03/14/2012 01:00 PM House RESOURCES

          HB 276-OIL/GAS PROD. TAX CREDITS/RATES/VALUE                                                                      
                                                                                                                                
2:47:57 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON announced that the  final 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  the  proposed  committee                                                               
substitute,  Version  D,   labeled  27-LS1193\D,  Nauman/Bullock,                                                               
3/2/12,  adopted   as  the  working   document  and   amended  by                                                               
Conceptual Amendment 1 on 3/12/12.]                                                                                             
                                                                                                                                
2:48:21 PM                                                                                                                    
                                                                                                                                
JANE PIERSON, Staff, Representative  Steve Thompson, Alaska State                                                               
Legislature, on  behalf of  Representative Thompson,  joint prime                                                               
sponsor,  explained  that  Conceptual  Amendment  1,  adopted  on                                                               
3/12/12, would delete subsection "(c)" from line 17 of page 2.                                                                  
                                                                                                                                
CO-CHAIR  SEATON added  that Conceptual  Amendment  1 would  also                                                               
take out  "(7)" from  line 17 of  page 2.   He asked  whether Ms.                                                               
Pierson wished to offer any other amendments to the bill.                                                                       
                                                                                                                                
MS. PIERSON replied  she has no further amendments  to offer, but                                                               
reported that the Department of  Revenue (DOR) is working through                                                               
some  non-substantive  changes  to  provide  a  bit  of  clarity.                                                               
Otherwise, she added, DOR is in agreement with the wording.                                                                     
                                                                                                                                
2:49:20 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON invited  the Department  of  Revenue to  provide                                                               
testimony.                                                                                                                      
                                                                                                                                
JOHN LARSEN,  Audit Master, Tax Division-Production  Audit Group,                                                               
Department of Revenue  (DOR), noted that in some  of the proposed                                                               
basin areas  there are existing  exploration licenses  that could                                                               
be converted  to a  lease without  a competitive  bid; therefore,                                                               
the  department would  like to  point out  that HB  276 could  be                                                               
perceived as special purpose legislation.   Also, he pointed out,                                                               
HB 276 was modeled after the  Cook Inlet jack-up rig credit which                                                               
had a 50  percent repayment provision, and while that  was in the                                                               
original version of HB 276 it is not in this current version.                                                                   
                                                                                                                                
REPRESENTATIVE  HERRON   requested  an  explanation   of  special                                                               
interest.                                                                                                                       
                                                                                                                                
MR. LARSEN  replied the word he  used was special "purpose".   He                                                               
said the  concern is that  in some of  the basin areas  there are                                                               
existing  exploration  licenses  issued   by  the  Department  of                                                               
Natural  Resources  (DNR)  and  an  exploration  license  can  be                                                               
converted  to   a  lease  without   having  to  go   through  the                                                               
competitive bid process.                                                                                                        
                                                                                                                                
2:51:51 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE  inquired which  basins  are  being talked  about                                                               
besides the Nenana Basin.                                                                                                       
                                                                                                                                
MR.  LARSEN  responded there  are  as  many as  four  exploration                                                               
licenses in the Nenana Basin.                                                                                                   
                                                                                                                                
CO-CHAIR SEATON clarified that HB  276 would not eliminate people                                                               
from  applying  for  exploration  licenses  which  can  then  get                                                               
converted to leases without a  competitive bid process.  The bill                                                               
would  not change  exploration  license  provisions or  eliminate                                                               
future exploration licenses from being applied for.                                                                             
                                                                                                                                
CO-CHAIR  FEIGE asked  whether there  are any  active exploration                                                               
licenses in basins designated by HB 276, other than the Nenana.                                                                 
                                                                                                                                
MR.  LARSEN said  he will  check  with DNR  and get  back to  the                                                               
committee.                                                                                                                      
                                                                                                                                
2:53:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   KAWASAKI  inquired   whether  the   tax  credits                                                               
proposed by HB  276 can be stacked with credits  for research and                                                               
development  (R&D), corporate  income  tax  credits, and  credits                                                               
under AS 43.55.023.                                                                                                             
                                                                                                                                
