are telling the energy and financial industries that
Alaska is not a place to invest, and we are telling our
neighbors that it may be time to pack up and leave Alaska.
6:43:28 PM
EDWARD WITBECK, representing himself, Kenai, said he is a
retired oil field worker. He said HB 111 is a good start, and he
suggested cutting all of the incentives. The oil companies will
not leave; they make money at $5 a barrel. The industry is lying
to the legislature. Senator Meyers is a ConocoPhillips employee,
as is Senator Micciche. That is a conflict of interest-it's
cancer within the body. Don't be fooled, he said, the companies
will make money at $5 per barrel. No incentives are needed, and
HB 111 is a good start.
6:44:59 PM
KEITH SILVER, representing himself, Anchorage, said he does not
work for the oil industry, but he has an interest in resource
development as a resident. Resource development is expensive in
Alaska, and companies have to deal with the fiscal policy in the
jurisdiction where they invest their billions of dollars. It
needs to be fair and consistent, and HB 111 fails the
consistency test, because it changes taxes for the seventh time
in 12 years. It is not fair, because it eliminates many of the
credits. It is not competitive with most jurisdictions, because
of Alaska's weather and access issues. Without credits, he was
told that Anchorage would have to import natural gas, and that
is a perfect example of how incentive credits can work. Caelus
Energy announced a large oilfield on state land, as did another
company, and it would be a costly mistake to discourage
explorers from developing these prospects.
6:47:00 PM
WILLIAM HARRINGTON, representing himself, Anchorage, said he is
retired and on a fixed income. "What a day of heavy-weight
public testimony. So many numbers!" He said he read the bill and
is more confused. Everyone is waving a flag saying, "I want the
best for Alaskans," but everyone is voting along caucus lines.
Back to the drawing board with this measure, because oil has
been paying for 40 years and legislators have been spending.
Construction workers say, "Poor planning on your part does not
constitute an emergency on mine." He said he hopes that the
denizens in the Senate will work on keeping the state on an even
keel, otherwise he knows what color his lifejacket it.
6:48:14 PM
LAURA BONNER, representing himself, Anchorage, said the
committee has a difficult job as oil taxes are always
complicated. Historically, Alaska's share of oil revenues has
been about 30 percent from all sources, including royalties,
corporate tax, production tax, and property tax. It did not
matter on the tax structure, even when oil was $9 per barrel.
House Bill 111 will not get Alaska back to the 30 percent, but
it prevents credits from being used to reduce tax liability
below the minimum tax, and it provides for more transparency and
reporting, including credits earned but not cashed. Passage of
this bill is an important piece of a responsible plan for
Alaska's fiscal stability. Oil company welfare must not take
precedence over state services like public safety. She said she
supports HB 111 and asked the committee to work on shared
facilities, so small producers will also have access to put
their oil down the pipeline.
6:49:55 PM
MICHAEL JESPERSEN, representing himself, Anchorage, said he is
extremely opposed to HB 111. It is a joke that Alaska has
already changed oil taxes six times in 11 years, and now "you
want to go for seven in twelve?" How can we say something isn't
working when it changes so often? He said he has never worked
for an oil company or a business that depends on the oil
industry. He works in the tourism industry, and his hotel
depends on oil industry travel, which is down, so every hotel in
Alaska is fighting for what's left. Rates are going down, which
is good for travelers, but it doesn't do anything for his bottom
line. "Please kill this bill, it hurts everybody."
6:51:39 PM
LISA REIDER, representing himself, Anchorage, said she is an
engineer and a single mom working for a contractor to the oil
industry. She said she is opposed to HB 111 but believes there
could be a compromise. The increase in taxes reduces the amount
of money that oil companies can pay employees and for capital
work. The credits mean that companies like Caelus Energy cannot
get off the ground to get its financing for wells. She said SB
21 is working, and work is being generated. With an increase in
the tax, she does not believe that the number of employees will
be able to remain. She and her family will move out of Alaska
and have to look for work elsewhere, as will a lot of people.
"Big oil is little me and my children; there is no conspiracy or
greed." Big oil contributes a lot to the state and charity
functions, and she encouraged a revised HB 111.
6:53:56 PM
JIM PLAQUET, representing himself, Fairbanks, said he is a 43-
year member of the operating engineers local 302 and his
granddaughter is a sixth-generation Alaskan. He said he opposes
HB 111 in its current form. It goes too far and raises taxes.
