Legislature(2017 - 2018)BARNES 124
01/29/2018 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| HB288 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 288 | TELECONFERENCED | |
HB 288-OIL AND GAS PRODUCTION TAX
1:11:01 PM
CO-CHAIR TARR announced that the first order of business would
be HOUSE BILL NO. 288, "An Act relating to the minimum tax
imposed on oil and gas produced from leases or properties that
include land north of 68 degrees North latitude; and providing
for an effective date."
1:12:24 PM
KARA MORIARTY, President/CEO, Alaska Oil and Gas Association,
provided a PowerPoint presentation entitled, "HB 288 Testimony,"
dated 1/29/18. She informed the committee the Alaska Oil and
Gas Association (AOGA) is a private trade organization
representing the majority of companies exploring, producing,
refining, and transporting oil and gas in Alaska (slide 2). Ms.
Moriarty said AOGA members have reported two uninterrupted years
of increased production; increases in production have been
reported from both legacy fields and newer fields (slide 3).
REPRESENTATIVE PARISH asked for the percentages of the increases
reported in [2016 and 2017].
MS. MORIARTY said the increases are 1 percent to 2 percent,
following a historical decline of 4 percent to 8 percent
annually. She provided forecast information from December 2012,
and fall of 2017, and pointed out the more recent forecast is
for production of 546,360 barrels per day (bpd), which is over
103,460 bpd higher than the forecast from five years ago. She
concluded increases in investment have led to a much better
forecast, partly because previous tax systems, Alaska's Clear
and Equitable Share (ACES) [passed in the Twenty-Fifth Alaska
State Legislature] rewarded spending and Senate Bill 21 [passed
in the Twenty-Eighth Alaska State Legislature] incentivized
production (slide 4). As a comparison, AOGA reviewed projected
state revenue from royalties, production, property tax, and
corporate income tax at the original forecast of 442,900 barrels
per day, and she noted the state would have received $300
million less in overall state revenue (slide 5).
1:16:07 PM
CO-CHAIR TARR asked whether the new model utilized by the
[Department of Natural Resources (DNR)] will improve the
accuracy of forecasts.
MS. MORIARTY said AOGA relies on the Department of Revenue's
(DOR's) published forecasts; AOGA supports forecasts that show a
range between 10, 50, and 90 percent probability to give a
better average, but AOGA does not have supporting historical
data.
CO-CHAIR TARR pointed out (DNR) plans to utilize a ten-year
timeframe for a better understanding of events.
1:18:07 PM
MS. MORIARTY advised AOGA members work with DOR to provide data
to support its forecasts.
REPRESENTATIVE PARISH asked for the percentage of the spending
incentivized by ACES that was directed toward new investments
and future growth.
MS. MORIARTY said to answer she would need additional research.
The ACES credit system was based on whether a company spent
money but not necessarily upon activities leading to production;
however, the per barrel tax credit is based on production. Ms.
Moriarty returned to slide 5, which further illustrated what
$300 million in additional state revenue could fund in the
current proposed state budget. She stressed increased
production helps the legislature appropriate funds for state
needs. Further, in fiscal year 2018 (FY 18), oil revenues are
projected to represent 75 percent of the state's unrestricted
general fund (UGF), and when combined with restricted revenue
and property taxes, totals over $2.4 billion to state and local
governments (slide 6). She discussed Alaska's mega resource
potential noting the total provided on slide 7 does not include
recent discoveries, but does include estimates for the National
Petroleum Reserve-Alaska (NPR-A).
1:23:11 PM
MS. MORIARTY acknowledged oil production in Alaska faces
competition from the Lower 48 as the U.S. becomes the world's
largest producer. In October 2017, production in the U.S. was
over 9.6 million bpd; Alaska is producing 5 percent of the U.S.
total. She pointed out Alaska's mega resources will only
continue to contribute to increasing U.S. production with
investment (slide 8). A DNR forecast from February 2017,
illustrated a long-term view of Alaska's declining production
through 2069 absent ongoing and increased investment in all
fields (slide 9). Although a short-term ten-year forecast
showed improvement in production, the long-term outlook remains
the same (slide 10). Ms. Moriarty provided a graph, from a
presentation by a representative of Wells Fargo Bank, which
showed investment in production during the past ten years for
Alaska and the U.S. She concluded in 2018 the oil and gas
industry in the U.S. will spend $120 billion in capital
expenses, of which less than 2 percent will be spent in Alaska
(slide 11). She questioned how Alaska could increase its share
of the total amount of money spent by industry on capital
investments in the U.S.
