Legislature(2011 - 2012)BUTROVICH 205
03/02/2012 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
3:35:37 PM
CO-CHAIR PASKVAN announced consideration of SB 192 [CSSB
192(RES), labeled 27-LS1305\B was before the committee].
CO-CHAIR WAGONER moved to adopt CSSB 192(RES), labeled 27-
LS1305\E.
CO-CHAIR PASKVAN objected for discussion purposes.
He also noted Senator Geissel, Department of Revenue (DOR)
Commissioner Butcher, Deputy Commissioner Bruce Tangeman, and
Chief Economist Stickle were in the audience.
3:36:26 PM
JEFF STEPP, staff to Senator Paskvan, explained the changes in
CSSB 192(RES) version E. He said in addition to retaining the
progressivity rates and the progressivity cap, the CS contains
four significant additions to Alaska's oil and gas production
tax statutes as follows:
- it rewards increased production as proposed in Amendment B.9
- it establishes a gross minimum tax
- it creates an oil information system
- it separates oil and natural gas for purposes of calculating
the progressivity portion of the production tax
He explained that the CS lowers both the rate of progressivity
and its cap. It retains the original PTV trigger of $30, but
changes the progressivity tax rate from .4 percent to .35
percent per dollar increase up to 50 percent (or approximately
$101.43). At 50 percent, the CS adds a second trigger lowering
the .35 percent to .1 percent up to 60 percent (approximately
$201.43) of PTV. Version E also reduces the maximum tax rate of
75 percent to 60 percent. Initial calculations from the DOR
indicate that this reduction in progressivity to the oil
companies will result in decreased tax revenue to Alaska of
approximately $200 million to $250 million annually. The goal is
to return upside potential to industry at high oil prices to
incentivize more production.
3:40:31 PM
MR. STEPP said the next component of the CS, rewarding increased
production, was advanced last week as Amendment B.9. The purpose
is to reward companies that increase their North Slope
production levels from one year to the next, helping to increase
the flow through TAPS. Companies that achieve this goal will
earn a $10 allowance on new barrels of oil they produce above
the prior year. However, the allowance for incremental oil will
not be applied to the PTV calculation for progressivity per
Legislative Legal's advice.
He said this allowance should not be confused with the tax
credit or a lowering of tax rates. It's a reduction in the PTV
used to calculate production tax. So, if a company produced, for
example, 100,000 barrels in 2012 and increased that by 110,000
barrels in 2013, that company would be eligible for an allowance
on the new 10,000 barrels. The allowance would reduce their PTV
by $10 multiplied by the number of barrels of new oil produced.
He said the allowance would not influence the tax rate itself
and it would not count as a lease expenditure and isn't part of
the calculation that determines average profits per barrel.
3:42:04 PM
To accomplish this, he explained that the DOR would determine
the average daily state-wide production for each producer for
the previous tax year. This figure would be adjusted by
eliminating any day or days in which there was a significant
slowdown in North Slope production or transportation (the
adjusted average). This calculation would also exclude any new
oil as a result of acquisition or mergers. For instance, if
ConocoPhillips bought Pioneer it would not get a new oil
allowance for the existing production at Oooguruk unless it
increased production levels above those achieved by Pioneer.
3:43:02 PM
MR. STEPP said the next component of the CS establishes a gross
minimum tax and was presented as Amendment B.13; it establishes
a production tax floor of 10 percent of the gross value of oil
at point of production for legacy fields in Alaska. The floor
would apply only to fields that have already produced 1 billion
barrels of oil and are still producing an average of 100,000
barrels a day. Prudhoe Bay and Kuparuk are the only fields that
currently meet that definition. The vast majority of Alaska's
oil production comes from these fields and most facilities
associated with them were fully depreciated long ago. The
amendment does not apply to new fields or smaller fields in
order to avoid any potential that it could put new field
development or development of smaller reservoirs at risk.
He explained that ACES currently has a production tax floor of 0
to 4 percent depending on the price of oil and that can be
brought even lower by credits. This means the state could
actually owe companies production tax in a low price environment
(when at the same time it has a cash flow deficit and is
struggling to pay for the most essential state services). This
provision is intended to alleviate those concerns and doesn't
allow legacy field producers to apply tax credits to reduce
their production taxes below the 10 percent gross floor. And at
$70 the state may take in more with the 10 percent gross floor
than it would with ACES.
Industry has said that ACES does not work for them in an
extremely high price environment; conversely it does not work
for the state and is not durable in a low price environment. Oil
prices won't necessarily remain above $100 forever, as history
has shown them to be extremely volatile, and the new floor will
ensure that Alaskans get some production tax for their oil even
when prices are below $50 per barrel. Just three years ago this
month oil was selling for $47 per barrel. Further, consultants
have said ACES needs to be durable in a wide range of price
environments and this provision helps achieve that goal.
3:45:07 PM
MR. STEPP moved on to the oil information system provision that
was advanced as Amendment B.16. Much information is confidential
under law, but a considerable amount is public but scattered
among several agencies and difficult to find. This provision
begins the process of making information more available to
policy makers, the public and oil and gas companies who may be
seeking to do business in Alaska's oil fields.
