Legislature(2011 - 2012)BARNES 124
03/12/2012 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB325 | |
| HB276 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 325 | TELECONFERENCED | |
| += | HB 276 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 276-OIL/GAS PROD. TAX CREDITS/RATES/VALUE
2:23:38 PM
CO-CHAIR SEATON announced that the next order of business would
be HOUSE BILL NO. 276, "An Act providing for a credit against
the oil and gas production tax for costs incurred in drilling
certain oil or natural gas exploration wells in the Nenana
Basin." [Before the committee was Version M, the proposed
committee substitute labeled 27-LS1193\M, Bullock, 1/18/12,
adopted as the working document on 1/30/12.]
The committee took an at-ease from 2:23 p.m. to 2:28 p.m.
2:28:33 PM
CO-CHAIR FEIGE moved to adopt the proposed committee substitute,
version 27-LS1193\D, Nauman/Bullock, 3/2/12, as the working
document. There being no objection, Version D was before the
committee.
2:29:07 PM
REPRESENTATIVE STEVE THOMPSON, Alaska State Legislature, said he
is before the committee to present Version D of HB 276 and that
the bill is a policy call for the legislature. He said the bill
would provide incentives that will hopefully spur investments
leading to seismic and drilling exploration in unexplored
frontier basins located in close proximity to communities in
need of a local energy source. He noted that his staff has
worked closely with the Department of Natural Resources (DNR) to
identify six areas within the state that represent unexplored
basins located in close proximity to energy challenged
communities. The bill would incentivize exploration by offering
four tax credits for seismic exploration within the [six]
different basins. Explorers seeking the credit would agree to
the data becoming public within two years of receiving the
credit. The seismic credit would be 75 percent of the seismic
exploration cost or $7.5 million, whichever is less. The bill
would also provide a drilling credit for the first four
exploration wells drilled within the identified areas with no
more than two wells in any single area. The drilling credit
would be 80 percent of actual drilling cost or $22.5 million,
whichever is less. Both credits under the bill would be for
work performed between June 1, 2012, and July 1, 2016.
REPRESENTATIVE THOMPSON pointed out that economic growth and
development in Interior Alaska is crippled by high energy prices
and the lack of renewable energy supplies, and said HB 276 would
strongly encourage companies to invest in potential frontier
basins. During the committee's discussion of the bill it became
evident there were more communities across Alaska that were
experiencing similar energy challenges and were looking for
possible solutions in their own backyard. The bill originally
dealt with drilling incentives in the Nenana Basin only. The
Nenana Basin is located 50 miles from Fairbanks and has road,
rail, and power access nearby. As drafted, HB 276 has the
potential to benefit not only the Interior but all Alaskans on
the Railbelt and beyond.
2:31:45 PM
JANE PIERSON, Staff, Representative Steve Thompson, Alaska State
Legislature, provided a sectional analysis of Version D of the
bill on behalf of joint prime sponsor, Representative Thompson.
She explained that Section 1 would [amend AS 43.55.025(a) to]:
make a conforming amendment to new section (q); provide a new
frontier basin drilling credit at the lesser of 80 percent of
the total drilling expenditures or $22.5 million described in
(n) of this section and that qualify under (b), (c), and (p) of
this section; and provide a new frontier basin seismic credit at
the lesser of 75 percent of the total seismic exploration
expenditures described in (o) of this section and that qualify
under (b), (c), and (p) of this section. She offered her belief
that a friendly amendment will be forthcoming to remove (c) from
the qualifications for seismic credits because (c) deals
exclusively with drilling credits. Addressing Section 2, she
said it would make a conforming amendment to include new
subsections created in AS 43.55.025(a).
2:32:56 PM
MS. PIERSON outlined Section 3, which proposes to add four new
subsections - (n), (o), (p), and (q) - to AS 43.55.025.
Subsection (n) describes the new frontier basin exploration
drilling credits. A person drilling the first four exploration
wells in an area described in subsection (p) of the bill on
state or private lands would be eligible for credits described
in subsection (a)(6) of the bill. The proposed credit could not
be taken for more than two exploration wells in any single area
described in subsection (p) of the bill. Subsection (n) would
further require that written consent be obtained from the owner
of oil and gas interests on private land for full public release
of all well data within two years after receiving a credit.