MS. MORIARTY cautioned another tax change will not help Alaska
attract additional investment; as previous testimony has
revealed, there have been eight tax policy changes in the last
thirteen years and six have been opposed by industry (slide 12).
Turning to HB 288, she said the bill would negatively impact
industry by increasing the cost of the minimum production tax by
75 percent, and would be the third straight increase to
production taxes in three years. Increased taxes increase cost,
which reduces competitiveness for Alaska's projects when
compared to national or worldwide projects. Ms. Moriarty
stressed reducing competitiveness for the oil and gas industry
affects one-third of all jobs and wages in Alaska along with
less production, state revenue, and economic growth (slide 13).
She said the industry recognizes the state's fiscal challenge;
however, the industry can contribute more by growing oil and gas
production. Ms. Moriarty recalled Alaska's Economic Development
Strategy contains a section on the resource extraction industry
that concluded in order to strengthen resource extraction
industries, the state must promote a consistent business
environment that includes a stable tax regime. She said AOGA
does not envision HB 288 achieving the aforementioned goal
(slide 14).
1:31:25 PM
The committee took a brief at ease.
1:31:25 PM
SCOTT JEPSEN, Vice President External Affairs and
Transportation, ConocoPhillips Alaska, Inc. (ConocoPhillips),
provided a PowerPoint presentation entitled, "House Resources
Committee HB288," dated 1/29/18. Mr. Jepsen said his
presentation would include forward-looking statements and
directed attention to a cautionary statement and safe harbor
note (slide 2). He turned to ConocoPhillips' projects currently
underway on the western North Slope, including Greater Mooses
Tooth Unit 1 (GMT1), which may have production by the end of
2018 and peak production of 25,000-30,000 barrels of oil per
day. Another project, Greater Mooses Tooth Unit 2 (GMT2), may
reach first production in 2021 and is of similar size to GMT1,
employing 700 construction jobs. In the [Colville River Alpine]
unit, development of Fiord West is now possible through the
acquisition of a mobile, extended-reach drilling rig, and first
production is expected in 2020. Finally, the Willow Discovery
oilfield could produce 100,000 barrels of oil per day, with the
earliest production possible in 2023, and is a project that
could support thousands of construction jobs and several hundred
direct jobs (slide 3).
REPRESENTATIVE PARISH asked how much time would be needed for
the projects to reach peak production.
MR. JEPSEN estimated one to two years after initial production
[a project reaches peak production]. He said ConocoPhillips is
conducting its largest exploration program since 2002, drilling
five exploration wells, including wells in Willow, Stony Hill,
and Putu. Further, ConocoPhillips is undertaking a 250 square
mile seismic program on state land (slide 4).
1:37:33 PM
REPRESENTATIVE TALERICO asked how many jobs would be generated
for the exploration projects.
MR. JEPSEN said approximately 400.
REPRESENTATIVE PARISH asked for the potential royalty share from
the Stony Hill development.
1:38:04 PM
MR. JEPSEN said royalty would be either 12.5 percent or 16.7
percent on state land and there would be a 50/50 split of all
federal oil and gas revenues; however, a portion of the revenue
would be dedicated to mitigating impacts to villages in the
National Petroleum Reserve-Alaska (NPR-A). In further response
to Representative Parish's question as to the proportion of
revenue dedicated for mitigation, he explained the amount is
unknown until grant requests are received from villages within
the North Slope Borough, and he described the grant process.
CO-CHAIR TARR suggested information on revenue dedicated for
mitigation is detailed in the state budget.