Alaska needs to attract investment and not send it to North
Dakota or Texas. Alaska cannot increase oil production by
increasing taxes. Raising taxes on oil drives away investment at
a time when we should be attracting investment.
6:55:19 PM
PAUL D. KENDALL, representing himself, Anchorage, said some
comments so far have been fictitious. "My dividend money did not
go to the oil companies." He said the governor stole that money
and will use it to do a $2.5 billion bond sale for PERS and TRS.
He said he thinks the funds are located in a New York bank, "and
those big boys see lots of criminals; they see lots of actions
and know damn well the state that Alaska is in." Governor Walker
is strategizing behind the scenes trying to blame the oil
companies, but it is "your fault." The oil companies could not
do this without Alaska leaders, "so there is no way out for
you." He said the elephant in the room is PERS, TRS, and the
public employee unions. He said he is getting tired of being
called a freeloader, while the guy next to him is living on
$80,000 a year. "Sixty to seventy percent of the population is
between Homer and Palmer, and the governor stole that money and
you folks let him get away with it; that's about $920 million
out of our pocket here." He said legislators need to "do full-
time leadership." The state needs to get ready for a new future
with artificial intelligence, nanotechnology, and robotics-.
6:58:44 PM
ARAS WORTHINGTON, representing himself, Anchorage, said he is
opposed to HB 111. He said a friend has been laid off by the oil
industry, and she is one of many. It has been hard to make a
living here. He left college in 1992 and wanted to work in
Alaska, but it took him a year to find a good job. He has been
in the oil industry since, but his friends are not, so he asked
to vote against the bill.
6:59:36 PM
VERN JOHNSON, representing himself, Anchorage, said he has lived
in Alaska for 17 years, and HB 111 is flawed. It needs a lot of
work, and increasing taxes on oil will create short-term relief
but will harm the oil industry in the long term. This is not a
time to limit (unclear) oils, and a hard floor will also cause a
problem for the small producers. He said he knows that some
investment decisions by the oil industry were on the structure
of SB 21, and it will be difficult to attract investments if the
state does not honor those provisions. Alaska is not going to be
competitive with the world unless it has a stable environment.
7:01:39 PM
HARI DEV SINGH KHALSA, representing himself, Juneau, said the
last time he worked for an oil company was during [the
construction of] the pipeline. Alaska has the lowest oil taxes
of any first world country. The oil companies made $114 billion
in profit last year. He said he does not understand why Alaska
needs to give them money as corporate welfare-it boggles his
mind that the permanent fund dividend goes to them, and the
dividend will slowly shrink back to nothing, and then all the
oil resources will be gone.
7:02:49 PM
ABIGAIL ST. CLAIR, representing herself, Wasilla, said she
opposes HB 111 because Alaskans cannot afford it. The state is
in a recession. There are parts of the budget where the state
can be more resourceful. The legislature has changed the state's
production tax twice since 2013, and it is attempting to toss
the voter-approved SB 21. There is no reason to make unnecessary
cuts, "just because you have a spending problem." She said the
state has thousands of paid unfilled positions, and she asked
why the legislature is giving that money to the departments. She
does not believe in micromanaging, but she believes in spending
money wisely and wants to stop the cycle of waste. She said HB
111 will weaken the ability to attract new prospects or increase
production.
7:04:14 PM
JESSICA WORTHINGTON, representing herself, Anchorage, said she
is a wife and mother. House Bill 111 will have an adverse impact
on the Alaska economy and encourage responsible citizens to
leave Alaska. Uncertainty discourages economic development for
everyone in the state.
7:04:51 PM
LAUREN MOSS, representing herself, Soldotna, said she is retired
and on a fixed income. She said she is in favor of HB 111. It is
time for all participants in Alaska's economy to pitch in their
fair share, and the corporate involvement in this state has
never really come to its full potential in contributing to the
base economy of Alaska, even when oil was at a very high price,
the taxes paid was never sufficient. She said she is not an
expert, but she hesitates to pay an income tax until she knows
that the corporations that have benefited to the tune of
billions of dollars from this state's resources are ready to pay
their fair share. They have benefited much more than any single
citizen of Alaska from the extraction of Alaska's resources. It
is time for them to step up so this state does not suffer
declines in education, public safety, public service, and
infrastructure. The damage of SB 26 needs to be repaired, and HB
111 is a step in the right direction.
7:07:03 PM
CHAIR GIESSEL closed public testimony and held HB 111 in
committee.