Data submission requirements would need to be in compliance with
the requirements in (f)(2) of this statute. A person planning
to drill an exploration well would be required to get approval
from the Department of Natural Resources (DNR) commissioner
prior to spudding the well. The DNR commissioner would have to
make an affirmative finding that the exploration well is in the
best interest of the state based on the well location, the
proximity to a community in need of a local energy source, the
proximity to existing infrastructure, the experience and safety
record of the explorer in conducting operations in remote or
roadless areas, the projected cost schedule, whether seismic
data sufficiently identifies a particular tract for exploration,
whether targeted depth and range are designed to penetrate and
fully evaluate the hydrocarbon potential below which hydrocarbon
reservoirs are likely to be found, and whether the exploration
plan provides for full evaluation of the well. Credits under
this subsection would be for work performed after June 1, 2012.
The drilling and exploration would need to be in an area with a
basin described under (p) of this section. If this credit is
claimed, no other credits could be claimed under this section or
AS 43.55.023 for the same expenditures.
2:35:16 PM
MS. PIERSON said proposed new subsection (o) describes the new
frontier basin seismic credit. It would provide that a person
conducting the first four seismic exploration projects in the
areas described in proposed new subsection (p) for the purposes
of discovering oil or gas in a basin is eligible for the credit.
A credit could not be taken for more than one seismic
exploration project in an area described in subsection (p).
Exploration credits would be available for work performed after
June 1, 2012. The person conducting seismic exploration on
private land would have to obtain written consent from the owner
of the oil or gas interest for full release of geophysical data
in compliance with the submission requirements of (f)(2). The
commissioner of DNR would have to give approval before the
commencement of seismic exploration activities and would have to
make an affirmative finding that the seismic project is in the
best interest of the state based on location, project cost,
schedule, data acquisition and data processing plan, the reason
for choosing the area for exploration, and the experience and
safety record of the person doing the exploration in a remote or
roadless area. A taxpayer obtaining a credit under this
subsection could not claim a tax credit under AS 43.55.023 or
another provision of this section for the same exploration
expenditure. She added that these credits would go to the
person doing the drilling, not the individuals holding an
interest within a multiple party, so a partner still could get
the credit.
2:37:09 PM
MS. PIERSON said proposed new subsection (p) states that credits
under (a)(6), (n), (a)(7), and (o) must be for exploration of a
basin within the following areas whose criteria points are
determined by using the World Geographic System of 1984 datum.
These six locations - Fairbanks, Kotzebue, Emmonak, Glennallen,
Egegik, and Port Moller - were identified by DNR as potential
frontier basins and they were further defined by proximity to
communities that are suffering from high energy cost and supply
issues.
MS. PIERSON explained that subsection (q) was added to HB 276 in
response to a problem identified by [oil and gas consultant]
Pedro van Meurs, which was that if a current producer with a tax
liability at high prices would offset the full marginal rate,
plus the expanded exploration tax credit, the state could end up
paying more than the 65 percent that is intended for exploratory
work. This can be seen as an inequity in the design of the
current tax credit wording. The intent is to set the amount for
exploration credits at 65 percent and not dependent on
particular companies or other operators. The limitations are
not applied to the Cook Inlet or frontier basin credits since
they are credits geared for creating a stampede of exploration
in certain areas of the state that will produce benefits for the
state and its residents.
2:38:39 PM
CO-CHAIR SEATON understood that this, unlike the Cook Inlet
credit, was not for a single entity drilling three wells. This
is multiple persons could either do the multiple seismics, or
multiple persons, meaning multiple companies, could qualify for
the tax credit by drilling in one basin and someone else in
another basin. It is not restricted to the same person, it is
persons.
MS. PIERSON confirmed this understanding to be correct and
apologized for misspeaking earlier.
2:39:24 PM
REPRESENTATIVE KAWASAKI understood that Section 3 identifies the
way in which an explorer can apply for drilling credits.
Regarding the best interest finding on page 4, line 15, he
presumed that the DNR commissioner would have to have submitted
a best interest finding and agreed that the [exploration well]
was qualified for the credit prior to the drilling actually
being done.
MS. PIERSON confirmed this understanding to be correct.
REPRESENTATIVE KAWASAKI inquired whether a best interest finding
is something that can readily be done and asked how much time it
would take. He understood that a lot would go into a best
interest finding before a credit could be applied for.
MS. PIERSON offered her belief that (f)(2) of the statute, which
the committee does not have before it, provides 30 days after
the date of request, unless a longer period is provided.