1:39:14 PM
REPRESENTATIVE BIRCH asked how much it costs to drill a well.
MR. JEPSEN answered the cost of an individual exploration well
can be tens of millions of dollars. He then referred to
previous testimony by the Department of Revenue stating that the
minimum tax does not apply to new oil; however, he said the
minimum tax does apply to ConocoPhillips projects because its
projects are subject to state severance tax. Slide 5 was a map
which illustrated many activities ongoing on the North Slope,
including projects by ConocoPhillips and other companies such as
BP, Hilcorp, Repsol/Armstrong, Brooks Range Petro, Caelus, and
the Alaska LNG Project. He said the five projects furthest
along would spend over $13 billion in capital expenditures
(CAPEX) and cautioned that the facilities at Alpine, Kuparuk,
and Prudhoe Bay must have investment in order to provide the
infrastructure needed to support new development. He provided a
graph that illustrated production forecasts to 2027 as
influenced by increased investment: the encircled portion of
the graph from 2014 to 2027 contained projections of additional
production he attributed to the tax framework of Senate Bill 21.
Increased production was indicated in the near-term and in the
long-term, including significant revenue and jobs due to a
competitive tax framework. Mr. Jepsen said what would have
happened without the influence of Senate Bill 21 is unknown;
however, he assured the committee the tax regime is a part of
investment decisions made by ConocoPhillips (slide 6).
1:44:23 PM
REPRESENTATIVE RAUSCHER questioned whether there are further
impacts of legislation enacted after Senate Bill 21.
MR. JEPSEN said the increases are encircled on slide 6, although
subsequent changes have been made regarding tax credits and to
"fringes of the core tax structure." He pointed out the
forecast was provided by DOR after DOR gathered data from the
companies on the North Slope.
REPRESENTATIVE PARISH expressed his interest in a graph that
would show investment that has occurred in the past few years.
A previous tax system, ACES, encouraged investment and spending,
and he questioned where the investment attributed to ACES is
shown.
MR. JEPSEN explained he does not have access to all industry
data but would supply data for ConocoPhillips' spending profile.
He pointed out ACES did not encourage cutting costs because 90
percent of industry savings went to the state. Mr. Jepsen
turned to Alaska's oil and gas industry competition from
unconventional plays found in the Lower 48, that have enormous
resource potential, and which are closer to market, easier to
permit and are governed by stable fiscal policies. He said oil
and gas plays in the Lower 48 are setting investment costs,
especially in Texas. Although - due to its efficiencies and
investments - ConocoPhillips in Alaska remains competitive, any
increases in tax cost decreases its competitiveness.
1:49:35 PM
PAUL RAUSCH, Vice President Finance, ConocoPhillips Alaska,
Inc., directed attention to the financial aspects of producer
and government profit share. As illustrated on slide 8, total
net cash flow from the North Slope at various oil prices from
$30 to $100 per barrel of oil was divided between producers, the
federal government, and the state government. The estimates
were generated from Fall 2017 Revenue Source Book (RSB)
assumptions and a 21 percent federal tax rate for the entire
fiscal year. He stressed total Alaska government take is not
only production tax but includes income tax, property tax,
royalty, and production tax. Mr. Rausch noted total government
share is greater than producer share at all prices, and at
prices of $30 to $35 per barrel of oil, the producers' profit is
negative, and an increase in minimum state tax would be
particularly difficult.
1:52:50 PM
MR. JEPSEN turned attention to the impacts of HB 288. Previous
DOR testimony was that at $72 per barrel of oil the equivalent
gross tax to Senate Bill 21 net tax is about 7 percent. If oil
prices increase, HB 288 would not have much impact; however, HB
288 is a tax increase at low prices thus when industry is losing
cash, the legislation would disincentivize investment. Also,
the core Senate Bill 21 tax system has been in place for about
four years which has been helpful to ConocoPhillips' investment
decisions. Mr. Jepsen agreed with earlier industry testimony
that investment is a key element to managing the budget gap and
more production leads to jobs and state revenue. Finally, he
observed the industry on the North Slope is close to significant
development, spending, and new production, and he expressed
opposition to HB 288.
