Legislature(2009 - 2010)SENATE FINANCE 532
04/15/2010 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB309 | |
| HB365 | |
| HB90 | |
| HB314 | |
| HB357 |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 309 | TELECONFERENCED | |
| += | HB 365 | TELECONFERENCED | |
| += | HB 424 | TELECONFERENCED | |
| + | HB 357 | TELECONFERENCED | |
| + | HB 369 | TELECONFERENCED | |
| + | HB 90 | TELECONFERENCED | |
| + | HB 314 | TELECONFERENCED | |
| + | HCR 22 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE BILL NO. 309
"An Act amending and extending the exploration and
development incentive tax credit under the Alaska Net
Income Tax Act for operators and working interest
owners directly engaged in the exploration for and
development of gas from a lease or property in the
state; providing for an effective date by amending the
effective date for sec. 2, ch. 61, SLA 2003; and
providing for an effective date."
Co-Chair Stedman noted this was the first hearing of the
bill. He said that amendments would be allowed today.
9:12:12 AM
SENATOR LESIL MCGUIRE, SPONSOR, explained that SB 309 has
become an amalgamation of a variety of bills designed to
incentivize oil and gas exploration efforts, both in Cook
Inlet and in Prudhoe Bay. The first part of the bill deals
with Southcentral Alaska which is suffering from a decline
in drilling and exploration activities in the Cook Inlet
area. Research indicates that by 2013, at the current
drilling rate, there is a very real possibility that Liquid
Natural Gas would need to be imported from Indonesia. The
goal is to increase drilling activity in the area, which is
unique and has many challenges.
Senator McGuire addressed the first part of the bill.
During the interim, time was spent talking with Cook Inlet
explorers in an attempt to develop incentives. The bill
amends and extends the exploration and development
incentive tax credits that were originally enacted in 2003
under the Alaska Net Income Tax Act. The current bill, SB
309 changes the 10 percent amount to 25 percent of a credit
against state income tax liability. The 50 percent
limitation on the amount of credits allowed to be taken in
a single year was eliminated in SB 309. Now, 100 percent of
all qualified credits for exploration and development can
be taken in a single year.
9:14:35 AM
Senator McGuire explained that the second part of the bill
would extend the sunset date of the investment tax credit
from January 1, 2013, to January 1, 2020, allowing the
companies to make longer-term business decisions.
Senator McGuire related that another part of the bill
addresses infield drilling vs. new pockets of drilling in
Prudhoe Bay. The bill would allow infield drilling to occur
and credits taken for that, as well.
Co-Chair Stedman asked for an explanation of infield
drilling. Senator McGuire explained that under the original
legislation, drilling had to be done outside of an existing
well. Infield drilling is done near an existing, proven
well reserve. Previously, high risk areas were
incentivized; however, this bill allows for infield
drilling, as well. The state is willing to take a risk to
move into higher risk activities.
9:17:03 AM
Senator McGuire highlighted the second part of the bill
called the "Stampeder Provision", provisions added by
Senator Wagner. The main idea is to bring a jack-up rig
(Section 11) into Cook Inlet. The provision would provide
credits for the first, second, and third drillings. It
would mean a state investment of between $24 million to $54
million. She termed it high risk activity.
Senator McGuire informed the committee about the fixes to
Alaska's Clear and Equitable Share (ACES) production tax
included in the bill. Small companies are asking for a
reduction in the progressivity rate, the allowance of
capital credits to be taken in one year, and the ability to
access the oil and gas tax credit fund. Senator McGuire
pointed out that there are more companies using the tax
credits than originally was envisioned.
Senator McGuire stated support for the two proposed
amendments.
9:20:13 AM
MIKE PAWLOWSKI, STAFF, SENATOR LESIL MCGUIRE, reported on
the sectional analysis:
Section 1 amends AS 43.20.043 (a) by increasing the gas
exploration and development tax credit to 25% on
qualifies capital expenditures and annual costs
from 10% for investments made after December 31,
2009.
Section 2 amends AS 43.20.043 (b) to conform to the changes
made in section 1.
9:21:14 AM
Section 3 amends AS 43.20.043 (c) to repeal the 50% cap on
the application of the gas exploration and
development tax credit against the Alaska Net
Income Tax.
Co-Chair Stedman asked for clarification of the tax
liability. Mr. Pawlowski said it was the corporate income
tax liability.
