Legislature(2013 - 2014)SENATE FINANCE 532
02/28/2013 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB23 | |
| SB21 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 23 | TELECONFERENCED | |
| + | SB 21 | TELECONFERENCED | |
SENATE BILL NO. 21
"An Act relating to appropriations from taxes paid
under the Alaska Net Income Tax Act; relating to the
oil and gas production tax rate; relating to gas used
in the state; relating to monthly installment payments
of the oil and gas production tax; relating to oil and
gas production tax credits for certain losses and
expenditures; relating to oil and gas production tax
credit certificates; relating to nontransferable tax
credits based on production; relating to the oil and
gas tax credit fund; relating to annual statements by
producers and explorers; relating to the determination
of annual oil and gas production tax values including
adjustments based on a percentage of gross value at
the point of production from certain leases or
properties; making conforming amendments; and
providing for an effective date."
1:36:28 PM
DANIEL SULLIVAN, COMMISSIONER, DEPARTMENT OF NATURAL
RESOURCES, provided a Power Point presentation titled
"Arresting TAPS Throughput Decline and Oil Tax Reform"
(copy on file). He discussed that the department would
provide an overview of the bill and would discuss the
challenge related to TAPS throughput decline, it would also
underscore that the continued decline was not inevitable.
Commissioner Sullivan looked at slide 2, "TAPS - A Critical
State and National Energy Asset."
-The Trans Alaska Pipeline, 11 pump stations, several
hundred miles of feeder pipelines, and the Valdez
Marine Terminal constitute the Trans-Alaska Pipeline
System (TAPS).
-At 800 miles long, the Trans Alaska Pipeline is one
of the longest pipelines in the world; it crosses more
than 500 rivers and streams and three mountain ranges
as it carries Alaska's oil from Prudhoe Bay to Valdez.
-The U.S. Congress was instrumental in the approval
and rapid development of TAPS. Congress approved
construction of the pipeline with the Trans Alaska
Pipeline Authorization Act of 1973.
-The principle focus of this Act is as relevant today
as it was in 1973: "the early development and delivery
of oil and gas from Alaska's North Slope to domestic
markets is in the national interest because of growing
domestic shortages and increasing dependence upon
insecure foreign sources."
1:40:20 PM
Commissioner Sullivan turned to slide 3 with the same
title.
-TAPS has transported over 16.3 billion barrels of oil
and natural gas liquids since June of 1977. Production
peaked at 2.2 million barrels per day in the late
1980s, representing 25 percent of U.S. domestic
production
-Since its peak, however, throughput has steadily
declined; today, TAPS is 2/3 empty and declining at an
average of 6 percent per year
-TAPS throughput decline threatens economic disruption
and the very existence of our pipeline
-We must encourage industry to invest in exploration
and development of conventional and unconventional
resources on state and federal land, onshore and
offshore
-TAPS has plenty of capacity for increased throughput
-Most near-term critical economic issue facing the
state
-Less oil in the pipeline year after year takes away
revenue from future generations-the ultimate giveaway
-Reconfiguration, 1.2 million barrels/day
He directed attention to slide 4, "Oil Tax Reform -
Production History." He stated that the opportunity on the
North Slope continued to be "enormous." He looked at the
urgency of the issue on slide 5, "TAPS Throughput Decline
is an Urgent Problem." The discussion was not a scare
tactic. He relayed that the issue was real and needed to be
addressed. He referred to a prior shutdown of TAPS due to a
pipeline leak, and opined that the state had dodged a
bullet in the dicey situation. He pointed out that it had
not been clear that the line would be restarted.
Commissioner Sullivan continued to discuss slide 5. The
best way to address the technical issues was to increase
throughput. There were significant consequences for the
state and country.
Commissioner Sullivan moved to slide 6, "Alaska's North
Slope Oil and Gas Potential."
USGS estimates that Alaska's North Slope has more oil
than any other Arctic nation
-OIL: Est. 40 billion barrels of conventional oil
(USGS & BOEMRE)
-GAS: Est. over 200 trillion cubic feet of
conventional natural gas (USGS)
Alaska has world-class unconventional resources,
including tens of billions of barrels of heavy oil,
shale oil, and viscous oil, and hundreds of trillions
of cubic feet of shale gas, tight gas, and gas
hydrates
-Positive methane hydrate test production
1:46:20 PM
Commissioner Sullivan turned to slide 7, "U.S. Energy
Renaissance." The opportunity was enormous for the country.