1:56:27 PM
CO-CHAIR JOSEPHSON recalled DOR has reported that lease
expenditures in some legacy fields have been reduced from $50 to
less than $30 and he returned attention to slide 11 of the AOGA
PowerPoint presentation that showed total capital expenditures
in Alaska are lower, but production has increased. He
questioned where ConocoPhillips' capital expenditures are
reflected in the information that has been provided.
MR. JEPSEN said he has not provided a representation of capital
investments; however, if ConocoPhillips had not reduced its
lease expenditures, it would not have invested in Alaska. By
increasing efficiencies, ConocoPhillips continued to invest in
Alaska during the downturn [of oil prices], and remains
competitive. He cautioned that new parties would invest
elsewhere. Although he said he did not have information on
where all the capital is being spent, over $400 million in
incremental investment has been spent in CD5. Further, advances
in technology have brought efficiencies in drilling.
CO-CHAIR TARR related previous testimony that oil production in
Alaska requires a lead time of five to ten years, yet
ConocoPhillips stated the four-year term of Senate Bill 21 has
led to increased production and a positive business environment;
she inquired as to the discrepancy between the differing
timelines.
MR. JEPSEN said ConocoPhillips makes investment decisions based
on assumptions of oil price, costs, tax rates, and reserves; in
addition, assumptions about state tax policy are predicted for
two years, and all are factors affected by uncertainty. The
industry is accustomed to uncertainty, however, stable tax
policy is desired.
MR. RAUSCH returned attention to slides 5 and 6, noting that
ConocoPhillips projects are long-term, such as the Willow
project, and shorter term, such as GMT 1 and GMT 2.
MR. JEPSEN cautioned that ConocoPhillips is not committed to
develop Willow and the project will not be pursued under certain
circumstances.
2:03:19 PM
CARL GIESLER, President/CEO, Glacier Oil & Gas Corp (Glacier),
stated his intent to provide a small company perspective to the
discussion of HB 288. He informed the committee Glacier has
small oil operations on the west side of Cook Inlet and gas
operations on the Kenai [Peninsula]; on the North Slope, Glacier
operates the Badami field, processing plant, and pipeline west
of Point Thomson. Also in the Badami field, Glacier is drilling
an exploration well, Starfish, which is the first well drilled
in that field in more than five years. Mr. Geisler acknowledged
the state's budget quandary; however, he said HB 288 is not a
good solution at this time due to its substantial harm to the
industry and to the state's reputation. The oil and gas sector
in Alaska has had recent good news: major discoveries;
increased ice road activity; increases to the Trans-Alaska
Pipeline System (TAPS); a purchase by Oil Search Ltd.; rising
oil prices; opening of the Arctic National Wildlife Refuge 1002
area. However, for small companies, the foundation of the
state's oil and gas ecosystem is eroding due to an exodus of
producers and vendors, and less capital and jobs; in fact, the
number of entities in the oil and gas sector is declining which
means there are fewer service companies and it becomes difficult
and costly to get work done. For example, in Cook Inlet, there
is only one company left to provide water transportation to the
job site for workers.
2:08:05 PM
MR. GEISLER continued to a second issue which is financial firms
and banks have become wary of investing in Alaska; in fact,
Alaska banks declined to invest in the Cook Inlet reservoir
basin because there are too few producers. Further, thirteen
banks in the Lower 48 that were contacted by Glacier were not
interested in assets in Alaska because of their perception of
[state] policy and the lack of small commercial opportunities.
Mr. Geisler said anything that deters new capital and new
companies from coming to Alaska is not helpful because of its
effect on job growth. He pointed out Alaska's unemployment rate
is a percentage point below 49 states, which would not be helped
by an increase in the tax rate. Previous testimony has
described HB 288 as one change, however, the bill would more
likely make two changes: the working group formed last year has
not started its work, thus a change made by HB 288 would be
followed by further changes from the working group, which would
be problematic.
