Legislature(2011 - 2012)HOUSE FINANCE 519
03/29/2011 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB110 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 110 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
March 29, 2011
2:09 p.m.
2:09:32 PM
CALL TO ORDERF
Co-Chair Stoltze called the House Finance Committee meeting
to order at 2:09 p.m.
MEMBERS PRESENT
Representative Bill Stoltze, Co-Chair
Representative Bill Thomas Jr., Co-Chair
Representative Anna Fairclough, Vice-Chair
Representative Mia Costello
Representative Mike Doogan
Representative Bryce Edgmon
Representative Les Gara
Representative David Guttenberg
Representative Mike Hawker (Alternate)
Representative Reggie Joule
Representative Tammie Wilson
MEMBERS ABSENT
(None)
ALSO PRESENT
Representative Alan Austerman; Senator Cathy Giessel;
Senator Tom Wagoner; Bryan Butcher, Commissioner,
Department of Revenue; Cheryl Nienhuis, Petroleum Economic
Policy Analyst, Division of Tax, Department of Revenue;
Representative Eric Feige, Chair, House Resources
Committee.
SUMMARY
HB 110 PRODUCTION TAX ON OIL AND GAS
CSHB 110(FIN) was REPORTED out of Committee with
a "do pass" recommendation and with new zero note
by the Department of Natural Resources, new zero
note by the Department of Labor and Workforce
Development, and new fiscal impact note by the
Department of Revenue.
HOUSE BILL NO. 110
"An Act relating to the interest rate applicable to
certain amounts due for fees, taxes, and payments made
and property delivered to the Department of Revenue;
relating to the oil and gas production tax rate;
relating to monthly installment payments of estimated
oil and gas production tax; relating to oil and gas
production tax credits for certain expenditures,
including qualified capital credits for exploration,
development, and production; relating to the
limitation on assessment of oil and gas production
taxes; relating to the determination of oil and gas
production tax values; making conforming amendments;
and providing for an effective date."
2:10:23 PM
Co-Chair Stoltze reviewed the amendment and fiscal note
process and stated his intent to report the bill out of
committee.
Representative Gara queried the fiscal note.
BRYAN BUTCHER, COMMISSIONER, DEPARTMENT OF REVENUE,
reviewed the fiscal note. He noted that the department
would cover pages 2 and 3 of the analysis section and
pointed out that page 4 provided a side-by-side listing of
the expected effects of the fiscal note.
Commissioner Butcher detailed that the interest rate on
delinquent taxes would change from the greater 5 percentage
points, or 11 percent to the lesser of 3 percentage points,
or 11 percent. Over the last three fiscal years, the
average annual net revenue to the state was about $30
million in revenue to the general fund and about $111
million in revenue to the Constitutional Budget Reserve
(CBR), or about $140 million total. Both underpayments that
a company would have to pay to the state and overpayments
that the state would have to pay back to a company would be
affected. Passage of HB 110 (based on the estimates of the
past three years) would result in reductions of about $50
million to $60 million; the number would vary greatly
depending on the year and the activities. He stressed that
the department could not predict either overpayments or
underpayments.
2:14:14 PM
Representative Doogan asked what would be reduced.
Commissioner Butcher responded that the interest rate on
delinquent taxes would be lowered from the greater of 11
percent or the fed plus 5 percentage points to 11 percent
or the fed plus 3 percentage points the lesser of.
Representative Doogan asked whether the cost to the state
would be bigger or smaller.
Commissioner Butcher answered that currently, rates were
being compounded quarterly. The statute referred to a time
when interest rates were very high; 11 percent was not
unusual. With the last few years of low fiscal interest
rate environments, it was prohibitive on the company side
and the state side because of quarterly compounding. The
amount paid in interest would almost equal the amount of
the taxes owed if there were a couple years building up.
Representative Doogan queried the $60 million number.
Commissioner Butcher answered the amount was a ballpark
number.
Representative Guttenberg noted that the title of the bill
referred to the interest rate. He hoped the bill was mostly
about increasing exploration, development, and production.
He queried the effect of the proposed change.
Commissioner Butcher responded that the piece was a clean-
up rather than a change in order to put more production
into the pipeline. He explained that the department had
discretion (depending on the circumstances) regarding the
amount of taxes paid or owed, but not with the interest.
Discussions had revealed the opinion that having to pay
such a high interest on an overpayment or underpayment in
the current low-interest environment made sense and was not
any fault of the company or the state; it might have had to
do with regulation change.
