Legislature(2011 - 2012)BUTROVICH 205
02/24/2012 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB192 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 192 | TELECONFERENCED | |
SB 192-OIL AND GAS PRODUCTION TAX RATES
3:35:24 PM
CO-CHAIR PASKVAN announced SB 192 to be up for consideration. He
said they would adopt a committee substitute (CS) today and
begin to hear the amendments proposed by committee members. He
said this will be an open and transparent process. There will be
no motion to move any amendment either today or tomorrow and
then after additional consideration and discussions, amendments
may or may not be included in a forthcoming CS. He said all the
ideas are interesting and have merit. Ultimately they are
required to determine what legislation will advance from this
committee and he looked forward to an informative dialogue.
3:36:31 PM
CO-CHAIR WAGONER moved to adopt CSSB 192(RES), [labeled 27-
LS1305\B].
CO-CHAIR PASKVAN objected for purposes of discussion. He said
the CS maintains the 25 percent base rate to the $30 production
value mark (PTV) and the current progressivity of .4 percent is
changed to .35 percent for each dollar of oil price increase up
to 50 percent at which time the tax rate changes to a .1 percent
increase for each $1 of oil price increase. This applies up to
the 60th percentile of production tax rate; there is no further
progressivity beyond the 60 percent. He then removed his
objection and finding no further objections, stated version B
was before the committee.
3:37:01 PM
SENATOR MCGUIRE joined the committee.
CO-CHAIR PASKVAN stated that Senator Giessel was in the audience
as well as Commissioner Butcher and Deputy Commissioner Tangeman
from the Department of Revenue (DOR).
He said this CS focuses on one lever of the larger tax
structure, the issue of progressivity. It is part of a tax
system that will be used to start the specific discussion about
Alaska's production tax structure overall. Before discussing
those details beyond what has already been done, they would
address the other levers that have not been addressed in the CS
that provide a competitive advantage to Alaska.
He explained that Alaska has a low royalty rate, 12.5 to 16
percent, which is lower than Texas and North Dakota. The royalty
is one part of the total load on any production and emphasized
that is one component that remains unchanged.
Alaska continues its competitive advantage with respect to
capital expenditures made in the state with a 100 percent
deduction in the year spent for every qualified CAPEX made in
the state. An additional 20 percent credit for that same dollar
goes to the bottom line as another reward for investing in
capital infrastructure in Alaska. It reduces a company's tax
load and reduces monies to the state as well, but it makes
Alaska attractive.
3:40:53 PM
Another lever not changed is Alaska's geological risk. Alaska
has been identified as one of the most attractive places in the
world in this aspect of its fiscal system. Another lever that
establishes Alaska as an attractive location is royalty relief.
If a project can be proven to be non-economic, but needs some
help, the form of royalty relief is available. That is not
changed.
CO-CHAIR PASKVAN said he has heard and believes that
progressivity at "high oil pricing" needs to be looked at. How
one defines that was to be the subject of both economic and
political discussion. While oil prices are in $120 range that
should not be assumed to a stable floor or ceiling. Oil prices
change over time as is evidence by the wide range of prices.
CO-CHAIR PASKVAN said they must consider the amount of return
the state gets on the billions of dollars it has made in
investments through its CAPEX credits for the central North
Slope. Those numbers well through the next fiscal year approach
$5 billion. Industry must not ignore the financial upside to
Alaska through its direct participation in the long-term success
of resource development. It must always be remembered that
Alaskans are the resource owners; Alaska has a world class
resource that will be extracted for many decades to come and
welcomes responsible development.
He said the CS provides visible benchmarks for a discussion on
progressivity and amendments that affect the production tax
system. He expects that as elected officials they will uphold
their fiduciary duty to the people of Alaska in their
discussions and decisions. Alaskans expect them to approach this
topic as a sophisticated owner of a world class resource. This
topic is a big math problem that needs to be looked at. The CS
will be modeled, probed and analyzed as it should be, but the
main goal is to get it right.
CO-CHAIR PASKVAN said the information in the CS is consistent
with information they have received from professionals who have
advised them in the last several weeks.
3:45:00 PM
At ease from 3:45 to 3:49 p.m.
3:49:24 PM
CO-CHAIR PASKVAN said there would be no formal submission of the
proposed amendments, but he would look to the members to
describe their thinking on each one. The first was Item 1,
labeled 27-LS1306\B.17, by Senator McGuire.
27-LS1305\B.17
A M E N D M E N T
OFFERED IN THE SENATE
TO: CSSB 192(RES), Draft Version "B"
Page l, line 1, following "tax;":
Insert "establishing the Oil and Gas
Competitiveness Review Board;"
Page 2, following line 5:
Insert new bill sections to read:
"* Sec. 2. AS 44.99 is amended by adding new
sections to read:
Article 6. Oil and Gas Competitiveness Review Board.
Sec. 44.99.600. Oil and Gas Competitiveness
Review Board established. (a) The Oil and Gas
Competitiveness Review Board is established.
(b) The board shall consist of nine members as
follows:
(1) one senator appointed by the president
of the senate;
(2) one representative appointed by the
speaker of the house of representatives;
(3) five members of the public appointed by
the governor, including one member who is a petroleum
engineer, one member who is a geologist, one member
who is an economist, and one member who is a member of
an environmental or conservation group;
(4) the commissioner of natural resources
or the commissioner's designee; and
(5) the commissioner of revenue or the
commissioner's designee.
(c) The senator and representative appointed to
the board under (b)(1) and (2) of this section shall
be cochairs.
(d) Each legislative member serves for the
duration of the legislature during which the member is
appointed. Each public member serves for three years.
An individual who has served on the board may be
reappointed.
(e) A vacancy on the board shall be filled in
the manner of the original appointment.
(f) A member of the board may be removed and
replaced at the discretion of the person appointing
that member.
(g) The public members of the board serve
without compensation but shall receive per diem and
travel expenses authorized for boards and commissions
under AS 39.20.180.
(h) The board may enter into contracts for
professional services and may employ staff for
administrative support for the board.
Sec. 44.99.610. Duties. The duties of the board
include the following:
(1) review historical, current, and
potential levels of investment in the state's oil and
gas sector;
(2) identify factors that affect investment
in oil and gas exploration, development, and
production in the state, including tax structure,
rates, and credits; royalty requirements;
infrastructure; workforce availability; and regulatory
requirements;
(3) review the competitive position of the
state to attract and maintain investment in the oil
and gas sector in the state as compared to the
competitive position of other regions with oil and gas
resources;
(4) in order to facilitate the work of the
board, establish procedures to accept and keep
confidential information that is beneficial to the
work of the board, including the creation of a secure
data room and confidentiality agreements to be signed
by individuals having access to the confidential
information;
(5) make written findings and
recommendations, together with suggested legislation,
to the Alaska State Legislature before December 1 of
each year, or as soon thereafter as practicable,
regarding
(A) changes to the state's regulatory
environment that would be conducive to encouraging
increased investment while protecting the interests of
the people of the state and the environment;
(B) changes to the state's fiscal regime that would be conducive to
increased and ongoing long-term investment in and development of the state's oil
and gas resources; and
(C) alternative means for increasing the
state's ability to attract and maintain investment in
and development of the state's oil and gas resources.
Sec. 44.99.620. Information to be provided to
board. (a) The commissioner of natural resources, the
commissioner of revenue, the commissioner of
environmental conservation, and other commissioners
and state agencies that have responsibility for and
maintain information related to oil and gas investment
and activity in the state shall, at the request of the
board, provide information required by the board to
carry out the duties described in AS 44.99.610.
(b) At the request of the board, and except for
information that is confidential under AS 43.05.230, a
commissioner may disclose to the board information
that is otherwise confidential after each member of
the board and each staff member for the board with
access to the information signs a confidentiality
agreement prepared by the commissioner making the
disclosure. Information that is confidential under
AS 43.05.230 may not be disclosed to the board.
Sec. 44.99.630. Definition. In AS 44.99.600 -
44.99.630, "board" means the Oil and Gas
Competitiveness Review Board.
* Sec. 3. AS 44.99.600, 44.99.610, 44.99.620, and
44.99.630 are repealed June 30, 2021."
Renumber the following bill section accordingly.
Page 2, line 6:
Delete "This"
Insert "Section 1 of this"
Page 2, following line 6:
Insert a new bill section to read:
"* Sec. 5. Except as provided in sec. 4 of this
Act, this Act takes effect immediately under
AS 01.10.070(c)."