REPRESENTATIVE KAWASAKI, regarding the condition under the best
interest finding about the explorer's experience and safety
record, inquired whether that record is for Alaska or other
states, or would be up to the commissioner to decide.
MS. PIERSON offered her belief that it would be left for the
commissioner to decide, but added that she believed it would
also be whether the explorer's agents who are actually
conducting the drilling or seismic have had some experience in
remote and roadless areas.
2:41:43 PM
REPRESENTATIVE HERRON offered his appreciation for how the bill
has changed and where the proposed committee substitute (CS) is
going. Noting the map shows six basins, he asked about the
criteria used [for their selection] such that there are not
seven or eight basins.
MS. PIERSON replied that DNR provided the initial basins and the
sponsor looked at them in regards to being close to communities
that could actually use the resources and that had a need for
the resources, which is how these six areas were chosen. The
other three areas provided by DNR were either not in close
proximity to a community that would need them or were in such
close proximity to the Cook Inlet that they were already being
taken care of.
REPRESENTATIVE HERRON surmised, then, that there is no need to
have a trigger built into the statutes to open up another basin
without going back to the legislature.
MS. PIERSON responded that extending this credit until 2022 was
talked about at one time, along with adding some other things
discussed in this committee. However, due to the lateness of
the session, she said she created what she hopes is a good
framework and offered her belief that if this works it will be
looked at again before 2016.
2:43:39 PM
REPRESENTATIVE GARDNER related she has an ongoing theme of
letting Alaskans and legislators know what the state is buying
and spending and who is getting and claiming credits. She asked
which elements of HB 276 are completely available to the public
and which are not. For example, if the commissioner made a best
interest finding, she presumed the public could read that and be
able to estimate what the credit would be. She said she would
like to see, in principle, that whenever a tax credit is given
to someone the information is available to all Alaskans so they
know who the beneficiaries are, along with the amount.
MS. PIERSON answered that the sponsor tried to do this by
requiring the data discovered be made public within two years.
Whether the explorer actually has a lease or has an exploration
area, it is almost like advertising. If there is something good
going on the explorer is protected by its exploration area or
its lease. If something is found it may bring investors into
these areas, something that has been problematic. Therefore, in
making any data discovered for this credit public and available,
the sponsor is trying to give the state more knowledge and
something it can sink its teeth into.
REPRESENTATIVE GARDNER offered her appreciation for the
aforementioned.
2:45:45 PM
CO-CHAIR SEATON pointed out that under existing programs any
explorer can qualify for the 65 percent credit without sharing
data. He therefore understood that someone wishing to take the
enhanced credits for exploration in the proposed areas under HB
276 would have to go through the best interest finding and would
have to agree to release the data.
MS. PIERSON confirmed that this is correct.
2:46:26 PM
CO-CHAIR FEIGE understood the DNR commissioner and his staff
would approve where the seismic projects or the exploratory
drilling occurs. He asked whether there is a time constraint
from when the credit is approved and when the work must start.
MS. PIERSON replied that to qualify for the [proposed] credit an
exploration expenditure would have to incurred for work
performed after [June 1, 2012] and before July 1, 2016.
2:47:20 PM
CO-CHAIR SEATON understood that under the bill's provisions the
person qualifying for and receiving the credit would be the one
actually turning the drill bit first.
MS. PIERSON responded "that is true and that is really belt and
suspenders," but as was seen with Cook Inlet that became very
important.
2:47:52 PM
REPRESENTATIVE FOSTER noted that the second paragraph of the
sponsor statement states that the drilling credit would be for
the "first four exploration wells in an area described in the
bill with no more than two wells in any single area." He
inquired whether that means a total of four wells or means six
areas times no more than two wells in each area, which would be
twelve.
MS. PIERSON, noting that this has been a hard one to nail down
in legal writing, said it would be four total.
2:48:31 PM
CO-CHAIR SEATON opened public testimony on HB 276. After
ascertaining that no one wished to testify, but that the
Resource Development Council had submitted written testimony in
favor of the bill, he announced that HB 276 would be held over
for public testimony on 3/14/12 and that people could submit
written testimony as well.
2:49:29 PM
CO-CHAIR SEATON moved to adopt Conceptual Amendment 1, written
as follows:
Page 2, Line 14: Delete (c)
CO-CHAIR SEATON pointed out that this is the amendment talked
about by the sponsor that would delete the reference to (c).