Representative Guttenberg wanted to see more understanding
about the fiscal relationship. He believed the action
should be taken if it made sense; he did not want to
penalize people for under- or over-reporting. He thought
there could be a quantitative revenue impact on somebody.
2:18:58 PM
Commissioner Butcher thought the change could provide a net
increase to the state in some years; the department still
felt there needed to be a change.
Representative Guttenberg did not think the state should
look forward to delinquent tax charges, but should be
helping people.
Commissioner Butcher addressed the second change, dealing
with one of three large policy pieces of the bill: changing
the taxes from the current progressivity rate to brackets
as well as capping them at 50 percent. He pointed out that
the fiscal note showed the change in two different charts.
The first chart focused on production tax only (page 2 of 4
of the fiscal note analysis). The first column showed the
projected reductions in revenue over the years covered by
the fiscal note (based on the Department of Revenue (DOR)
preliminary spring revenue forecast) and estimates about
what the numbers would look like if there was an increase
in production. He noted that increased production would
result in an increase in credits as well as spending, which
had been factored in.
Commissioner Butcher continued that the second chart showed
production tax plus total royalties. The first chart only
showed production tax; the second chart included the
royalty piece that would result from increased production
and provided more of a big-picture view based on production
scenarios.
2:21:27 PM
Representative Gara directed attention to column 2 and
asked whether forecasting 5 percent meant 5 percent more
than the forecasted decline. He wondered whether the
forecast of 5 percent meant essentially zero or a 10
percent increase in production, erasing the 5 percent
decline plus adding 5 percent more.
Commissioner Butcher answered that the 5 percent forecast
meant 5 percent on the total production number; if the
number was $600,000, it would mean a 5 percent increase on
the $600,000.
Representative Gara asked whether the number was 5 percent
above what was forecast or 5 percent above the current
year's level.
Commissioner Butcher replied 5 percent above what was
forecast.
Commissioner Butcher turned to Analysis 3 (page 3). He
explained that the item had to do with production tax for
areas that had not been commercialized or unitized, of 15
percent with brackets of progressivity up to 40 percent.
The fields were ones that had never had production; the
fiscal note was zero, but the number would be positive if
there was any production at all as a result of HB 110. He
emphasized that the number could not go negative, but there
was not a specific prediction on the potential millions
that could result.
Representative Gara disagreed with the premise that the
number could not go negative. He maintained that the state
could grant a 15 percent tax rate to fields that were
already going on line, such as Great Bear, which bought its
leases in 2010. He thought new production could be spurred,
or a lower tax rate could be given to fields that were
going to go on-line anyway, which would cost the state a
lot of money.
Commissioner Butcher responded that he was speaking to
fields that had not been unitized as of December 31, 2008.
He did not expect any of the fields to be at a point to
come on-line, with or without the passage of the
legislation.
2:24:07 PM
Commissioner Butcher directed attention to Analysis 4, a
provision that would require credits to be taken over two
years. He noted that the provision would be revenue-
neutral; the first year that it took effect, the state
would have an entire year during which a company would be
taking credit. For example, in 2011, companies had taken
the last half of the 2010 credit and the first half of 2011
credit, which would more or less equal an entire year. He
noted that trying to sort the numbers out half-way through
the year had been an extreme burden on the tax division.
Commissioner Butcher turned to Analysis 5, the 40 percent
credit for well-lease expenditures expanded north of 68
degrees North Latitude. He estimated the effect would be
$200 million to $400 million annually, which would vary
according to how much the credit was used. The more the
credit was used, the higher the number would be, which
would be a positive in terms of getting more production for
the state. The department had tried to speculate a higher
number with the belief that it would result in a higher
number of credits being taken than had been taken recently.
The department believed $400 million would be on the high
end.
Commissioner Butcher moved to Analysis 6, the small
producer new area development and alternative tax credit
for exploration programs, which would be extended from the
current sunset date of 2016 to 2021. He noted that the item
was added in the House Resources Committee. The department
expected the small producer credits to increase within the
next several years to $40 million to $50 million each year;
however, it was extremely difficult for DOR to estimate
what that would mean for the state. He said that
ultimately, the tax credits would not come in until between
five and ten years into the future.
Commissioner Butcher directed attention to Analysis 7; the
tax information disclosure statute was expanded to include
disclosures of types of credits claimed and types of
expenditures for which the credits were claimed. He noted
that the item was also added in the House Resources
Committee. The department would be allowed to share
information it collected and analysis with the legislature.
