Legislature(2011 - 2012)BUTROVICH 205

04/02/2012 03:30 PM RESOURCES


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Bills Previously Heard/Scheduled
+= SB 145 OIL/GAS PRODUCTION TAX CREDITS: NENANA TELECONFERENCED
Moved CSSB 145(RES) Out of Committee
+= SB 219 DISPOSALS OF STATE RESOURCES TELECONFERENCED
Moved CSSB 219(RES) Out of Committee
+= SB 215 GASLINE DEV. CORP: IN-STATE GAS PIPELINE TELECONFERENCED
Moved SB 215 Out of Committee
<Public Hearing>
         SB 145-OIL/GAS PRODUCTION TAX CREDITS: NENANA                                                                      
                                                                                                                                
4:00:37 PM                                                                                                                    
CO-CHAIR  WAGONER announced  consideration of  SB 145  [Version D                                                               
was  before the  committee].  He  said there  was  a request  for                                                               
modeling  at  the   last  meeting,  but  it   involved  too  much                                                               
speculation  and  too  many  hypotheticals  to  consider,  so  he                                                               
withdrew the request.                                                                                                           
                                                                                                                                
4:01:53 PM                                                                                                                    
SENATOR WIELECHOWSKI said  his staff ran some modeling  on SB 145                                                               
assuming 10,000 barrels a day at  $110 to get a rough estimate of                                                               
a  production tax  value of  $60 ($10  transportation costs,  $20                                                               
OPEX  and $20  CAPEX), and  they came  up with  a production  tax                                                               
value of  about $190 million,  which under ACES (backing  out tax                                                               
credits and deductions)  would generate a revenue  of $38 million                                                               
to the  state. The 4  percent gross tax  under SB 145  appears to                                                               
generate a negative cash flow of  $14 million to the company from                                                               
the state.                                                                                                                      
                                                                                                                                
CO-CHAIR WAGONER  said he appreciated  that, but would  feel more                                                               
comfortable with  Legislative Research modeling or  modeling from                                                               
Senator Stedman's consultants.                                                                                                  
                                                                                                                                
CO-CHAIR PASKVAN commented  that he didn't want  the committee to                                                               
get too bound  up by the potential negative cash  flow concept to                                                               
the  state  of Alaska,  because  Cook  Inlet  has had  an  annual                                                               
negative  cash flow  of $80  million  for many  years. The  whole                                                               
concept of  opening up the  Nenana Basin  is that the  state puts                                                               
something into it in terms  of reductions in costs and incentives                                                               
- as long as there are tight parameters on time.                                                                                
                                                                                                                                
4:05:57 PM                                                                                                                    
SENATOR WIELECHOWSKI moved Amendment 1.                                                                                         
                                                                                                                                
                                                 27-LS1078\D.3                                                                  
                                                       Nauman                                                                   
                          AMENDMENT 1                                                                                       
                                                                                                                                
     OFFERED IN THE SENATE                                                                                                      
     BY SENATORS WIELECHOWSKI AND FRENCH                                                                                        
     TO:  CSSB 145(   ), Draft Version "D"                                                                                      
                                                                                                                                
     Page 1, line 3, following "basins;":                                                                                     
          Insert "relating to certain nontransferable oil                                                                     
     and gas production tax credits;"                                                                                         
                                                                                                                                
     Page 2, following line 8:                                                                                                  
     Insert a new bill section to read:                                                                                         
        "* Sec. 3. AS 43.55.024(b) is amended to read:                                                                      
          (b)  A producer may not take a tax credit under                                                                       
     (a) of  this section  for any  calendar year  after the                                                                    
     later of                                                                                                                   
               (1)  2021 [2016]; or                                                                                         
               (2)  the ninth calendar year after the                                                                           
     calendar  year  during  which the  producer  first  has                                                                    
     commercial  oil or  gas production  before May 1,  2021                                                                
     [2016],  from at  least one  lease or  property in  the                                                                    
     state  outside the  Cook  Inlet  sedimentary basin,  no                                                                    
     part of  which is north  of 68 degrees  North latitude,                                                                    
     if  the producer  did not  have commercial  oil or  gas                                                                    
     production  from  a  lease or  property  in  the  state                                                                    
     outside the  Cook Inlet sedimentary  basin, no  part of                                                                    
     which  is north  of 68  degrees North  latitude, before                                                                    
     April 1, 2006."                                                                                                            
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
SENATOR WIELECHOWSKI explained applies statewide and expands the                                                                
small producer tax in AS 43.55.024(b) credit until 2021, because                                                                
some small producers were concerned that it may expire.                                                                         
                                                                                                                                