This provision requires the Alaska Oil and Gas Conservation
Commission (AOGCC) to develop an electronic petroleum
information management system that will contain public
information currently gathered by the commission as well as the
Departments of Revenue, Natural Resources and Labor and
Workforce Development. The system will consolidate available
public oil and gas information that is currently scattered among
the several agencies for the purpose of improving the
administration of the oil and gas production tax and to
facilitate exploration, development and production of oil and
gas resources. As more information becomes publicly available it
can be incorporated into the information system.
He said the information list in the CS 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. The legislation
directs the departments that have control over the various
aspects of the information to provide what is not confidential
to the commission in a form suitable for distribution. It
directs the AOGCC to develop and implement the system.
3:47:23 PM
MR. STEPP said the last change is what is known as the
"decoupling" provision. The legislature's consultant, Pedro van
Meurs, in the Joint Senate Resources and Finance Committee
hearings on February 13 and 14, 2012 warned of deficiencies in
the current ACES system and one was that the barrel of
equivalent (BOE) concept results in "the nonsensical cross
subsidization of gas" and would result in massive government
revenue losses on oil production if incremental gas were to be
developed at the same time. That would in turn impede gas
project development. Dr. van Meurs said it is essential that any
revision of ACES deals with this problem in advance and this
provision would permit adding gas terms to the package later or
immediately without having to change oil terms again.
MR. STEPP explained that the CS separates oil and natural gas
for purposes of calculating the progressivity portion of the
production tax. The progressivity surcharges for oil in Cook
Inlet and in-state gas would be calculated together but distinct
from export gas instead of the current practice of combining oil
and gas. The progressivity structure itself would be changed to
conform to the rates set forth in the CS.
3:49:50 PM
MR. STEPP explained that currently oil and gas are calculated
according to the combined British Thermal Unit (BTU) value of
oil, and gas and oil and gas can and do have vastly different
values on a BTU basis. Currently a BTU of oil is worth much more
than a BTU of gas. Accordingly, once a major gas sale starts,
overlaying the existing oil production the BTU value of the
combined oil and gas would be much lower than it was for oil
alone. This has been referred to as the "dilution effect" and
could cause a significant reduction in oil taxes if a major gas
sale occurred. The existing tax structure in conjunction with
the inherent uncertainty of future oil and gas prices exposes
the State of Alaska to significant financial risk were a major
gas to occur. The structure also creates economic instability
for entities looking to participate in the development and
financing of a natural gas pipeline project in Alaska.
MR. STEPP said that removing the dilution effect will not result
in any reduction in oil taxes from a major gas sale. The CS
gives the DOR authority to adopt regulations to allocate costs
between oil and gas with the added instruction that a method
based on relative BTU barrel of oil equivalent should be
considered. The effective date is January 1, 2013.
3:51:23 PM
SENATOR FRENCH asked where the decoupling provision came from.
MR. STEPP answered that the drafter, Mr. Bullock, was asked to
incorporate HCS CSSB 305(FIN) from the 26th Alaska legislature -
a bill that passed the Senate in 2010.
CO-CHAIR PASKVAN withdrew his objection and asked if there were
any further objections.
CO-CHAIR WAGONER objected to say that on February 24 the Senate
Bipartisan Working Group said they wanted three things out of
this bill: increased oil production, more jobs for Alaskans and
sustainable state revenue over the long term. He didn't think
this bill did any of them. This version\E was sent out at 10:23
last night they finally have decoupling language. No one on the
committee knew about this. It had no public testimony or
hearings in the last two years. The bill started out as two
pages and it's now 21 pages long.
CO-CHAIR WAGONER continued that legislators have publicly patted
themselves on the back that an open and transparent process has
taken place as a result of this bill, but that isn't the case.
Some amendments that were conceptually presented a scant week
ago are included and others weren't. The bill has been heard in
committee 21 times; of that, only one time has there been any
meaningful dialogue and that is what they are doing today.
3:54:50 PM
CO-CHAIR WAGONER said he had planned to offer an amendment
dealing with the tax holiday and received it today at 1:00 p.m.;
it was completed by Legislative Legal at 10:56 p.m. on March 1.
The bill was read across February 8, and 20 days later the
Senate Resources Committee finally heard from the public on
version B. As a result of that input according to his count
there were 45 yeas, 96 nays and 15 not sures. Some of the
amendments should receive modeling before moving from this
committee. He finished by maintaining his objection to adopting
version E.
3:56:09 PM
At ease from 3:56:09 to 3:57:29 p.m.
3:56:29 PM
CO-CHAIR PASKVAN asked for a roll call vote. Senators Stedman,
Stevens, Wielechowski, French and Paskvan voted yea; Senators
McGuire and Wagoner voted nay; therefore CSSB 192(RES), labeled
27-LS1305\E, was before the committee.
