Legislature(2011 - 2012)SENATE FINANCE 532
04/19/2012 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB3001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB3001 | TELECONFERENCED | |
SB 3001-OIL AND GAS PRODUCTION TAX
3:35:36 PM
CO-CHAIR PASKVAN announced that the first order of business
would be a presentation by the Department of Revenue,
Commissioner Bryan Butcher, who would introduce SB 3001 and the
fiscal note. He said that the bill was introduced at the request
of the governor. He noted that yesterday he had made a request
for modeling or analysis or evaluation of the bill, and that the
committee had only recently received today's presentation.
3:36:40 PM
BRYAN BUTCHER, Commissioner, Department of Revenue (DOR),
apologized for the lateness in providing the presentation. He
began by stating the goals of the bill: to incentivize
production on the North Slope, both within and outside existing
units; to generate additional jobs and activity for the Alaska
economy, to build on work already undertaken in legislative
committees during the regular session, to maintain existing
structure of ACES, with slight modifications, and to maintain
alignment of working interest owners by not tying incentives to
individual companies to fields as a whole.
COMMISSIONER BUTCHER addressed the five key provisions of the
bill. He termed it a hybrid bill. The first provision is a 30
percent gross revenue exclusion for calculating base tax and
progressive tax for qualifying new North Slope fields. He said
that language is identical to the language the Senate had in HB
276. The second provision is a 40 percent gross revenue
exclusion for calculating progressive tax for other North Slope
fields. That is the tax structure taken from the new fields in
HB 276 and applied to the rest of the North Slope.
CO-CHAIR PASKVAN asked if there was an advisor, economic or
otherwise, that DOR has relied upon to determine the rate for
existing fields.
COMMISSIONER BUTCHER said no. The work that has been done has
been between the governor and DOR.
CO-CHAIR PASKVAN asked if there will be an economic advisor to
present information to the committee.
COMMISSIONER BUTCHER replied that there may be, depending on the
topic. He explained that a lot of the department's understanding
of these provisions is as a result of discussions with the
Senate's consultant, PFC Energy.
CO-CHAIR PASKVAN concluded that the administration does not have
an economic advisor to present components of the bill to the
committee.
COMMISSIONER BUTCHER reiterated that it depends on the topic.
The Department of Revenue will speak to most of the bill.
CO-CHAIR PASKVAN asked who the advisor would be.
COMMITTIONER BUTCHER said it would be Gaffney, Cline and
Associates.
CO-CHAIR PASKVAN asked if Gaffney, Cline could be made available
to the Senate Resources Committee.
COMMISSION BUTCHER thought it might be a possibility.
3:40:40 PM
SENATOR FRENCH asked if DOR has had access to the PFC Model.
COMMISSIONER BUTCHER said they had.
SENATOR FRENCH asked if DOR was able to put their calculations
into the PFC Model.
COMMISSIONER BUTCHER said yes.
SENATOR FRENCH asked which members of the legislature have that
model.
COMMISSIONER BUTCHER did not know.
SENATOR FRENCH repeated the question regarding if DOR has access
to the PFC Model.
COMMISSIONER BUTCHER said yes.
SENATOR STEDMAN commented that PFC Energy is the consultant to
Legislative Budget and Audit and was the consultant hired by the
legislature. It is common for the consultants of the legislature
to work with the administration and with industry on what data
goes into their models and what comes out for the purpose of
policy discussions. However, he stated that he was confused on
the interaction between the administration and PFC Energy on
this bill. He requested clarification about the type of
interaction the administration had with PFC Energy. He asked if
PFC modeled SB 3001 for the administration.
COMMISSIONER BUTCHER explained that PFC Energy has not run any
models for DOR. They just provided information for DOR's
economists so the outputs would be the same.
3:43:05 PM
BRUCE TANGEMAN, Deputy Commissioner, Department of Revenue,
provided information on the process of making the model. He
added that it was not DOR's intent to present PFC's model, but
rather to align input and output of the models. PFC and DOR will
each be presenting their models.
SENATOR STEDMAN said that was a little bit different than what
he had heard earlier. He said he understood the process of
sharing data. He wanted to know what interaction the legislative
consultants have had with the administration on the credit
issues.
COMMISSIONER BUTCHER said there has been no interaction between
PFC and the Department of Revenue when crafting the bill. He
explained how the provisions were developed. He listed various
ways a more meaningful tax reduction could be attained. He said
HB 110 was the administration's attempt to do so, but it was not
the only way.
