Legislature(2011 - 2012)BUTROVICH 205

03/30/2012 03:30 PM RESOURCES

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* first hearing in first committee of referral
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= bill was previously heard/scheduled
Heard & Held
Heard & Held
<Public Testimony>
+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
         SB 145-OIL/GAS PRODUCTION TAX CREDITS: NENANA                                                                      
3:34:45 PM                                                                                                                    
CO-CHAIR WAGONER announced consideration of  SB 145 and said that                                                               
he  had  objected  to  adoption   of  Version  D  for  discussion                                                               
purposes.  Today  the  committee   would  ask  questions  of  the                                                               
Department of Law, the Department  of Revenue and the Division of                                                               
Oil and Gas.                                                                                                                    
He asked if anyone wanted to  testify on SB 145 and finding none,                                                               
closed the public hearing.                                                                                                      
SENATOR  WIELECHOWSKI asked  if a  combination of  tax deductions                                                               
and credits add up to be  more than 100 percent if the state-wide                                                               
progressivity rate were to be reduced.                                                                                          
3:37:12 PM                                                                                                                    
JOHN  LARSEN,   Audit  Master,   Department  of   Revenue  (DOR),                                                               
Anchorage,  AK,  said  to  properly  answer  that  question,  two                                                               
different scenarios would  have to be considered. In  the case of                                                               
costs incurred from  a segment that was  currently in production,                                                               
a lease expenditure  deduction under a net tax system  would be a                                                               
tax benefit  and a combination  of lease  expenditure deductions,                                                               
progressivity  rate and  tax credits  could  possibly exceed  the                                                               
amount of  the investment. However,  it wouldn't be  possible for                                                               
costs incurred from  a segment that was  not currently producing,                                                               
because there would  be no revenues in the segment  with which to                                                               
offset  the lease  expenditures. Under  the proposed  language in                                                               
the bill, there  are no credits available for  carry forward loss                                                               
credits or any other credit under [AS 43.55.025].                                                                               
CO-CHAIR  WAGONER  asked  if  there was  any  production  in  the                                                               
geographic area that SB 145 relates to.                                                                                         
MR. LARSEN  replied no  and they  commonly refer  to that  area -                                                               
south of 68 degrees north latitude - as "Middle Earth."                                                                         
SENATOR WIELECHOWSKI  asked if he  meant that the  state couldn't                                                               
exceed 100 percent for companies  that aren't producing right now                                                               
as well as existing companies that are producing.                                                                               
MR. LARSEN  answered that a  company in current  production could                                                               
not exceed the 100 percent,  because the lease expenditures for a                                                               
certain  segment  are  ring-fenced  while a  tax  credit  can  be                                                               
exported and applied against any tax liability in the state.                                                                    
SENATOR  WIELECHOWSKI  said  the   lease  expenditures  are  ring                                                               
fenced, but what  about the reduction of the tax  rate due to the                                                               
reduced per barrel profits.                                                                                                     
MR.  LARSEN   replied  the  answer   was  still  no.   The  lease                                                               
expenditures under the  bill basically end right  there and won't                                                               
affect    anyone's   progressivity.    Typically,   when    lease                                                               
expenditures exceed the  gross value at the  point of production,                                                               
the excess  is allowed to be  a carry forward annual  loss credit                                                               
under AS 43.55.023(b), but the  language of the bill specifically                                                               
precludes any credits under AS  43.55.023 or any other section of                                                               
AS 43.55.025.                                                                                                                   
3:41:42 PM                                                                                                                    
SENATOR WIELECHOWSKI  asked if this  bill would apply to  any oil                                                               
and gas producing fields north of 68 degrees latitude.                                                                          
MR. LARSEN answered that was his understanding.                                                                                 
CO-CHAIR  WAGONER recognized  that Senator  Cathy Giessel  was in                                                               