3:57:21 PM
SENATOR MCGUIRE moved Amendment 1, E.16 [old 27-LS1305\B.4].
27-LS1305\E.16
Nauman/Bullock
A M E N D M E N T
OFFERED IN THE SENATE
TO: CSSB 192(RES), Draft Version "B"
Page 1, line 1:
Delete "oil and gas production tax"
Insert "tax rates applicable to oil and gas
production when the average production tax value for a
BTU equivalent barrel of oil and gas is more than $30"
Page 1, line 3, through page 2, line 6:
Delete all material and insert:
"* Section 1. AS 43.55.011(g) is repealed and
reenacted to read:
(g) For each month of the calendar year for
which the producer's average monthly production tax
value under AS 43.55.160(a)(2) for each BTU equivalent
barrel of the taxable oil and gas is more than $30,
the amount of tax for purposes of (e)(2) of this
section is determined by multiplying the monthly
production tax value of the taxable oil and gas
produced during the month by the following tax rates,
as applicable:
(1) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is not more than
$42.50, the tax rate is 2.5 percent of the difference
between that average monthly production tax value of a
BTU equivalent barrel and $30;
(2) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $42.50
but not more than $55, the tax rates are
(A) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30; and
(B) 7.5 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $42.50;
(3) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $55 but
not more than $67.50, the tax rates are
(A) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30;
(B) 7.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel; and
(C) 12.5 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $55;
(4) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $67.50
but not more than $80, the tax rates are
(A) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30;
(B) 7.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(C) 12.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(D) 17.5 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $67.50;
(5) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $80 but
not more than $92.50, the tax rates are
(A) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30;
(B) 7.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(C) 12.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(D) 17.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel; and
(E) 22.5 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $80;
(6) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $92.50
but not more than $105, the tax rates are
(A) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30;
(B) 7.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(C) 12.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(D) 17.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(E) 22.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel; and
(F) 25 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $92.50;
(7) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than $105
but not more than $117.50, the tax rates are
(A) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30;
(B) 7.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(C) 12.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(D) 17.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(E) 22.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(F) 25 percent of the next higher $12.50 of
monthly production tax value for each BTU equivalent
barrel; and
(G) 30 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $105;
(8) if the producer's average monthly
production tax value of a BTU equivalent barrel of the
taxable oil and gas for the month is more than
$117.50, the tax rates are
(A) 2.5 percent on the first $12.50 of
monthly production tax value for each BTU equivalent
barrel that is greater than $30;
(B) 7.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(C) 12.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(D) 17.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(E) 22.5 percent of the next higher $12.50
of monthly production tax value for each BTU
equivalent barrel;
(F) 25 percent of the next higher $12.50 of
monthly production tax value for each BTU equivalent
barrel;
(G) 30 percent of the next higher $12.50 of
monthly production tax value for each BTU equivalent
barrel; and
(H) 35 percent of the monthly production
tax value for each BTU equivalent barrel that is
greater than $117.50.
* Sec. 2. The uncodified law of the State of Alaska
is amended by adding a new section to read:
APPLICABILITY. Section 1 of this Act applies to
oil and gas produced after December 31, 2012.
* Sec. 3. The uncodified law of the State of Alaska
is amended by adding a new section to read:
TRANSITION: REGULATIONS. The Department of
Revenue may adopt regulations to implement this Act.
The regulations take effect under AS 44.62
(Administrative Procedure Act), but not before the
effective date of the provision of this Act
implemented by the regulation.
* Sec. 4. Section 1 of this Act takes effect
January 1, 2013.
* Sec. 5. Except as provided in sec. 4 of this Act,
this Act takes effect immediately under
AS 01.10.070(c)."
CO-CHAIR PASKVAN objected for discussion purposes.
SENATOR MCGUIRE explained that this amendment is "bracketed
progressivity" and adds two top brackets - at $105.50 to $117.50
and $117.50 and up - making it slightly more favorable to the
state's take. Consultants have shown them that at particularly
high cost development economics (what you're largely dealing
with in Alaska) the CS doesn't move the needle far enough. They
showed that SB 192 runs along the line of ACES in the $70 range
of the decline curve and there isn't any significant change
until $140, and that is the range in which Alaska is missing
development opportunities.
SENATOR MCGUIRE said when she voted for ACES she made an error
and wishes she would have better understood progressivity. The
25 percent base rate was thoroughly vetted and she was "very
comfortable" with it, but she did not understand just how high
of a government take progressivity would mean at high oil
prices. Amendment E.16 is designed to reduce progressivity into
brackets much like an individual IRS return; it would equal out
the government take and industry profit.
4:02:56 PM
She cited the spring 2007 forecast (the last one produced before
voting on ACES) in which the DOR projected Alaska would be
producing 807,000 barrels of oil/day in 2012, but today it's
only producing 584,000 barrels.