3:46:07 PM
CO-CHAIR PASKVAN asked if it was a fair statement to say that no
economic advisor has provided information to DOR in determining
the 40 percent allowance.
COMMISSIONER BUTCHER said the economists in DOR provided that
determination.
CO-CHAIR PASKVAN asked what government take the administration
believes is a reasonable range for existing fields.
COMMISSIONER BUTCHER explained that the presentation would show
that. The amount is in the general vicinity of HB 110's numbers
and was a result of work done by DOR along with the governor's
office.
CO-CHAIR PASKVAN asked if any advisor has advised the
administration about what a reasonable range for government take
is for existing fields.
COMMISSIONER BUTCHER listed a number of consultants, such as
Pedro Van Meurs, Gaffney & Cline, and others, as well as the
legislature's consultants, Mr. Marks, Mr. Dickinson, and PFC
Energy. He stated that no one consultant made that
determination.
CO-CHAIR PASKVAN asked if the administration believes that a 70
percent to 75 percent government take, including state and
federal, is a reasonable range for existing fields.
COMMISSIONR BUTCHER explained that it was in the general area of
one-third each.
CO-CHAIR PASKVAN requested a yes or no answer.
COMMISSIONER BUTCHER replied that there is no "yes or no answer"
unless the dollar amount is known. He gave an example 70 percent
to 75 percent government take at $200 oil and pointed out that
is is considerably different than at $60 oil.
3:48:54 PM
CHAIR WIELECHOWSKI asked about a legislative contract with PFC
Energy for $750,000, which was supposed to provide a model. He
questioned if such a model had been provided.
COMMISSIONER BUTCHER replied that he was not aware if PFC had
made that available to the legislature.
CHAIR WIELECHOWSKI asked who the consultant was for SB 3001.
COMMISSIONER BUTCHER replied that different pieces of the bill
required different consultants. He gave as an example provision
four, extending the 40 percent well lease expenditure credit to
the North Slope, which was developed prior to the 2010
legislative session. He did not know who the consultant was.
CHAIR WIELECHOWSKI asked if Commissioner Butcher had consulted
with the oil industry to see if they would support the bill.
COMMISSIONER BUTCHER reported that the department had not talked
to any individual companies.
CO-CHAIR PASKVAN asked if DOR had the PFC Energy model in hand.
COMMISSIONER BUTCHER did not know. He added that the department
did have a version of the PFC model that was run for validation.
3:51:19 PM
SENATOR FRENCH stated that he was extremely unhappy that the
department had received the model before the Senate did. He
protested that the consultant the legislature hired provided
information to the department first.
COMMISSIONER BUTCHER responded that he had not seen the model.
He explained that the department took what the Senate prepared
regarding new fields and used it to run the model.
CHAIR WIELECHOWSKI said he was extremely disappointed with PFC
Energy and had lost confidence in its ability to advise the
legislature.
CO-CHAIR PASKVAN turned to the advice from Pedro Van Meurs
regarding reasonable government take, in the range of 75
percent, for existing fields. He asked if the department was
accepting or rejecting that advice.
COMMISSIONER BUTCHER said he disagreed with that advice.
CO-CHAIR PASKVAN asked how much he disagreed.
COMMISSIONER BUTCHER offered to provide that breakdown but
stated that there was no magic percent. He gave an example of a
consultant in Albert giving advice on changing their version of
ACES.
CO-CHAIR PASKVAN asked if any consultant had advised the
department that 70 percent to 75 percent is not reasonable. He
emphasized that the legislature's consultant maintained that it
was a reasonable rate.
COMMISSIONER BUTCHER replied that most of the advisors,
including presentations by PFC Energy, have shown Alaska to be
among the highest tax regimes in North America and in the world.
He maintained that that designation was playing a major role in
Alaska's not receiving major investment. He said that Russia has
worked to reduce their extraction and export taxes to a level
below Alaska's taxes, and hoped to receive up to $500 billion in
investments as a result.
3:56:05 PM
SENATOR STEDMAN commented that the state's ranking globally
changes when the price of oil changes. The fiscal terms that the
state operates under are only half of the equation; the other
half is the prospectivity of the basin - how much oil resource
is available. He maintained that it is more complex than saying
Alaska is one of the highest tax regimes in the organized,
economically developed countries.