SENATOR  WIELECHOWSKI   asked  him  to  talk   about  the  public                                                               
information the state  would get under this bill  in exchange for                                                               
providing credits.                                                                                                              
MR.  LARSEN answered  that  the information  that  would be  made                                                               
public through this bill would be  the seismic and well data; the                                                               
provisions  in  the  bill  expedite its  release  above  what  is                                                               
ordinarily prescribed in other statutes.                                                                                        
3:43:10 PM                                                                                                                    
SENATOR WIELECHOWSKI asked where it says "ring-fenced."                                                                         
MR. LARSEN responded that was just how the tax basically worked.                                                                
SENATOR WIELECHOWSKI  asked if  a company  could write  off lease                                                               
expenditures  and  capital  credits  from  production  elsewhere,                                                               
resulting in a negative tax.                                                                                                    
MR.  LARSEN  replied  no; lease  expenditures  from  one  segment                                                               
cannot be  exported to another  segment -  the idea of  the ring-                                                               
fencing.  A credit  can  be  used anywhere  in  the  state a  tax                                                               
liability is  due to  the state.  So a  producer could  apply tax                                                               
credits from  other areas of  the state  to the tax  liability of                                                               
production in  the Middle Earth  area if  it would have  any. The                                                               
reciprocal is  also true that  tax credits from the  Middle Earth                                                               
area could be  exported and applied against a  tax liability from                                                               
other segments in the state.                                                                                                    
CO-CHAIR PASKVAN  asked him why  a company would pick  the system                                                               
under  this  section as  compared  to  the current  structure  of                                                               
3:46:16 PM                                                                                                                    
MR. LARSEN  answered that  the benefit  in SB  145 would  allow a                                                               
credit under AS 43.55.025 and that  would allow a credit of $22.5                                                               
million or 80  percent of the total  exploration expenditures for                                                               
a well, no more  than two of which could be  within any one basin                                                               
area.  Under  AS  43.55.025,  the   producers  or  explorers  are                                                               
eligible for credits  up to 40 percent depending  on the location                                                               
of the  exploration, which  would apply, given  that there  is no                                                               
production  within  the  Middle  Earth area.  But  the  remaining                                                               
sections of AS  43.55.025 have caps or limitations  on the amount                                                               
of the expenditures to which credits could be earned against.                                                                   
SENATOR WIELECHOWSKI asked  if the DOR had  modeled any scenarios                                                               
on how this would impact the  treasury if there were to be fields                                                               
of 10/25/100 thousand barrels/day of production.                                                                                
MR. LARSEN answered no.                                                                                                         
SENATOR WIELECHOWSKI asked if he could do that.                                                                                 
MR. LARSEN  said he would be  happy to do  that if he could  be a                                                               
little more definitive about what he wanted modeled.                                                                            
SENATOR  WIELECHOWSKI asked  if the  DOR had  concerns about  the                                                               
state losing money with a large oil find.                                                                                       
MR. LARSEN answered  yes; it was his absolute  fiduciary duty for                                                               
the state as a certified public accountant.                                                                                     
3:50:06 PM                                                                                                                    
SENATOR WIELECHOWSKI  asked if the administration  supported this                                                               
MR. LARSEN replied no; this  is not the administration's bill and                                                               
they have  no position  on it.  He asked  for parameters  for the                                                               
modeling he  wanted him to  provide saying that he  would forward                                                               
that to the appropriate people and try to get it done for him.                                                                  
SENATOR WIELECHOWSKI said he would get him something.                                                                           
CO-CHAIR  WAGONER,  finding  no  further  questions,  closed  the                                                               
public hearing on SB 145 and held it in committee.                                                                              

Document Name Date/Time Subjects
SB145CS(RES)-DNR-DOG-03-29-12.pdf SRES 3/30/2012 3:30:00 PM
SB 145
SB145CS(RES)-DOR-TAX-03-29-12.pdf SRES 3/30/2012 3:30:00 PM
SB 145