Judge Gleason relied on data prepared by [Dudley Platt] and his
forecasting is what she was citing now. She said she didn't
believe in taxing our way to prosperity, but she knows we are in
a decline and that it's an aging field. But she believed that
tax reductions could incentivize development that would lead to
production. As an example two years ago, SB 309 led to a
renaissance in Cook Inlet and while they hadn't seen as much
government take as a result, they have seen an injection of
capital into the private sector. She wanted to emphasize this as
the state moves forward; circulating dollars into the private
sector will be key to our recovery in the future.
4:05:54 PM
Further, she said this progressivity reduction in E.16 does
something else Dr. van Meurs talked about as one of the
inefficiencies in the current ACES system that prices over $140
barrel (high marginal tax rates) leads to irrational behavior.
Companies will spend more money in an effort to try to reduce
their overall tax rate, which could lead to what is referred to
as gold plating.
SENATOR MCGUIRE said she recognized members concerns about
industry pledging to invest $5 billion on the North Slope, but
she understands their limitations in their unit sharing
agreement and other things and thinks they have made as strong a
statement as they can. And she is prepared to trust them. She
trusts that like all of Alaska they want to see these fields
succeed and these projects come on line. They want to argue in
the board rooms in Houston that the system in Alaska is now more
competitive and as a result that more capital should be invested
here.
She used the simile of how she was taught to get out of a tail
spin years ago in flight school that applies here. When she was
told to go into a controlled stall she was terrified; every
instinct told her she didn't want to do this. The teacher
explained despite the urge to pull up that the very thing you
have to do is point your nose down in order to regain control.
To a certain extent the legislature is on a parallel track. They
have seen production numbers decline and their instinct has been
"to grab as much as we can." Consultants have also said this tax
system is a harvest model.
4:10:02 PM
SENATOR WIELECHOWSKI agreed that members have deep philosophical
differences on these issues. He opposed this amendment for a
number of reasons, one is that it will cost the state billions
of dollars per year. He said, "We're the board of directors of
the State of Alaska. The Constitution says we're responsible for
insuring we get maximum benefit for our resource..."
He explained that the state had 30 years of low taxation policy.
It had a system called the economic limit factor (ELF) that
allowed a 0 percent tax rate by 2006 on 15 out of 19 fields on
the North Slope. The legacy fields paid a gross tax rate of
around 12.5 percent. The philosophy for 30 years was low taxes
will lead to more production.
SENATOR WIELECHOWSKI reasoned, "Well what happened to production
during the 30 years of this low taxation policy we had? We went
from 2 million barrels a day to 750,000 barrels a day. This was
a failed policy. The policy simply didn't get us the results
that we want." So, he strongly disagreed with going back to a
policy that had been in place for 30 years and failed, and cost
the state probably hundreds of billions of dollars.
SENATOR WIELECHOWSKI said during the period of 2000 to 2006 when
ELF was in place (a 0 percent tax rate), production went down 8
percent per year; jobs and investment declined, too. Since
passing ACES, jobs on the North Slope are at an all-time high
and there aren't enough beds to accommodate all the employees
that work up there (hot sheeting). They actually pay people $125
per day so that someone else can sleep in their bed while they
are out working. Unfortunately, a high percentage of workers are
not Alaskans. Investment is at an all-time high, both capital
and operating. Every single year since passing ACES there have
been all-time highs of investment.
He remarked that people say that everyone is going to North
Dakota, but the number of companies on the North Slope has
increased by 250 percent since passing ACES. More exploratory
wells are scheduled this year than in decades on the North
Slope. He hears that companies are doing terrible, that they
can't make money on the North Slope any more. But look at the
companies' income statements. They've had $30 billion in profits
on the North Slope in the four years since ACES has been passed.
Senator Wielechowski said he is happy they are making record
profits in Alaska, but as someone who is responsible for
insuring that Alaska gets its fair share, they have a
responsibility as well. He's thrilled that the companies made
$30 billion, but he can't see giving them billions more back.
4:13:45 PM
SENATOR WIELECHOWSKI said they hear people say Alaska is not a
good place to do business. But when they modeled rates of return
(IRR) under ACES they assumed that capital costs would go up 300
percent, but that didn't happen, and if you put your money in a
bank today, you're lucky if you get 1 percent, but the IRR for
infield drilling at Prudhoe Bay was 123 percent on $80/barrel
oil according to Gaffney and Kline, the company that was hired
by the governor. He was happy they were making those high rates
of return, but don't come back to Alaska and tell him that
Alaska is not profitable and you can't make money here when all
the numbers, all the objective evidence, show just the opposite.
The 2004 BP memo was shocking he said, saying Alaska's role in
the company is to be a "cash cow." So they can make a lot of
money here and spend it to grow their business elsewhere.
4:15:02 PM
SENATOR WIELECHOWSKI recalled that they just heard yesterday the
$5 billion in commitments is no commitment. They don't have all
the agreements of all the parties for this $5 billion. And
breaking that down, the $5 billion commitment, pledge, whatever
- some of the projects have been in their plans of development
for five years. He said he had asked the director of the
Division of Oil and Gas to name a single project plan or
development on the North Slope that is un-economic under ACES,
and he couldn't name a single one. He has been asking for
modeling for over a year, but he hasn't seen a single model of a
field or a single development or a single exploration or
modeling of anything that has shown him there is a single un-
economic project under ACES that would be made economic by HB
110 or a similar type of bill. He hasn't seen any data that
shows it. He can't vote for a bill that gives back that amount
of money when he hasn't seen modeling that does it.