CO-CHAIR PASKVAN reiterated the question regarding if any
consultant has said that 70 percent to 75 percent government
take in existing fields is unreasonable.
MR. TANGEMAN opined that the number the department should focus
on is the number that brings more investment to the state. He
referred to capital investment in 2010 to 2012 and pointed to a
downward trend.
CO-CHAIR PASKVAN argued that the charts the department has
prepared regarding capital expenditures show an increase through
2016. He asked Commissioner Butcher if that was correct.
COMMISSIONER BUTCHER replied that it is as accurate as a
forecast can be.
CO-CHAIR PASKVAN said those numbers had been relied upon by the
department in recent presentations.
COMMISSIONER BUTCHER said that was correct.
SENATOR FRENCH brought up the issue of the legislature not
having access to capital investment numbers by the industry. He
asked if the department has access to those confidential
numbers.
COMMISSIONER BUTCHER said no.
SENATOR FRENCH asked if Commissioner Butcher ever worried that
the state might be getting "squeezed by the industry with
respect to investment."
COMMISSIONER BUTCHER agreed that was a concern, but that every
factor must be weighed.
SENATOR FRENCH restated the question to ask whether it's
possible that the industry would look at their capital
expenditures from last year and decide to spend less in order to
benefit from a big tax break.
COMMISSIONER BUTCHER did not think there was a conspiracy among
oil companies to do something like that.
SENATOR FRENCH said he did was not suggesting a conspiracy. He
restated his question to ask if one company might reduce its
capital expenditures in order to convince the state to lower
taxes.
COMMISSIONER BUTCHER said he could not imagine an oil company
doing that.
4:02:21 PM
SENATOR FRENCH reported that BP did under invest in their flow
lines to the point of a criminal offense, so it is known that
oil companies will under invest from time to time. He read an
email from a retired North Slope worker which said that it was
absurd to think that the oil companies are going to do anything
other than what they have already planned, regardless of the tax
rates. He reported being in meetings where the oil companies
have come very close to admitting that they are currently
bluffing for better tax treatment.
COMMISSIONER BUTCHER related that he did not have any inside
information.
MR. TANGEMAN added that he could not imagine a situation where
that discussion could take place, due to shareholder oversight.
SENATOR STEDMAN expressed frustration and recalled a discussion
by the department on capital expenditures. The department
reported capital expenditure decline when it was, in fact,
increasing. He maintained that the same thing is happening today
and it is hard to return to "re-plow old ground." He said the
legislature should be able to rely on the information presented
by DOR. He stated he was "gun shy."
CO-CHAIR PASKVAN agreed with Senator Stedman. He stated that it
is startling to receive information again that directly
contradicts other statements from the department.
4:06:06 PM
MR. TANGEMAN explained that the department did present numbers
that show an incline in capital expenditures for FY 2010 - FY
2012.
CO-CHAIR PASKVAN asked if there was disagreement within DOR
regarding those numbers.
MR. TANGEMAN said absolutely not.
SENATOR STEDMAN inquired if the discussion today is that capital
expenditures are going to decline.
MR. TANGEMAN referred to FY 2010 - FY 2012 and said the
department provided charts that show an increase in capital
expenditures in the forecast. The production forecast shows 50
percent of oil produced will be from new oil.
SENATOR STEDMAN pointed out that the forecast for FY 2015 is
$3.890 billion and it is currently at $3 billion. He voiced
concern about sound bites by some legislators that are opposite
of this forecast. He inquired if forecast numbers were submitted
twice a year to the department.
MR. TANGEMAN reported on a fall forecast and a spring forecast
by DOR.
SENATOR STEDMAN recalled testimony from the industry that they
were comfortable with their forecasts and expenditures delivered
to the department, after the question was asked of the industry
whether or not there was a directional change between when the
information was submitted to the department and a month ago.
SENATOR WIELECHOWSKI shared in that recollection. He understood
that capital expenditures have increased to record highs every
year since ACES was instigated. If that is not true, he said he
wanted to know where the decline has been and what fields have
been projected to increase, but didn't, and what projects have
been projected to increase, but didn't. He requested an economic
analysis of each decline, because companies have a duty to
produce under the terms of their leases.
MR. TANGEMAN said Senator Wielechowski was correct in that the
companies have a duty to produce; however, there is a difference
between duty to produce and duty to invest. The department is
looking for additional investment in order to increase
production. There are incredible investments going on outside of
Alaska, which is capital the department will go after by
lowering taxes. The department wants companies to exceed their
duty to produce by making a more favorable investment climate in
the state by lowering taxes.
