Legislature(2025 - 2026)BUTROVICH 205
03/12/2025 03:30 PM Senate RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| Presentation(s): Alaska Lng: Update on Qilak Lng | |
| SB112 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 105 | TELECONFERENCED | |
| *+ | SB 112 | TELECONFERENCED | |
SB 112-OIL & GAS PRODUCTION TAX
4:19:30 PM
CHAIR GIESSEL announced the consideration of SENATE BILL NO. 112
"An Act relating to credits against the oil and gas production
tax; and providing for an effective date."
4:19:56 PM
CHAIR GIESSEL solicited a motion.
4:20:08 PM
SENATOR WIELECHOWSKI moved to adopt the committee substitute
(CS) for SB 112 work order 34-LS0566\I, as the working document.
4:20:19 PM
CHAIR GIESSEL objected for purposes of discussion.
4:20:25 PM
SENATOR WIELECHOWSKI explained that Senate Bill 21, 2013,
originally proposed a 25 percent oil tax rate with no credits,
but the Senate raised it to a 35 percent rate with a $5 per-
barrel credit. The House later increased the credit to $8 per
barrel. Modeling at the time assumed unrealistically high oil
prices, and the larger credit has since cost the state about
$8.9 billion. He said SB 112 sought to return the per-barrel
credit cap from $8 back to $5, matching the Senate's original
version. Prior testimony from the Department of Revenue
indicated that a $5 cap would keep producers competitive, and
former Commissioner Lucinda Mahoney noted that the governor
would support this change if the legislature did as well. The
proposed adjustment is expected to generate $100$180 million in
additional annual revenue.
4:23:38 PM
HUNTER LOTTSFELDT, Staff, Senator Bill Wielechowski, Alaska
State Legislature, Juneau, Alaska, presented the summary of
changes for CS 112, version I:
[Original punctuation provided.]
Senate Bill 112
Oil & Gas Production Tax
Summary of Changes
34-LS0566\N to 34-LS0566\I
Section 2. On page 3, lines 4-5, Amends AS
43.55.024(j):
Adds in a final $0 per-barrel credit tier for
when the gross value of a taxable barrel of oil
is at or above $120.
4:24:15 PM
CHAIR GIESSEL removed her objection.
4:24:25 PM
CHAIR GIESSEL found no further objection and CSSB 112 was
adopted as the working document.
4:24:35 PM
MR. LOTTSFELDT provided the sectional analysis for CSSB 112,
version I:
[Original punctuation provided.]
Senate Bill 112
Oil & Gas Production Tax
Sectional Analysis for Version I
Section 1. Amends AS 43.55.024(i):
Adds language to conform to the new subsection (k)
under section 3 limiting the application of the $5
per-barrel credit for new fields receiving a gross
value reduction.
Section 2. Amends AS 43.55.024(j):
Adds both conforming language for subsection (k) under
section 3 and reduces the per-barrel credit slider
from an $8 to $1 slider to a $5 to $1 slider.
Section 3. Adds a new subsection (k) to AS 43.55.024:
This new subsection will tie the amount of per-barrel
credits a producer may claim to the amount of
qualified capital expenses that producer incurs on
their property or leases. Limits a producer's ability
to carry forward unused per-barrel credits.
Section 4. Adds an applicability section:
This Act applies to credits from oil production on or
after January 1, 2025.
Section 5. Adds a new uncodified law section:
This section addresses the transition of tax payments
under this Act.
Section 6. Adds a new section of uncodified law:
This section addresses the Department of Revenues
ability to make regulations retroactive.
Section 7. Adds a new section of uncodified law:
Sets a retroactive date of January 1, 2025.
Section 8. Sets an immediate effective date.
4:26:15 PM
SENATOR MYERS asked for an explanation of the mathematical
formula and its effects in Section 3.
4:26:38 PM
MR. LOTTSFELDT said the intent of Section 3 was to tie the
amount of per-barrel credit a producer receives for barrels
produced each year to capital expenditures in that same year.
4:27:26 PM
SENATOR MYERS noted terminology used by Department of Natural
Resources (DNR) and the oil companies, specifically:
• unit
• lease
• participating area
SENATOR MYERS asked for clarification of the terms and which of
them were addressed by SB 112, Section 3 as "each lease or
property".
4:28:26 PM
MR. LOTTSFELDT said "lease" or "property holding" in Section 3
applied to the [specific] producer. He noted that there were
individual leases and participation by multiple producers in one
unit, as in Prudhoe Bay. He said the intent was to encompass the
range of holdings a producer may have.