Commissioner Butcher concluded that the last paragraph
discussed the addition of two auditor positions to
administer the additional credit and reporting provisions,
starting in FY 13.
2:27:23 PM
Representative Guttenberg was glad to see the last line in
the fiscal note. He pointed to a comment in 4 regarding
another $100 million in funds that would likely be sought
for credit certificates, another comment in 5 regarding
estimates that the provision would decrease annual revenue
based on estimates for drilling costs, and 6 related to
expectations that the small producer credit would increase.
He commented that the department had constantly been asked
about the modeling used and expectations; the consistent
answer had been that there was no way to do modeling. He
believed some modeling had been done to come up with the
fiscal note and estimates of changes. He asked for more
information about the process and information underlying
the overall assumptions.
Commissioner Butcher responded that page 1 gave
indeterminate information, because the department had been
asked by all the committees to give the best estimate. The
department felt that a snapshot could be given in some
situations. For example number 3 discussed non-unitized
fields with no production, and the department did not have
enough information to make an assumption. When dealing with
small producer credits, he could look in the very short
term and give at least a snapshot of the out-years.
Representative Doogan pointed to page 4 of the fiscal note
and asked whether the committee had gotten the preliminary
spring 2011 forecast from DOR.
Commissioner Butcher responded that he expected the
forecast to be out the first week of April. He explained
that the forecast was always put together after March 31,
the true-up date for the previous year and when DOR got the
hard numbers of what each of the companies had spent and
were able to tighten down the numbers going forward. He did
not anticipate that the numbers would be much different
from what was prepared in the analysis.
2:31:21 PM
Representative Doogan requested more detail about how
getting more revenue would change the numbers.
CHERYL NIENHUIS, PETROLEUM ECONOMIC POLICY ANALYST,
DIVISION OF TAX, DEPARTMENT OF REVENUE, acknowledged the
difficulty in comparing the different numbers. She stated
the one thing that DOR had "nailed down" on the forecast
related to the adjustment of the price forecast. She noted
the change in the price forecast from about $8 per barrel
more for FY 12; the number for FY 13 was $7 per barrel
more. There were differences in the revenue between HB 110
and the DOR forecast. Adjustments had also been made to the
production forecast and the cost part, but those were still
being worked on. She referred to recent announcements about
developments by Repsol, Great Bear, and other companies.
Ms. Nienhuis believed DOR was looking more long-term for
the first time. In the recent past (FY 08 through FY 10),
there had been quite a bit of price volatility; as a group,
they were instructed to look at the near term, because
prices were so volatile. The analysis in the fiscal note
presented a longer-term forecast; DOR was trying to make
sure production and cost forecasts were reasonable, given
all the assumptions.
2:34:38 PM
Representative Doogan asked whether the fiscal note was the
same as the last time the committee had looked at it; it
ran from $200 million to $400 million in FY 12 to over $2
billion in FY 17.
Commissioner Butcher responded that the numbers were
updated from the original fiscal note that came into the
committee with the bill, which had been based on the DOR
fall forecast. The numbers in the current bill were updated
to the preliminary spring forecast.
Representative Doogan believed the numbers in the fiscal
note currently before the committee had been seen before in
last couple of days.
Commissioner Butcher replied that the numbers had been
presented on Saturday [March 26] for the first time.
Commissioner Butcher pointed to an error on page 4 of the
fiscal note. Under number 6 in the description (extend the
small producer credits), there was a "125" entered in FY 16
and FY 17 that should have been a negative number, because
the credits would be paid out. He added that the total
revenue impact at the bottom was correct.
Representative Gara summarized that there would be $287,000
for 2016 for hiring the auditors, $50 million to $60
million for changing the interest rate, about $1.4 billion
in lost tax revenue, over $400 million for extra credits,
with a total around $1.9 billion for 2016.
Commissioner Butcher answered that taking the high numbers
and factoring in zero new production would produce the
listed numbers.
Representative Gara stated concerns about a chart on page 2
showing what would happen in terms of losses to the state.
He did not believe the bill was tailored to increase
production. He indicated the bottom box in 2017 (production
tax plus total royalties) and asked whether the state would
lose $1.2 billion in production taxes if production were
increased by 5 percent.