2:11:38 PM
DAMIAN BILBAO, Vice President Commercial Ventures, BP, provided
a PowerPoint presentation entitled, "Testimony before House
Resources - HB 288," dated 1/18/18.
2:12:57 PM
LEWIS WESTWICK, Vice President Finance, BP, provided brief
personal background information.
2:13:34 PM
MR. BILBAO said BP opposes HB 288. He presented slide 2 which
included a graph of total worldwide oil demand from 2000 to
present - about 92 million barrels per day - and a forecast that
oil demand will peak around 2035-2040. Mr. Bilbao said the
world economy drives oil demand, however, increased efficiency,
new technologies, and changes such as ride sharing, will lower
the demand so that industry will become more competitive than it
is today. Also shown on slide 2 was a graph of technically
recoverable oil resources of approximately 2.5 trillion barrels
worldwide, and oil demand through 2050, which is 1.2 trillion
barrels. He cautioned if Alaska's resources are not developed
at competitive prices, its oil will remain in the ground as
undeveloped resources. He pointed out Alaska produces less than
1 percent of worldwide oil production and less than 5 percent of
total oil production in the U.S. Mr. Bilbao said HB 288 makes
Alaska less competitive because as costs increase, economics
worsen and investment goes elsewhere in the world.
2:18:08 PM
REPRESENTATIVE BIRCH expressed his understanding North America
has more technically recoverable resources than are shown on
slide 2.
MR. BILBAO explained 400 billion barrels is a tremendous amount
of resource in North America and most production is coming from
the U.S.; although the graph shows Central and South America
have a greater amount of recoverable resources, in Venezuela,
heavier oil does not attract investment due to poor economics
and political climate, which illustrates that investment goes to
the most attractive resource. He stressed BP wants a higher
proportion of U.S. investment in Alaska. In response to
Representative Parish's question as to what countries are
indicated by CIS, he said the Commonwealth of Independent States
(CIS) includes most of the former Soviet Union.
CO-CHAIR TARR asked how the advantages of BP's ownership
interest in TAPS influences its investment in Alaska.
MR. BILBAO advised said advantages are a misperception in that
BP must pay for pipeline and marine transportation of its
products. He explained BP compares its investments in Alaska
with opportunities around the world and will always operate
responsibly in Alaska and elsewhere.
CO-CHAIR TARR inquired as to whether access to established
infrastructure would be a positive factor when BP considers
investment decisions.
MR. BILBAO said the final cost of projects is compared and the
final cost could include the cost of building new
infrastructure; the cost of operating on the North Slope is very
expensive without the factors of taxes and increasing taxes.
2:24:21 PM
MR. BILBAO presented slide 3 which depicted two North Slope
decline curves, a 1 percent decline and a 6 percent decline.
Using a TAPS throughput indicative point of 300,000 barrels
[shown by a dotted line], at which transporting oil through TAPS
becomes more expensive, he pointed out at a 6 percent decline
rate the indicative point is reached in 10-15 years; at a 1
percent decline, the indicative point is not reached for over 40
years. Also shown was that at a 6 percent decline, tax and
royalty to the state is $11 billion, and at a 1 percent decline,
tax and royalty to the state is $66 billion. He concluded the
industry and the state benefit from mitigating oil production
decline as does the Senate Bill 21 tax system.
REPRESENTATIVE RAUSCHER asked for BP's response to previous
testimony related to $85 million in profits made by BP.
MR. WESTWICK explained BP's annual report for 2016 indicated $85
million which represents a "slice of our Alaska business"; in
fact, the amount excludes TAPS and marine entities. He said BP
in 2016 reported a loss in Alaska of almost $200 million.
REPRESENTATIVE RAUSCHER referred to an article that reported the
state got $464 million in taxes and royalties in 2016 [document
not provided]. He surmised when the industry seeks to increase
their profits through technology, the state looks for an
additional share.
MR. WESTWICK said BP strives to be as efficient as possible; HB
288 represents an increase in taxes which degrades the
profitability of the oil.