SENATOR MCGUIRE said this amendment would establish an Oil and
Gas Competitiveness Review Board; it's modeled in part after the
Alberta Competitiveness Review Board. Industry has told them
that the progressivity element in ACES render Alaska no longer
competitive. In 12 years, oil and gas policy has been changed
four major times, and she suspected they would continue changing
it because it represents 90 percent of Alaska's economy.
Even though the Department of Revenue (DOR) has a lot to do with
taxation they have challenges regarding confidentiality in other
things. So, the point of this review board would be to establish
a place where institutional knowledge can be kept regarding
trends and Alaska's competitiveness moving forward.
SENATOR MCGUIRE said the board would consist of nine members as
follows:
(1) one senator appointed by the president of the
senate;
(2) one representative appointed by the speaker of the
house of representatives;
(3) five members of the public appointed by the
governor.
She related that Alberta's parliament established a windfall
profits tax much like Alaska's progressivity at the time oil
shot up to $100 a barrel; it backfired and industry took its
business to the neighboring province of Saskatchewan. Many
elected officials were thrown out in a call on their government;
the new one came in and established a competitiveness review
board. It came back to the parliament with recommendations for
options to re-stimulate the oil and gas economy. That is how she
envisions the role of this committee. Nothing in this amendment
is meant to take away the legislature's power.
She said the five members of the public would be appointed by
the governor, including one member who is a petroleum engineer,
one member who is a geologist, one member who is an economist,
and one member who is a member of an environmental or
conservation group, the commissioner of natural resources or the
commissioner's designee; and the commissioner of revenue or the
commissioner's designee. The senator and representative
appointed would be co-chairs and duration of the term would be
three years. Vacancies to the board would be filled in the same
manner as the original appointment.
3:54:29 PM
Duties of the board:
(1) review historical, current, and potential levels
of investment in the state's oil and gas sector;
(2) identify factors that affect investment in oil
and gas exploration, development, and production in
the state, including tax structure, rates, and
credits; royalty requirements; infrastructure;
workforce availability; and regulatory requirements;
(3) review the competitive position of the state to
attract and maintain investment in the oil and gas
sector in the state as compared to the competitive
position of other regions with oil and gas resources;
(4) in order to facilitate the work of the board,
establish procedures to accept and keep confidential
information that is beneficial to the work of the
board, including the creation of a secure data room
and confidentiality agreements to be signed by
individuals having access to the confidential
information;
(5) make written findings and recommendations,
together with suggested legislation, to the Alaska
State Legislature before December 1 of each year, or
as soon thereafter as practicable, regarding:
(A) changes to the state's regulatory
environment that would be conducive to encouraging
increased investment while protecting the interests of
the people of the state and the environment;
(B) changes to the state's fiscal regime
that would be conducive to increased and ongoing long-
term investment in and development of the state's oil
and gas resources; and
(C) alternative means for increasing the
state's ability to attract and maintain investment in
and development of the state's oil and gas resources.
3:57:21 PM
SENATOR MCGUIRE said Pedro van Meurs said the State of Alaska
needs to get a brochure out touting its opportunities and this
board would have the ability to do that.
CO-CHAIR PASKVAN thanked her.
CO-CHAIR WAGONER said at first he didn't look at this concept,
but the more he has seen the way the committee has worked this
year he thought it could be a very positive thing if done in the
right manner. He said if Alaska is as non-competitive at this
time as they are being told by some people, then Alaskans have
been asleep at the switch (but he wasn't sure they were that far
off). That is what this board would do; it would keep it from
going asleep at the switch and he thought it was worth a try.
CO-CHAIR PASKVAN set the amendment aside.
SENATOR EGAN joined committee.
3:59:00 PM
CO-CHAIR PASKVAN announced consideration of Item 2, 27-
LS1305\B.6 by Senator McGuire:
27-LS1305\B.6
A M E N D M E N T
OFFERED IN THE SENATE
TO: CSSB 192(RES), Draft Version "B"
Page 1, line 6:
Delete "$30"
Insert "the greater of $30 or the amount
determined under (p) of this section [$30]"
Page 1, line 14:
Delete "$30"
Insert "the greater of $30 or the amount
determined under (p) of this section [$30]"
Page 2, following line 5:
Insert a new bill section to read:
"* Sec. 2. AS 43.55.011 is amended by adding a
new subsection to read:
(p) For a calendar year after 2013, the $30
amount in (g) of this section shall be adjusted by the
commissioner as soon as practicable before the start
of the calendar year for which the tax will be
determined according to changes in the Consumer Price
Index for all urban consumers for the Anchorage
metropolitan area compiled by the United States
Department of Labor, Bureau of Labor Statistics. The
$30 amount in (g) of this section shall be adjusted
based on the increase, if any, between the consumer
price index for January through June of 2011 and for
January through June of the year immediately preceding
the year for which the $30 amount in (g) of this
section is being adjusted."
Renumber the following bill section accordingly.
SENATOR MCGUIRE explained this amendment would allow the .4
percent to be adjusted for inflation at the $30 trigger. It is a
practical approach to providing the ability to make a cost of
living adjustment for that dollar. She explained the purpose of
the progressivity trigger is to protect a certain portion of
profits that come back to industry and so they have to look at
inflation's effect on the trigger.
4:00:40 PM
SENATOR FRENCH asked what other static pieces in ACES tax code
this would bump up against, erode or enhance.
SENATOR MCGUIRE replied that this amendment is crafted based on
the current ACES structure and the $30 trigger is the only place
it would impact. She added the committee may want to consider
another portion of the ACES formula, the $92.58 threshold where
progressivity declines to .1 percent per dollar (to preserve the
portion of the oil price curve that is subject to the higher
slope that is at 75 percent right now).
SENATOR FRENCH commented that if you inflation-adjust the
trigger point without adjusting the cap you could eventually
inflation-proof yourself out of any progressivity whatsoever. So
it would make sense to move them up together.
This amendment was set aside.
4:03:06 PM
CO-CHAIR PASKVAN said they would next take up Item 3, labeled
27-LS1305\B.11 by Senators Wielechowski and French.
27-LS1305\B.11
A M E N D M E N T
OFFERED IN THE SENATE
TO: CSSB 192(RES), Draft Version "B"
Page 1, line 1, following "Act":
Insert "relating to oil and gas or gas only
leasing; requiring that a minimum work commitment be
included in each oil and gas and gas only lease and
that a proposed plan of development be included in an
application for an oil and gas or gas only lease;"
Page 1, following line 2:
Insert new bill sections to read:
"* Section 1. AS 38.05.180(h) is amended to read:
(h) The commissioner shall [MAY] include terms
in a [ANY] lease that impose [IMPOSING] a minimum work
commitment on the lessee to implement the plan of
development submitted by the lessee with a bid for an
oil and gas or gas only lease. The terms of the
minimum work commitment must [. THESE TERMS SHALL BE
MADE PUBLIC BEFORE THE SALE, AND MAY] include
appropriate penalty provisions to take effect in the
event the lessee does not fulfill the minimum work
commitment. If it is demonstrated that a lease has
been proven unproductive by actions of adjacent lease
holders, the commissioner may set aside a work
commitment. The commissioner may waive for a period
not to exceed one two-year period any term of a
minimum work commitment if the commissioner makes a
written finding either that conditions preventing
drilling or exploration were beyond the lessee's
reasonable ability to foresee or control or that the
lessee has demonstrated through good faith efforts an
intent and ability to drill or develop the lease
during the term of the waiver.
* Sec. 2. AS 38.05.180(x) is amended to read:
(x) A lessee conducting or permitting any
exploration for, or development or production of, oil
or gas on state land shall provide the commissioner
access to all noninterpretive data obtained from that
lease; shall provide the commissioner access to all
information necessary to perform an economic analysis
under (ii)(2) of this section, including the capital,
operating, production, and development costs and an
estimate of total reserves; and shall provide copies
of that data and information, as the commissioner may
request. The confidentiality provisions of
AS 38.05.035 apply to the information obtained under
this subsection.
* Sec. 3. AS 38.05.180 is amended by adding new
subsections to read:
(hh) The commissioner shall require each bidder
for an oil and gas lease or gas only lease and each
lessee applying for an extension or renewal of an oil
and gas lease or gas only lease to submit a plan of
development for exploring, developing, and producing
from the lease within the period of the lease or the
extension or renewal of the lease. The commissioner
shall review each plan of development and determine if
the proposed plan of development is reasonably
expected to develop the lease in the best interest of
the state. The plan of development shall be included
in a lease along with penalties for failing to comply
with the plan of development and other terms of the
lease. A bidder may not be a "qualified bidder" for
the purposes of (f)(1) of this section if the
commissioner finds that the bidder has not submitted a
proposed plan of development that is in the best
interest of the state or that the person that
submitted the plan of development is not reasonably
capable of implementing the plan.