Further, Senator Wielechowski said, the $5 billion investment
could be over a 6 to 10 year period; so that's really $500
million a year. But the catch is that the state picks up 60
percent of the costs. So they are really getting $200 million of
investment and at the same time the state is giving back roughly
$18 billion ($2 billion per year). "Is there a CEO in the world,
is there a businessman in the world, a business woman in the
world, that would accept that deal...? They'd get fired," he
said.
CO-CHAIR WAGONER added that it's nice to have explorers on the
North Slope and he is the one who did the legislation 10 or so
years ago in SB 186 that brought a lot of them. At the same time
he wasn't aware of what was really going on. It isn't the
ability to drill and produce oil; it's that not one well that
has been drilled this year or was drilled that year has put a
drop of oil into the pipeline. We have zero increase in
production in areas outside of the existing units and they
aren't going to get any. Wells are being drilled and if hydro-
carbons are found, they are trying to flip them and sell them to
someone else and not produce them. The mistake was that the
state wasn't requiring them to come to production. The
exploration that is going on on the North Slope is to hold onto
their leases, it's not about production.
4:19:00 PM
SENATOR STEDMAN commented that the amendment was well intended,
but he opposed it mainly because it moves too much cash without
further balancing the system out. The CS has a progressivity
adjustment and it might need to be adjusted some more. They
could tip it to the other direction at high oil prices, but the
time is not ripe for this amendment.
SENATOR MCGUIRE said she appreciates their comments and
reiterated that this amendment has two higher brackets (as
opposed to the governor's bill) and it wouldn't take them back
to ELF. It still ensures a higher state take than any other tax
regime the state has had. But she agreed that more work needs to
be done. She also commented that although it's true a lot of
workers are on the North Slope, they are in exploratory wells
and maintenance operations, but the state wants people up there
working on production.
CO-CHAIR PASKVAN maintained his objection and asked for a roll
call vote. Senators McGuire and Wagoner voted yea; Senators
Wielechowski, French, Stevens, Stedman and Paskvan voted nay;
therefore the amendment failed.
4:22:22 PM
SENATOR MCGUIRE moved E.17 [old B.7]
27-LS1305\E.17
Bullock
A M E N D M E N T
OFFERED IN THE SENATE
TO: CSSB 192(RES), Draft Version "E"
Page 2, line 1, following "tax":
Insert "rate; relating to oil and gas production
tax credits, including qualified credits for
exploration, development and production"
Page 4, line 29, through page 5, line 9:
Delete all material and insert:
"* Sec. 5. AS 43.55.011(e) is repealed and
reenacted to read:
(e) There is levied on the producer of oil or
gas a tax for all oil and gas produced each calendar
year from each lease or property in the state, less
any oil and gas the ownership or right to which is
exempt from taxation or constitutes a landowner's
royalty interest. Except as otherwise provided under
(f), (j), (k), and (o) of this section, the tax is
equal to the sum of the annual production tax value of
the taxable oil and gas
(1) produced from a lease or property not
described in (2) of this subsection as calculated
under AS 43.55.160(a)(1) multiplied by 25 percent, and
the sum, over all months of the calendar year, of the
tax amounts determined under (g)(1) and (p) of this
section, as applicable; and
(2) produced during the first seven
consecutive years after the start of sustained
production or produced during the first seven years
after the effective date of this subsection, whichever
is later, from a lease or property containing land
that was not or previously had not been within a unit
or in commercial production as of December 31, 2008,
as calculated under AS 43.55.160(a)(1) multiplied by
15 percent, and the sum, over all months of the
calendar year, of the tax amounts determined under
(g)(2) and (p) of this section, as applicable; in this
paragraph, "sustained production" has the meaning
given in AS 43.55.025(l)."