4:11:55 PM
SENATOR WIELECHOWSKI disagreed that the duty to produce and duty
to invest are different. He maintained that the administration's
belief that companies do not have a duty to invest is doing the
state a disservice and putting it at risk. He opined that it was
not legally accurate. He also wanted to know of any project or
field that is not economic under ACES and that would become
economic under SB 3001.
COMMISSIONER BUTCHER said those are questions best asked to
individual companies. He hoped the companies could provide their
insight on the bill.
SENATOR WIELECHOWSKI pointed out that the duty to manage
Alaska's resource belongs to the state of Alaska, and it's not
up to the industry to determine what is economic, it's the
state's job and the department needs to figure it out. The state
can't push billions of dollars across the table without having
any idea if projects are economic or not. If projects are
economic, there is an obligation to produce and to develop. That
determination should not be left up to the oil industry, because
that would be turning the state's sovereignty over to them.
COMMISSIONER BUTCHER maintained that DOR does not have that
information; the Department of Natural Resources and the
companies would have information about what is economic or not.
SENATOR STEDMAN noted previously during similarly-related major
legislation, the administration had consultants to provide an
economic analysis on different field sizes. He asked if that
would be done for this bill regarding the legacy fields. He
suggested that Gaffney Cline had done that in the past and had
provided an updated analysis during the regular legislative
session, including capital costs, current oil prices, and net
present values.
COMMISSIONER BUTCHER replied that the department would be happy
to do that.
CO-CHAIR PASKVAN asked who would be the advisor to do so.
COMMISSIONER BUTCHER reported that it would be the department
and Gaffney Cline, depending on the issue.
CO-CHAIR PASKVAN suggested that the administration has no
intention of providing an advisor to the committee for economic
information.
COMMISSIONER BUTCHER offered to do that.
CO-CHAIR PASKVAN asked if the 30 percent exemption for new
fields was reasonable.
COMMISSIONER BUTCHER said yes.
CO-CHAIR PASKVAN described those who would be exempted as the
areas outside the legacy fields that don't have roads or
pipelines or treatment facilities.
COMMISSIONER BUTCHER agreed.
CO-CHAIR PASKVAN asked why there would be a greater exemption
for the legacy fields rather than those without infrastructure.
COMMISSIONER BUTCHER clarified that there is a lesser exemption
for legacy fields.
MR. TANGEMAN explained how the exemptions were applied. The 30
percent exemption is applied to the base rate and the
progressivity rate, whereas the 40 percent exemption is applied
only to the progressivity rate.
4:18:20 PM
CO-CHAIR PASKVAN noted that the governor's letter had no fiscal
impact at $110 per barrel in FY 12 and FY 13. He pointed out a
negative fiscal impact to the state of about a $1.5 billion at
$110 per barrel in the bill.
MR. TANGEMAN replied that under the scenario if SB 3001 were to
pass and no new production was brought on line, the fiscal
impact would be a negative $1.5 billion. That figure was based
on the Revenue Sources Book forecast. He restated the governor's
goal, which is to make a meaningful change to the tax regime in
order to spur investment.
SENATOR FRENCH recalled the first Resource Committee hearing of
the session when he pointed out that it was hard to change oil
taxes. He asked if Commissioner Butcher agreed.
COMMISSIONER BUTCHER agreed.
SENATOR FRENCH suggested that it is far harder to raise taxes
than it is to lower them. He opined that it was unlikely that
oil taxes would be lowered in the face of industry inaction. He
asked why oil companies didn't have to earn the tax break. He
related that the state has been involved in the oil industry
since before statehood. He suggested that the state and the oil
industry become partners with mutually enforceable obligations.
COMMISSIONER BUTCHER opined that if taxes are lowered and the
oil companies don't do what they say they are going to do, it
will be far easier to raise taxes than it would be under normal
circumstances. He suggested that current taxes are high.
CO-CHAIR PASKVAN asked if the commissioner knew the existing
fields' net present value, internal rates of return, and other
core financial information under SB 3001.
COMMISSIONER BUTCHER said he did not know that information.
CO-CHAIR PASKVAN asked if that was important information to have
before considering a tax change.
COMMISSIONER BUTCHER said it was.
CO-CHAIR PASKVAN asked why the administration's consultants are
not providing that information. He suggested it was DOR's
responsibility to provide that information.