There had been a huge oil and gas investment boom in the
past several years worldwide. He provided amounts including
$650 billion. The state of Alaska received less than 1
percent of the total in the prior year. He stressed that
the state needed to take back its lead in the production
industry.
Commissioner Sullivan moved to slide 8, "Other Basins have
Turned Decline Around." Every major basin was turning
around their throughput decline with the exception of
Alaska.
"The expansion has been spurred by record-breaking
levels of investment, with about £40bn set to be
ploughed into North Sea production in the next three
years…"
"The surge in investment comes after the government
relaxed the tax regime around North Sea development,
prompting a record-breaking licensing round when the
Department of Energy and Climate Change awarded 167
new licenses on 330 blocks last October."
Commissioner Sullivan pointed to pages from the Wall Street
Journal on slide 9. He quickly moved to slide 10 showing
natural decline rates that had been turned around. He moved
to slide 11 titled "Other Basins have Turned Decline Around
- Historical Oil Production." He emphasized that the line
chart was probably the most important slide that would be
presented to the committee. He discussed that the yellow
line represented Texas, Alaska was blue, North Dakota was
red, and Alberta was brown. He discussed that movement had
been remarkably similar for many years; however, all of the
basins had started turning their production curve around."
The only place that oil companies had not increased their
production was in Alaska. The department believed that it
was directly related to Alaska's unfriendly tax regime.
1:53:44 PM
Commissioner Sullivan addressed slide 12 titled Secure
Alaska's Future - Oil."
Secure Alaska's Future-Oil is the State's
comprehensive strategy to increase TAPS throughput to
one million barrels a day.
I. Enhance Alaska's global competitiveness and
investment climate
II .Ensure the permitting process is structured
and efficient
III. Facilitate and incentivize the next phases
of North Slope development
IV. Promote Alaska's resources and positive
investment climate to world markets
1:57:37 PM
Senator Hoffman did not believe there was one individual in
the state that did not want to add more oil into the
pipeline. He discussed the necessity of volume. He shared
that the number heard from the industry in order to turn
the investment field around was between $2 billion to $4
billion. Commissioner Sullivan responded that the
department had worked to encourage production, but the
growing sense that action was needed. He was reluctant to
speak for the oil and gas industry, because it was
important for them to address the committee directly. One
of the items in the proposal was focused on balancing the
system and increasing production. The imbalance made the
state treasury incredibly vulnerable. He shared that DNR
should be making the state more competitive with peers in
other basins when the companies were most eager to invest.
He discussed large tax credits for companies that did not
commit to any production.
2:02:42 PM
Senator Hoffman stated that the issue was the most
important facing the state for upcoming decades. He wanted
to ensure that the state had enough revenue to provide
services until the oil came online, but there would be a
big question mark about when or if the oil would ever come
online.
Senator Olson wondered how the state would not just provide
giveaways to the oil companies. Commissioner Sullivan
replied that the department had taken a hard look at the
issue. The governor's initial proposal looked at balancing
the system with a strong focus on incentivizing production.
Many people did not know that explorers received cash
checks from the state, so the incentives needed to be more
closely tied to production.
2:06:11 PM
Senator Olson believed much of the bill addressed existing
production. Commissioner Sullivan replied that the
governor's bill was not a snapshot way to increase in state
revenues, but it was a balance. At higher prices, ACES
inhibited the needed investment. One of the challenges was
related to progressivity and the bill was very focused on
new production and credits for oil.
Senator Bishop pointed to slide 5. He discussed that the
department had been onsite working around the clock. He
relayed that there were workers responsible for getting the
pipeline up and running. He stated that money was being
well spent on workforce development. Commissioner Sullivan
agreed. He added that there had been some problems with the
Environmental Protection Agency (EPA).
Co-Chair Meyer pointed to slide 14 and asked where the
governor's bill would put Alaska in the range on the slide.
Commissioner Sullivan would follow up with an answer.