(ii) The commissioner shall
(1) review each oil and gas lease or gas
only lease each year for the purpose of determining
whether a lease is being developed in the best
interest of the state, whether the lessee is complying
with the plan of development applicable to the lease,
and whether revision of a development plan, including
the planned rate of development, would provide the
maximum benefit to the people of the state;
(2) every five years, perform an economic
analysis on each participating area and determine
whether the participating area is capable of increased
production in paying quantities over the current rate
of production or plan of development;
(3) enforce the terms of each oil and gas
lease or gas only lease, including imposing any
applicable penalty or other remedy for noncompliance,
within a reasonable time after finding that a lessee
is out of compliance with the terms of the lease;
(4) submit a report to the legislature
before the first day of each regular session that
lists each oil and gas or gas only lessee that is
found to be out of compliance and the action by the
commissioner to bring the lessee back into compliance
or to terminate the lease.
(jj) For the purposes of (hh) and (ii) of this
section, a plan of development for a cooperative or
unit under (p) of this section is the plan of
development for a lease within the cooperative or
unit, except where a different plan of development is
established for a lease within the cooperative or
unit.
(kk) For purposes of (ii) of this section,
(1) "participating area" means that part of
an oil and gas lease unit area to which production is
allocated in the manner described in a unit agreement;
(2) "production in paying quantities" means
production in quantities sufficient to yield a return
in excess of drilling, development, and operating
costs."
Page 1, line 3:
Delete "Section 1"
Insert "Sec. 4"
Page 2, line 6:
Delete all material and insert:
"* Sec. 5. The uncodified law of the State of
Alaska is amended by adding a new section to read:
APPLICABILITY. Section 1 of this Act and
AS 38.085.180(hh), enacted by sec. 3 of this Act,
apply to a proposed lease sale and the renewal or
extension of a lease on or after the effective date of
secs. 1 and 3 of this Act.
* Sec. 6. Section 4 of this Act takes effect
January 1, 2013.
* Sec. 7. Except as provided in sec. 6 of this Act,
this Act takes effect July 1, 2013."
SENATOR WIELECHOWSKI said he thought one of the biggest problems
with the oil tax structure is the way the state does its leases.
It almost sets up an adversarial situation between the state and
the companies taking out the leases and he said, "I think we can
do better than that." They could set up a structure that gets
everyone on the same page right from the beginning.
SENATOR WIELECHOWSKI said the state's exploration leases are not
being treated as legal obligations to explore; they are being
treated as options to explore. Our resource provides 90 percent
of the state's revenue. Leases are a legal contract he said and
when the State of Alaska puts a lease out it is giving the
exclusive right to a company or organization oil company to
develop that piece of property.
The state cannot go back on its lease. What it gets in return
for that is that that company is under a legal obligation to
explore; and then if they make a find they are under a legal
obligation to develop. There are two problems with this; one is
Pt. Thomson, currently being litigated before the Alaska Supreme
Court. It is an example of a lease that went out over 30 years
and sat dormant for decades. It is a lease that the state
finally took back, and when they took it back they became
engaged in a lawsuit that has been going on for years. He said
this is not how the state should do its leases and it can be
changed with the changes in this amendment.
Another example is when the state put out millions of acres for
lease a couple of months ago; one company took out dozens of
leases and in the very next week it was reported that company
said they weren't sure they were going to explore on those 34
tracts in part because they didn't know what the tax structure
was going to be. This is a systemic problem that can be fixed
and he stated, "We should never let anyone leverage us for lower
tax rates."
4:05:47 PM
SENATOR WIELECHOWSKI said this amendment would make sure that
companies agree to explore when they take out the leases. Part
two is a trust but verify provision once the exploration is
done. When companies say they are not developing a piece of
property because it's not economic, the lawmakers have no way of
knowing it is true. Maybe it is true, but they have no way of
knowing that. This would require the administration to actually
do an economic analysis and determine whether or not the lease
holdings are currently economic. He thought this would lead to
more development and more oil in the pipeline.
4:06:42 PM
SENATOR THOMAS joined the committee.
4:07:01 PM
MICHELLE SYDEMAN, staff Senator Wielechowski, provided a little
more detail:
· One way to address declining oil production is to ensure that
oil and gas leases go to companies that will develop leases
expeditiously and efficiently.
· Last year the Department of Natural Resources reported that of
1,320 leases, 578 were part of production units or were
producing oil or gas, 404 had been sold in the preceding three
years (so might still be in the planning stages), and 338
could be "idle," as lessees had not applied for any permits to
explore or develop them.
· This means more than 25% of existing leases could be sitting
idle, effectively warehousing Alaska's resources.
· Under existing statutes, the DNR commissioner has the option
of including a minimum work commitment in a lease, along with
a penalty provision in the event the lessee does not fulfill
the work commitment.
· This amendment requires that work commitments be part of a
lease, consistent with the Alaska Constitution's mandate to
develop our natural resources for the maximum benefit of the
people.
4:09:35 PM
The amendment requires bidders for an oil and gas lease to
submit a plan of development for exploring, developing, and/or
producing from the lease. It requires the commissioner to review
each bidder's plan of development and determine if the plan is
"reasonably expected to develop the lease in the best interest
of the state." If a plan were not found to be consistent with
the state's needs that bidder would not be considered a
qualified bidder. DNR would also look at the bidder's ability to
carry out the terms of the work plan.
The amendment requires that these plans be included in leases
and that DNR review leases annually to ensure that plans are
being implemented. It enables the commissioner to waive a work
commitment if conditions preventing drilling or exploration were
beyond the lessee's reasonable ability to foresee or control or
the lessee demonstrates through good faith efforts an intent to
drill or develop the lease in the following two years.
It mandates the DNR commissioner to analyze the economics of
each Participating Area (a unitized reservoir where sustained
production is occurring) every five years to determine whether
the Area is capable of increased production. Forty-two areas
have been designated as participating areas in Alaska. These are
areas where there is sustained oil and gas production. The
commissioner would perform an economic analysis to determine
whether additional development would be reasonably economic.
Finally, it requires DNR to annually submit a report to the
legislature that lists each lease found to be out of compliance
and the action taken by the commissioner to bring the lessee
back into compliance.
4:11:02 PM
SENATOR FRENCH said that was great presentation, but he wanted
to say that this is in part an idea they brought back from
Norway where the government tries to be very strong partners
with the industry. But they also understand that they are the
landlord and the oil industry is the tenant; and a lease is the
kind of thing that runs between a landlord and a tenant.
He thought the state's leases should have a minimum work
commitment in them and noted language on page 1, lines 9-12,
that says the commissioner "shall" include terms in a lease that
impose a minimum work commitment.
SENATOR FRENCH said the report on the leases should go to
Senator McGuire's competitive review board if that goes forward.
It would look at not just how Alaska compares with other
jurisdictions, but with how industry is performing here in
Alaska and if they are honoring the commitments they made when
they took out leases.
CO-CHAIR PASKVAN questioned with respect to the extension of a
lease if a lease is capable of producing 100 barrels but is only
producing 1 does that in and of itself extend the lease or would
there be an analysis under that "duty to produce" that says the
production of only 1 when you can produce 100 fails to satisfy
that duty to produce. This is an issue that goes right to the
heart of what the throughput is in Alaska and where that can be
derived in analyzing a lease's terms both at its original and at
the extension.
SENATOR FRENCH said two days ago many of them thought the
exploration on the North Slope was being driven by the credits,
improving capital markets and the rise in the price of a barrel
of oil, but then they heard from Director Barron that the reason
is because a lot of those North Slope leases are expiring.
Tightening up this kind of language may have accelerated that
exploration season by several years. Bottom line is that it's
clear the terms of the leases drive work and they can shape a
more productive North Slope exploration and development agenda
if they set the terms more clearly at the beginning of the
relationship.
SENATOR MCGUIRE said she supports coming to a better and more
transparent agreement between industry and the government about
expectations. She agreed that the state had set itself up in
part for failure in that relationship by not being as clear as
they could be.
4:14:49 PM
SENATOR MCGUIRE questioned whether in directing the executive
branch with a "shall" from a "may" on page 1, line 9, violated
the state's Constitution.