Page 5, line 28, through page 7, line 5:
Delete all material and insert:
"* Sec. 7. AS 43.55.011(g) is repealed and
reenacted to read:
(g) For each month of the calendar year for
which the producer's average monthly production tax
value calculated under AS 43.55.160(a)(2)(A) - (E) of
a BTU equivalent barrel of taxable oil produced during
the month, gas produced during the month from a lease
or property in the Cook Inlet sedimentary basin, and
gas produced during the month from a lease or property
outside the Cook Inlet sedimentary basin and used in
the state is more than $30, the tax is calculated as
follows:
(1) the amount of tax for purposes of (e)(1)
of this section is determined by multiplying the value
calculated under AS 43.55.160(a)(2)(A) - (E) by the
tax rate calculated as follows:
(A) if the producer's average monthly
production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) of a BTU equivalent barrel
of the taxable oil and gas for the month is not more
than $92.50, the tax rate is 0.4 percent multiplied by
the number that represents the difference between that
average monthly production tax value of a BTU
equivalent barrel and $30; or
(B) if the producer's average monthly
production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) of a BTU equivalent barrel
of the taxable oil and gas for the month is more than
$92.50, the tax rate is the sum of 25 percent and the
product of 0.1 percent multiplied by the number that
represents the difference between the average monthly
production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) of a BTU equivalent barrel
and $92.50, except that the sum determined under this
subparagraph may not exceed 50 percent;
(2) the amount of tax for purposes of
(e)(2) of this section is determined by multiplying
the monthly production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) of the taxable oil and gas
produced during the month by the following tax rates,
as applicable:
(A) if the producer's average monthly
production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) of a BTU equivalent barrel
of the taxable oil and gas for the month is not more
than $42.50, the tax rate is 2.5 percent of the
difference between that average monthly production tax
value of a BTU equivalent barrel and $30;
(B) if the producer's average monthly
production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) of a BTU equivalent barrel
of the taxable oil and gas for the month is more than
$42.50 but not more than $55, the tax rates are
(i) 2.5 percent on the first $12.50 of
monthly production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) for each BTU equivalent
barrel that is greater than $30; and
(ii) 7.5 percent of the monthly production
tax value calculated under AS 43.55.160(a)(2)(A) - (E)
for each BTU equivalent barrel that is greater than
$42.50;
(C) if the producer's average monthly
production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) of a BTU equivalent barrel
of the taxable oil and gas for the month is more than
$55 but not more than $67.50, the tax rates are
(i) 2.5 percent on the first $12.50 of
monthly production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) for each BTU equivalent
barrel that is greater than $30;
(ii) 7.5 percent of the next higher $12.50
of monthly production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) for each BTU equivalent
barrel; and
(iii) 12.5 percent of the monthly
production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) for each BTU equivalent
barrel that is greater than $55;
(D) if the producer's average monthly
production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) of a BTU equivalent barrel
of the taxable oil and gas for the month is more than
$67.50 but not more than $80, the tax rates are
(i) 2.5 percent on the first $12.50 of
monthly production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) for each BTU equivalent
barrel that is greater than $30;
(ii) 7.5 percent of the next higher $12.50
of monthly production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) for each BTU equivalent
barrel;
(iii) 12.5 percent of the next higher
$12.50 of monthly production tax value calculated
under AS 43.55.160(a)(2)(A) - (E) for each BTU
equivalent barrel;
(iv) 17.5 percent of the monthly production
tax value calculated under AS 43.55.160(a)(2)(A) - (E)
for each BTU equivalent barrel that is greater than
$67.50;
(E) if the producer's average monthly
production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) of a BTU equivalent barrel
of the taxable oil and gas for the month is more than
$80 but not more than $92.50, the tax rates are
(i) 2.5 percent on the first $12.50 of
monthly production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) for each BTU equivalent
barrel that is greater than $30;
(ii) 7.5 percent of the next higher $12.50
of monthly production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) for each BTU equivalent
barrel;
(iii) 12.5 percent of the next higher
$12.50 of monthly production tax value calculated
under AS 43.55.160(a)(2)(A) - (E) for each BTU
equivalent barrel;
(iv) 17.5 percent of the next higher $12.50
of monthly production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) for each BTU equivalent
barrel; and
(v) 22.5 percent of the monthly production
tax value calculated under AS 43.55.160(a)(2)(A) - (E)
for each BTU equivalent barrel that is greater than
$80;
(F) if the producer's average monthly
production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) of a BTU equivalent barrel
of the taxable oil and gas for the month is more than
$92.50, the tax rates are
(i) 2.5 percent on the first $12.50 of
monthly production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) for each BTU equivalent
barrel that is greater than $30;
(ii) 7.5 percent of the next higher $12.50
of monthly production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) for each BTU equivalent
barrel;
(iii) 12.5 percent of the next higher
$12.50 of monthly production tax value calculated
under AS 43.55.160(a)(2)(A) - (E) for each BTU
equivalent barrel;
(iv) 17.5 percent of the next higher $12.50
of monthly production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) for each BTU equivalent
barrel;
(v) 22.5 percent of the next higher $12.50
of monthly production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) for each BTU equivalent
barrel; and
(vi) 25 percent of the monthly production
tax value calculated under AS 43.55.160(a)(2)(A) - (E)
for each BTU equivalent barrel that is greater than
$92.50;
(3) for purposes of this subsection, the
average monthly production tax value calculated under
AS 43.55.160(a)(2)(A) - (E) of a BTU equivalent barrel
of taxable oil and gas is calculated by
(A) adding all of the monthly production
tax values determined calculated under
AS 43.55.160(a)(2)(A) - (E); and
(B) dividing the sum calculated under (A)
of this paragraph by the total amount, in BTU
equivalent barrels, of
(i) taxable oil produced by the producer
during the month;
(ii) taxable gas produced by the producer
during the month from a lease or property in the Cook
Inlet sedimentary basin; and
(iii) taxable gas produced by the producer
during the month from a lease or property outside the
Cook Inlet sedimentary basin and used in the state."