SENATOR FRENCH said the Revenue Sources Book said the net fiscal                                                                
effect of this credit was $38 million last year and that it                                                                     
makes sense for people to be able to plan on it.                                                                                
                                                                                                                                
CO-CHAIR WAGONER, finding no objections, announced that                                                                         
Amendment 1 was adopted.                                                                                                        
                                                                                                                                
4:08:12 PM                                                                                                                    
SENATOR WIELECHOWSKI moved Amendment 2.                                                                                         
                                                                                                                                
                                                 27-LS1078\D.4                                                                  
                                                       Nauman                                                                   
                          AMENDMENT 2                                                                                       
                                                                                                                                
     OFFERED IN THE SENATE                                                                                                      
     BY SENATORS WIELECHOWSKI AND FRENCH                                                                                        
     TO:  CSSB 145(   ), Draft Version "D"                                                                                      
                                                                                                                                
     Page 1, line 3:                                                                                                            
          Delete "and"                                                                                                        
          Insert "relating to information concerning oil                                                                      
     and  gas  taxes,  including information  that  must  be                                                                  
     provided in  order to claim  an oil and  gas production                                                                  
     tax  credit   for  those   expenditures,  and   to  the                                                                  
     disclosure of that information;"                                                                                         
                                                                                                                                
     Page 1, line 4, following "latitude":                                                                                    
         Insert "; and providing for an effective date"                                                                       
                                                                                                                                
     Page 7, following line 2:                                                                                                  
     Insert new bill sections to read:                                                                                          
        "* Sec. 6. AS 43.55.030(a) is amended to read:                                                                      
          (a)  A producer that produces oil or gas from a                                                                       
     lease or property in the  state during a calendar year,                                                                    
     whether   or  not   any  tax   payment  is   due  under                                                                    
     AS 43.55.020(a) for  that oil  or gas, shall  file with                                                                    
     the  department on  March 31 of  the  following year  a                                                                    
     statement,  under oath,  in a  form  prescribed by  the                                                                    
     department, giving, with  other information required by                                                                
     the  department  under  a  regulation  adopted  by  the                                                                
     department, the following:                                                                                             
               (1)  a description of each lease or property                                                                     
     from  which oil  or gas  was produced,  by name,  legal                                                                    
     description,   lease   number,  or   accounting   codes                                                                    
     assigned by the department;                                                                                                
               (2)  the names of the producer and, if                                                                           
     different, the person paying the tax, if any;                                                                              
               (3)  the gross amount of oil and the gross                                                                       
     amount  of gas  produced from  each lease  or property,                                                                    
     and the percentage  of the gross amount of  oil and gas                                                                    
     owned by the producer;                                                                                                     
               (4)  the gross value at the point of                                                                             
     production  of the  oil and  of the  gas produced  from                                                                    
     each lease  or property owned  by the producer  and the                                                                    
     costs of transportation of the oil and gas;                                                                                
               (5)  the name of the first purchaser and the                                                                     
     price  received for  the oil  and for  the gas,  unless                                                                    
     relieved from this  requirement in whole or  in part by                                                                    
     the department;                                                                                                            
               (6)  the producer's qualified capital                                                                            
     expenditures, as  defined in AS 43.55.023,  other lease                                                                    
     expenditures  under  AS 43.55.165, and  adjustments  or                                                                    
     other payments or credits under AS 43.55.170;                                                                              
               (7)   the  production tax  values of  the oil                                                                    
     and gas under AS 43.55.160;                                                                                                
               (8)    any  claims  for  tax  credits  to  be                                                                    
     applied; [AND]                                                                                                             
               (9)   calculations  showing  the amounts,  if                                                                    
     any,  that were  or are  due under  AS 43.55.020(a) and                                                                    
     interest on any underpayment or overpayment; and                                                                       
               (10)  for each expenditure  that is the basis                                                                
     for a  credit claimed under AS 43.55.023  or 43.55.025,                                                                
     a   description   of   the  expenditure,   a   detailed                                                                
     description of  the purpose of  the expenditure,  and a                                                                
     description  of the  lease or  property  for which  the                                                                
     expenditure      was     incurred;      notwithstanding                                                                
     AS 40.25.100(a)   and    AS 43.05.230(a),   information                                                                
     submitted under this paragraph may  be disclosed to the                                                                
     public and shall  be disclosed to the  legislature in a                                                                
     report submitted within 10 days  after the convening of                                                                
     the  next  regular  legislative session  following  the                                                                
     date a statement is filed under this subsection.                                                                       
        * Sec. 7. AS 43.55.030(e) is amended to read:                                                                         
          (e)  An explorer or producer that incurs a lease                                                                      
     expenditure  under AS 43.55.165  or receives  a payment                                                                    
     or  credit under  AS 43.55.170 during  a calendar  year                                                                    
     but  does  not produce  oil  or  gas  from a  lease  or                                                                    
     property in  the state during  the calendar  year shall                                                                    
     file with  the department on March 31  of the following                                                                    
     year a statement,  under oath, in a  form prescribed by                                                                    
     the   department,   giving,  with   other   information                                                                    
     required by  the department under a  regulation adopted                                                                
     by the department, the following:                                                                                      
               (1)     the   producer's  qualified   capital                                                                    
     expenditures, as  defined in AS 43.55.023,  other lease                                                                    
     expenditures  under  AS 43.55.165, and  adjustments  or                                                                    
     other payments or credits under AS 43.55.170; [AND]                                                                        
               (2)   if the explorer or  producer receives a                                                                    
     payment  or  credit  under  AS 43.55.170,  calculations                                                                    
     showing whether the explorer or  producer is liable for                                                                    
     a  tax under  AS 43.55.160(d) or  43.55.170(b) and,  if                                                                    
     so, the amount; and                                                                                                    
               (3)   for each expenditure that  is the basis                                                                
     for a  credit claimed under AS 43.55.023  or 43.55.025,                                                                
     a   description   of   the  expenditure,   a   detailed                                                                
     description of  the purpose of  the expenditure,  and a                                                                
     description  of the  lease or  property  for which  the                                                                
     expenditure      was     incurred;      notwithstanding                                                                
     AS 40.25.100(a)   and    AS 43.05.230(a),   information                                                                
     submitted under this paragraph may  be disclosed to the                                                                
     public and shall  be disclosed to the  legislature in a                                                                
     report submitted within 10 days  after the convening of                                                                
     the  next  regular  legislative session  following  the                                                                
     date a statement is filed under this subsection.                                                                       
       * Sec. 8. Sections 6 and 7 of this Act take effect                                                                     
     July 1, 2012."                                                                                                             
                                                                                                                                
