Legislature(2011 - 2012)SENATE FINANCE 532
02/28/2012 06:00 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
6:06:02 PM
CO-CHAIR PASKVAN announced the continued consideration of SB 192
and that tonight's committee meeting would consist of public
testimony.
6:06:53 PM
CHARLES DAVIS, representing himself, Homer, Alaska, said he been
in the oil business all his life. He didn't take a position on
SB 192, but said if they change the tax system to remember that
Alaska is an owner state, which is different than any other
state in the union. His oil businesses in Texas and Oklahoma get
"way better deals" dealing with these same oil companies than
what the State of Alaska gets. His leases use three years and he
suggested that the state change the terms of its leases the
state to require production within five years of anything
commercial that is found. You just can't shut the well in or not
produce it for years. And if the state is contributing so much
to the drilling programs, maybe it should have a joint venture
with the oil companies instead. He ended by thanking them for
the great work they are doing in protecting all Alaskans.
6:07:34 PM
SENATOR WIELECHOWSKI joined the committee.
6:10:06 PM
BILL WARREN, in his words represented Alaskans, Kenai, Alaska,
said he had welded on TAPS and was now retired from Pipefitters
Local 367. He thanked the committee for breaking the industry's
"code of silence" and getting truthful testimony on relevant
information to even work a tax deal. He supported SB 192. He
supported having a gasline for years, because having one goes
hand in hand with oil and gas exploration. He said that oil
companies "grunted" when Cook Inlet ran out of gas and had to
bring independents in and they grunted over the out-of-state
workers; they grunt over just about everything. He was sick and
tired of voting for gas development mandates and having it
displaced for a decade. He believed the committee brought out
the truth that Exxon is using Alaska as a cash cow, and the
State of Alaska is young and needs to use that cash for its own
project developments.
6:12:40 PM
KEVIN DURLING, President, Petroleum Equipment and Services,
Anchorage, Alaska, opposed SB 192. He said his company is a 30-
year old oil and gas service company that brings specialty
products to Alaska that may not otherwise be available because
of the small size of our oil and gas industry.{ He said most of
industry changes are out of the state's control due to market
forces, but this is the first time he had seen such a dramatic
reduction in activity on the North Slope. In 2008 one North
Slope operator had 10 rigs working and as of this morning they
had 4 full-time and 1 part-time rig working.
He said that the ACES tax credits have helped the industry and
they will make a big difference in the oil shale opportunities
15 years down the road, but for an immediate increase in
production, a reasonable tax environment is needed. He advised
the committee to compare oil taxes and bracketing with their
personal income taxes and remarked if people were told they
would be taxed on their top dollar every year versus a bracketed
system, there would be a revolt in the nation.
6:15:34 PM
CO-CHAIR WAGONER joined the committee.
6:16:31 PM
HARRY MCDONALD, CEO, Carlisle Transportation, Anchorage, Alaska,
said they are a 30-plus year trucking company with 650
employees, 500 of which work in Alaska. Half of their work is
directly related to the North Slope. He opposed SB 192 saying
that it's obvious that investment in the legacy field is not
happening. And while the credits are creating a lot of activity
for the long term, industry needs lower taxes to get field
production in the legacy field up in the short term.
6:18:14 PM
BOB STINSON, President, Conam Construction Company, said he also
represents a sister company, Price Gregory, and they have been
serving the oil and gas industry in Alaska since 1975. Agreeing
with Mr. McDonald, he said their business is directly related to
new production and right now it is the lowest it has ever been
and it has been hard to find a reasonable investment strategy to
renew his fleet on the North Slope. He hadn't bought any assets
for two years and he used to spend $4 million to $5 million per
year. Luckily, he has recently benefited from the Cook Inlet tax
credits by building pipelines for Buccaneer and CINGSA gas
storage.