COMMISSIONER BUTCHER related this was the first chance DOR has
had to present to the committee since 2011. He offered to work
with the committee on providing that information. He noted that
the DOR's economists agree, in general, with what the
legislature's consultants have been saying.
SENATOR WIELECHOWSKI discussed a model from Gaffney Cline that
the administration used during ACES which showed at $80 per
barrel in Prudhoe Bay, assuming CAPEX increases at 300 percent,
an internal rate of return of 123 percent. He wondered if the
legislature could have copy of that model.
COMMISSIONER BUTCHER said he would check and see.
4:25:24 PM
SENATOR STEDMAN provided an estimation for FY 2013 of gross
stock just under $23 billion in the "oil patch," with costs of
about $7.5 billion, and royalties of about $3 billion, yielding
a total of $11 billion. He suggested when discussing economic
starvation it be thought of "in scale." He maintained there is a
difference between existing production and incremental
production in the legacy fields.
He requested an economic analysis by the administration of
incremental production, capital costs being at risk under the
current tax structure, and how the tax structure would need to
change in order to get incremental production up. He opined that
would be an easier discussion than dealing with legacy fields
that will continue to produce regardless of what the legislature
does. He reminded the committee that previous testimony from
Exxon stated that they would do in-field drilling in the legacy
fields because it is profitable, regardless of what the
legislature does. He suggested separating the two discussions.
COMMISSIONER BUTCHER stressed the he was not suggesting that
companies were experiencing economic starvation, rather that the
administration was looking for ways to make the economics for
marginal fields and in-field fields, more economic and leave
less oil in the ground.
MR. TANGEMAN addressed Senator Wielechowski's comment on
modeling during the ACES discussion that showed certain fields
economic at $60 or $80. He pointed out that oil is $60 higher
now and there are more fields that are economic, but he
questioned if they were competitive. He debated Senator
Wielechowski's comment that "it is the state's job to set the
rate." He questioned what the economic threshold was, and
stressed the importance of Alaska's having a competitive rate.
SENATOR STEDMAN maintained that the rate depends on the price of
oil or the economic environment. He stated that the conversation
must be cognizant of the public's interest and how they perceive
this issue. It is more accurate to say that the state has a
fiscal system that is extremely "elastic" and as oil prices
advance, it puts Alaska at a competitive disadvantage. The
question is "at what point does the adjustment need to be made."
COMMISSIONER BUTCHER agreed. High oil prices were not expected
when ACES was implemented.
CO-CHAIR PASKVAN asked if there is a target internal rate of
return that the administration is trying to achieve.
COMMISSIONER BUTCHER said no. The administration is focusing on
what would make Alaska more competitive. Even with the passage
of SB 3001, Alaska would still be among the most expensive
producing countries. Companies reported that HB 110 would have
made a difference and resulted in billions of dollars more in
investment. The administration is aiming for a tax level that is
more reasonable and meaningful and would bring more investment.
CO-CHAIR PASKVAN asked what the current internal rate of return
is for production.
MR. TANGEMAN asked if Co-Chair Paskvan meant actual rate of
return. If so, he said it would be company specific and the
administration is not privy to that kind of information.
CO-CHAIR PASKVAN restated his question to say, "With respect to
existing production, are you trying to achieve a greater
internal rate of return than currently exists."
COMMISSIONER BUTCHER replied that lower taxes would result in an
improved internal rate of return.
MR. TANGEMAN shared an example of Russia's plan for $500 billion
of investment due to a lower tax rate and an improved internal
rate of return.
CO-CHAIR PASKVAN questioned how the department would know that
lower taxes would result in an improved internal rate of return
if they were not privy to what the current internal rate of
return is.
4:34:08 PM
SENATOR FRENCH said he had the same rhetorical question. He
noted there were also problems in Russia, like forced takeovers
as experienced by ConocoPhillips. He gave another example of
companies having their assets nationalized in Argentina.
He pointed out that the focus should be on the numbers in
Alaska. He wondered why the state does not yet know companies'
internal rates of return. Internationally recognized tax
attorneys have suggested that the state have access to those
numbers before making tax decisions. He suggested obtaining a
subpoena to find out those numbers.
COMMISSIONER BUTCHER said that is proprietary information and he
was not aware of any state having access to companies' internal
books. He suggested it would not be "business friendly" to force
companies to open their books.
