Legislature(1993 - 1994)
03/25/1994 01:15 PM House JUD
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
Number 441
SB 151 - OIL & GAS EXPLORATION CREDITS
REP. JOE GREEN, testified that SB 151 is a companion bill to
HB 199, which was the exploration licensing bill; this being
a companion bill in that it is another encouragement to get
some sort of delineation, or discoveries in remote areas of
the state. This bill would allow the commissioner of
Natural Resources to grant relief on taxes to a company or
companies that spent money that would be acceptable to the
commissioner as exploration dollars, up to a limit, against
either their existing production taxes or against the
development of something that they might find in the areas
they are looking at. I have for the committees review a
handout which could help explain the differences between
this tax incentive and an existing tax incentive program
that has been on the books since statehood. Rep. Green
further testified that this bill applies to unleased state
land and private land as well and does not just confine
itself to taxes from state land. The dollar limit under the
current program is five million allowable per company for
each operation. The concept there is that five million is a
pretty small amount in relation to the total program. SB
151 would have a sunset in ten years. The concept there is
to get some activity in a close time frame so that the time
it takes from discovery to development would ensure the
solvency. The confidentiality provision in the existing
credits is that a person can drill an exploratory well where
there is unleased land around that well, he can request the
commissioner hold the material confidential so it does not
become a benefit to people who might bid on adjacent land.
That provision has been in law for some time. SB 151 puts a
maximum cap of two years on the confidentiality provisions.
This is a credit allowance and all the dollars have to be
approved by the commissioner. If this bill is passed there
would be a maximum of fifty percent of the expenses, not to
exceed five million, done on state land, and up to
twenty-five percent of that done on private land.
Number 573
REP. PHILLIPS inquired on page 2, line 30, section E, the
amount of the exploration explained there is determined by
the commissioner. Is that a normal procedure, he asked, and
how they will develop those guidelines as far as limits that
normally occur?
Number 580
REP. GREEN responded that the commissioner determines what
is eligible and quite often, what is negotiated before hand
is a situation like, "I'm going to go out and drill on this
land and I'm going to have these kinds of costs."
Number 582
REP. PHILLIPS inquired whether other states have these kind
of incentive credits.
Number 589
REP. GREEN responded that there are incentive credits in
other states which are to a greater or lesser extent. In
Texas, they don't have the undrilled land that we do in
Alaska.
Number 595
CHAIRMAN PORTER inquired as to whether, for the record, it
could be explained the difference between the state benefits
from drilling on and discoveries on private land verses
state land.
Number 598
REP. GREEN responded that the benefit would be is that where
they are adjacent, and the well is in close proximity, say
within a lease of two by two square miles, there would be a
significant interest to the state because the field might be
large enough to extend on state land. But in the other
areas, let's say this is on Native land, but perhaps several
miles from the nearest state border, it would be relative
small value. There would still be value because there would
be an area you could tie seismic work to.
Number 626
CHAIRMAN PORTER inquired into the revenue differences to the
state from producing on state land versus private land.
Number 628
REP. GREEN responded we wouldn't have any royalties from
private land. We would have severance and ad valorem taxes.
Number 630
REP. NORDLUND inquired as to what the credits that would
apply towards payments and obligations, would that be for
any obligations that might be due on that particular project
or would it be overall taxes or obligations owed by the
company to the state.
Number 640
REP. GREEN responded that it could be either.
Number 644
REP. NORDLUND responded that we are diminishing some of the
resources available to the state to encourage companies to
drill on private land.
Number 647
REP. GREEN responded that that is why it is reduced to
twenty-five percent as opposed to fifty percent. This only
means that the commissioner has the right to do this. He
could go as high as fifty percent, but he never has.
Number 664
REP. NORDLUND expressed his concern regarding Natural
Resources commissioners having discretion over the credits
and whether the commissioner would have the best interests
of the state in mind when granting credits.