6:21:26 PM
GEORGE PIERCE, representing himself, Kasilof, Alaska, said he
supported SB 192. He thanked them for trying to save people from
the "ridiculous" House takeover. People should have learned from
Norway's system of either paying the 78 percent tax or not
getting in. He reminded the committee that all three of the
major in Alaska are also over there paying that 78 percent.
He reminded them that judge for the Amerada Hess Case accused
the state of inexcusable trustfulness in dealing with oil
companies which he found were guilty of falsification in
computing the taxes paid to Alaska for its royalty oil from 1977
to 1992. He said this resource belongs to Alaskans, not the oil
companies.
6:22:36 PM
SENATOR MCGUIRE joined the meeting.
6:25:33 PM
SCOTT THORSON, CEO, Everett Business Systems, Anchorage, Alaska,
opposed SB 192. He said it's clear that investment in Prudhoe
Bay is "down big." It takes a lot of investment to get oil to
come out of these mature fields and if you have high taxes and
no production, you've got nothing. And that's the direction
we're headed. Alaska needs to become competitive for oil
companies to invest.
6:27:25 PM
ALLEN HIPPLER, Falkner Walsh Constructors, Anchorage, Alaska,
said they do business in Bethel. In order for his children to
decide that Alaska is the best place for them, it needs to have
a vibrant economy. The oil industry drives the economy in Alaska
and now we are strangling it. He said SB 192 was not enough of a
meaningful change and that taxes need to be lowered in order for
it to be competitive with other oil provinces in this part of
the world.
6:29:45 PM
MAYNARD TAPP, representing himself, Anchorage, Alaska, said SB
192 didn't go far enough. He proposed immediately killing ACES
because it is what has killed production. Even that may not be
enough to stop the decline. Our "great partners" have invested
billions of dollars year after year to extract that resource and
a tax regime needs to be identified that will achieve the
governor's goal of 1 million barrels per day throughput in TAPS.
Oil is valueless in the ground, he said, and thanked them for
their dedicated service to the state.
6:31:47 PM
MICHAEL JESPERSON, representing himself, Anchorage, Alaska, said
SB 192 didn't go far enough. He and his wife want their three
kids to stay here when they get out of school. Under the current
tax system, the oil companies won't produce "hardly a thing" by
the time his oldest hits college let alone his youngest. He
advised going back to HB 110.
6:32:59 PM
LANCE ROBERTS, representing himself, Fairbanks, Alaska, opposed
SB 192 saying according to the Department of Revenue report this
bill wouldn't get us very far in producing more oil and he
opined that more incentive was needed. He asked them to look at
capping things off at an earlier point and urged the Senate to
have hearings on HB 110.
6:34:44 PM
RICHARD A. WIEN, MACC-Make Alaska Competitive, Fairbanks,
Alaska, opposed SB 192 saying the community is beginning to
suffer from the lack of action over the ACES tax issue. He was
against the ACES regime to begin with and supported HB 110. He
didn't know how they would deal with all the nuances of a net
value tax.
MR. WIEN said on top of ACES, Fairbanks has high energy costs.
Customers at his retail flooring business say they can't do
business with him and still fill their fuel tanks and pay their
electric bills.
6:37:16 PM
JON COOKSEY, CFO, Beaufort Airport Equipment Rental, Fairbanks,
Alaska, opposed SB 192. He said they are the largest heavy
equipment rental company in the State of Alaska. Since the
winter of 2009, their North Slope revenues have declined from 50
percent to 60 percent and they see a direct relationship between
implementation of ACES and that reduction. For the last four
years their capital budget ranged between $25 million and $45
million per year, and this year there will be no capital
investment in Dead Horse other than that required for safety and
the environment. There won't be more investment until policies
are established to encourage projects to meet their rates of
return.
He said there has been an uptick in exploration and maintenance
work, but it will not make up for the decline in construction
revenues associated with large projects, and have the added
benefit of increasing production through TAPS. He added that
they had been redeploying assets off the North Slope down to the
Kenai Peninsula and he applauded lawmakers for enacting policies
that encouraged exploration and production there.