SENATOR FRENCH disagreed. He stated that it does not make Alaska
un-business friendly, but rather a partner. He suggested that
DOR might want to have access to that information before it
comes to the legislature to suggest a change in taxes.
COMMISSIONER BUTCHER countered that Senator French used the word
"subpoena," not "ask."
SENATOR FRENCH inquired if DOR had asked for the information.
COMMISSIONER BUTCHER replied that DOR has not asked for
proprietary information.
SENATOR FRENCH suggested DOR try asking.
MR. TANGEMAN wondered if that question was asked during the ACES
debate, which lasted only three-and-a-half weeks. He pointed out
that taxes can be changed in a short amount of time. He
concluded that tax changes were made without that information.
4:37:45 PM
SENATOR FRENCH asked if Mr. Tangeman had reviewed the
transcripts from ACES.
MR. TANGEMAN said not all of them.
SENATOR FRENCH encouraged Mr. Tangeman to do so. He reported
that the legislature had a consultant who used every piece of
public information available to build a model which was
presented to the oil industry to analyze, with the invitation to
come back to the legislature if there something that was
inaccurate. The oil companies never came back because the model
was not inaccurate. He emphasized that the legislature did as
much homework as possible in open session, without issuing a
subpoena, with an invitation to the companies to correct errors
in the model.
SENATOR STEDMAN added that the Senate spent some time dealing
with this issue during the regular legislative session and came
out with a targeted rate for new oil and changes to ACES to try
to fix some of the structural problems. There was not enough
political support for that work. At the end of the session the
Senate came up with a structure that would leave ACES intact,
but deliver an economic adjustment for new oil. Two options were
considered, one of which was removing progressivity. The
consultants provided a better way of doing that in the form of
an exclusion allowance for new oil that would not create cost
allocation issues and reduce government take. He described the
process the Senate went through to arrive at their conclusions.
He asked how DOR arrived at SB 3001. He stated that the bill
contains cash flow projections in FY 13 found in HB 110 at $1.5
billion at $110 per barrel oil. He inquired if DOR "backed into
that to get to that number or was there another methodology that
created it."
COMMISSIONER BUTCHER agreed that it was close to HB 110; a
couple hundred million different. He explained that DOR took the
structure the Senate worked on for the new fields and began
working on it internally for the existing fields.
4:43:14 PM
SENATOR WIELECHOWSKI related the economic analysis done during
ACES consisting of seven hypothetical fields with internal rates
of return, net present value, satellite fields, legacy fields,
and heavy oil. He discussed the model created by Gaffney Cline,
as well as presentations by Roger Marks, Dan Dickenson, and the
oil industry, all of which were made public. He suggested using
that model to determine information about legacy fields.
He recalled a conference call last year by ConocoPhillips where
the company said they were investing hundreds of millions of
dollars in Alaska all at "very good rates of return" and Alaska
offered "strong cash margins." He inquired if Commissioner
Butcher thought those statements were inaccurate.
COMMISSIONER BUTCHER replied that ConocoPhillips could provide
that information.
SENATOR WIELECHOWSKI asked if the commissioner disagreed with
ConocoPhillips' statement that they are investing hundreds of
millions in Alaska at very good rates of return last year.
COMMISSIONER BUTCHER said he did not know the details. He
maintained that the company has said that a tax change will
result in billions of dollars more investment than they
currently are investing in Alaska.
CHAIR WIELECHOWSKI asked if his previous statement showed
ConocoPhillips' support for a tax break.
COMMISSIONER BUTCHER reiterated that it would involve talking to
the companies themselves to find out.
MR. TANGEMAN pointed out that Alaska is only one part of
ConocoPhillips' portfolio. He returned to the discussion of the
Gaffney Cline model used during ACES and commented that it was a
very good model; however, it was based on theory and
assumptions. He suggested when looking at what has occurred
since then, the numbers used were not positive enough.
4:48:50 PM
CO-CHAIR PASKVAN asked if the information DOR is presenting to
support SB 3001 is superior to information used to support ACES.
COMMISSIONER BUTCHER predicted that if DOR has a month to lay
out information it would contain equal detail.
CO-CHAIR PASKVAN asked if the commissioner believed it was
possible to have a high internal rate of return with the current
tax structure, with respect to the existing fields.
COMMISSIONER BUTCHER said yes.
MR. TANGEMAN asked what Co-Chair Paskvan would consider a high
rate of return.