CO-CHAIR FEIGE objected for discussion purposes.
CO-CHAIR SEATON explained that lines 12-14 on page 2 talk about
seismic exploration activities. However, (c) specifically
references only exploration wells, so reference to (c) is
probably inappropriate.
CO-CHAIR FEIGE withdrew his objection. There being no further
objection, Conceptual Amendment 1 was adopted.
2:51:10 PM
REPRESENTATIVE KAWASAKI recalled Ms. Pierson's statement that
the proposed tax credits would not be stackable. He noted that
the research and development tax credit is not in Title 43, but
under a different title. He requested clarification on which
credits are stackable and which are not stackable.
MS. PIERSON said she will have to get back to the committee with
an answer.
CO-CHAIR SEATON pointed out that the two fiscal notes are for
the original bill and said new fiscal notes are anticipated for
Version D.
2:53:04 PM
REPRESENTATIVE KAWASAKI said he will submit written questions
through the co-chair about the dynamics of the best interest
findings, the proximity to a community in need, the definition
of proximity to existing infrastructure, and how those would be
objectively looked at by the commissioner in a best interest
finding.
CO-CHAIR SEATON offered his belief that the bill actually lays
out mileage around the points.
MS. PIERSON said this can be found in subsection (p) on page 6,
beginning on line 2.
CO-CHAIR SEATON added that the aforementioned language describes
the areas the basins would have to be in. He recalled that DNR
had previously said a best interest finding would be based on
the prospectivity because the state did not want to spend a lot
of money if there was not much prospectivity. He asked whether
this language is adequate for Representative Kawasaki.
2:55:47 PM
REPRESENTATIVE KAWASAKI commented that this was originally a
Nenana Basin bill and now a number of different communities have
been added. He recollected a discussion led by Co-Chair Feige
in which there was talk about whether a community would be able
to take advantage of a potential find. For example, Fairbanks
is close to the road system and has a need, but in rural areas
with a need it might not be cost effective to pay for the
credits; therefore, it is a policy call that must be made.
MS. PIERSON offered her belief that that is the reason for the
best interest finding. She said a problem of these being
frontier basins is that they have never been actually solidified
in their definitions, which is the reason for the circles [on
the map depicting the six areas]. She imagined that if somebody
wanted to drill in an area within the circle but not in the
basin, there would be a problem with that, and that is the best
interest finding. The Department of Natural Resources was
concerned that there be a development plan.
CO-CHAIR SEATON offered his appreciation for the colored map
depicting the proposed areas that are defined in the bill by
latitude and longitude.
2:57:45 PM
CO-CHAIR SEATON understood that the bill does not include outer
continental shelf (OCS) or federal land; thus the credits would
be available for either state or private land.
MS. PIERSON confirmed that this is correct.
CO-CHAIR SEATON said his previous statement was to clarify that
the state credit would not apply to any work occurring off the
Aleutian Islands in the OCS.
[HB 276 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB0325A.pdf |
HRES 3/12/2012 1:00:00 PM |
HB 325 |
| HB 325 Sponsor Statement.pdf |
HRES 3/12/2012 1:00:00 PM |
HB 325 |
| HB276 Sponsor Statement version D.pdf |
HRES 3/12/2012 1:00:00 PM HRES 3/14/2012 1:00:00 PM |
HB 276 |
| Sectional House Bill 276 version D.pdf |
HRES 3/12/2012 1:00:00 PM HRES 3/14/2012 1:00:00 PM |
HB 276 |
| Oil Basin Final re areas version D 3.8.12.pdf |
HRES 3/12/2012 1:00:00 PM HRES 3/14/2012 1:00:00 PM |
HB 276 |
| HB276 CS versiion D 3.7.12.pdf |
HRES 3/12/2012 1:00:00 PM HRES 3/14/2012 1:00:00 PM |
HB 276 |
| HB 325 Legal Opinion.pdf |
HRES 3/12/2012 1:00:00 PM |
HB 325 |
| 12-177ljw.pdf |
HRES 3/12/2012 1:00:00 PM |
HB 325 |
| Document1.docx |
HRES 3/12/2012 1:00:00 PM |
HB 276 |
| RDC CS HB276 Comments.pdf |
HRES 3/12/2012 1:00:00 PM |
HB 276 |
| HB 325 Sectional Analysis Version I.pdf |
HRES 3/12/2012 1:00:00 PM |
HB 325 |