4:29:05 PM
SENATOR MYERS asked whether SB 112 would require the Department
of Revenue to calculate taxes at the level of each small,
individual lease rather than at the broader unit level (e.g.,
Prudhoe Bay, Kuparuk, Endicott). He noted that leases started
out small and were later combined into units. He asked whether
the intent was to separate tax reporting for every individual
lease within those units.
4:30:03 PM
CHAIR GIESSEL suggested that experts available online may be
able to answer Senator Myers's questions.
4:30:56 PM
MARK MYERS, representing self, Fairbanks, Alaska, explained that
ownership of oil was tied to individual leases, but production
occurred from a shared pool of oil. All leases overlying that
pool were grouped into a participating area within a larger
unit. Units were typically bigger than the proven reservoir to
allow for expansion. Production and costs were allocated back to
each lease through this unitization process. He opined that
using "lease" in the language for SB 112 was appropriate, as
production and costs were allocated to the lease level.
4:31:59 PM
SENATOR MYERS asked for confirmation that the "lease or
property" language in SB 112, Section 3, would not require the
Department of Revenue to track taxes at the individual lease
level, and that the Department of Revenue (DOR) can continue
tracking at the unit level instead.
4:32:37 PM
MR. MYERS explained that allocation to individual leases was
already handled through established processes. As a field
developed and boundaries changed, producers continually
recalculated and agreed on each lease's equitable share of
production. He noted that the state participated in setting the
participating area, which determined unit size. He explained
that all oil was produced through shared facilities, and
allocations ensured every lessee received their fair share. He
said the value per barrel was allocated back to each individual
lease in an orderly, existing system.
4:33:43 PM
SENATOR DUNBAR asked how SB 112, Section 3, would change
practices for producers on the North Slope from the way they
operate currently.
4:34:47 PM
MR. MYERS said he did not think it was different in terms of the
way barrels and costs per barrel were allocated. He said the
change was to limit the amount of credit a producer can claim
based on the amount of capital.
4:35:17 PM
SENATOR WIELECHOWSKI said SB 112, Section 3, ensured that
companies would not receive more in tax credits than the amount
they spend on qualified capital expenditures. He said for
example that if a company spent $100 million in Prudhoe Bay, its
tax credits could not exceed $100 million. He emphasized that
the goal of SB 112, Section 3 was to encourage investment while
preventing credits from surpassing real spending. He noted that
in practice, the change would have a minimal effect because
companies generally did not receive credits above their
expenditures.
4:36:26 PM
SENATOR DUNBAR asked for confirmation that SB 112 applied to
capital expenditures in producing fields and not to fields in
development, like the Willow project.
SENATOR WIELECHOWSKI concurred and explained that the language
[of SB 112, Section 3] limits a producer's tax credits to no
more than the qualified capital expenditures for that specific
lease or property. He said a producer could not apply credits
that exceed what they spent on that property.
4:37:01 PM
SENATOR CLAMAN asked whether, under the language of SB 112,
Section 3, any unused portion of the capital-expenditure-based
tax credit disappeared at the end of the calendar year. For
example: if a producer has $300 million in qualified capital
expenditures but only $200 million of tax liability to apply
credits against, would the remaining $100 million in credits be
forfeited, since the subsection says unused credits may not be
carried forward.
4:37:57 PM
SENATOR WIELECHOWSKI affirmed that the credit could not be
carried forward.
4:38:02 PM
SENATOR CLAMAN asked how that differed from today.
4:38:09 PM
SENATOR WIELECHOWSKI said the impact of SB 112 would be minimal.
He said the presentation included ten-year future modeling by
Department of Natural Resources (DNR).
4:38:28 PM
SENATOR CLAMAN clarified his hypothetical example: If a producer
had $300 million in credits but can only use $200 million in the
first year, under current law the remaining $100 million could
be carried forward and used the next year. His question was
whether SB 112 would change that, meaning the extra $100 million
would no longer be usable in year two.
4:38:54 PM
SENATOR WIELECHOWSKI explained that two separate mechanisms were
involved:
• Carry-forward of lease expenditure deductions
• Carry-forward of the per-barrel tax credit
SENATOR WIELECHOWSKI said SB 112 would affect only the per-
barrel credit, limiting the ability to carry it forward. SB 112
would not affect companies' ability to carry forward lease
expenditure deductions. DOR's modeling suggested the overall
impact of this change over the next decade to be minimal.
4:39:51 PM
MR. LOTTSFELDT moved to slide 2. He explained that there were
currently two types of per-barrel production tax credits:
• A flat $5 credit for new production fields that qualified for
a gross value reduction (GVR).
• A sliding per-barrel credit that provided $8 when oil is $80
or less, then gradually decreased as oil prices rose, dropping
to $1 at $140$150, and becoming zero above $150.