REPRESENTATIVE PARISH said the article referred to by
Representative Rauscher reported 74 percent of BP's global
profits came out of Alaska [document not provided]. He
questioned how 74 percent of BP's reported global profits could
come only from Alaska's 1 percent of global production.
MR. WESTWICK further explained $85 million is a portion of BP's
Alaska business; the entirety of Alaska's BP businesses lost
almost $200 million in 2016, which is not disclosed in BP's
annual report for legal reasons, and which would not represent
75 percent of its global profits.
2:32:05 PM
CORY QUARLES, Alaska Production Manager, ExxonMobil Production
Company (ExxonMobil), informed the committee his
responsibilities as production manager include overseeing
ExxonMobil's interests at Prudhoe Bay, Kuparuk, Endicott, and
Point Thomson. He acknowledged the legislature's challenge of
searching for solutions to the budget shortfall and improving
the state's economy; however, ExxonMobil opposes HB 288, which
proposes tax increases that are not good for the oil and gas
industry or for Alaska's economy. Firstly, HB 288 would stall
the industry's growing momentum; he referred to a report
published by the McDowell Group that indicated industry
indirectly or directly provides about one-third of the jobs in
Alaska [document not provided]. Secondly, HB 288 would make
Alaska less able to attract and retain investment. Mr. Quarles
said Alaska is a resource state with an abundance of oil and
natural gas. He directed attention to a diagram on a slide
provided in the committee packet entitled, "Working Together for
Alaska's Economy." The slide illustrated state and federal
governments must work with industry to ensure a healthy economy
in a resource state: state and federal governments must provide
access to resources and a stable and competitive fiscal policy;
industry is responsible for the safe development of resources.
He suggested HB 288 would slow and perhaps stop industry's
recent momentum. The federal government has piqued interest
from the industry by increasing access to ANWR and NPR-A, and by
a reduction in federal corporate income tax, but Alaska remains
one of the most unstable fiscal environments in the world, based
on the changes over the past 12 years. Fiscal policy is a
choice of the legislature in what it wants to achieve, the level
of competitiveness, and where to compete. The slide also
illustrated hypothetical states with various comparisons in the
costs of federal tax, state tax and royalty, operations, and
development. He concluded states with lower operations costs
are more competitive. Mr. Quarles cautioned legislation to
raise taxes without an understanding of short- and long-term
economics is counterproductive. He advised the purpose of
previous legislation was to address the issue of repeated
proposals to increase taxes through a working group; ExxonMobil
suggests HB 288 and other proposed tax legislation should be
evaluated by the working group based on objective data and
expert analysis to educate legislators and the general public on
Alaska's tax structure. He restated ExxonMobil's opposition to
HB 288.
2:40:11 PM
KATE BLAIR, Government and Public Affairs Manager, Andeavor in
Alaska, formerly known as the Tesoro Corporation. She said
Andeavor is not a producer but operates ten refineries in the
western U.S. with a combined refining capacity of over one
million barrels per day. Andeavor is growing from its first
refinery built by Tesoro in Nikiski, employs approximately 250
Alaskans at locations in Nikiski, Anchorage, and Fairbanks, and
maintains a greater than 97 percent Alaska hire rate. Further,
the Andeavor Foundation invests in community grants and in 2017,
the foundation funded over $700,000 in community grants; in
2018, Andeavor will invest $900,000 in community programs across
the state. Ms. Blair said Andeavor owns a 69-mile pipeline from
Nikiski to the Ted Stevens Anchorage International Airport, and
to the Port of Alaska, that transports jet fuel, ultra-low
sulfur diesel, and gasoline which are stored until further
transported by railroad or truck. Andeavor also has terminals
in Fairbanks and relies on consistent in-state production to
manufacture jet fuel and fuel for cars throughout the state's
road system; in fact, Andeavor refines all the oil produced from
the Cook Inlet basin and buys additional crude oil from Valdez.