6:40:23 PM
JIM PLAQUET, Advocate, Operating Engineers Local 302, Fairbanks,
Alaska, opposed SB 192. He said Alaskans should be looking for
ways to make development of oil and gas more economical rather
than seeking ways to thwart further development. Alaska should
be open and ready for business and willing to provide a
regulatory and tax climate in which the industry can reinvest.
He said North Slope producers have already pledged at least $5
billion in new investments in return for lowering taxes and we
will likely see billions more. The governor's bill is the only
legislation to this point that moves the needle in attracting
major new investments.
6:43:33 PM
JAMES GARHART, representing himself, Four Corners, Alaska,
favored SB 192. The problem as he saw it was that some are not
willing to take less in taxes without guarantees of production
increases. "Call their bluff," he said. Let them do what they
are going to do and when they achieve production increases, give
them a rebate. No one has to guarantee anything; when you
achieve it, you get your reduction. He suggested a quarter
billion dollar rebate for raising production to 650,000 barrels
and a $2 billion rebate for 1 million barrels per day.
6:46:16 PM
JIM SYKES, representing himself, Lazy Mountain, Alaska,
supported SB 192. He thanked them for examining the tax
situation closely and looking into some of the details that have
been glossed over. He said most people agree on wanting more oil
in the pipeline, but there is still a lack of competition. He
sensed that new production was being "road blocked," because of
pipeline capacity access issues.
As a small business man, Mr. Sykes said he was troubled that the
ACES tax scheme hadn't gone through a complete audit and didn't
think the state should change the tax regime until it knows
exactly what it is doing. The worst that could happen is that
the state would continue to collect taxes under what seems to be
a fair regime for everybody.
MR. SYKES said everyone understands that the oil industry is in
business to make maximum profits and if they can persuade the
legislature to take less money, they will get more for
themselves. It's pretty simple, and they don't have to do a lot
of work for it. One of the problems is that the older profitable
wells around Prudhoe Bay are producing less, but new oil takes a
capital expenditure and more activity. If a company simply waits
for the new guys to come in, it can collect extra processing
fees or perhaps become partners or even take over the leases.
6:49:21 PM
LAURA MEKETA, representing herself and her family, Eagle
Estates, Alaska, opposed SB 192 saying that she felt compelled
to "just jump in and start fighting for my boys' jobs." She
related how she and her husband started their business in a
camper and now can afford to send their son to a private school.
And it's all because of the blessing of oil in Alaska.
She related how their family construction business went from
employing 70 Valley families to a hand full. They have been
driven to North Dakota. She urged them to address the
progressivity in the ACES tax scheme, because her research
showed that was what caused the decline. Essentially there is no
incentive now for companies to reinvest in Alaska.
6:52:40 PM
REED CHRISTENSEN, Vice President and General Manager, Dowland-
Bach Corp., Anchorage, Alaska, opposed SB 192. He explained that
his company started manufacturing wellhead control panels,
instrumentation systems and stainless steel fabrication for oil
fields in 1975 and since ACES passed in 2008, his sales had gone
down by 40 percent. He related that people in the service
industry had been thrust into a "high stakes poker game" between
the state and industry and they feel the pain. He said the
change in SB 192 was not enough to move the needle to change the
focus to production and he urged them to switch from high stakes
poker to high volume production.
KRISTA GONDER, Senior Vice President, Northern Industrial
Training, Palmer, Alaska, opposed SB 192 saying since they began
in 2003 their business provided health, safety and environmental
training, hands-on truck driving and heavy equipment operating,
pipefitting and welding training. She said that TAPS fed her and
her four brothers and she wants the same opportunities for her
three nieces and the children she doesn't have yet. She didn't
think that ACES was not a competitive tax structure and that SB
192 spurred enough investment to increase production. She asked
them to reconsider HB 110 and allow the market to work.
7:00:12 PM
At ease 7:00:12 p.m. to 7:00:34 p.m.