MR. LOTTSFELDT explained that the sliding credit was a form of
reverse progressivity, designed to offer more support when oil
prices were low and less when prices were high and production
more profitable.
[Original punctuation provided.]
Where we currently are:
Current Law: The State of Alaska's major North Slope
production fields receive a credit per-barrel of
taxable oil. The amount of that credit is based on the
sliding scale of average gross wellhead value.
$8/barrel at less than $80;
$7/barrel at $80 to less than $90;
$6/barrel at $90 to less than $100;
$5/barrel at $100 to less than $110;
$4/barrel at $110 to less than $120;
$3/barrel at $120 to less than $130;
$2/barrel at $130 to less than $140;
$1/barrel at $140 to less than $150;
$0/barrel at $150
4:40:55 PM
MR. LOTTSFELDT moved to and narrated slide 3:
[Original punctuation provided.]
Where did Per-Barrel Credits come from?
• SB 21, from 2013, the "More Alaska Production Act"
(MAPA), was introduced with no per-barrel credits.
• A flat $5 per-barrel credit was added by the Senate
before passing the body. This version of SB 21 was
supported not only by the Senate, but the Governor
and Industry as well.
• The House made the flat $5 per-barrel credit apply
to new fields. The House then added a sliding scale
per-barrel credit that went $8 to $1 for oil prices
$80 and below, up to $150 and below.
4:41:57 PM
MR. LOTTSFELDT moved to slide 4. He emphasized that the price of
oil was much lower in reality than had been modeled for Senate
Bill 21, 2013:
[Original punctuation provided.]
There was little time to consider these changes
• SB 21 was sent back from the House with these new
per-barrel credits the day before adjournment.
• The Senate on the last day of session voted to
concur with the changes made by the House.
• The new per-barrel credits were modeled on a
forecast average Alaska North Slope ($ANS) price of
$106.2, the real average price over the same period
was $61.1.
4:44:18 PM
MR. LOTTSFELDT moved to and narrated slide 6:
[Original punctuation provided.]
Chapter 8
4
Historical Production Tax Credits and Forecast
FY 2015 - FY 2034
Since 2014 Alaska has lost $8.6 billion to per-barrel
credits
[Slide 6 contains a table of various tax credits for
the oil and gas industry from FY 2015 through FY 2024,
highlighting the per taxable barrel credit, AS
43.55.024(i)-(j).]
Source: 2024 Fall Revenue Sources Book
4:44:28 PM
MR. LOTTSFELDT moved to and narrated slide 7:
[Original punctuation provided.]
Chapter 8
4
Historical Production Tax Credits and Forecast
FY 2015 - FY 2034
The State of Alaska is projected to give out another
$6.5 billion in the next 8 years.
[Slide 6 contains a table of various tax credits for
the oil and gas industry from FY 2025 through FY 2034,
highlighting the per taxable barrel credit, AS
43.55.024(i)-(j).]
Source: 2024 Fall Revenue Sources Book
4:44:40 PM
SENATOR MYERS recounted a past conversation where someone
involved in creating the per-barrel credits explained that they
were designed to introduce progressivity into Senate Bill 21,
like Alaska's Clear and Equitable Share (ACES) used a
progressive tax rate that increased by small increments, for
example, a quarter-percent, as prices rose. He asked whether the
state was now saying it lost money because of per-barrel credits
under Senate Bill 21, and if that implied the state would also
have lost money under ACES, which used a different but still
lower level of progressivity and a lower tax rate?
4:45:39 PM
MR. LOTTSFELDT said forego may be a better term than lost. He
explained that the state was foregoing revenue.
4:46:06 PM
MR. LOTTSFELDT moved to and narrated slide 8. He pointed out
that between 2016 and 2021 the production tax revenue was less
than the amount of incentive the state was giving in per barrel
credits:
[Original punctuation provided.]
History of production tax revenue vs. per-barrel
credits
[Slide 8 contains a line graph comparing revenue to
the State of Alaska through Production Tax vs Per-
Barrel Credits.]
Sources: 2024 Spring Forecast & 2024 Fall Revenue
Sources Book
4:46:36 PM
MR. LOTTSFELDT moved to and narrated slide 9:
[Original punctuation provided.]
Per-Barrel Credits Have Not Incentivized Investment on
the North Slope: Expenditures
[Slide 9 includes a table illustrating Qualified
Capital Expenditures for the Prudhoe Bay Unit and for
all other Alaska North Slope (ANS) producers.]