SENATOR WIELECHOWSKI  explained that  the amendment  requires the                                                               
disclosure of  three items: a  description of the  expenditure, a                                                               
detailed  description of  the purpose  of the  expenditure and  a                                                               
description of  the lease or  property for which  the expenditure                                                               
was  incurred.   That  information  will  be   made  public.  The                                                               
philosophy behind  this is that the  state is paying close  to $1                                                               
billion each year  in tax credits and they have  no idea where it                                                               
is going.  This will help find  out what those credits  are being                                                               
used for and it helps in managing the resource.                                                                                 
                                                                                                                                
4:10:01 PM                                                                                                                    
JOHANNA  BALES,  Deputy  Director, Tax  Division,  Department  of                                                               
Revenue (DOR), Anchorage,  AK, said she had a  couple of concerns                                                               
with Amendment  2. The  first primarily  dealt with  the language                                                               
and   the   way   the  amendment   is   constructed.   It   says:                                                               
"Notwithstanding,  AS  40.25.100  and AS  43.05.230(a)"  and  the                                                               
department  didn't   believe  that   language  allowed   them  to                                                               
completely  not  adhere  to those  statutes.  Exception  language                                                               
needs to be  put in those statutes  if they are going  to open up                                                               
taxpayer information to public disclosure.                                                                                      
                                                                                                                                
The other concern  she explained was right now when  they look at                                                               
tax  credits  specifically  for   audit  purposes,  they  receive                                                               
millions of lines  of data information just like they  do for tax                                                               
returns, and when they conduct  audits they look at categories of                                                               
credits. This amendment  would require the department  to look at                                                               
each expenditure  and she assumed  categorize it  for disclosure.                                                               
But there is no language giving  them any idea of how the sponsor                                                               
wanted those expenditures to be categorized.                                                                                    
                                                                                                                                