7:01:02 PM
SCOTT STEWART, President, Artic Controls, Anchorage, Alaska,
said he didn't support SB 192 because it wouldn't add to the
state's oil production, but he thought HB 110 would. He didn't
know if it would be as much as is needed.
7:01:37 PM
BRYAN CLEMENZ, representing himself, Anchorage, Alaska, said he
worked at CH2M Hill, an engineering services company, and
opposed SB 192. Prompted by high oil prices and the promise of a
very bright economic future, he said the company boasted more
than 350 employees and was growing in 2007. He and his senior
managers were developing a very aggressive 2008 strategic plan
and budget. After ACES passed it took them months to understand
its impact on them. By April the writing was on the wall and the
company proceeded into a spiraling decline that left them with
less than 120 employees by the end of the year.
MR. CLEMENZ said the state treasury and economy is still heavily
dependent on the oil and gas sector and a sharp down turn in the
oil and gas market would be disastrous. A diversified economy
would mitigate these risks and if that's what they want, they
should completely eliminate progressivity in the oil and gas tax
scheme. He envisioned Alaska becoming "the crown jewel of the
Union."
7:05:11 PM
THOMAS MALONEY Anchorage, Alaska, testified on behalf of his
son, Sam in opposition to SB 192. He related how his son has 11
welding certifications and has two potential job possibilities
for this summer: one is in Alberta and one is in North Dakota.
His bottom line was seeing more production in TAPS, more
royalties for the state, bigger permanent fund checks and being
able to live in Alaska and work on big production projects.
7:07:51 PM
GENY DEL ROSARIO, representing herself, families and small
business owners, Juneau, Alaska, did not state a position on SB
192. She said they are thankful the legislature is doing its
job. If big companies don't do their job, then give those
opportunities to other companies that will. She said Alaska's
greatest resources are underwater and underground, but they
don't want to wait until the end to see that they don't have any
services and support for the families. She asked everyone to be
reasonable, factual and open-minded.
7:11:00 PM
KEN CARON, representing himself, Anchorage, Alaska, did not
state a position on SB 192. He pointed out that both SB 192 and
HB 110 talk about production being lost, but he asked if taxes
on oil were lowered and production did increase, how much it
would have to increase to equal the revenue the state gets
today.
7:12:50 PM
JIM WANAMAKER, representing himself, Anchorage, Alaska,
supported SB 192. He served as an Alaska District Court judge,
but is fully retired now. His first point was to preserve ACES,
because its' a fair and appropriate oil tax. If it is repealed
or weakened, the state will never get it back. His next point
was that HB 110 is not needed, because the big three have found
and developed a big oil field that is now in a harvest mode. The
companies will complete the harvest without any subsidy. HB 110
is simply an effort by the big three to increase their profits
at the expense of Alaskans.
His next point was that exploration is already happening.
Numerous small oil companies are exploring right now without any
increase in tax incentives. Also, new oil is not needed for TAPS
to operate; it's not about to shut down for lack of oil. Judge
Gleason found in recent litigation over TAPS property taxes that
based on current circumstances, TAPS can operate down to 100,000
barrels per day and will have an operational lifetime through
2065. Then there's federal oil.
MR. WANAMAKER said that lastly, he hoped the legislature and the
state would follow Norway's example of saving oil wealth for
future generations by acquiring and preserving expertise and
participating in oil lease development as an owner.
7:15:42 PM
JERRY MCCUTCHEON, representing himself, Anchorage, Alaska,
supported SB 192. He said don't fix what isn't broken. "The oil
companies may lie, cheat and steal, but they're not stupid," he
said. The reason ConocoPhillips withheld production information
requested by the legislature during the ACES debate is that it
would have led them to increase oil taxes. He said the
legislature needs to understand that the North Slope is no
longer "elephant country." The elephants were all found decades
ago and it is long past time for the elephant hunters - BP,
ExxonMobil, and ConocoPhillips and Chevron - to go.
7:16:03 PM
MR. MCCUTECHEON said the legislature does not know who got the
$4 billion in tax credits and that is what is broken.