Source: DOR Reported ANS Lease Expenditures and
Capital Lease Expenditures: CY 2014 CY 2023 & DOR's
response to SRES 3.3.25
4:46:59 PM
SENATOR MYERS noted apparent contradiction in how the per-barrel
credits were being described. They're said to provide tax
progressivity, yet also said to incentivize investment, two
purposes that don't obviously align. If, in 2013 [Senate Bill
21], the credits were primarily intended to make the system
progressive, then SB 21 already had separate provisions designed
to encourage new development through allowable lease
expenditures. He asked why it mattered now whether the per-
barrel credits incentivized investment, if their original
purpose was progressivity rather than investment.
4:47:47 PM
MR. LOTTSFELDT clarified that the per-barrel credit was not
traditional progressivity but reverse progressivityproviding
more benefit at lower oil prices to incentivize production and
maintain jobs.
4:48:40 PM
SENATOR MYERS asked whether the intent under the previous Alaska
Clear and Equitable Share (ACES) was also to incentivize
production.
4:48:57 PM
MR. LOTTSFELDT said he would follow up when he could provide an
accurate answer.
4:49:07 PM
CHAIR GIESSEL noted that the legislature's intent to support new
[oil and gas] development and gross value reduction was designed
to incentivize new oil development on the North Slope, offering
temporary reductions based on price. She suggested that expert
testimony was available to explain and answer questions.
SENATOR MYERS affirmed that he would appreciate the opportunity
for explanation questions when appropriate.
4:49:59 PM
MR. LOTTSFELDT moved to and narrated slide 10, Per-Barrel
Credits Have Not Incentivized Investment on the North Slope:
Credits. He highlights that in 2021, Prudhoe Bay received an
estimated $448 million in per-barrel credits but only spent $106
million on qualified capital expenditures, showing a significant
gap between credits received and actual investment.
4:51:14 PM
SENATOR DUNBAR observed that there appeared to be no clear
correlation between the credits collected and capital spending
in Prudhoe Bay.
MR. LOTTSFELDT affirmed that credits and capital expenditures
appeared unrelated.
4:51:43 PM
SENATOR DUNBAR asked whether any regression analysis had been
done to determine how much additional production or capital
spending is generated per dollar of tax credit, such as
increasing the credit cap from $8 to $9.
4:52:31 PM
DAN STICKEL, Chief Economist, Tax Division, Department of
Revenue (DOR), Juneau, Alaska, said no such analysis had been
done because predicting how taxpayers will react to tax changes
was extremely difficult. He acknowledged that changes in per-
barrel credits may influence tax-payer decisions, but the
Department of Revenue does not try to estimate the exact impact
on investment or production.
4:53:29 PM
SENATOR DUNBAR said his question might be 12 years too late. He
reflected that it seemed odd to create incentives without
knowing their impact. He acknowledged the complexity but noted
that the policy involved hundreds of millions of dollars. He
added the wish that such analysis had been done earlier, and
hoped some modeling existed at the time.
4:53:58 PM
SENATOR HUGHES noted a claim by former Department of Revenue
(DOR) Commissioner Brian Fechter that changing the credit from
$8 to $5 wouldn't affect investment. She noted the claim did not
appear to be based on any documented analysis. She asked whether
any written modeling or supporting materials existed and, if so,
requested that they be provided to the committee.5
4:54:39 PM
MR. STICKLE said he could not speak to past officials'
statements and acknowledged that while the Department of Revenue
had done various analyses and hired consultants over the years,
he didn't know what specific analysis Deputy Commissioner
Fechter relied on when making his claim.
4:55:09 PM
SENATOR HUGHES noted that if any analysis existed, DOR should
still have it. Since no written work appeared to exist, she
asked whether DOR could confidently say the credit change would
not affect production, revenue, or royalties.
4:55:38 PM
MR. STICKLE said he would not say with certainty that a tax
change would not impact production. He referred to the fiscal
note from the Department of Revenue (DOR), OMB Component Number
2476, dated March 7, 2025. He said it was an indeterminate
fiscal note in part because SB 112 would be expected to impact
taxpayer behavior.
4:56:11 PM
SENATOR WIELECHOWSKI asked Mr. Stickle or another expert
available online to explain the lessee's legal duty to produce
oil in Alaska, specifically the obligations required when a
company holds a state lease.
4:56:31 PM
MR. STICKLE deferred to Department of Natural Resources (DNR).
4:56:40 PM
CHAIR GIESSEL noted that there was not a DNR representative
available online. She said there would be more hearings on SB
112 with representation from DNR as well as documentation and
modeling from past policy decisions.
