Legislature(2023 - 2024)ADAMS 519
04/15/2024 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB154 | |
| HB223 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 154 | TELECONFERENCED | |
| += | HB 223 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 223
"An Act relating to the production tax and royalty
rates on certain gas; and providing for an effective
date."
2:55:33 PM
DEREK NOTTINGHAM, DIRECTOR, DIVISION OF OIL AND GAS,
JUNEAU, introduced the PowerPoint presentation "HB 223 Tax
and Royalty for Certain Gas" dated April 15, 2024 (copy on
file). He began on slide 2, and stated that the goal was to
The goal of HB 223 was to increase available gas supply in
the Cook Inlet to meet expected shortfalls.
Mr. Nottingham continued to slide 3:
o Benefits accumulations that have been discovered but
have not been brought into production
o Promotes exploration for undiscovered resources
also touched on Fields or pools that have produced in
the past but were offline during 2024
o Fields currently shut-in receive the royalty benefit
if brought back into production also addressed Wells
drilled into fields or pools that are currently
producing when production from the existing wells is
not feasible
o Incentivizes drilling outside of the current
"drainage area" of wells currently producing Wells
drilled into fields or pools that are currently
producing when production from the existing wells is
not feasible
o Incentivizes drilling outside of the current
"drainage area" of wells currently producing
Mr. Nottingham continued on slide 4:
Barriers to equity investment in these projects are
high up-front capital costs, federal
permitting challenges, gas market uncertainty, and oil
service industry challenges. Major accumulations with
financing obstacles:
1. BlueCrest's Cosmopolitan Project 250 BCF
2. Hex/Furie's Kitchen Lights Development 300 BCF
• Projects are competing for equity capital with Lower
48 investments which have lower up-front costs,
shorter payback, and a more certain environment
• Reducing the royalty for these projects prior to
investment
2:59:48 PM
Mr. Nottingham continued on slide 5:
Although there are known, but undeveloped gas
resources, these have not been sanctioned by operators
under the current fiscal system and royalty rates.
• Under the current royalty rates, expected revenues
to the State from current and expected development are
$648 million for the period 20252035
• If the royalty reduction leads to new investments in
gas projects, then future gas production will likely
meet the demand by Railbelt consumers for at least the
next ten yearsultimately leading to estimated total
revenues to the State of $659 million for the period
20252035.
• If the royalty reduction is not successful in adding
significant new gas production (i.e., no new gas in
addition to the PD and PUD gas forecast), then the
State would lose $40 million over the period 2025
2035.
Mr. Nottingham advanced to slide 6, which showed what was
happening in graph form. He shared that the darker dash
line was revenue under HB 233 in a failure case and the
lighter dash line was revenue under HB 233 if the projects
were successful.
Mr. Nottingham advanced to slide 7.
3:04:48 PM
Representative Josephson asked whether the 1987 of Trustees
vs. the State of Alaska, which showed that the state was
not allowed to take a zero percent royalty. He wondered
whether the state was legally allowed to take a zero
percent royalty.
3:05:36 PM
JOHN CROWTHER, DEPUTY COMMISSIONER, DEPARTMENT OF NATURAL
RESOURCES, JUNEAU, replied that the legislation would not
have a royalty.
Representative Josephson asked if the state had considered
a deferred royalty.
Mr. Crowther responded that the department did not view
that it was needed for the bill.
Representative Josephson asked if the administration
considered an option where the state was the purchaser.
Mr. Crowther responded that there had been some discussion
and consideration, and he would be happy to follow up.
3:09:55 PM
Representative Josephson surmised that the forgone revenue
was the 40 million per year.
Mr. Crowther responded that it was an aggregate based on
the assumptions and approximations of less roads into the
state in that ten-year period.
Representative Stapp asked why would the department choose
to extend the royalty for a decade.
Mr. Crowther responded that tone of the things he had heard
from the market was that the payback times were limiting.
3:18:12 PM
Representative Stapp queried the reason for the royalty
relief conclusion.
Mr. Crowther responded that action on the royalty was the
action that the state could do to incentivize development.
Representative Stapp queried the reason that there was not
a rebate of the royalty to the end user.
Mr. Crowther responded that how the legislature determined
to allocate the royalty was a policy question.
Co-Chair Foster noted that there was already a reduction in
tax on natural gas. He queried the current Cook Inlet
production tax.
Mr. Crowther deferred to Mr. Stickel.
3:24:52 PM
DAN STICKEL, CHIEF ECONOMIST, DEPARTMENT OF REVENUE, TAX
DIVISION, JUNEAU (via teleconference), responded he current
gas production tax was 15 percent of gross value.
3:27:53 PM
Representative Galvin wondered how DNR would feel about
limiting the length of royalty relief.
Mr. Crowther was happy to work with policy amendments.
Representative Galvin thought it seemed uncomplicated to
adjust the length of the royalty relief.
3:32:26 PM
Representative Hannan queried an opinion from Legislative
Legal as related to the 1987 lawsuit.
Co-Chair Foster agreed.
3:34:36 PM
Representative Tomaszewski asked whether the bill impacted
Fairbanks.
Mr. Crowther responded that the bill directly influenced
the energy market in Fairbanks.
HB 223 was HEARD and HELD for further consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 154 HFIN AHFC Presentation 041524.pdf |
HFIN 4/15/2024 1:30:00 PM |
HB 154 |
| HB 154 Public Testimony Rec'd by 040424.pdf |
HFIN 4/15/2024 1:30:00 PM |
HB 154 |
| HB 154 Public Testimony Rec'd by 041224.pdf |
HFIN 4/15/2024 1:30:00 PM |
HB 154 |
| HB 223 DNR DOG Presentation to HFIN 04.15.2024.pdf |
HFIN 4/15/2024 1:30:00 PM |
HB 223 |
| HB 223 Public Testimony Rec'd by 041524.pdf |
HFIN 4/15/2024 1:30:00 PM |
HB 223 |
| HB154 Public Testimony Rec'd by 051524.pdf |
HFIN 4/15/2024 1:30:00 PM |
HB 154 |
| HB 154 AHFC Response to HFIN 041724.pdf |
HFIN 4/15/2024 1:30:00 PM |
HB 154 |