SENATOR WIELECHOWSKI said he didn't think it would violate the
Constitution, but they should investigate it through Legislative
Legal. He said Article 8, Section 2 of the Constitution says the
Legislature is responsible for ensuring we get maximum benefit
from our resource and it would just be the case of the
Legislature directing how it wants the state's resource to be
developed.
CO-CHAIR PASKVAN said that as owners of the resource, if Alaska
is tendering control over portions of North Slope to someone
there should be minimum work commitments - for example, work
within a 10 year timeframe.
4:16:51 PM
DON BULLOCK, Legislative Legal Services, Legislative Affairs
Agency, said he didn't see a problem with using "shall"; the
statutes are peppered with shalls and mays and discretion and
requirements. He said Senator Wielechowski is correct that the
legislature does establish the policies for implementing the
provisions requiring that resources be developed in the best
interests of the state. As Director Barron pointed out, under
current law if someone has a lease they don't really have a duty
to produce until the end of the lease at which point they have
to be in production and show they are actually working on the
lease in order to get it extended.
This amendment would give the state an idea of what a company
plans to do when submitting their bid. One of the interesting
things is that they have to submit a proposed plan before they
even qualify as a bidder before they can even apply for the
lease. He said the commissioner maintains the discretion as to
what the terms of the lease are in terms of the bonuses under AS
38.05.180(f).
SENATOR WIELECHOWSKI said the original idea was to look at what
is done in some other countries, like Norway for instance, that
doesn't take bids. They simply invite the oil companies to come
in and propose plans of development for the lease tracts. If one
company says they'll do one well over five years, but another
says they'll do five wells in one year, and it's a reputable
company, they can pick the one that will truly develop it in the
best interests of the country.
This amendment was set aside.
4:19:55 PM
CO-CHAIR PASKVAN said that Item 4, labeled as 27-LS1305\B.12 by
Senators Wielechowski and French was up for consideration.
27-LS1305\B.12
A M E N D M E N T
OFFERED IN THE SENATE
TO: CSSB 192(RES), Draft Version "B"
Page 1, line 1, following "tax;":
Insert "relating to participation by the Alaska
Industrial Development and Export Authority in the
development of oil and gas resources in the state;"
Page 2, following line 5:
Insert new bill sections to read:
"* Sec. 2. AS 44.88.080 is amended by adding a new
paragraph to read:
(32) to acquire an interest in a project as
necessary or appropriate to provide working or venture
capital for an oil or natural gas development project
under AS 44.88.650 - 44.88.660, whether by purchase,
gift, or lease;
* Sec. 3. AS 44.88 is amended by adding new
sections to read:
Sec. 44.88.650. Acquisition of interest in
businesses. (a) The authority may acquire, through
purchase or other means, an interest in an in-state
asset of a corporation or other business entity that
has a lease interest in an oil or natural gas field in
the state that has been explored, but only if the
authority determines the leaseholder has made
reasonable efforts to obtain financing from the
private sector to develop the lease and those efforts
have, in whole or part, been unsuccessful. The
authority shall exercise due diligence in acquiring an
interest in an in-state asset of a business entity
under this section.
(b) If the authority acquires an interest in an
in-state asset of a business entity under this
section, the authority may use the authority's assets,
as appropriate, to aid in the development of the oil
or natural gas field in which the business entity has
a lease interest.
Sec. 44.88.660. Alaska resource development fund.
(a) The Alaska resource development fund is
established in the authority for the purpose of
developing oil and gas resources, and consists of
appropriations to the fund. The authority shall manage
the fund and may create separate accounts within it.
Income of the fund or of enterprises of the authority
shall be separately accounted for and may be
appropriated to the fund.
(b) The authority may use money from the fund to
carry out the fund's purposes set out in (a) of this
section.
* Sec. 4. AS 44.88.900(9) is amended to read:
(9) "project" means
(A) a plant or facility used or intended
for use in connection with making, processing,
preparing, transporting, or producing in any manner,
goods, products, or substances of any kind or nature
or in connection with developing or utilizing a
natural resource, or extracting, smelting,
transporting, converting, assembling, or producing in
any manner, minerals, raw materials, chemicals,
compounds, alloys, fibers, commodities and materials,
products, or substances of any kind or nature;
(B) a plant or facility used or intended
for use in connection with a business enterprise;
(C) commercial activity by a business
enterprise;
(D) a plant or facility demonstrating
technological advances of new methods and procedures
and prototype commercial applications for the
exploration, development, production, transportation,
conversion, and use of energy resources;
(E) infrastructure for a new tourism
destination facility or for the expansion of a tourism
destination facility; in this subparagraph, "tourism
destination facility" does not include a hotel or
other overnight lodging facility;
(F) a plant or facility, other than a plant
or facility described in (D) of this paragraph, for
the generation, transmission, development,
transportation, conversion, or use of energy
resources;
(G) a plant or facility that enhances,
provides for, or promotes economic development with
respect to transportation, communications, community
public purposes, technical innovations, prototype
commercial applications of intellectual property, or
research;
(H) a plant or facility used or intended
for use as a federal facility, including a United
States military, national guard, or coast guard
facility;
(I) development of an oil and gas lease by
providing working or venture capital in exchange for
an equity interest;
* Sec. 5. The uncodified law of the State of Alaska
is amended by adding a new section to read:
ANALYSIS AND REPORT ON ALASKA RESIDENT INVESTMENT
PROGRAM. The Alaska Industrial Development and Export
Authority shall research the possibility of creating a
program through which a resident of the state could
invest the resident's permanent fund dividend or other
funds in an in-state oil or gas asset acquired by the
authority under AS 44.88.650 and report its findings
to the legislature on December 31, 2012."
Renumber the following bill section accordingly.
Page 2, line 6:
Delete "This"
Insert "Section 1 of this"
SENATOR WIELECHOWSKI said the legislature wanted wildcatters to
come up to Alaska and explore and develop; and after it
developed ACES the number of companies doing business in the oil
patch went up over 250 percent. But they also had the financial
meltdown in 2008; he has heard from a lot of people in industry
that they are having a hard time attracting capital. This
amendment enables the Alaska Industrial Development and Energy
Authority (Alaska Industrial Development and Export Authority
(AIDEA)) to provide venture capital to ensure that new oil comes
on line as quickly as possible. This is not novel; it is
something that Alaska Industrial Development and Export
Authority (AIDEA) does in a variety of different spectrums. For
instance, Alaska Industrial Development and Export Authority
(AIDEA) owns a Cook Inlet rig; they're invested in an oil
terminal in Skagway, a mining road in a port in Northwest
Alaska, a shipyard in Ketchikan and many others.
Just last year legislation proposed by Governor Parnell was
enacted to expand Alaska Industrial Development and Export
Authority (AIDEA)'s authority to invest in economic development
projects. This is the State of Alaska using its billions and
billions of dollars and helping out projects "that just need a
little push." The is already the largest investor on the North
Slope, investing 60 and 80 percent through its credits structure
in development projects on the North Slope. This gives the
state an opportunity to align with industry and to be at the
table when decisions are made.
SENATOR FRENCH said this idea was borne out of a desire to get a
take a different approach than what is in HB 110 where there was
an enormous amount of dollars flowing from the state to the
industry without any concomitant work commitments. Maybe they
could create a resource development corporation that takes the
$2 billion that they would otherwise push across the table and
invest it ourselves. Seeing how Norway does business really
catalyzed the idea. Norway does two things: it has a state-owned
oil company called Statoil that owns and operates oil fields
just like any other oil company does. Alaska won't ever do that.
Besides Statoil, Norway has a wing of their government that is
just like an investment bank. It provides state direct financial
investment in fields. He said it's an idea that needs to be
looked at and if people see the state investing maybe others
will follow.
4:26:14 PM
MS. SYDEMAN explained that this amendment gives the AIDEA the
authority to provide venture capital for and take an equity
position in oil and gas development projects. In recent years a
growing number of independent oil companies have come to Alaska
in search of a small but still significant pockets of oil that
remain on the North Slope. In some cases, they have discovered
substantial quantities but have lacked the capital needed to
begin development particularly during the recent credit crunch.
This amendment would enable Alaska Industrial Development and
Export Authority (AIDEA) to partner with them to ensure that new
oil production comes on line.
Alaska Industrial Development and Export Authority (AIDEA)
already invests in a variety of development projects from
shipyards to oar terminals to mining roads and ports. Last year
Governor Parnell proposed legislation that further expanded
Alaska Industrial Development and Export Authority (AIDEA)'s
ability to invest in development projects.