Legislation is needed requiring the oil companies to pay their
oil taxes and when those are settled, then the companies can
apply for tax credits.
7:18:52 PM
THOMAS LAKOSH, representing himself, Anchorage, Alaska,
supported SB 192. He was a 29-year retired journeyman carpenter.
He said it's quite obvious that our hungry children need the
money much more than the oil companies. He thought they should
actually raise taxes given that the oil companies are now going
to have to dodge Iranian missiles to get their oil to market.
He said that all legislators are sworn by our constitution to
provide the maximum benefit to the people and the Department of
Revenue has made it quite clear that this reduces our revenue,
not increase it. The world oil markets are changing and that
makes Alaska a much more favorable oil development market.
7:21:16 PM
KEITH SILVER, representing himself, Anchorage, Alaska said SB
192 does not move the bar far enough for Alaska to be considered
competitive. He said as a victim of ACES, he had to start a new
career at age 56, and now as a business owner he was very
concerned about declining oil production. The progressivity
formula in ACES must be declared a failure and a more
competitive solution must be found.
MR. SILVER said Alaska's oil production tax was designed to make
it competitive for investment when oil was at $60 to $80 a
barrel, not above that, and at current prices, it is the highest
among all oil producing regions in the western hemisphere. In
2007, just weeks after ACES passed, the state predicted oil
production would be 674,000 barrels per day in 2011; the actual
production turned out to be approximately 603,000 barrels. Their
prediction said that Alaska's daily oil production level
wouldn't fall to its current level until 2022. The decline curve
projections were 10 years off. The situation has become dire and
they need to act now to correct the mistake made in 2007. More
study is not needed.
7:23:25 PM
DAVE STIEREN, representing himself, Anchorage, Alaska, opposed
SB 192. He recalled the governor announcing his 10-year goal of
one million barrels of TAPS throughput a year ago at a downtown
luncheon. However, the decline curve has continued while other
legacy producing regions, such as Texas, have plateaued or even
increased their production in light of record-high oil prices.
He thought HB 110 was a better bill.
7:25:31 PM
DUANE MORAN, President, Anchorage Council of Education Alaska
Public Employee Association, Anchorage, Alaska, did not state a
position on SB 192. He said most Alaskans agree that having more
oil in the pipeline is a good thing, but getting there is the
challenge. Changes made to the tax code should have a direct
linkage to additional oil production and just making Alaska a
more "attractive investment climate" is not a sufficient
commitment to justify reducing taxes.
7:26:38 PM
JOE MATHIS, Vice President, External Affairs, NANA Development
Corp., Anchorage, Alaska, opposed SB 192 saying it time to
significantly ease the burden on the oil industry. He said more
investment will come with less costly tax rates and that will,
in turn, lead to more production. The current oil production tax
is not competitive compared to other areas in the United States.
He related how NANA invested in Louisiana and services over 700
platforms in the Gulf of Mexico; that region is now booming with
activity in large part because of its tax structure.
7:29:23 PM
HAL GAZAWAY, representing himself, Anchorage, Alaska, supported
SB 192 and thanked them for not getting "stampeded" into
adopting HB 110 saying "that would be a "giveaway of
unparalleled proportions."
He related that he was just a boy when Bob Bartlett, a
constitutional delegate, warned them of "just such days as
these" when oil and other resource extraction industries would
not want to pay an adequate amount for the resource they took
from Alaska. The Constitutional Convention listened to him and
adopted Article 8, Section 2, which requires the legislature to
provide for "the utilization, development, and conservation of
all natural resources for the maximum benefit of Alaska's
people." He said oil companies do business here because they
make more money here than they will someplace else. BP has gone
from the 13th to the 3rd largest oil producing company since it
started doing business in Alaska.
7:32:35 PM
JERRY AHWINONA, Chairman, Republican Party-Anchorage, Anchorage,
Alaska, did not state a position on SB 192 saying ACES passed
following a constitutional process.