Number 667
REP. GREEN responded that the commissioner must show cause
why he would think that this particular case be granted
credits.
Number 672
KEN BOYD, Deputy Director, Division of Oil and Gas,
testified that Representative Green pretty much covered SB
151 and he would respond to questions, if any. He further
added that the fifty million was a total over the life of
the bill.
Number 691
REP. PHILLIPS inquired why there was a ten year sunset in
this legislation.
Number 700
MR. BOYD responded that the rationale was to try the program
and see if it works and whether this type of incentive would
lead to increased exploration.
Number 711
REP. PHILLIPS inquired about the two year confidentiality
provision.
Number 713
MR. BOYD responded that right now on state land the
confidentiality provision is guaranteed for two years. At
the end of that period of time a company can come in and ask
for an extension of the confidentiality period.
Number 732
REP. PHILLIPS responded that in light of the ten year sunset
provision, the two year confidentiality provision was
probably okay.
Number 736
REP. NORDLUND inquired whether the fiscal note, which is a
zero fiscal note that definitely has a fiscal impact, would
actually result in a revenue loss to the state.
Number 747
CARL MEYER, Income and Excise Division, Department of
Revenue, testified that the fiscal note was put together on
the basis that it would be difficult to determine what type
of credit might be granted. He further stated that there
was no way to be absolutely certain what types of credits
would be granted. He felt that it would probably be around
twenty-five million. So the top would be twenty-five
million, but it could in fact be less than that.
Number 766
REP. NORDLUND felt that a cost/benefit analysis should be
conducted to determine if the state comes out in balance.
Number 775
REP. KOTT responded that while there is a cost to the
exploration credit, there would be future revenue which
would offset or balance out the cost.
Number 782
REP. GREEN further responded that even if you select an
arbitrary number of wells, that still doesn't mean that
there's twenty-five million at which fifty percent is
applied. It is still up to the commissioner to grant what
he will.
Number 789
CHAIRMAN PORTER inquired whether any credit would be given
if no oil was found.
Number 793.
REP. GREEN responded that that was not necessarily true. An
oil company could drill a dry hole and still get credit if
they have other producing activity.
Number 795
REP. PHILLIPS inquired whether the passage of SB 151 would
positively further exploration in Alaska.
Number 799
REP. GREEN responded yes. This is the kind of legislation
that is more valuable to the industry than the number of
dollars that are included. It sends a very positive message
that the state of Alaska is saying they truly want to
compete for industry dollars, along with third world
countries, etc.
Number 810
REP. NORDLUND again expressed concern over a commissioner
granting a credit without having the best interest of the
state in mind. He doesn't see this provision in SB 151 and
that it would be appropriate to require that in this
legislation.
Number 820
MR. BOYD responded that it would be very difficult to
mandate such a provision. Our current state law has
provided a benefit to the state, he said, but it is hard to
substantiate it. The benefit to the state is immediate
because at the very least the state would gain valuable
information as to the mineral content of the land.
REP. NORDLUND inquired whether an oil company would drill a
well anyway, even without an exploration credit.
Number 846
Mr. BOYD responded that there is no way to determine whether
they would or not. But without SB 151, if they did, the
state would not get the data on the land.
Number 853
REP. PHILLIPS informed the committee that during her last
national Energy Council meeting, the energy minister for
Alberta reported to our body that she had approved nine
thousand last year alone and on her desk as of January 1,
1994, she had application permits for ten thousand
additional exploratory wells. In the United States 569
permits were offered for wells and in Alaska 11 were
offered. She felt SB 151 was bound to help.
Number 872
REP. NORDLUND informed the committee he didn't oppose this
legislation, but he wanted some of his concerns addressed.
Number 878
REP. KOTT motioned that CSSB 151 be moved from committee
with individual recommendations and a zero fiscal note.
Number 884
CHAIRMAN PORTER, hearing no objection, declared CSSB 151
moved from committee.
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