She said the increased investment and production since the
enactment of the Cook Inlet Recovery Act [passed in the Twenty-
Sixth Alaska State Legislature] and Senate Bill 21 has resulted
in a stable local supply of 90 percent of the crude purchased by
Andeavor. Therefore, declining production in Cook Inlet or on
the North Slope would necessitate importing more crude to meet
the demands of the Alaska market and make refining in Alaska
less economical than importing refined products. Ms. Blair
urged the committee to consider how the bill would affect
production and thereby affect in-state manufacturing. She
agreed with previous testimony that Alaska is a high-cost
business market, for example, the cost of natural gas is three
times higher in Alaska than for Andeavor's refineries in the
Lower 48. She advised that to attain a goal to keep hundreds of
jobs in Alaska, and to keep companies investing in communities,
the committee should focus on mitigating production decline and
to continue current policies that support long-term production
and in-state refining.
2:45:27 PM
REPRESENTATIVE RAUSCHER asked for Andeavor's refining capacity.
2:45:39 PM
MS. BLAIR said Andeavor's total refining capacity is 1.2 million
barrels per day; in Kenai, Andeavor has a refining capacity of
72,000 barrels per day.
2:45:58 PM
BENJAMIN JOHNSON, President/CEO and Director, BlueCrest Energy,
said although BlueCrest only operates in Cook Inlet, it has an
interest in HB 288 because the stability of Alaska's taxing
regime affects every company operating in the state. He opined
HB 288 sends the wrong message and would be detrimental to all.
Currently, BlueCrest is developing one field in Cook Inlet;
however, its shareholders own oil and gas assets worldwide and
BlueCrest seeks to bring more investment to Alaska. He advised
the primary consideration of BlueCrest's investors is obtaining
the highest return, which is dependent upon the cost of
production and is not affected by the large volume of oil Alaska
has in the ground. The base cost to develop and produce
Alaska's new oil reserves is higher than elsewhere for many
reasons and taxes add to the high cost of production. He
referred to new shale producers that - due to technology - are
now cashflow positive, and reported that U.S. oil production
will soon exceed 10 million barrels per day. He acknowledged
Alaska has tremendous resources in the ground that can be
responsibly developed to secure Alaska's fiscal health; however,
the state must create an environment of confidence for global
capital markets. Mr. Johnson warned Alaska is known for
policies that are detrimental to industry whether oil prices are
high or low; for example, billions have been invested in Alaska
based on tax laws that subsequently were changed. He restated
the need for stability and urged the committee to oppose HB 288.
2:50:40 PM
PAT FOLEY, Senior Vice President, Alaska Operations, Caelus
Energy Alaska, spoke in support of earlier testimony and opined
the state is in very immediate need of a complete fiscal plan to
solve its fiscal problem; however, HB 288 should not be part of
that fiscal plan. Mr. Foley reviewed activities by industry on
the North Slope and said Caelus has two projects, operating
Oooguruk unit - producing about 12,000 barrels of oil - and
developing the Nuna Project (Nuna). Nuna is expected to produce
first oil late in 2019 after a cost of $1.3 billion, and at peak
will produce 35,000 barrels of oil per day into TAPS. Mr. Foley
said Caelus is encouraged by oil price stabilization at $70,
even though Caelus investors consider the long-term value of
projects at oil prices down to $59-$60 per barrel. Also, Caleus
is encouraged by working with its contractors on pricing and by
the administration's efforts to pay outstanding tax credits.
Mr. Foley noted that the state owes tax credits of over $700
million, of which Caelus holds 25 percent, and he expressed hope
that the funds would be paid in a timely manner so that Caelus
can reinvest the money into Nuna. Or, using the statutory
minimum payment, the tax credits would be paid over seven years.
He reviewed the state's history of policies that encourage
exploration and development, as opposed to HB 288 which is a 75
percent tax increase, and which has ended Caleus's conversations
with its investment partners. He said the problem with Alaska's
reputation is real because of changes to tax policy that are
directed at the oil and gas industry and because of the program
that induced new investments by issuing credits that remain
unpaid. Shortly, the North America Prospect Expo (NAPE) in
Texas will be attended by the Division of Oil and Gas, DNR, and
he said he would be surprised if presentations by DNR mention HB
288.