Page 8, line 19, following "percent":
Insert ", or 15 percent, as applicable under
AS 43.55.011(e),"
Page 8, line 20:
Delete "AS 43.55.011(g)"
Insert "AS 43.55.011(g)(1) or (2), as applicable"
Page 8, line 22, following "percent":
Insert ", or 15 percent, as applicable under
AS 43.55.011(e),"
Page 9, line 1, following "percent":
Insert ", or 15 percent, as applicable under
AS 43.55.011(e),"
Page 9, line 2:
Delete "AS 43.55.011(g)"
Insert "AS 43.55.011(g)(1) or (2), as applicable"
Page 9, line 4, following "percent":
Insert ", or 15 percent, as applicable under
AS 43.55.011(e)"
Page 9, line 10:
Following "percent":
Insert ", or 15 percent, as applicable under
AS 43.55.011(e),"
Delete "AS 43.55.011(g)"
Insert "AS 43.55.011(g)(1) or (2), as applicable"
CO-CHAIR PASKVAN objected for purposes of discussion.
4:22:46 PM
At ease from 4:22 to 4:24 p.m.
4:24:13 PM
SENATOR MCGUIRE explained that this is progressivity bracketed
(without the two higher brackets) and it applies only to new
fields. Existing production is expected to decline at 7 to 11
percent annually to just 336,000 barrels a day by FY2017.
According to the fall 2012 revenue forecast Alaska would then
need to bring on 200,000 barrels a day of new production just to
maintain current production. She wanted them to remember that as
they look at the system of incentives.
Amendment E.17 attacks this problem from a slightly different
angle; it doesn't affect any current production. She doesn't see
it as a give back to corporations, but as a correction to
something they over-reached on. It reduces the base tax rate to
15 for new fields outside existing units for seven years; it
adopts a bracketed progressivity system similar to B.5 with a
top bracket of 25 percent for the first seven years of sustained
production and then those fields would revert to the regular
ACES regime.
SENATOR MCGUIRE said she has heard from new explorers, in
particular, who have explained how important changing ACES is
for them. One company has secured a contract for development
that would lead to 1,400 new Alaskan jobs that is specifically
contingent on passage of ACES.
She was president of a group called the Pacific Northwest
Economic Region during the same time [2007] that Alberta adopted
a windfall profits tax. The net effect of that was that industry
investment declined by 50 percent. Dr. van Meurs said the
experience of Alberta which faces a declining conventional oil
production like Alaska indicates that designing lower fiscal
terms in the 50 to 60 percent range of government take for
higher cost resources is a viable strategy to increase
production. Once Alberta ratcheted back its tax regime they got
back the business they had lost largely to places like
Saskatchewan, which had taken advantage of the opportunity and
incentivized its oil industry. Alberta came back after a
competitiveness review and modified their system in 2009 to
2010; and the changes resulted in a rebound in investment from
$10.6 billion in 2008 to $16 billion by 2011 and record land
sales that surpassed previous records by over $400 million.
SENATOR MCGUIRE said that Dr. van Meurs used Alberta as a model
and went on to say the 60 to 65 percent government take for more
costly new light oil resources as proposed in HB 110 and HB 117
is a reasonable level from an international perspective.
Amendment E.17 adopts this level of government take for new
undeveloped fields outside of existing units. To be fair, he
said bracketed progressivity was a complicated approach and one
in which they wouldn't know the full effects. He recommended
other approaches which have been in amendments here and might be
discussed in the Senate Finance Committee. She hadn't seen them
modeled and hadn't heard commitments from industry, so she was
going to rely on E.17 for now.
4:29:30 PM
SENATOR FRENCH asked why the amendment uses the date of 2008.
MIKE PAWLOWSKI, staff to Senator McGuire, explained that
December 31, 2008 is the bright line that was drawn about
commercial production not within an existing unit to distinguish
between what the amendment is attempting to do, which is only to
affect projects outside of the existing units.
SENATOR FRENCH asked if the amendment would apply to Prudhoe
Bay, Kuparuk and Alpine.
MR. PAWLOWSKI answered no.
SENATOR FRENCH said he would be a no vote, but it comes closer
than the previous one did. This is what they need to be focused
on, but leaving out Prudhoe Bay is where a lot of oil can be
moved. It's still one of the biggest reservoirs left in North
America. A 1 or 2 percent production increase at Prudhoe Bay
will swamp a lot of smaller new fields. He liked the idea
because they must be focused on incentivizing new oil no matter
where it comes from.
4:31:42 PM
SENATOR STEDMAN said he would oppose the amendment. It's on
point in working on incremental production, but they need to be
careful to not make the system too complex. The issue is still
in the middle of the table.
CO-CHAIR PASKVAN maintained his objection and asked for a roll
call vote. Senators McGuire and Wagoner voted yea; Senators
Stevens, Stedman, Wielechowski, French, and Paskvan voted nay;
so the amendment failed.
