Legislature(1995 - 1996)
03/11/1996 03:37 PM Senate RES
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
SB 112 DISCOVERY ROYALTY CREDIT SENATOR PEARCE moved to adopt the F version Chenoweth 3/9/96 work draft for SB 112. There were no objections and it was so ordered. ANNETTE KREITZER, Staff to the Senate Resources Committee, explained the changes in version F. The substantive change begins on page 2, line 30. She worked with the administration to create language acceptable to the committee regarding definition of pools. SENATOR PEARCE moved to adopt amendment #1. MS. KREITZER explained that AS38.05.134 speaks to the exploration licensing program that was passed by the legislature a couple of years ago. The Cook Inlet Basin is a very large sedimentary basin and some of the area especially in the northern part is open to licensing and they didn't mean to exclude that part of the basin. KEN BOYD, Director, Division of Oil and Gas, said it was unlikely that they would have any objection to it unless it had some strange definition of the Cook Inlet Sedimentary Basin. There were no objections to amendment #1 and it was adopted. MS. KREITZER explained the second proposed amendment which clarified which production is actually getting the royalty reduction. TAPE 96-27, SIDE B Number 580 SENATOR LEMAN noted that this amendment was Mr. Boyd's suggestion. MR. BOYD agreed and said it eliminated ambiguity. The way the language is now, for instance he said, if the pool was on all six of the leases, their intention was to reward the initial discovery on that one lease in that pool. MS. KREITZER noted to be consistent the same change would have to be made on page 3, lines 5 and 6. SENATOR PEARCE moved to adopt amendment #2, there were no objections and it was adopted. MR. BOYD had a concern with "commercial quantities," but he said the last amendment had changed the absolute need for a dimension and he wanted to work with the committee on that issue. He said the point was that the well had to be capable of producing commercial quantities. SENATOR PEARCE asked when they certify a well producable what language to they use. MR. BOYD replied they certify capable of production in paying quantities. SENATOR PEARCE asked if they should just use that language. MR. BOYD replied no, that he thought it was a different standard. In paying quantities does not really say that it will be produced. SENATOR LEMAN asked if line 8 would have to be changed also. MR. BOYD answered that it would have to be changed anywhere "commercial quantities" appeared would have to have "capable of producing" added. SENATOR PEARCE moved to adopt that amendment. There were no objections and it was so ordered. MS. KREITZER noted that language was used throughout amendment #1 and on page 3, lines 1 - 12. SENATOR TAYLOR moved amendment #4. SENATOR LEMAN objected for purposes of explanation. SENATOR TAYLOR explained the effect of this amendment would be to set it up so that current lease holders in the Cook Inlet Basin would fall within this royalty bill. SENATOR HALFORD asked if the royalty was being made retroactive with regard to investment decisions that were made five years ago and rewarding those decisions with the credit? He said that any kind of a credit bill is supposed to encourage marginal activity. Going back in a lease term so they can put the money in now is still a prospective reward for activity that might not otherwise occur. But going back and picking up activity that occurred in 1992 and applying that to the terms the effect is a retroactive tax credit and it's hard to argue that that credit has encouraged marginal activity retroactively. SENATOR TAYLOR agreed and explained that without doing so this would be applicable against new leases. SENATOR HALFORD said there are two questions; one is going back to the leases is the right thing to do; the second question is are they talking about investments made from the time of the effective date of the bill forward on leases that were already held before that or are they talking about going backward in both cases. SENATOR TAYLOR replied that his desire would be to go backward on those leases already held for new discoveries, but he thought this goes beyond that. However, he would rather err in going beyond that than in not accomplishing it at all. SENATOR LEMAN said he was concerned with how they recover those lease payments that have already been made and whether that's done as a credit to future royalties. SENATOR FRANK asked if they considered that in the formation of their committee substitute. SENATOR LEMAN answered they considered it and there is one other approach, Senator Halford's, which he thought merited discussion. Applying it to leases that have not been explored would create an incentive and the down side of that is that you change the value of leases. SENATOR FRANK commented that the value of a lease changes every time the price of oil goes up or down, as well as every time they pass a law concerning worker's compensation or the environment. He supported Senator Taylor's concept and Senator Halford's desire to fine tune it. He thought Senator Taylor's amendment went a little too far. SENATOR HALFORD said he didn't think retroactive credits worked the way they are intended to work. But he didn't think they should exclude leases because they were already out there. He wanted those leases to be eligible. SENATOR LEMAN asked if there was any objection to incorporating the conceptual amendment. There was no objection and it was so ordered. SENATOR LEMAN noted that the bill would be back in committee on March 13.
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