03/22/2010 01:00 PM House RESOURCES

            HB 414-SEPARATE OIL & GAS PRODUCTION TAX                                                                        
                                                                                                                                
1:08:51 PM                                                                                                                    
                                                                                                                                
CO-CHAIR NEUMAN  announced that  the first  order of  business is                                                               
HOUSE BILL NO.  414, "An Act relating  to the tax on  oil and gas                                                               
production; and providing for an effective date."                                                                               
                                                                                                                                
CO-CHAIR  NEUMAN requested  members to  hold questions  until the                                                               
next hearing because today is only an introduction of the bill.                                                                 
                                                                                                                                
1:09:34 PM                                                                                                                    
                                                                                                                                
REX  SHATTUCK, Staff,  Representative Mark  Neuman, Alaska  State                                                               
Legislature, noted  that the sectional  analysis included  in the                                                               
committee packet is  for SB 305, Version A,  which is essentially                                                               
the same  bill as HB  414.  He  spoke from the  following sponsor                                                               
statement [original punctuation provided]:                                                                                      
                                                                                                                                
          Currently there are companies doing business in                                                                       
     Alaska that have both oil  sales (from the North Slope)                                                                    
     and gas sales (from Cook  Inlet or elsewhere).  The gas                                                                    
     produced receives  the same progressivity  surcharge as                                                                    
     the oil.                                                                                                                   
                                                                                                                                
          [HB] 414 by the House Resources Committee                                                                             
     separates  oil   and  natural   gas  for   purposes  of                                                                    
     calculating   the   progressivity    portion   of   the                                                                    
     production tax  under AS 43.55.   Under this  bill, the                                                                    
     progressivity  surcharge  is  calculated  on  oil  only                                                                    
     instead of on oil and  gas combined.  The progressivity                                                                    
     surcharge  remains   unchanged  at   0.4%  per   $1  of                                                                    
     production  tax value  over $30  per barrel,  then 0.1%                                                                    
     per  $1 of  production tax  value over  $92.50.   Under                                                                    
     [HB]  414,  natural  gas  will   be  taxed  at  25%  of                                                                    
     production tax value with no progressivity surcharge.                                                                      
                                                                                                                                
1:11:20 PM                                                                                                                    
                                                                                                                                
MR. SHATTUCK reviewed the sectional  analysis.  He said Section 1                                                               
of HB  414 addresses  AS 43.55.011(e)(2)  and would  add language                                                               
that   specifically  identifies   the  production   of  oil   for                                                               
progressivity   rate   purposes.     Section   2   addresses   AS                                                               
43.55.011(g) and would  remove the language referring  to gas and                                                               
its  per British  Thermal Unit  (BTU) equivalent  to isolate  the                                                               
progressive   rate   tax   calculation    for   oil.      In   AS                                                               
43.55.011(g)(1), the  language referring to  gas and its  per BTU                                                               
equivalent  would  be  removed  to  apply  the  progressive  rate                                                               
calculation only to oil with  a progressive rate of an additional                                                               
0.4 percent  for each dollar  per barrel  above $30 up  to $92.50                                                               
per   barrel.     The  same   changes   would  be   made  in   AS                                                               
43.55.011(g)(2) as in  AS 43.55.011(g)(1), eliminating references                                                               
to gas and  per BTU equivalent to calculate  the progressive rate                                                               
for net production  values greater than $92.50 at the  rate of an                                                               
additional 0.1  percent.   Section 3  applies to  AS 43.55.011(j)                                                               
and would provide  that in comparing the lower  tax of subsection                                                               
(e)  and  economic   limit  factor  (ELF)  tax   for  Cook  Inlet                                                               
production, progressivity  would not  apply for  gas.   Section 4                                                               
applies to  AS 43.011(o) and would  be the same as  Section 3 for                                                               
non-Cook  Inlet gas  used  in-state.   Section  5  applies to  AS                                                               
43.55.020(a)(1) and  would provide  that the  monthly installment                                                               
payment  for  gas does  not  include  a progressivity  component.                                                               
Section 6  applies to AS  43.55.160(a)(2) and would  provide that                                                               
the  monthly production  tax  values  for deriving  progressivity                                                               
apply only  to oil.  Subparagraph  (A) would apply only  to North                                                               
Slope oil and  subparagraph (B) would apply only  to outside Cook                                                               
Inlet  and  not  North  Slope  oil.   Section  7  applies  to  AS                                                               
43.55.160(c) and  would provide  that calculation of  the monthly                                                               
share of a producer's transportation  costs for the calendar year                                                               
for deriving  production tax value  for progressivity is  for oil                                                               
only.  Section 8 would provide for an immediate effective date.                                                                 
                                                                                                                                
CO-CHAIR NEUMAN  urged committee  members to bring  any questions                                                               
to the co-chairs or Senator Stedman.                                                                                            
                                                                                                                                
1:14:57 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOHNSON said  HB 414 is being introduced now  so that if                                                               
the  issue becomes  urgent the  bill  can be  brought up  quickly                                                               
under  bills  previously heard.    He  added that  the  co-chairs                                                               
intend to  be up  front and want  to be able  to take  the Senate                                                               
version and move it into the  House Finance Committee, if that is                                                               
deemed important.                                                                                                               
                                                                                                                                
CO-CHAIR NEUMAN added that making  HB 414 available to the public                                                               
is  another reason  for bringing  the bill  before the  committee                                                               
now.   He  explained  that TransCanada's  open  season under  the                                                               
Alaska Gasline  Inducement Act  (AGIA) is coming  and one  of the                                                               
inducements for  that is a lock-in  in taxes for up  to 10 years;                                                               
it is  pertinent that  the people of  Alaska and  the legislature                                                               
know the effects  of that.  The differential between  oil and gas                                                               
right now is close to 20:1.                                                                                                     
                                                                                                                                
1:16:41 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  EDGMON inquired  if  there will  be a  definitive                                                               
answer as to whether HB 414 will be needed.                                                                                     
                                                                                                                                
CO-CHAIR  NEUMAN responded  the co-chairs  are currently  working                                                               
with the Department  of Law and the Department of  Revenue to get                                                               
that answer.                                                                                                                    
                                                                                                                                
CO-CHAIR  JOHNSON said  he  hopes there  is  a definitive  answer                                                               
because he  does not  want to  spend a lot  of time  on something                                                               
that does not  need to be done.  However,  if something does need                                                               
to be  done, it  will need  to be done  quickly.   He said  he is                                                               
unconvinced at this point that the bill is actually needed.                                                                     
                                                                                                                                
CO-CHAIR  NEUMAN  commented that  it  is  also the  legislature's                                                               
authority to decide whether the bill is needed.                                                                                 
                                                                                                                                
1:17:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  asked whether the provision  under Section                                                               
2 for  AS 43.55.011(g)(1) would keep  the current tax the  way it                                                               
is  or  would  incorporate  the  progressivity  change  that  was                                                               
previously brought before the committee.                                                                                        
                                                                                                                                
CO-CHAIR  NEUMAN  replied that  this  is  a mobile  document  and                                                               
things are  changing fast, so  when that information  is received                                                               
it will be given to committee members.                                                                                          
                                                                                                                                
CO-CHAIR  JOHNSON added  that to  his  knowledge no  one on  this                                                               
committee  has  had any  input  into  this  bill because  it  was                                                               
drafted in  the other body.   He reiterated that HB  414 is being                                                               
introduced as a placeholder.                                                                                                    
                                                                                                                                
CO-CHAIR NEUMAN said  he and his staff are  working to understand                                                               
the bill and to get further information.  He held over HB 414.