2:57:13 PM
MR. FOLEY concluded the state should prioritize paying the tax
credits and not change the tax if the state seeks oil and gas
activity and investments, and to repair its reputational
problem. Repayment of the tax credits would allow new projects
to advance and create new revenue from royalty and taxes. He
pointed out there are only seven operating companies on the
North Slope, as compared to hundreds in Texas, and questioned
whether Alaska gets its fair share of investment dollars. He
said it does not and asked the committee to work with Caelus to
find resolution.
REPRESENTATIVE PARISH asked how much Caelus has received in cash
subsidies.
MR. FOLEY said Caelus has not received subsidies. In further
response to Representative Parish, he said Caelus has received
tax credits in an investment bargain in which the state agreed
to help Caelus with its early investments in exchange for
additional jobs, work, and oil revenues. He stressed the tax
credits were earned and resulted in more oil from Oooguruk, a
discovery in Smith Bay, and advancement for Nuna.
REPRESENTATIVE PARISH asked how much money Caelus has received
from the state.
MR. FOLEY said he did not know.
CO-CHAIR TARR said Hilcorp submitted written testimony that will
be provided to the committee. She reviewed questions that would
be addressed at subsequent hearings of HB 288.
3:01:35 PM
KEN ALPER, Director, Tax Division, DOR, said a required annual
report of the amounts of cash that companies received was a
provision of HB 247 [passed in the Twenty-Ninth Alaska State
Legislature] and took effect in 2017; the first report published
in [April 2017] reported the total $74 million paid in calendar
year 2016 and to whom. Another report related to cash paid in
2017 will be published in [March or April 2018]; $77 million was
appropriated by the legislature last session and the report will
identify each company that was paid.
[HB 288 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB288 ver A 1.16.18.PDF |
HRES 1/22/2018 1:00:00 PM HRES 1/26/2018 1:00:00 PM HRES 1/29/2018 1:00:00 PM HRES 3/30/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/13/2018 1:00:00 PM HRES 4/14/2018 2:00:00 PM HRES 4/16/2018 1:00:00 PM |
HB 288 |
| HB288 Fiscal Note DOR-TAX 1.20.18.pdf |
HRES 1/22/2018 1:00:00 PM HRES 1/26/2018 1:00:00 PM HRES 1/29/2018 1:00:00 PM HRES 3/30/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/13/2018 1:00:00 PM HRES 4/14/2018 2:00:00 PM HRES 4/16/2018 1:00:00 PM |
HB 288 |
| HB288 Sponsor Statement 1.21.18.pdf |
HRES 1/22/2018 1:00:00 PM HRES 1/26/2018 1:00:00 PM HRES 1/29/2018 1:00:00 PM HRES 3/30/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/13/2018 1:00:00 PM HRES 4/14/2018 2:00:00 PM HRES 4/16/2018 1:00:00 PM |
HB 288 |
| HB288 Sectional Analysis 1.21.18.pdf |
HRES 1/22/2018 1:00:00 PM HRES 1/26/2018 1:00:00 PM HRES 1/29/2018 1:00:00 PM HRES 3/30/2018 1:00:00 PM HRES 4/2/2018 1:00:00 PM HRES 4/13/2018 1:00:00 PM HRES 4/14/2018 2:00:00 PM HRES 4/16/2018 1:00:00 PM |
HB 288 |
| HB288 BP Alaska Testimony 1.29.18.pdf |
HRES 1/29/2018 1:00:00 PM |
HB 288 |
| HB288 AOGA Testimony 1.29.18.pdf |
HRES 1/29/2018 1:00:00 PM |
HB 288 |
| HB288 ConocoPhillips Testimony 1.29.18.pdf |
HRES 1/29/2018 1:00:00 PM |
HB 288 |
| HB288 ExxonMobil Testimony 1.29.18.pdf |
HRES 1/29/2018 1:00:00 PM |
HB 288 |
| HB288 Hilcorp Written Comments 1.29.18.pdf |
HRES 1/29/2018 1:00:00 PM |
HB 288 |