Section 4 amends AS 43.20.043 (e) to ensure that the value
of a credit under AS 43.20.043 is passed through
to consumers in a rate base submitted to a
regulatory agency.
Section 5 amends AS 43.20.043 (g) to clarify that if a
taxpayer elects to take a credit under AS
43.20.043 the taxpayer may not also claim a tax
credit or royalty modification under other
identified sections of Alaska law.
Section 6 amends AS 43.20.043 (i)(1) to allow a taxpayer to
claim a credit under AS 43.20.043 for development
in an existing field and for an expenditure that
does not lead to production. Section 6 also
clarifies that topping plants, treatment or
liquefied natural gas and other manufacturing
plants are not qualified expenditures.
9:23:46 AM
Section 7 amends AS 43.20.043 to clarify that a credit
under AS 43.20.043 may be taken in the year in
which the expenditure is made or cost is accrued,
or in the following tax year.
Section 8 amends AS 43.55.023 (a) to allow a tax credit
taken against a capital investment under ACES to
be realized in the year in which the credit is
accrued.
Co-Chair Stedman asked if the credit applies statewide or
just to Cook Inlet. Mr. Pawlowski said it applied statewide
under ACES. All previous sections apply to Cook Inlet.
Section 9 amends AS 43.55.023 (d) to conform to the change
in section 8.
Section 10 amends AS 43.55.025 (a) to create a special
tiered exploration tax credit of 80, 90 or 100
percent of total exploration expenditures.
Section 11 amends AS 43.55.025 by adding a new subsection
(m) to clarify that the special credit
established in section 10 is for the first three
unaffiliated wells drilled into the pre-Tertiary
strata in Cook Inlet using a jack-up drill rig.
Also caps credits; lesser of 100% credit or $25
million, lesser of 90% credit or $22.5 million;
lesser of 80% credit or $20.0 million. Only one
credit per person, may not include cost to
construct or manufacture a jack-up rig and must
be for work performed after June 30, 2010. If
exploration results in sustained production of
oil or gas, 50 percent of credit received shall
be repaid. Taxpayer obtaining credit in this
section may not claim credit under AS 43.55.023
or another provision in this section for the same
exploration expenditure. Provides definitions for
"jack-up rig", "reservoir" and "sustained
production".
9:26:37 AM
Mr. Pawlowski explained that Section 12 is language that
extends the sunset date.
Section 13 amends the uncodified law related to the carry
forward of credits accrued under AS 43.20.043
beyond the sunset date of the credit.
Section 14 repeals AS 43.55.028 (e) (2) and (e) (3) which
requires a small producer accessing the oil and
gas tax credit fund to make additional
expenditures within 24 months of claiming the
credit.
Section 15 extends the sunset of the tax credit under AS
43.20.043 to 2020 from 2013.
Section 16 adds an immediate effective date.
9:28:18 AM
Co-Chair Stedman asked for a definition of jack-up rig and
the stampede concept.
SENATOR THOMAS WAGONER, SPONSOR, related the history of
units in Cook Inlet which have made it more appealing to
use jack-up rigs. He stated that almost every place drilled
contains gas. He recalled that during the Murkowski era the
use of jack-up rigs was proposed to incentivize Cook Inlet.
This bill allows for the drilling of three wells off shore
using jack-up rigs.
Senator Wagoner explained that a jack-up rig is used for
drilling in shallow or deep water. Of the three wells
listed in the bill, the first would be incentivized at 100
percent of drilling costs up to $25 million, the second
well would be at 90 percent up to $22.5 million, and the
third well would be at 80 percent up to $20 million. If a
company hits a commercially sized deposit, then once it
goes into production, over the next 10 years, the state
would receive 50 percent of the credits back. He predicted
that the state would make money from this provision.
9:33:01 AM
Senator Wagoner related that there are currently two or
three small independent companies set to take advantage of
the provision.
Co-Chair Stedman asked if one entity could qualify for all
three incentives. Senator Wagoner said it had to be three
different companies with three different wells. In
addition, going below the pre-Tertiary level should give
the state new, valuable geological information.
9:34:40 AM
Senator Thomas asked if the tax credits are consistent
throughout the bill. Senator Wagoner replied that under the
stampede provision information is available to the state.