She said before making the decision to invest in an oil and gas
project this amendment would require AIDEA to exercise due
diligence and ensure the investment is in the state's best
interest. It would also need to determine that the lease holder
had made reasonable efforts to obtain financing from the private
sector and that those efforts had been unsuccessful. This
amendment also directs AIDEA to look at the idea of establishing
a program where Alaskans could also invest their own resources
in any project in which AIDEA is a partner.
4:27:43 PM
MS. SYDEMAN recalled that Bradford Keithley [consultant with
Perkins Coie] said earlier that such an approach would create
greater alignment between the state and the oil industry and
would truly lay the groundwork for increased investment and
expanded oil and gas production and that such public private
partnerships exist all around the world and are very successful.
She said direct partnerships would also increase the state's
understanding of how oil companies invest in and develop
projects leading to better decisions on the state's part about
how to manage Alaska's resources.
SENATOR FRENCH commented when AIDEA was buying a jack up rig he
talked with them about the mechanics of the financial deal. He
brought up some of the difficulties the state had on its own
over the years with grain terminals and fish plants. It
typically failed, but when it has participated with private
sector and each side has some of its own money at work it has
done a lot better. This is an opportunity for the state to get
alongside smart driven folks like BP, ConocoPhillips and
ExxonMobil or smaller more nimble players and help them make
investments that are just out of reach and still profit from
their expertise.
SENATOR WIELECHOWSKI said that AIDEA is a state corporation.
CO-CHAIR WAGONER commented that this would be an excellent model
to follow to see if partnering with industry is where the state
wants to go. The jack up rig AIDEA is participating in will have
its entire investment back after five wells are drilled. This
may have far reaching benefits such as roads into Ambler and
Umiat - and they would get done faster.
4:31:52 PM
CO-CHAIR PASKVAN said they would next take up Item 5, labeled
27-LS1305\B.14 by Senators Wielechowski and French.
27-LS1305\B.14
A M E N D M E N T
OFFERED IN THE SENATE
TO: CSSB 192(RES), Draft Version "B"
Page 1, line 1 following "tax;":
Insert "relating to the oil and gas corporate
income tax; relating to the credits against the oil
and gas corporate income tax; making conforming
amendments;"
Page 1, following line 2:
Insert new bill sections to read:
"* Section 1. AS 29.60.599(1) is amended to read:
(1) "barrel," when used with reference to
oil, means the quantity of oil contained in 42 United
States gallons of 231 cubic inches each, measured at a
temperature of 60 degrees Fahrenheit and an absolute
pressure of 14.65 pounds a square inch [HAS THE
MEANING GIVEN IN AS 43.20.072];
* Sec. 2. AS 41.09.010(b) is amended to read:
(b) An exploration incentive credit extended
under (a) of this section may be applied against
(1) a payment or obligation against which a
credit authorized by AS 38.05.180(i) may be claimed;
(2) taxes payable under AS 43.20 or
AS 43.21, as applicable; and
(3) oil and gas bonus payments due the
state under AS 38.05.180(f).
* Sec. 3. AS 43.20.011 is amended by adding a new
subsection to read:
(g) For purposes of calculating the tax under
(e) of this section, the taxable income of a
corporation engaged in the production or
transportation of crude oil or natural gas shall be
determined in accordance with AS 43.21.
* Sec. 4. AS 43.20.073(f) is amended to read:
(f) This section does not apply to taxpayers
subject to AS 43.21 [AS 43.20.072 ENGAGED IN
(1) THE PRODUCTION OF OIL OR GAS FROM A
LEASE OR PROPERTY IN THE STATE; OR
(2) THE TRANSPORTATION OF OIL OR GAS BY
REGULATED PIPELINE IN THE STATE].
* Sec. 5. AS 43.21 is amended by adding new
sections to read:
Article 1. Determination of Taxable Income.
Sec. 43.21.200. Application. This chapter applies
to every corporation doing business in the state that
derives income from the production of oil or gas from
a lease or property in the state or from the pipeline
transportation of oil or gas in the state. The tax
calculated under this chapter is measured by the total
taxable income of the corporation during the tax
period as defined by AS 43.21.210 - 43.21.240 and is
calculated at the rates established under
AS 43.20.011(e).
Sec. 43.21.210. Determination of taxable income
from oil and gas production. (a) The taxable income of
a corporation from the production of oil and gas from
a lease or property in the state is the corporation's
net income as calculated by the department in
accordance with this section.
(b) Gross income of a corporation from oil and
gas production is the gross value at the point of
production of oil or gas produced from a lease or
property in the state. The department shall by
regulation determine a uniform method of establishing
the gross value at the point of production. For the
purpose of determining the gross value at the point of
production under this subsection, the department shall
use AS 43.55.150 for the determination of
transportation costs.
(c) Net income from oil and gas production shall
be determined by the department by deducting from
gross income the following:
(1) royalties paid in kind or in value;
(2) taxes imposed under AS 43.55 that are
actually paid or incurred by the corporation on the
production from a lease or property in the state;
(3) taxes imposed under AS 29.45.080 -
29.45.090 and AS 43.56 that are actually paid or
incurred by the corporation on property used directly
in the production of oil or gas from a lease or
property in the state, including property used in
production, gathering, treatment, or preparation of
the oil or gas for pipeline transportation, but only
if those property tax payments were due and payable
only after the date of commercial production from the
lease or property with which the property was
associated;
(4) the direct costs incurred by or for the
corporation in operating the lease or property,
including the direct costs of producing, gathering,
treating, or preparing the oil or gas for pipeline
transportation, but net of any payments received for
those activities and not including any indirect cost
or overhead expense;
(5) depreciation, using the percentage
depletion basis under 26 U.S.C. 613 (Internal Revenue
Code) or another reasonable method as the department
may by regulation establish, on property used directly
in the production, gathering, treatment, or
preparation of the oil or gas for pipeline
transportation, including amortization of capitalized
interest for investments in that property at a rate
not to exceed the average cost to the taxpayer of
borrowed capital during the year in which the interest
is capitalized;
(6) the amortization of lease acquisition
payments and taxes paid or incurred under
AS 29.45.080, 29.45.090, or AS 43.56, including
capitalized interest, for or on producing properties
before the commencement of commercial production from
the lease or property for which the property is being
used;
(7) interest expense of the corporation,
not capitalized during construction, that was paid or
incurred in connection with property in the state;
however, unless (f) of this section applies, the
interest expense may not exceed that portion of the
total interest paid by the consolidated business of
which the corporation is a part, determined by
multiplying the total interest by a fraction, the
numerator of which is the value of the corporation's
real and tangible personal property used directly in
the production of oil or gas from a lease or property
in the state and the denominator of which is the value
of all real and tangible personal property of the
consolidated business; in this paragraph, "total
interest paid by the consolidated business" does not
include interest expense arising from intercompany
obligations within the consolidated business except to
the extent that the interest expense reflects a pass-
through of interest on a third-party borrowing by the
parent or other member of the consolidated business
with the purpose, expressed at the time of the third-
party borrowing, of financing Alaska business activity
of the taxpayer corporation;
(8) expenses incurred by the corporation
after December 31, 2012, of unsuccessful exploration
of oil or gas in the state, including the acquisition
costs of abandoned properties, dry hole costs, and the
costs of geologic and geophysical exploration related
to those abandoned properties;
(9) general overhead or administrative
expense incurred by the corporation attributable to
deriving income from the production of oil or gas from
a lease or property in the state to the extent, except
as provided in (f) of this section, that the general
overhead or administrative expense does not exceed
that portion of the total general overhead or
administrative expense incurred by the consolidated
business of which the corporation is a part,
determined by multiplying the total general overhead
or administrative expense by a fraction, the numerator
of which is the value of the corporation's real and
tangible personal property used directly in the
production of oil or gas from a lease or property in
the state and the denominator of which is the value of
all real and tangible personal property of the
consolidated business;
(10) the amount of income from the
production of oil and gas from a lease or property
that is divided among the regional Native corporations
under 43 U.S.C. 1606(i) (sec. 7(i), Alaska Native
Claims Settlement Act, P.L. 92-203).
(d) Deductions from gross income under this
section may not include expenses previously deducted
on a return filed under AS 43.20.
(e) If a corporation subject to this chapter
shares the production or proceeds of the production
from a lease or property through a working interest,
royalty interest, overriding royalty interest,
production payment, net profit interest, joint
venture, or other agreement, the department shall
allocate the deductions from gross income between the
corporation and the persons with whom the corporation
has the agreement in accordance with the terms of the
agreement.