MS. BALES  said the second  part of  the amendment talks  about a                                                               
detailed description of  the purpose of the  expenditure and they                                                               
were not entirely sure what the intention was.                                                                                  
                                                                                                                                
Another  concern  Ms.  Bales  said they  had  was  although  this                                                               
amendment  didn't require  identifying the  taxpayer, they  could                                                               
have instances  where a  lease or  property has  only one  of two                                                               
owners and by simply providing  that information, they would have                                                               
disclosed  the  taxpayer.  She  didn't   know  if  that  was  the                                                               
sponsor's intent either.                                                                                                        
                                                                                                                                
4:13:18 PM                                                                                                                    
MS. BALES said  another issue would be the cost  of being subject                                                               
to public records  requests. The minute this  information is made                                                               
public  and subject  to  disclosures they  would  be required  to                                                               
disclose this  information for any  individual that  requested it                                                               
and that would be disincentive  to companies to get these credits                                                               
if they  are concerned that  their proprietary  information might                                                               
be disclosed.                                                                                                                   
                                                                                                                                
SENATOR FRENCH asked  if language on page 2,  lines 17-24 (number                                                               
10 on a list  of 9 other items), on types  of information is sent                                                               
to the department by the producers.                                                                                             
                                                                                                                                
MS. BALES answered yes; that was correct.                                                                                       
                                                                                                                                
SENATOR FRENCH  asked if the other  nine items in that  list were                                                               
disclosed to the public, too.                                                                                                   
                                                                                                                                
MS. BALES  replied generally no,  unless it has  been aggregated,                                                               
and they aggregate at a high level.                                                                                             
                                                                                                                                
SENATOR FRENCH  asked if her  concern was with  language actually                                                               
in subsection  (10) that says it  may be disclosed to  the public                                                               
because it's treated differently than the other nine items.                                                                     
                                                                                                                                
MS. BALES  replied yes. Also, the  language on line 17  says "for                                                               
each  expenditure" and  in  their mind  an  expenditure is  every                                                               
single line item of expense.                                                                                                    
                                                                                                                                
SENATOR FRENCH  said that the  language was modified to  say "for                                                               
each expenditure  that is  the basis for  a credit  claimed under                                                               
.023 or .025."                                                                                                                  
                                                                                                                                
MS.  BALES replied  that each  expense item  is the  basis for  a                                                               
credit. If  they have to  categorize and identify each  and every                                                               
expense and identify  the purpose of that expense,  a little more                                                               
clarification  would  be  needed  on whether  they  wanted  every                                                               
single expense item or categories of expenditures.                                                                              
                                                                                                                                
SENATOR FRENCH said  if he were in her shoes,  he would be saying                                                               
it's the  producers' job to  do the categorizations. But  she was                                                               
saying it  would be the  department's job  and he didn't  want to                                                               
make her  do that.  He asked  if there  was language  causing her                                                               
confusion about whose job it is.                                                                                                
                                                                                                                                
MS. BALES  replied that  the producer would  have to  provide the                                                               
information,  but she  was confused  as to  what information  and                                                               
what  level  of  detail  and   assumed  that  the  producers  and                                                               
explorers would share that same confusion.                                                                                      
                                                                                                                                
SENATOR FRENCH  said they were  big boys  and could stick  up for                                                               
themselves and he wanted the  department's perspective on whether                                                               
this  amendment  would  require  them to  detail  things  and  to                                                               
categorize them.                                                                                                                
                                                                                                                                
MS.  BALES  answered that  the  department  would  have to  do  a                                                               
certain  amount  of  detail and  categorization,  because  if  an                                                               
explorer or producer  sent them information at  the expense level                                                               
and provided  the purpose of  each expenditure, they  would still                                                               
need to compile that data into a report.                                                                                        
                                                                                                                                
SENATOR FRENCH said he thought  they would be pulling information                                                               
out of one  spreadsheet and inserting it into  another until they                                                               
aggregated.                                                                                                                     
                                                                                                                                
MS. BALES  responded that would  be true,  and as simple  as that                                                               
might sound,  they get  data in all  sorts of  different formats.                                                               
They  don't have  an automated  system right  now, so  they would                                                               
have to  look at how this  information was provided and  it would                                                               
be helpful to  have a little bit more guidance  about whether the                                                               
producers and  explorers were  providing them  a report  that the                                                               
department was  providing to  the legislature  and the  public as                                                               
requested.                                                                                                                      
                                                                                                                                
