Legislature(2015 - 2016)
04/18/2016 03:30 PM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB130 | |
| SB128 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 130
"An Act relating to confidential information status
and public record status of information in the
possession of the Department of Revenue; relating to
interest applicable to delinquent tax; relating to
disclosure of oil and gas production tax credit
information; relating to refunds for the gas storage
facility tax credit, the liquefied natural gas storage
facility tax credit, and the qualified in-state oil
refinery infrastructure expenditures tax credit;
relating to the minimum tax for certain oil and gas
production; relating to the minimum tax calculation
for monthly installment payments of estimated tax;
relating to interest on monthly installment payments
of estimated tax; relating to limitations for the
application of tax credits; relating to oil and gas
production tax credits for certain losses and
expenditures; relating to limitations for
nontransferable oil and gas production tax credits
based on oil production and the alternative tax credit
for oil and gas exploration; relating to purchase of
tax credit certificates from the oil and gas tax
credit fund; relating to a minimum for gross value at
the point of production; relating to lease
expenditures and tax credits for municipal entities;
adding a definition for "qualified capital
expenditure"; adding a definition for "outstanding
liability to the state"; repealing oil and gas
exploration incentive credits; repealing the
limitation on the application of credits against tax
liability for lease expenditures incurred before
January 1, 2011; repealing provisions related to the
monthly installment payments for estimated tax for oil
and gas produced before January 1, 2014; repealing the
oil and gas production tax credit for qualified
capital expenditures and certain well expenditures;
repealing the calculation for certain lease
expenditures applicable before January 1, 2011; making
conforming amendments; and providing for an effective
date."
3:38:00 PM
JANAK MAYER, CHAIRMAN AND CHIEF TECHNOLOGIST, ENALYTICA,
introduced himself.
NIKOS TSAFOS, PRESIDENT AND CHIEF ANALYST, ENALYTICA (via
teleconference), discussed the presentation titled "CS SB
130: Key Issues and Assessment" (copy on file), beginning
with slide 25, "CI Overview and Changes: Activity":
Activity has responded in recent years
Exploration drilling in Cook Inlet has gone through
several cycles since 1950s
Recent exploration activity (post 2010) on par with
previous exploration peaks
Development drilling has been more stable over the
years
Recent growth placing three-year rolling average among
highest in state's history
Mr. Tsafos highlighted slide 26, "Cook Inlet Oil and Gas
Production: Basic facts":
Oil: Peak in 1970 at 226 mb/d; trough in 2009 at 7.5
mb/d; upturn post 2010 (+10.5 mb/d)
Gross Gas: Peak in 1990 at 853 mmcf/d; big drops in
1994-1998 and 2005-2013; stable in 2014-15
Net Gas: Peak in 1996; 1990s plateau from blowdown at
Swanson River; fall post 2005, then stable
3:43:42 PM
Mr. Tsafos discussed slide 27, "CI Overview and Changes:
Scorecard":
the Cook inlet oil and gas market: A scorecard
What has happened to oil and gas production and
activity in the Cook Inlet in recent years?
Oil production has risen from 7.5 mb/d in
2009 to almost 18 mb/d
Gas production has stabilized after years of
steadier decline
How has the gas market adjusted in recent years?
Cook Inlet has undergone major transition in
supply, demand, prices, competition and
expectations
Some of these changes are typical in mature
basins-others are unique to Cook Inlet
What's the outlook and how sensitive is the
outlook to changes in oil/gas fiscal system?
DNR: 1,183 bcf in remaining 2P reserves;
1,600 bcf w/ Cosmopolitan and Kitchen Lights
(ballpark)
Continued drilling at old fields plus
Cosmopolitan and Kitchen Lights: current
market well supplied
At current (gas) price levels, brownfield
investment should be profitable under
stricter fiscal regime
Credits more important for developing new
resources, especially with demand
constraints
Currently much uncertainty over future
regime - setting a stable, sustainable
system is paramount
3:55:10 PM
Vice-Chair Micciche felt it would be nice to determine the
potential demand based on all of the different factors.
Mr. Tsafos responded that there were multiple strategies to
attract investment.
Co-Chair MacKinnon announced that there would be further
meetings related to the oil and gas tax structure.
Mr. Mayer continued to discuss slide 27.
4:04:48 PM
Mr. Mayer looked at slide 28, "Project 1: Market
constrained (assumptions)":
Large upfront investment but constrained gas market
Limited ability to sell gas: can only drill a well
every few years
Mr. Mayer discussed slide 29, "CI Overview and Changes:
Project 1; Project 1, Market Constrained Results." He
stated that the slide represented three separate scenarios:
Status Quo; CS SB 130(RES), CS HB 247(FIN).
4:11:51 PM
Senator Dunleavy wondered if there would be a decline in
demand for credit without any changes. Mr. Mayer replied in
the affirmative.
Senator Dunleavy felt that idle rigs would decrease the
credits. Mr. Mayer agreed.
Senator Dunleavy remarked that the environment may not be
attractive for a capital constrained company to move a rig
to the North Slope in a small market. Mr. Mayer agreed.
4:15:14 PM
AT EASE
4:15:37 PM
RECONVENED
4:15:44 PM
Mr. Mayer highlighted slide 30, "CI Overview and Changes:
Project 2":
Project 2: Market un-constrained (assumptions)
Large upfront investment but un-constrained gas market
Continued drilling lead to a plateau of 130 mmcf/d
Scenario would require a step change in existing
supply-demand dynamics in Cook Inlet
Mr. Mayer addressed slide 31, "CI Overview and Changes:
Project 2; Project 2: Un-constrained Results."
Mr. Mayer highlighted slide 32, "CI Overview and Changes:
Project 3":
Project 3: Drilling in existing field (assumptions)
Drilling expenditures at existing production-smaller
upfront investment
No market constrains assumed
This is a point-forward analysis-it ignores sunk,
entry or acquisition costs
4:18:05 PM
Mr. Mayer discussed slide 33, "CI Overview and Changes:
Project 3; Project 3: Drilling Existing Field Results."
Vice-Chair Micciche looked at slide 31, which demonstrated
that the elimination of the production tax had no effect.
The only difference in the reduction of the internal rate
of return and the increase in the revenue to the state was
the level of the reduction of credits between the two
bills. Mr. Mayer replied in the affirmative.
Vice-Chair Micciche shared that he had further questions
that he would address later.
4:22:51 PM
Co-Chair MacKinnon stated that the purpose of the
presentations were meant to set an examination of how the
credits were utilized in the state.
Mr. Mayer encouraged the committee to see that the credits
in Cook Inlet were about incentivizing activities that were
less affordable than in the past. The North Slope could
remain, but the net operating loss credit was about timing
of tax flows rather than the total amount.
Senator Dunleavy remarked that the Cook Inlet dealt with
mostly gas. He wondered if there could be increased oil
production in Cook Inlet. Mr. Mayer replied that it
depended on the oil price, rather than the credit
environment.
Senator Dunleavy shared that transportation and production
costs were lower in Cook Inlet than the North Slope. He
remarked that he would ask a similar question the following
day. Mr. Mayer agreed.
Co-Chair MacKinnon wondered whether the credit market would
see Alaska in a more stable environment, should the state
use the savings to have an annuity payment or a fixed draw.
Mr. Mayer replied that it was always good to have assets to
smooth the volatility that comes with depending on
commodity prices.
Co-Chair MacKinnon felt that it would be a positive step to
change the current structure. Mr. Mayer agreed.
SB 130 was HEARD and HELD in committee for further
consideration.
4:28:21 PM
AT EASE
4:32:30 PM
RECONVENED
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