(f) If a corporation demonstrates to the
satisfaction of the department that the corporation
paid or incurred actual expenses for interest or for
general overhead or administration attributable to
deriving income from the production of oil or gas from
a lease or property in the state in an amount greater
than the amount determined under (c)(7) or (9) of this
section, the department may allow the corporation to
deduct the greater amount.
Sec. 43.21.220. Determination of income from oil
and gas pipeline transportation. (a) Except as
provided in (c) of this section, taxable income
attributable to the transportation of oil in a
pipeline engaged in interstate commerce in this state
shall be determined by the department and shall be the
amount reported or that would be required to be
reported to the Federal Energy Regulatory Commission
or its successors as net operating income, less those
portions of interest and general overhead or
administrative expense attributable to the pipeline
transportation of oil in the state, except that
taxable income shall also include taxes on or measured
by income. The department shall establish regulations
governing the determination of interest and general
overhead or administrative expense attributable to
pipeline transportation of oil in the state.
(b) Except as provided in (c) of this section,
taxable income attributable to the transportation of
natural gas in a pipeline engaged in interstate
commerce in this state shall be determined by the
department and shall be the amount reported or that
would be required to be reported to the Federal Energy
Regulatory Commission as net operating income, less
that portion of interest and general overhead or
administrative expense attributable to pipeline
transportation in the state, except that the taxable
income shall also include taxes on or measured by
income. The department shall establish regulations
governing the determination of interest and general
overhead or administrative expense attributable to
pipeline transportation of natural gas in the state.
(c) Taxable income attributable to the
transportation of oil or natural gas in this state of
a corporation not under the jurisdiction of the
Federal Energy Regulatory Commission, or of a
corporation under the jurisdiction of the Federal
Energy Regulatory Commission but not reporting the
operation of pipelines in the state separately from
the operation of pipelines elsewhere, shall be
determined by the department and shall be based on an
amount equal to the amount that would have been
reported to the Federal Energy Regulatory Commission
under (a) of this section in the case of oil
pipelines, or under (b) of this section, in the case
of natural gas pipelines, had the corporation been, in
fact, under the jurisdiction of the Federal Energy
Regulatory Commission for the taxable year and
required to report on the operation of pipelines in
the state separately from the operation of pipelines
elsewhere.
Sec. 43.21.230. Determination of income from
activities other than oil and gas production or
pipeline transportation. (a) Taxable income of a
corporation subject to this chapter from activities in
this state other than the production of oil or gas
from a lease or property in the state or the pipeline
transportation of oil or gas in the state shall be
determined in accordance with the method established
in art. IV of AS 43.19.010 and in AS 43.20.071, as
modified by (b) - (d) of this section.
(b) The total taxable income of a consolidated
business is its entire income less the portion of that
entire income attributable to worldwide production and
pipeline transportation of oil and gas. In this
subsection, for a member of a consolidated business
who is
(1) required to file under the Internal
Revenue Code, "entire income" means the taxpayer's
taxable income as the term is used in AS 43.20.011 -
43.20.065;
(2) not required to file under the Internal
Revenue Code, "entire income" means an income
determination prepared in accordance with generally
accepted accounting principles, except that a taxpayer
may elect to report income as the income would be
determined under (1) of this subsection.
(c) The numerator and denominator of the
property factor, of the payroll factor, and of the
sales factor shall be calculated without reference to
that portion of property, payroll, or sales directly
related to the production of oil or gas from a lease
of property in the state or the pipeline
transportation of oil or gas in the state.
(d) The value attributed to vessels transporting
Alaska oil or gas of a consolidated business that are
not owned or effectively owned by the consolidated
business shall be excluded from the property factor.
Sec. 43.21.240. Applicability of tax to a
consolidated business. The provisions of this chapter
apply to a consolidated business whether or not the
taxpayer is the parent or controlling corporation.
Article 2. Calculation of Tax; Returns.
Sec. 43.21.300. Assessment of income and tax. (a)
The department shall assess taxable income and the
amount of tax payable on that taxable income. The
amount of the tax payable shall be determined using
the tax rates in AS 43.20.011(e).
(b) On or before August 15 of each year, the
department shall send to every corporation taxable
under this chapter a notice of assessment showing the
amount of income taxable under this chapter for the
previous year and the amount of tax payable on that
taxable income.
(c) For purposes of this chapter, the department
may combine taxable income of corporations subject to
tax under this chapter who are part of the same
consolidated business.
(d) If the methods of allocation and
apportionment provided in this chapter do not fairly
represent the extent of a corporation's business
activity in the state, the corporation may petition
for or the department may require, in respect to all
or any part of the corporation's business activity, if
reasonable, the employment of any method authorized
under art. IV, sec. 18, AS 43.19.010 (Multistate Tax
Compact), to carry out an equitable allocation and
apportionment of the corporation's income. The
commissioner shall include in the annual report
required in AS 43.21.410 a report on all relief
granted under this subsection, including, for each
case, a statement of the changes in tax liability
resulting from the granting of relief, the tax years
involved, and a description of the method of
determining taxable income that was substituted for
the methods provided in this chapter.
Sec. 43.21.320. Credits. A credit under
AS 43.20.043, 43.20.044, or 43.20.046 may also be
applied against the tax levied under this chapter,
unless a credit for the same expenditure has been
taken against a tax levied under AS 43.20 or AS 43.55.
Sec. 43.21.330. Returns. On or before April 15 of
each year, a corporation subject to tax under this
chapter shall submit a return in a form prescribed by
the department setting out information required by the
department to determine taxable income. For purposes
of this chapter, the department may require
corporations subject to tax under this chapter that
are part of the same consolidated business to file a
single return.
Sec. 43.21.340. Payment of tax. The tax levied
under this chapter is payable to the department on or
before September 30 of each year or in installments,
including prepayments of estimated tax, at the times
and under the conditions the department may by
regulation require. The tax is payable on the due date
set out in this section even though the assessment is
under appeal or the validity, enforceability, or
application of this chapter or any provision of this
chapter is challenged before the department or in the
courts.
Article 3. Administrative Matters.
Sec. 43.21.400. Regulations. The department shall
adopt regulations in accordance with AS 44.62
(Administrative Procedure Act) as appropriate to
administer and enforce this chapter.
Sec. 43.21.410. Public reporting. (a) The
commissioner shall compile and transmit to the
legislature an annual report of state revenue and the
implementation of taxation policies under this
chapter. The report must include total aggregate
income tax paid by corporations subject to this
chapter and aggregate income and deductions by
category, classified so as to prevent the
identification of particular returns or reports.
(b) The legislative auditor shall notify the
legislature on or before the first day of each regular
session that the annual report reviewing the actions
of the department in administering this chapter is
available.
Sec. 43.21.420. Information disclosure.
Notwithstanding AS 43.05.320, the department shall
disclose to a legislator, on request, information
collected from a taxpayer to the extent that
(1) the taxpayer is a publicly traded
company;
(2) the information has been filed in a
quarterly, annual, or other periodic report to the
United States Securities Exchange Commission; and
(3) the information has been made public by
the United States Securities Exchange Commission.
Sec. 43.21.499. Definitions. Unless the context
requires otherwise, the definitions contained in
AS 43.55.900 are applicable to this chapter. In
addition, in this chapter,
(1) "consolidated business" means a
corporation or group of corporations having more than
50 percent common ownership, direct or indirect, or a
group of corporations in which there is common
control, either direct or indirect, as evidenced by an
arrangement, contract, or agreement;
(2) "Internal Revenue Code" has the meaning given in
AS 43.20.340."
Page 1, line 3:
Delete "Section 1"
Insert "Sec. 6"
Page 2, line 6:
Delete all material and insert:
"* Sec. 7. AS 43.82.210(a) is amended to read:
(a) If the commissioner approves an application
and proposed project plan under AS 43.82.140, the
commissioner may develop proposed terms for inclusion
in a contract under AS 43.82.020 for periodic payment
in lieu of one or more of the following taxes that
otherwise would be imposed by the state or a
municipality on the qualified sponsor or member of a
qualified sponsor group as a consequence of
participating in an approved qualified project:
(1) oil and gas production taxes and oil
surcharges under AS 43.55;
(2) oil and gas exploration, production,
and pipeline transportation property taxes under
AS 43.56;
(3) oil and gas corporate income tax under
AS 43.21; [REPEALED]
(4) Alaska net income tax under AS 43.20;
(5) municipal sales and use tax under
AS 29.45.650 - 29.45.710;
(6) municipal property tax under
AS 29.45.010 - 29.45.250 or 29.45.550 - 29.45.600;
(7) municipal special assessments under
AS 29.46;
(8) a comparable tax or levy imposed by the
state or a municipality after June 18, 1998;
(9) other state or municipal taxes or
categories of taxes identified by the commissioner.