SENATOR FRENCH said  that was his intent, but he  could see where                                                               
she would need a little more guidance.                                                                                          
                                                                                                                                
4:19:18 PM                                                                                                                    
CO-CHAIR  WAGONER  said  he wasn't  that  comfortable  with  this                                                               
either,  for a  little  bit  different reason.  Let's  say I'm  a                                                               
charter business  taking high end  charters out and am  forced by                                                               
APOC to  disclose each one  of those charters, because  it's over                                                               
the maximum allowable.  In doing that, he has just  opened up his                                                               
entire list  of business associates  to his competitors.  That is                                                               
why he couldn't support the amendment.                                                                                          
                                                                                                                                
SENATOR WIELECHOWSKI withdrew Amendment 2  and said he would work                                                               
with Senator  Wagoner, the Finance  Committee and  the department                                                               
to   provide  clear   guidance  and   not  have   any  unintended                                                               
consequences.                                                                                                                   
                                                                                                                                
4:21:15 PM                                                                                                                    
SENATOR FRENCH moved Amendment 3.                                                                                               
                                                                                                                                
                                                 27-LS1078\D.5                                                                  
                                                       Nauman                                                                   
                                                                                                                                
                          AMENDMENT 3                                                                                       
                                                                                                                                
     OFFERED IN THE SENATE                                                                                                      
     TO:  CSSB 145(   ), Draft Version "D"                                                                                      
                                                                                                                                
     Page 2, line 3:                                                                                                            
          Delete "seven"                                                                                                        
          Insert "four"                                                                                                         
                                                                                                                                
CO-CHAIR WAGONER objected for discussion purposes.                                                                              
                                                                                                                                
SENATOR FRENCH explained that this  was part of a conversation he                                                               
had  with  the Nana  folks  to  put  some  sidebar limit  to  the                                                               
extremely low  tax provisions  the state  is offering  under this                                                               
bill. They had  talked about using a barrel a  day limit, but the                                                               
drafter said  it was too  much. So he  simply limited it  down to                                                               
four years. He  was comfortable with four years, but  he would be                                                               
open to  five. His  idea was  to limit the  length of  time under                                                               
which these extremely low tax  provisions are offered; they might                                                               
need to look at Cook Inlet the same way.                                                                                        
                                                                                                                                
SENATOR  FRENCH moved  to amend  his amendment  to insert  "five"                                                               
instead of "four" on line 3.                                                                                                    
                                                                                                                                
CO-CHAIR PASKVAN  asked if  Doyon had  been contacted  about five                                                               
versus seven years.                                                                                                             
                                                                                                                                
CO-CHAIR WAGONER said  he talked to them in the  past a couple or                                                               
three times about it and didn't  think they would object to going                                                               
to five.                                                                                                                        
                                                                                                                                
4:23:47 PM                                                                                                                    
JAMES MERY,  Vice President, Lands and  Natural Resources, Doyon,                                                               
Limited, Fairbanks, AK,  said it depends on the price  of oil and                                                               
the size of  the find, but the number "five"  would work for them                                                               
in  the larger  context of  trying  to attract  capital to  these                                                               
projects.  It's  still  a  good period  of  protection  during  a                                                               
critical period of capital recovery.                                                                                            
                                                                                                                                
SENATOR WIELECHOWSKI remarked that they  were sort of shooting in                                                               
the dark  without modeling  and he  would support  the amendment,                                                               
but hoped it would get a thorough look in the Finance Committee.                                                                
                                                                                                                                
CO-CHAIR  WAGONER  removed his  objection  and  the amendment  to                                                               
Amendment  3  was  adopted. Finding  no  further  objections,  he                                                               
announced that Amendment 3 as amended was adopted.                                                                              
                                                                                                                                
CO-CHAIR WAGONER removed his objection to the CS.                                                                               
                                                                                                                                
CO-CHAIR  PASKVAN moved  to  report CSSB  145(  ), version\D,  as                                                               
amended by Amendments 1 and 3,  to the next committee of referral                                                               
with  individual  recommendations  and attached  fiscal  note(s).                                                               
There were no objections and  CSSB 145(RES) moved from the Senate                                                               
Resources Standing Committee.                                                                                                   

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