2:11:38 PM
BRYAN BUTCHER, COMMISSIONER, DEPARTMENT OF REVENUE,
provided a Power Point presentation titled "Oil Tax Reform:
Creating a Durable Production Tax System that is
Competitive for the Long Term Benefit of Alaskans." He
moved to slide 2, "Principles of Reform."
Tax reform must:
1. Be fair to Alaskans.
2. Encourage new production.
3. Be simple so that it restores balance to the
system.
4. Be durable for the long-term.
Commissioner Butcher turned to slide 3 titled "Challenges
in the Current Tax System." The department would discuss
declining production, progressivity, and tax credits at a
later time. He looked at slide 4 titled "Rising Prices and
Declining Production." He directed attention to slide 5
titled "Rising Prices and Declining Production." He talked
about gross value in production versus gross value of the
ANS oil price.
2:19:29 PM
Commissioner Butcher pointed to slide 6, "Rising Prices and
Declining Production."
Less production = less potential value for both the
state and producers.
In FY 2008 an ANS price of $96.51 yielded
approximately $20.4 billion in gross value.
By FY 14, a price that is $13 higher will yield a bit
more than $3 billion less in gross value.
Commissioner Butcher looked at slide 7, "Rising Prices and
Declining Production Observations."
1.High prices have generally offset declining
production over the past several fiscal years.
2.As production has continued to fall however, the
level of production tax generated by high oil prices
has fallen.
3.But, the level of production tax revenues have
fallen faster than production.
4.The question is why?
Commissioner Butcher moved to slide 9, "The Progressivity
Function."
Found in AS 43.55.011 (g)
Based on the Production Tax Value (PTV)
When the PTV exceeds $30 per barrel of oil equivalent
(BOE) the tax is levied at:
-.4 percent per dollar until the PTV/bbl = $92.50
-.1 percent per dollar that the PTV/bbl is
greater than $92.50
-Maximum rate of 50 percent (in addition to 25
percent base tax)
Calculated monthly
A single statewide calculation on all oil and gas
Co-Chair Meyer wondered if DOR promoted a bracket of
progressivity. Commissioner Butcher replied that DOR would
like not progressivity.
2:26:20 PM
Commissioner Butcher looked at slide 10, "Progressivity:
How it is Calculated."
Based on page 108 of the 2012 Fall Revenue Sources
Book.
Taxable Production: 170,262,000
GVPP = Gross Value at the Point of Production.
PTV = Production Tax Value.
Commissioner Butcher presented slide 11, "Progressivity:
How it is Calculated." He explained the following
equations:
Calculating the Progressivity with a PTV/bbl = $64.87
$64.87 - $30 = $34.87
Because the PTV/bbl < $92.50
$34.87 x .004 § percent
The 13.95 percent progressive tax is then applied to
the PTV/bbl of $64.87 not to the $34.87
$64.87 x 13.95 percent = $9.05 per barrel
Therefore: the $9.05 progressive tax + $16.22 (25
percent) base tax = $25.27 production tax per barrel
before credits.
Multiplied by the taxable production (170,262,000
bbls) = $4,302 million
Commissioner Butcher discussed slide 12, "Observations."
Progressivity increases the overall tax rate as the
overall profitability (before state and federal income
taxes) rises.
Remember, progressivity is company specific and each
company will have a different exposure because
progressivity is sensitive to:
-The oil price.
-Spending.
-Production.
Progressivity is only one part of what makes the
overall system progressive; it is not a factor at low
oil prices.
2:30:06 PM
Commissioner Butcher looked at slide 13, "Example 1: New
Capital Spending in Fiscal Year 2014."
Based on page 108 of the 2012 Fall Revenue Sources
Book.
Taxable Production: 170,262,000.
Increased capital spending by $500 million from
$3,338.6 million to $3,836.6 million.
CAPEX per barrel goes from $19.61 to $22.55 per
barrel.
Commissioner Butcher highlighted slide 14, "Example 1: New
Capital Spending in Fiscal Year 2014."
Calculating the Progressivity with a PTV/bbl = $61.93
-$61.93 - $30 = $31.93
-Because the PTV/bbl < $92.50
-$31.93 x .004 §