MATTHEW  FONDER,   Director,  Anchorage  Office,   Tax  Division,                                                               
Department of  Revenue (DOR),  replied that  should HB  118 pass,                                                               
page 2,  subsection (d),  of the  that bill  specifies that  if a                                                               
credit is  taken for R&D the  person would be ineligible  for any                                                               
other credit under Title 43, which  would include any oil and gas                                                               
tax credits or any other tax credits.                                                                                           
                                                                                                                                
2:55:30 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON [opened public testimony].                                                                                      
                                                                                                                                
ELIZABETH SAADULIK HENSLEY, Corporate  and Public Policy Liaison,                                                               
NANA Regional Corporation, offered NANA's  support for HB 276 and                                                               
expressed  the corporation's  appreciation for  the collaboration                                                               
involved in creating the bill.                                                                                                  
                                                                                                                                
CO-CHAIR SEATON  closed public testimony after  ascertaining that                                                               
no one else wished to testify.                                                                                                  
                                                                                                                                
2:57:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI  drew attention  to page 4,  lines 14-16,                                                               
and page  5, lines [21]-22,  and inquired  about use of  the word                                                               
"shall".                                                                                                                        
                                                                                                                                
CO-CHAIR SEATON  read aloud  from page 5,  lines 21-23:   "Before                                                               
approving a  seismic exploration project, the  commissioner shall                                                               
make an affirmative finding that  the seismic exploration project                                                               
is  in the  best  interest of  the state".    He understood  this                                                               
language   to  mean   that  the   commissioner  must   make  this                                                               
affirmative finding  before a seismic exploration  project can be                                                               
approved.                                                                                                                       
                                                                                                                                
MS. PIERSON interjected that the  language says this credit shall                                                               
be approved before the credit will be available.                                                                                
                                                                                                                                
CO-CHAIR FEIGE  added that the  intent and reason for  "shall" is                                                               
that  the applicant  is  being  asked to  apply  to  DNR and  the                                                               
department will approve  the proposal in order  for the applicant                                                               
to  get  a  credit,  as opposed  to  someone  conducting  seismic                                                               
anywhere around the state that he or  she wants to.  If the state                                                               
is going  to spend the money  to grant the credit  then the state                                                               
must make sure that  it is in the best interest  of the state and                                                               
that it is in a reasonable location.                                                                                            
                                                                                                                                
2:59:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KAWASAKI pointed  out  that on  page  5 the  word                                                               
"shall" is used and  on page 4 the word "must"  is used, which he                                                               
said is confusing  if the language is basically the  same for the                                                               
best  interest  findings  for  both  exploration  wells  and  for                                                               
exploration drills.                                                                                                             
                                                                                                                                
CO-CHAIR  SEATON  agreed and  asked  whether  the sponsor  had  a                                                               
reason for this difference.                                                                                                     
                                                                                                                                
CO-CHAIR FEIGE said he thinks it means the same.                                                                                
                                                                                                                                
CO-CHAIR SEATON concurred.                                                                                                      
                                                                                                                                
MS. PIERSON confirmed  it means the same.  She  said she has been                                                               
working with  two different drafters  and it  is just use  of the                                                               
English language.                                                                                                               
                                                                                                                                
CO-CHAIR SEATON noted  this is a work draft and  that a committee                                                               
substitute (CS) will  be coming out in which the  language can be                                                               
made  parallel.   He asked  Representative Kawasaki  whether this                                                               
would be sufficient.                                                                                                            
                                                                                                                                
REPRESENTATIVE KAWASAKI responded that it would.                                                                                
                                                                                                                                
3:01:14 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI drew attention  to the language regarding                                                               
experience and safety records on page  4, line 19, and on page 5,                                                               
line [26].   He asked how that would be  applied and whether that                                                               
is language used in other lease terms.                                                                                          
                                                                                                                                
MS.  PIERSON answered  that  this  language is  also  used in  AS                                                               
43.55.025.   She explained  DNR wants to  ensure that  the people                                                               
out there  are actually  qualified and  have background  in doing                                                               
this.                                                                                                                           
                                                                                                                                
3:02:51 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE  moved to  report  HB  276, version  27-LS1193\D,                                                               
Nauman/Bullock,  3/2/12,  as  amended,   out  of  committee  with                                                               
individual  recommendations  and   the  accompanying  two  fiscal                                                               
notes.   There  being no  objection, CSHB  276(RES) was  reported                                                               
from the House Resources Standing Committee.