7:34:35 PM
BEN MOHR, representing himself, Eagle River, Alaska, opposed SB
192 and encouraged them to keep the owner state principle in
mind as they consider making needed changes to ACES that seeks
short term gains at the expense of long term prosperity. He said
the change needs to be significant and meaningful, and it needs
to happen sooner rather than later. He said that according to
DOR revenue forecasts, SB 192 doesn't do enough.
7:36:46 PM
PETER MACKSEY, representing Steelfab, Anchorage, Alaska, opposed
SB 192 and said he was amazed that the current level of taxation
was passed in less than a month with little or no input from the
consultants and research that they now seem to require to turn
it back. He supported going back to the regime that existed
three years ago and starting a new round of research.
7:38:49 PM
SAMI GLASCOTT, President, Anchorage Chamber of Commerce,
Anchorage, Alaska, opposed SB 192 saying the Chamber favored
lower taxes to encourage industry reinvestment. She said
Anchorage has a vital economy and a good quality of life, and
the oil and gas industry that contributes 90 percent to the
state's economy is the foundation of this success. She said
knowing this, we must understand that none of these qualities
are sustainable without attracting and securing a pipeline of
successful resource development projects now. Currently there
are no major projects for resource development in the works.
She said that people must realize that doing business in Alaska
is challenged because it is remote and has extreme conditions
and there is a high probability for litigation and permitting
delays. She summarized that increasing oil production is a top
priority for the Anchorage Chamber for this session and that SB
192 does not make significant enough changes to Alaska's current
oil and gas production tax.
7:40:46 PM
DEANTHA CROCKETT, representing herself, Anchorage, Alaska,
opposed SB 192, because it doesn't make significant changes in
investment and won't fill the pipeline. Production decline is
undeniable and we needed to act like yesterday to change the
decline.
7:41:28 PM
MARLEANNA HALL, representing herself, Anchorage, Alaska, opposed
SB 192. She was born and raised in Alaska, has a family and a
job here. She was educated in the Nome and Eagle River public
schools and attended and received a bachelor's degree from the
University of Alaska. Her son attends a public school that is
subsidized by oil taxes and his future education will be
subsidized by his Permanent Fund dividend. To keep the doors of
locally owned businesses open and the economy going she urged
them to end progressivity and to consider the long term over the
short term in encouraging investment in development of Alaska's
natural resources.
7:42:45 PM
JOELLE HALL, representing herself, Chugiak, Alaska, said she
hadn't formulated an opinion on SB 192, yet. She said she was a
veteran, a wife and a mother of two school age children. She
thanked the Senate for taking the time to ask the hard questions
and for standing up for what is right. Everyone has the same
goal - more production and more oil flowing through the
pipeline. The governor's idea is to give the oil companies money
and then rely on their promises that it will be put to good use,
but promises are not good enough. Alaskans deserve real
commitments - in writing - for jobs and investments.
7:44:07 PM
KATI CAPOZZI, representing herself, Eagle River, Alaska, opposed
SB 192, because it doesn't do enough to incent the type of
investment needed to not only stem the accelerated decline of
oil in the pipeline or to encourage new production. According
the DOR, half of the state's revenue stream in 15 years will
depend on oil industry investments that have yet to be made.
Alaska is not competitive under ACES or CSSB 192, and those
investments it is depending on are being made in a lot of other
places. She asked them to be more aggressive in their efforts to
ensure the state's future economic health.
7:45:16 PM
LYNNETTE MORENO HINZ, representing herself, Anchorage, Alaska,
opposed SB 192; she was also against HB 110.
7:49:12 PM
BARBARA WINKLEY, representing herself, Anchorage, Alaska, did
not state a position on SB 192. She urged legislators to put any
surplus oil revenues into an untouchable fund like Norway has.
Alaska won't get a second chance to conserve its "nest egg" and
operate off the interest.
CO-CHAIR PASKVAN said SB 192 would be held in committee for
further testimony.
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