* Sec. 8. AS 43.20.072 is repealed.
* Sec. 9. The uncodified law of the State of Alaska
is amended by adding a new section to read:
APPLICABILITY. AS 43.21, added by sec. 5 of this
Act, applies to taxable income earned or received
after December 31, 2012.
* Sec. 10. The uncodified law of the State of
Alaska is amended by adding a new section to read:
REGULATIONS. (a) The Department of Revenue may
adopt regulations necessary to implement AS 43.21,
added by sec. 5 of this Act. The regulations take
effect under AS 44.62 (Administrative Procedure Act),
but not before the effective date of the law
implemented by regulation.
(b) The Department of Revenue shall provide by
regulation for a transition for a corporation subject
to tax under AS 43.20 before December 31, 2012, to
avoid double taxation of the same income or double
deduction of the same expense of the corporation as a
result of becoming subject to tax under AS 43.21,
added by sec. 5 of this Act.
* Sec. 11. Section 10 of this Act takes effect
immediately under AS 01.10.070(c).
* Sec. 12. Except as provided in sec. 11 of this
Act, this Act takes effect January 1, 2013."
SENATOR WIELECHOWSKI said a current piece of legislation on this
issue was referred to the Finance Committee and he thinks it's a
good idea for this committee to have an understanding of what it
does because it impacts what they are doing. He explained it
reinstitutes separate accounting method of calculating corporate
income tax paid by the oil industry. This was strongly
recommended by Pedro van Meurs.
MS. SYDEMAN explained that since oil production in Alaska began
the state has been strongly urged by industry to use a
proportion of world-wide profits for a unitary tax method for
calculating their income tax. In 1978, Alaska realized it was
losing significant revenue under the unitary system. So the
legislature passed separate accounting. Under separate
accounting revenues generated in Alaska less expenses are the
basis for the 9.4 percent corporate income tax. The oil
companies sued and lost in lower court, and then appealed to the
State Supreme Court. Four years later the state reverted to
unitary system because the legislature feared there was a
potential cost of $1.8 billion if the state lost. At the time
the legislature saw that as too great a liability with the 1981
treasury balance. However, in 1985 the state won on all points
with the Alaska Supreme Court and the US Supreme Court declined
the oil companies appeal request stating there was no federal
issue. Unfortunately, separate accounting has never been
reinstated.
For years the companies have said they couldn't do separate
accounting since they did not track their revenues and costs
that way. That may have been true under the old ELF gross tax
system but it's not true under the profits based PPT or ACES
systems. They also know the oil companies do separate accounting
for other oil provinces like Norway.
MS. SYDEMAN said if they take just the $1.8 billion difference
between the income tax these corporations paid under the unitary
system and separate accounting between the years of 1978 and
1981 and divide that by four years it equals an underpayment
during those years of about $450 million per year. Multiplying
that by the 30 years that separate accounting has now not been
in effect, the state may have lost up to $13.5 billion, which is
more than the total unfunded liability for the state's PERS and
TRS retirement systems.
4:36:02 PM
In the year 2000, the DOR did an analysis and determined that
the state had probably lost $4.7 billion between 1982 and 1997.
She contacted the economist this morning that conducted that
analysis to ask him whether he thought separate accounting would
still yield more revenue for the state today accounted to
determine if separate accounting would still yield more revenue
for the state today as he had determined back then and he said
yes.
Internationally acclaimed oil consultant Pedro van Meurs
recently said he believes the unitary method is cumbersome; it
is an obstacle to new investment and it's not in the state's
best interests. Recently they also have heard from oil industry
representatives who have stated that Alaska has comparatively
strong margins. So, that is an indication that the state may
still be losing revenue under the unitary tax method. If this is
so, the income taxes in Alaska would be effectively lowered by
the less profitable investments around the world. Conversely, if
oil development in Alaska is less profitable than elsewhere as
some of have stated, this would result in a tax cut for oil
industry. Either way, this method of accounting is more straight
forward sensible and a fairer way of determining the corporate
income tax.
4:37:41 PM
CO-CHAIR PASKVAN announced consideration of Item 6 by Senators
French and Wielechowski, labeled 27-LS1305\B.15.
27-LS1305\B.15
A M E N D M E N T
OFFERED IN THE SENATE
TO: CSSB 192(RES), Draft Version "B"
Page 1, line 1, following "tax;":
Insert "relating to information concerning oil
and gas taxes, including information about
expenditures that must be provided in order to claim
an oil and gas production tax credit for those
expenditures, and relating to the disclosure of that
information;"
Page 2, line 6:
Delete all material and insert:
"* Sec. 2. AS 43.55.030(a) is amended to read:
(a) A producer that produces oil or gas from a
lease or property in the state during a calendar year,
whether or not any tax payment is due under
AS 43.55.020(a) for that oil or gas, shall file with
the department on March 31 of the following year a
statement, under oath, in a form prescribed by the
department, giving, with other information required by
the department under a regulation adopted by the
department, the following:
(1) a description of each lease or property
from which oil or gas was produced, by name, legal
description, lease number, or accounting codes
assigned by the department;
(2) the names of the producer and, if
different, the person paying the tax, if any;
(3) the gross amount of oil and the gross
amount of gas produced from each lease or property,
and the percentage of the gross amount of oil and gas
owned by the producer;
(4) the gross value at the point of
production of the oil and of the gas produced from
each lease or property owned by the producer and the
costs of transportation of the oil and gas;
(5) the name of the first purchaser and the
price received for the oil and for the gas, unless
relieved from this requirement in whole or in part by
the department;
(6) the producer's qualified capital
expenditures, as defined in AS 43.55.023, other lease
expenditures under AS 43.55.165, and adjustments or
other payments or credits under AS 43.55.170;
(7) the production tax values of the oil
and gas under AS 43.55.160;
(8) any claims for tax credits to be
applied; [AND]
(9) calculations showing the amounts, if
any, that were or are due under AS 43.55.020(a) and
interest on any underpayment or overpayment; and
(10) for each expenditure that is the basis
for a credit claimed under AS 43.55.023 or 43.55.025,
a description of the expenditure, a detailed
description of the purpose of the expenditure, and a
description of the lease or property for which the
expenditure was incurred; notwithstanding
AS 43.05.230(a), information submitted under this
paragraph may be disclosed to the public and shall be
disclosed to the legislature in a report submitted
within 10 days after the convening of the next regular
legislative session following the date a statement is
filed under this section.
* Sec. 3. AS 43.55.030(e) is amended to read:
(e) An explorer or producer that incurs a lease
expenditure under AS 43.55.165 or receives a payment
or credit under AS 43.55.170 during a calendar year
but does not produce oil or gas from a lease or
property in the state during the calendar year shall
file with the department on March 31 of the following
year a statement, under oath, in a form prescribed by
the department, giving, with other information
required by the department under a regulation adopted
by the department, the following:
(1) the producer's qualified capital
expenditures, as defined in AS 43.55.023, other lease
expenditures under AS 43.55.165, and adjustments or
other payments or credits under AS 43.55.170; [AND]
(2) if the explorer or producer receives a
payment or credit under AS 43.55.170, calculations
showing whether the explorer or producer is liable for
a tax under AS 43.55.160(d) or 43.55.170(b) and, if
so, the amount; and
(3) for each expenditure that is the basis
for a credit claimed under this chapter, a description
of the expenditure, a detailed description of the
purpose of the expenditure, and a description of the
lease or property for which the expenditure was
incurred; notwithstanding AS 43.05.230(a), information
submitted under this paragraph may be disclosed to the
public and shall be disclosed to the legislature in a
report submitted within 10 days after the convening of
the next regular legislative session following the
date a statement is filed under this section.
* Sec. 4. Sections 2 and 3 of this Act take effect
July 1, 2012.
* Sec. 5. Section 1 of this Act takes effect
January 1, 2013."