Senator McGuire clarified that as the bill sits now, there
is no requirement of disclosure of broader provisions to
DNR, such as income tax relief. The companies reported that
they would not take the credit if forced to share that
data. If the income tax relief is taken, the company does
not qualify for other exploration and development credits
which are much more valuable. Companies are required to
provide data, except for when it is related to income tax
relief.
Senator Wagoner added that there are "corner shooters". If
drilling data is made available, competing companies would
take advantage of the proximity to wells on land leases
with corners.
Senator Thomas thought that a data-collecting aspect could
be added later.
9:38:38 AM
Co-Chair Stedman requested that Commissioner Galvin explain
the bill's components.
PAT GALVIN, COMMISSIONER, DEPARTMENT OF REVENUE, suggested
the bill be broken down into three segments. The first
segment would be targeted credits for gas exploration
everywhere south of the North Slope. This section of the
bill provides an alternative to using production tax
credits in the form of a corporate income tax credit - 25
percent of expenditures for gas exploration. It also
enhances an existing program by increasing it from 10
percent to 25 percent.
Commissioner Galvin explained that the second area deals
with jack-up rigs, an area DNR has focused on for years.
There is an economic hurtle to overcome to get these in
place. He opined that they would be used by many companies.
The bill provides for a creative way to attract companies
to explore and drill new wells.
Commissioner Galvin related that the third category
enhances the overall production tax system; capital credits
allowed the first year and the elimination of the
requirement to make additional investments in order to
qualify for a state purchase of capital credit
certificates. Existing companies take advantage of these
companies; however, new companies don't know if they
qualify for full value. The bill eliminates a barrier and
allows companies to purchase certificates.
9:43:50 AM
Co-Chair Stedman recalled past dialogue about splitting
credits or postponing them. He requested information about
why the credits are allowed to be taken in one year.
Commissioner Galvin explained the reasoning behind that
provision. It would enhance the value of the credits. It
would be an economic driver for the companies and not have
a large impact on the state. From an administrative
viewpoint, it is less cumbersome to give the credit at one
time.
Co-Chair Stedman asked if that reason overrides the issue
of predictability to the state. Commissioner Galvin
appreciated the question. He said that during the 50/50
discussion there was merit to spreading the credits over
two years. It was discovered that the information-sharing
part has proven to be more valuable.
Co-Chair Stedman asked about the timing of the change to
one year. Commissioner Galvin explained that the bill is
currently written so that the changes take effect
immediately, which is problematic. He thought an amendment
would clean up the effective date and make the two
provisions retroactive to January 1, 2010.
9:48:01 AM
Co-Chair Stedman noted two fiscal notes, one zero fiscal
note from the Department of Natural Resources, and one
indeterminate fiscal note from the Department of Revenue.
Senator Huggins MOVED to ADOPT New Amendment 1:
Page 1, line 4, following "in the state;":
Insert "relating to interest on certain underpayments
or overpayments for the oil and gas production tax;"
Page 1, line 7, following "basin;":
Insert "relating to the use of the oil and gas tax
credit fund to purchase certain tax credit
certificates;"
Page 5, following line 21, insert a new section that
reads: *Sec. 8. AS 43.55.020 is amended by adding a
new subsection to read:
(i) Notwithstanding any contrary provision of AS
43.05.225 or (g) or (h) of this section, if the amount
of a tax payment, including an installment payment,
due under (a)(1) - (4) of this section is affected by
the retroactive application of a regulation adopted
under this chapter, the department shall determine
whether the retroactive application of the regulation
caused an underpayment or an overpayment of the amount
due and adjust the interest due on the affected
payment as follows:
(1)if an underpayment of the amount due occurred,
the department shall waive interest that would
otherwise accrue for the underpayment before the first
day of the second month following the month in which
the regulation became effective, if
(A) the department determines that the
producer's underpayment resulted because the
regulation was not in effect when the payment
was due; and
(B) the producer demonstrates that it made a
good faith estimate of its tax obligation in
light of the regulations then in effect when
the payment was due and paid the estimate tax;
(2)if an overpayment of the amount due
occurred and the department determines that the
producer's overpayment resulted because the regulation
was not in effect when the payment was due, the
obligation for a refund for the overpayment does not
begin to accrue interest earlier than the following,
as applicable:
(A)except as otherwise provided under (B) of
this paragraph, the first day of the second
month following the month in which the
regulation became effective;
(B)90 days after an amended statement under
AS 43.55.030(a) and an application to
request a refund of production tax paid is
filed, if the overpayment was for a period
for which an amended statement under AS
43.55.030(a) was required to be filed before
the regulation became effective.