CO-CHAIR PASKVAN noted that Commissioner Butcher's answer was
"yes." However, he previously stated he did not know what the
internal rate of returns was.
SENATOR STEDMAN pointed out that the effects of the mechanics in
the bill are different than what the Senate expected on
incremental oil. The mechanics used with legacy fields don't
work with incremental oil. He requested a sensitivity analysis
run on the 40 percent exclusion as it drops to zero. He
questioned how rapidly $1.5 billion, the negative number,
approaches zero. The Senate spent a lot of time trying to hold
current production cash flow change at zero, at $100 oil, on the
recommendation of one of the consultants.
CO-CHAIR PASKVAN asked about page three of the fiscal note, the
columns that address the "forecast plus 10 percent." He inquired
where the 10 percent comes from - existing, new, or federal
fields.
MR. TANGEMAN reported that the tables are based on hypothetical
numbers. The analysis was done last year and was based on
certain types of fields coming on line.
CO-CHAIR PASKVAN asked if the top chart on 10 percent is from
existing fields.
MR. TANGEMAN replied that it is just 10 percent above the
forecast by the department. It is just more oil in the pipeline.
CO-CHAIR PASKVAN asked if any of this is for new fields.
MR. TANGEMAN said the department does not make projections on
new fields.
CO-CHAIR PASKVAN assumed then that there can be a 10 percent
increase above current production on existing fields. He voiced
concern that the director of the Division of Oil and Gas
testified less than a year ago to the U.S. Senate that "the
natural field declines cannot be replaces without access to
production from federal lands in the OCS. There are no known
conventional sources on state or native lands that are likely
sufficient to replace the decline in the existing production
rates." He asked who was right.
MR. TANGEMAN replied that the NPRA could be factored into the 10
percent.
CO-CHAIR PASKVAN clarified that if production is increased
50,000 to 60,000 barrels a day for an entire year the state
still receives $400 million less in revenue.
MR. TANGEMAN said that is correct due to the generous tax credit
system.
4:55:52 PM
CO-CHAIR PASKVAN requested that the chart be shown, in dollar
terms and in volumes, the difference between the current tax
system and the proposed tax system.
MR. TANGEMAN restated the request.
CO-CHAIR PASKVAN clarified the request.
MR. TANGEMAN said he would run the numbers and get back to the
committee.
SENATOR STEDMAN related that it has been said that there are $5
billion worth of projects that the industry would go forward
with if the tax was changed for the legacy fields. He shared
that there was testimony from Exxon about what it would take to
stem the decline of their fields. He requested to know what the
department's estimate is on what it would take in dollars of
capital investment per year to stem the decline.
COMMISSIONER BUTCHER said it was a difficult question to answer
because the department doesn't have that information. He said he
would talk to DNR.
SENATOR STEDMAN recalled testimony from Mr. Pittman from Exxon
which gave the committee a feel for the magnitude of what it
would take to stem the decline, roughly $3 billion to $5 billion
a year; not $5 billion over 8 years, but a larger number. He
questioned what the break even analysis would be and what was in
the best interest for the state of Alaska.
COMMISSIONER BUTCHER agreed that more investment would be
needed.
5:01:07 PM
SENATOR WIELECHOWSKI asked the administration to address
provision 4 on page 4 of the fiscal note. He suggested the $400
million loss in FY 13 and a $400 million gain in FY 14 should
probably be changed to zero. Also, in provision number 5, the
loss of between $200 million and $400 million should be changed
to show an increase every year reflecting the yearly CAPEX
increase.
CO-CHAIR PASKVAN concluded that it was important for the
committee to find out when they will be hearing from an advisor
to the administration in order to find out information about
internal rates of return, net present values, reasonable ranges
of government take, and opinions on investments needed. He said
he was not interested in myths of declining production, capital
expenditures, and employment numbers.
[SB 3001 was held in committee.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB3001_Version A.pdf |
SRES 4/19/2012 3:30:00 PM |
SB3001 |
| SB 3001_Transmittal Letter from Gov Parnell.pdf |
SRES 4/19/2012 3:30:00 PM |
SB3001 |
| SB3001_Fiscal Note_1-4-041812-REV-Y.pdf |
SRES 4/19/2012 3:30:00 PM |
SB3001 |
| SB3001 DOR Overview_4-19-2012.pdf |
SRES 4/19/2012 3:30:00 PM |
SB3001 |