SENATOR FRENCH explained that basically this is grounded in the
idea that the legislature is not getting enough information on
the credits they are issuing, and they amount to billions of
dollars. The state's oil and gas production tax includes
incentives to increase production and exploration in the form of
generous tax credits - the 20 percent credit for capital
expenditures enables companies to deduct their capital expenses
twice: once to reduce taxable income and again as a credit
against a portion of their taxes on that income. If a company
incurring an expense has insufficient income against which to
apply a tax credit, they can sell it to another firm, carry it
forward or apply for a refund from the state. Companies carry
losses forward forever. The state has approved about $4 billion
in credits over the last several years - that is a $4 billion
investment by the state -, and yet there is scant publicly
available information letting Alaskans know where this
investment is going. The amendment requires that producers who
apply for a tax credit against their production tax liability to
describe what they did with the expenditure and where they did
it and the purpose of it. The information provided may be
disclosed to the public and must be reported to the legislature.
With this publicly available information the public and decision
makers can ensure that state dollars are being used effectively
to increase production of Alaska's oil and gas resources.
4:40:10 PM
CO-CHAIR PASKVAN announced consideration of Item 7 by Senator
French, labeled 27-LS1305\B.16.
27-LS1305\B.16
A M E N D M E N T
OFFERED IN THE SENATE
TO: CSSB 192(RES), Draft Version "B"
Page 1, line 1, following "Act":
Insert "relating to the duties of the Alaska Oil
and Gas Conservation Commission; relating to a
petroleum information management system; relating to
the duties of the Department of Natural Resources, the
Department of Revenue, and the Department of Labor and
Workforce Development that relate to providing the
Alaska Oil and Gas Conservation Commission with
certain information relating to oil and gas;"
Page 1, following line 2:
Insert new bill sections to read:
* Section 1. AS 31.05.030 is amended by adding a
new subsection to read:
(n) The commission shall develop and maintain
the petroleum information management system required
under AS 31.05.031.
* Sec. 2. AS 31.05 is amended by adding a new
section to read:
Sec. 31.05.031. Petroleum information management
system. (a) The commission shall develop and maintain
an electronic petroleum information management system
to collect, secure, distribute, store, retrieve, and
archive information related to oil and gas
exploration, development, and production in the state.
The purposes of the petroleum information management
system are to improve the administration of the oil
and gas production tax and to facilitate exploration,
development, and production of oil and gas resources.
The petroleum information management system shall be
accessible by the public.
(b) To the extent the information is available
and is not confidential, the petroleum information
management system must include the following
information:
(1) unit and joint operating agreements;
(2) state oil and gas exploration licenses
and oil and gas leases;
(3) for exploration activities,
(A) exploration work programs and budgets;
(B) seismic data;
(C) drilling reports;
(D) logs;
(E) well tests;
(F) geological models and maps;
(4) for development activities,
(A) development plans with operating and
capital expenditure projections;
(B) construction progress reports;
(C) drilling reports;
(D) reservoir characterization;
(5) for production activities,
(A) production work programs and budgets;
(B) oil and gas sales, revenue, and
pricing;
(C) transportation agreements;
(D) production data;
(E) injection data;
(F) operating and capital expenditures;
(G) facility maps and studies;
(6) for abandonment of oil and gas wells,
leases, and production and transportation facilities,
(A) abandonment plans and budgets;
(B) progress reports;
(7) for oil and gas related employment
information,
(A) the number of resident and nonresident
hires for each year;
(B) training opportunities; and
(8) other information the commission
determines necessary and relevant to the oil and gas
production tax and to the exploration, development,
and production of oil and gas resources.
(c) The Department of Natural Resources, the
Department of Revenue, and the Department of Labor and
Workforce Development, in consultation with the
commission, shall provide information described in (b)
of this section that is not confidential and within
each department's control to the commission for
inclusion in the petroleum information management
system. The information provided by a department under
this subsection shall be in a form suitable for the
commission to include in the petroleum information
management system.
* Sec. 3. AS 31.05.093(c) is amended to read:
(c) The commission shall determine the
regulatory cost charges levied under this section so
that the total amount to be collected approximately
equals the appropriations made for the operating costs
of the commission under this chapter for the fiscal
year. For the purpose of determining the regulatory
costs charges under this subsection, the operating
costs for the petroleum information management system
(AS 31.05.031) may not be included in the operating
costs of the commission."
Page 1, line 3:
Delete "Section 1"
Insert "Sec. 4"
Page 2, following line 5:
Insert a new bill section to read:
"* Sec. 5. The uncodified law of the State of
Alaska is amended by adding a new section to read:
IMPLEMENTATION OF THE PETROLEUM INFORMATION
MANAGEMENT SYSTEM; RECOMMENDATION FOR STATUTORY
CHANGES. The Alaska Oil and Gas Conservation
Commission shall develop and implement a work plan for
the development of the petroleum information
management system required by AS 31.05.031, enacted by
sec. 2 of this Act, so that the system is operational
before January 1, 2014."
Renumber the following bill section accordingly.
4:40:36 PM
LISA WIESSLER, staff to Senator French, explained that concerns
have been raised about the amount of information that is or is
not available to legislators and the public in terms of making
decisions on the oil taxes and how the fields are developed.
While a lot of the information is confidential under the law, a
lot of it is public, but it is scattered among several agencies
and is very difficult to find.
She said this amendment begins the process of making information
more available to the public, decision makers, and to other oil
and gas companies who might want to do business in our oil
fields. It calls for the Alaska Oil and Gas Conservation
Commission (AOGCC) to develop an electronic petroleum
information management (PIMS) that would obtain public
information that is currently gathered by the commission, the
Departments of Revenue and Natural Resources and the Department
of Labor and Workforce Development (DOLWD) and to consolidate it
for the purpose of oil and gas production tax and to facilitate
exploration, development and production of oil and gas
resources.
She said the information going into the system is limited to
what is currently available and is not confidential. The list in
subsection (b) on page 2 contains everything they hope to
eventually see in the system as it becomes available through
statutory or other changes. This list is taken from a 2007
Gaffney Kline report that provided an overview of how the
acquisition, distribution and publication of oil company data is
handled in other oil and gas producing regimes.
In subsection (c) on page 3 the departments that have control of
the information are directed to provide what is not confidential
to the commission in a form that is suitable for this new
information system. Section (3) addresses an administrative
concern, because the commission currently charges industry a
regulatory cost charge and determines it based on the operating
costs. It was suggested that PIMS might not be suitable for use
of these funds. So those costs will not be included in the
calculation. Section (5) directs the AOGCC to develop and
implement the system so it's operational before January 1, 2014.
MS. WEISSEL said the idea is to have an easy one-stop shop for
people who maybe want to do business in Alaska's oil fields and
to continue developing ways to release more confidential
information into the system.
SENATOR FRENCH stated that the AOGCC is not begging to get for
this to be situated in their domain, but it has to go somewhere
and they are the leading independent oil and gas entity right
now. He said this information should not be scattered throughout
many places and this could be the genesis for addressing some
issues talked about yesterday where a SARB board is charged to
set the value of a pipeline dealing with an extremely
recalcitrant Department of Revenue that feels its bound by
confidentiality statutes to not reveal anything to the SARB
board that could help another state agency perform its very job.
It also dovetails with Senator McGuire's proposal for a
competitiveness review board.
This amendment was set aside.
4:46:19 PM
CO-CHAIR PASKVAN announced consideration of Item 15, labeled 27-
LS1305\B.1 by Senator Wagoner.
27-LS1305\B.1
A M E N D M E N T
OFFERED IN THE SENATE
TO: CSSB 192(RES), Draft Version "B"
Page 1, line 1, following "tax;":
Insert "relating to certain additional
nontransferable oil and gas production tax credits;"
Page 2, following line 5:
Insert a new bill section to read:
"* Sec. 2. AS 43.55.024(d) is amended to read:
(d) A producer may not take a tax credit under
(c) of this section for any calendar year after the
later of
(1) 2021 [2016]; or
(2) if the producer did not have commercial
oil or gas production from a lease or property in the
state before April 1, 2006, the ninth calendar year
after the calendar year during which the producer
first has commercial oil or gas production before
May 1, 2021 [2016], from at least one lease or
property in the state."
Renumber the following bill section accordingly.
CO-CHAIR WAGONER explained that this extends the sunset date of
a PPT and ACES credit that incentivizes small producers for
another five years from 2016 to 2021. The credit for production
can be up to $12 million annually based on production volumes.
He asked that the department bring them information on how much
this credit has been used. The commissioner nodded
affirmatively.
CO-CHAIR PASKVAN said the committee had moved through the items
that didn't directly impact progressivity and would take those
up tomorrow. [SB 192 was held in committee.]