Renumber accordingly.
Page 9, following line 11, insert new sections that
read:
*Sec. 15. The uncodified law of the State of Alaska is
amended by adding a new section to read:
TRANSITION: APPLICABILITY OF SEC. 8 OF THIS ACT.
Section 8 of this Act applies to taxes, including
installment payments of estimated tax, due on or after
January 1, 2006.
*Sec. 16. The uncodified law of the State of Alaska is
amended by adding a new section to read:
RETROACTIVITY OF SECS. 8-10 OF THIS ACT. (a)
Section 8 of this Act is retroactive to January 1,
2006.
(b) Sections 9 and 10 of this Act are retroactive
to January 1, 2010.
*Sec. 17. The uncodified law of the State of Alaska is
amended by adding a new section to read:
RETROACTIVITY OF REGULATIONS. Notwithstanding
any contrary provision of AS 44.62.240, if the
Department of Revenue expressly designates in the
regulation that the regulation applies retroactively
to a specific date, a regulation adopted by the
Department of Revenue to implement, interpret, make
specific, or otherwise carry out secs. 8, 9, or 10 of
this Act applies retroactively to that date.
*Sec. 18. Section 13 of this Act takes effect July 1,
2010.
Renumber accordingly.
Page 9, line 12, following "Sec. 15.":
Delete "This"
Insert "Except as provided in sec. 18 of this
Act, this"
Renumber accordingly
Co-Chair Stedman OBJECTED.
Senator Huggins stated that the amendment represents fair
play and prevents unintended consequences from both
overpayment and underpayment scenarios from the taxpayers.
Commissioner Galvin explained that the amendment is
designed to clarify that when there are regulations
requiring retroactivity, the tax penalty would not acquire
interest on the underpayment. The department currently has
discretion to waive penalties, but not interest.
Co-Chair Stedman asked for a synopsis of the interest rate.
Commissioner Galvin explained that the interest rate is a
formula; the higher of either 11 percent or 5 percent above
the treasury rate.
Co-Chair Stedman asked how often it is compounded.
Commissioner Galvin said quarterly.
Co-Chair Stedman informed the public about a concern the
amendment addresses.
9:51:58 AM
Commissioner Galvin referred to the bottom of page 2 and
onto page 3, which clarifies the effective dates of the
various sections of the bill.
Co-Chair Stedman WITHDREW his OBJECTION. There being NO
OBJECTION, it was so ordered.
Senator Thomas WITHDREW Amendment 2.
AT-EASE 9:52:53 AM
RECONVENED 9:54:10 AM
Co-Chair Stedman turned to the public testimony portion of
the hearing.
9:54:41 AM
CARRI LOCKHART, MARATHON OIL, (via teleconference),
testified in support of the legislation. She commented
about the need for on-going, long-term exploration in Cook
Inlet. She spoke about uncertainties in the market. She
stressed that in order to qualify for the investment tax
credit, Marathon Oil has to make capital investments, which
will add some value back to the state.
9:58:13 AM
Senator Wagoner stated that the bill was good for Alaska.
SB 309 was heard and HELD in Committee for further
consideration.
AT-EASE 9:59:18 AM
RECONVENED 10:00:08 AM
Co-Chair Hoffman brought the meeting back to order. He
noted it was the first hearing of HB 365; however, the
companion bill, SB 255, was heard on April 9.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 309 Amendment 1 Huggins SFIN 041510.doc |
SFIN 4/15/2010 9:00:00 AM |
SB 309 |
| SB 309 Royalty Sheet 041510.pdf |
SFIN 4/15/2010 9:00:00 AM |
SB 309 |
| SB 309 041510 SFIN Memo from DOR.pdf |
SFIN 4/15/2010 9:00:00 AM |
SB 309 |
| SB 309 041510 Alaska Oil and Gas Tax and Royalty Incentives.pdf |
SFIN 4/15/2010 9:00:00 AM |
SB 309 |
| SB 309 041510 Alaska Oil and Gas Tax Legislation Comparison .pdf |
SFIN 4/15/2010 9:00:00 AM |
SB 309 |
| SB 309 041510 CIWellExample_ds_20100412.pdf |
SFIN 4/15/2010 9:00:00 AM |
SB 309 |