4:57:21 PM
MR. LOTTSFELDT resumed the presentation on SB 112, speaking to
slide 10. He pointed out that in 2021, Prudhoe Bay producers
received about $448 million in credits but spent only $106
million on qualified capital costs, and SB 112, Section 3, aimed
to narrow that gap.
4:57:51 PM
SENATOR HUGHES noted that Covid-19 may have affected production
in 2021.
MR. LOTTSFELDT acknowledged her observation.
4:58:16 PM
MR. LOTTSFELDT moved to slide 11. He quoted former Alaska
governor Jay Hammond:
[Original punctuation provided.]
"Development that actually costs the state remains
Alaska's least understood and most pressing economic
problem. Few politicians seem concerned that we do not
extract enough wealth from new resource development to
offset its costs."
-Governor Jay Hammond
[Slide 11 includes a photograph of Governor Hammond.]
4:58:50 PM
SENATOR MYERS asked whether the per-barrel tax credits resulted
in foregone state revenue so large that it failed to cover state
costs such as Department of Natural Resources (DNR) and
Department of Environmental Conservation (DEC) oversight, and
Department of Transportation and Public Facilities (DOTPF)
maintenance of the Deadhorse airport and the Haul Road.
4:59:25 PM
SENATOR WIELECHOWSKI answered that Alaska's current tax
structure [under Senate Bill 21] resulted in three consecutive
years of effectively negative oil taxes, meaning the state paid
companies more in credits than it collected in taxes. He argued
that this fails the constitutional requirement to obtain maximum
value from the state's resources. He noted that oil once funded
90 percent of Alaska's budget but currently funded only about 30
percent. He likened it to an employee volunteering for a salary
cut from $90,000 to $30,000 and then struggling to pay bills,
asserting that Senate Bill 21 massively reduced revenue and
harmed the state's fiscal position.
5:00:42 PM
SENATOR MYERS asserted that a wholistic conversation would be
necessary to consider not only the severance tax, but also
royalties and other revenue the state received from oil
companies.
5:01:00 PM
SENATOR WIELECHOWSKI concurred and emphasized that one of the
largest producers on the North Slope was currently paying zero
corporate income taxes and there should be continued hearings on
that.
5:01:15 PM
CHAIR GIESSEL referred to the graph on slide 8. She pointed out
that during 20212024, the four dollar-per-barrel minimum tax
was crucial for the state, especially when oil prices briefly
went negative during COVID. She said that the minimum tax
essentially "saved" the state's bacon in those years.
5:01:54 PM
MR. LOTTSFELDT moved to and narrated slide 12:
[Original punctuation provided.]
What SB 112 does
SB 112 reduces the sliding-scale per-barrel credit by
$3 and ties credits received to the amount of capital
investment by the producer:
• Sliding per-barrel credits vary between $5 for
oil priced at $80 or less and $1 for oil priced
at $120 or less, and $0 thereafter.
• Producers may only claim credits commensurate
with their qualified capital expenses from the
same year.
The new investment caveat encourages investment
spending on projects in Alaska that will maintain
production, create jobs for Alaskans, and promote
industry growth.
5:02:59 PM
MR. LOTTSFELDT moved to slide 13, How much does SB 112 raise? He
said the table in slide 13 contained modeling for SB 112 by DOR
for fiscal years 2026 through 2035:
• Row 1: projected revenue gain from the three-dollar credit
reduction.
• Row 2: projected revenue with unchanged credit amount; but
linking credits to qualified capital spending (SB 112, Section
3).
• Row 3: Combining both changes, projected to bring in about
$190 million in FY26, tapering to about $100 million by FY35.
5:04:20 PM
CHAIR GIESSEL held SB 112 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 2025.03.11 DOR-TAX Fiscal Note.pdf |
SRES 3/12/2025 3:30:00 PM |
SB 112 |
| 2025.03.11 SB 112 Presentation Version I.pdf |
SRES 3/12/2025 3:30:00 PM |
SB 112 |
| CSSB112B 2025.03.05.pdf |
SRES 3/12/2025 3:30:00 PM |
SB 112 |
| SB 112 Sectional Anaslyis Version I.pdf |
SRES 3/12/2025 3:30:00 PM |
SB 112 |
| SB 112 Sponsor Statement Version I.pdf |
SRES 3/12/2025 3:30:00 PM |
SB 112 |
| SB 112 Summary of Changes Version N to Version I.pdf |
SRES 3/12/2025 3:30:00 PM |
SB 112 |
| SB112A 2025.03.05.pdf |
SRES 3/12/2025 3:30:00 PM |
SB 112 |
| 2025.03.12 QilakLNG Presentation to Senate Resources Committee.pdf |
SRES 3/12/2025 3:30:00 PM |