4:33:17 PM
SENATOR WIELECHOWSKI offered Amendment E.10.
27-LS1305\E.10
Nauman/Bullock
A M E N D M E N T
OFFERED IN THE SENATE
TO: CSSB 192(RES), Draft Version "E"
Page 1, line 1, following "tax;":
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 4, following line 28:
Insert new bill sections to read:
"* Sec. 5. 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. 6. 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. 7. 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."
Renumber the following bill sections accordingly.
Page 21, line 8, following "APPLICABILITY.":
Insert "(a)"
Page 21, line 9:
Delete "sec. 13"
Insert "sec. 16"
Page 21, following line 12:
Insert a new subsection to read:
"(b) Section 5 of this Act and
AS 38.085.180(hh), enacted by sec. 7 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. 5 and 7 of this Act."
Page 21, line 13:
Delete all material and insert:
"* Sec. 21. Sections 5 - 7 of this Act take effect
July 1, 2013.
* Sec. 22. Except as provided in sec. 21 of this
Act, this Act takes effect January 1, 2013."
CO-CHAIR PASKVAN objected for discussion purposes.
SENATOR WIELECHOWSKI said this is a pro development amendment
and that he is in alignment with Senator Wagoner with the issue
that one of the bigger problems on the North Slope is the
leasing structure. This amendment requires companies before
submitting leases to submit a minimum work plan. This avoids the
situation where companies go out and bid on tracts of land with
no intention or funding to actually ever go ahead and explore on
it. Recently, a producer acquired 34 tracts of land on the North
Slope and next week the Petroleum News reported they didn't have
any plan to develop them; they wanted to see what would happen
with the ACES tax structure. That is the wrong approach from his
perspective.
When you bid on a lease in the State of Alaska you have a legal
obligation to explore and if you find oil to develop it, Senator
Wielechowski said. Unfortunately that is not the way the state's
leases are being handled. They are being handled as options to
explore and options to develop. They have learned through the
short time of this amendment's existence that 25 percent of the
state's leases, hundreds, having nothing going on with them.
There have been no seismic studies, no permit applications
nothing; they're idle.
4:35:13 PM
As the sovereign they can do a better job; this amendment
requires minimum work commitments. It says if you want to
acquire a lease in Alaska you have to have some minimum
standards, some sort of a plan to come in and not simply use
this as an option.
The second thing it does is require a review of existing leases
and plans of developments. The goal is to see whether the
lessees are complying with their current plans of developments
and whether they should be revised. He said the Constitution
says they have an obligation to get the maximum benefit for the
resource and this would ensure that the state's land is being
developed. It also requires the Department of Revenue and
Department of Natural Resources to perform an economic analysis
on each participating area to determine whether it is capable of
increased production. Thirdly, it ensures the terms of existing
leases are enforced. He thought this measure would get more oil
in the pipeline with more exploration and drilling, and would
better align the state with industry.
SENATOR WIELECHOWSKI said he recognized this amendment didn't
have much vetting and needed more work and he was hopeful it
would get a hearing. He withdrew the amendment.
4:37:15 PM
SENATOR STEVENS moved to report CSSB 192(RES), version E, from
committee with individual recommendations and attached fiscal
note(s) and forthcoming fiscal information.
CO-CHAIR WAGONER objected.
4:38:08 PM
SENATOR FRENCH said he wanted to speak to the objection. He said
it's very difficult to move a bill like this through the
committee. He congratulated the chair on doing that and
balancing the philosophical divisions and scheduling issues. He
said the committee had put hundreds of hours of time into this
both in the committee and in their offices.
He said this bill makes a significant concession to the oil
industry in terms of progressivity and hundreds of millions of
dollars. It hasn't meant with much "industry love," but that is
a negotiating posture. "That is what the oil industry does." So,
they are negotiating and the focus of this bill is about new oil
and every person in this room is united around that concept.
With that idea they can move forward.
4:40:29 PM
CO-CHAIR WAGONER stated that he talked to a lot of people about
another amendment, but he decided not to offer it because he
hadn't seen the modeling that goes with the bill. He expected
that to be done in Finance, but he thought the tax holiday was
the way to go. He said his staff worked many hours and days on
the amendment, but without the modeling it's only half way
there.
CO-CHAIR PASKVAN noted the objection and asked for a roll call
vote. Senators McGuire and Wagoner voted nay and Senators
Stevens, Wielechowski, French, Stedman and Paskvan voted yea;
therefore, CSSB 192(RES), version E, moved from the Senate
Resources Standing Committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB192-DNR-DOG-2-10-12.pdf |
SRES 3/2/2012 3:30:00 PM |
SB 192 |
| SB192-DOR-TAX-02-09-12.pdf |
SRES 3/2/2012 3:30:00 PM |
SB 192 |
| CS SB 192_Version E_03-01-2012.pdf |
SRES 3/2/2012 3:30:00 PM |
SB 192 |
| Amendments to CS for SB 192_Version D.pdf |
SRES 3/2/2012 3:30:00 PM |
SB 192 |