2:38:00 PM
Commissioner Butcher replied that the number was the
number, and would also include additional credits taken out
as a result of production coming on line. He noted that the
number did not factor in jobs and prolonging the Trans-
Alaska Pipeline System (TAPS); the focus was specific to
the production tax.
Representative Gara expressed amazement. He asked whether
the $1.2 billion in less revenue would include the $200
million to $400 million in credit costs.
Commissioner Butcher replied that the number applied to the
change in production tax; it applied to the brackets and
did not include new 15 percent areas that would not have a
cost but would be looking at more production.
Representative Gara pointed to the 40 percent credit, which
he had heard could cost the state $200 million to $400
million per year as well. He asked whether the number would
be added to the $1.2 billion loss.
Commissioner Butcher answered that he would not classify
the number as a "loss" as the revenue had not come in; it
was a projection of potential less revenue. He said that
the $200 million to $400 million would be added if a big
picture was being put together, but the increased royalty
also should be added. He stated that the issue was more
complex than adding the negatives.
Representative Gara stated that the way he read the fiscal
note, in 2017, if the bill succeeded in adding 5 percent
production, the state would receive $1.2 billion less
revenue plus another $200 million to $400 million in less
revenue because of the 40 percent tax credit; even if the
bill were to increase production by 10 percent (although
there was no evidence presented that it would), according
to the bottom box, the state would lose $914 million in
production taxes, plus $200 million to $400 million in
credits. He summarized that if the bill worked, the state
would lose over $1 billion per year.
2:40:46 PM
Commissioner Butcher responded that the argument was not
considering that part of the negative number involved the
state cashing in credits that would be an investment into
future-year production. He did not recommend taking a
snapshot of one year without acknowledging that the number
also reflected more credits being used for more exploration
and production.
Representative Costello queried the chart on page 4 of the
fiscal note. She wondered whether the totals assumed no
increase in production and represented the worst-case
scenario and corresponded to the top chart on page 2.
Commissioner Butcher responded in the affirmative; the
changes to the bill would be assumed as well as no new
production, which neither he nor the governor considered
was a realistic scenario.
Representative Wilson addressed the job issue related to
service industries as well as the companies. She wondered
whether there would be money brought in through corporate
taxes to the state.
Commissioner Butcher responded in the affirmative and
stated that he believed the point was important.
Representative Wilson asked whether the purpose of the bill
was good-paying jobs.
Commissioner Butcher agreed. He explained that experienced
Alaskans were losing jobs and were leaving the state to
search for work.
Representative Wilson believed whole companies were moving
out-of-state. She wondered whether there were more jobs
offered in the developmental stage of the oil fields, as
opposed to the exploration stage.
2:43:59 PM
Commissioner Butcher responded that the question would be
better answered by the Department of Natural Resources
(DNR).
Ms. Nienhuis answered that a developing field could
possibly provide more employment.
Representative Wilson believed that more service groups
were connected with developing infrastructure, including
roads.
Representative Doogan wanted to add to the question by
Representative Wilson. He wondered what additional revenue
would be brought in through corporate income tax from
companies that hired workers.
Commissioner Butcher replied that he had been referring to
other taxes not included in the fiscal note, such as
production and property taxes.
Representative Doogan restated his question. He relayed
that the commissioner had told Representative Wilson that
other revenue existed besides the income in the fiscal note
that ought to be accounted for in terms of what would
happen if the state gave money to the industry and it
produced jobs. He asked how much additional income there
might be.
Commissioner Butcher summarized that the question was about
possible additional income to the state other than the
production tax income. He thought Representative Wilson's
question was related to a multiplier effect for the state
economy of creating oil jobs.
Representative Doogan asked Representative Wilson to help
out.
Representative Wilson stated that she had been referring to
the service industry aside from the oil companies; she had
assumed they paid other taxes that were not factored into
the fiscal note.
Commissioner Butcher responded that the taxes referred to
were corporate and property taxes.
Representative Doogan asked what the additional taxes would
be worth.
Commissioner Butcher responded that DOR had yearly listings
of what the state received through various taxes. He
offered to get more information to the committee.
2:48:57 PM
Vice-chair Fairclough directed attention to page 86 of the
DOR fall revenue forecast, which indicated the numbers were
$80 million for general corporate taxes and $447.9 million
for petroleum corporate taxes.
Representative Doogan wondered what the increment was
worth. He referred to the argument that the state would get
more activity that would generate more money. He queried
the department's expectation of the increment of additional
taxes.
Commissioner Butcher asked whether Representative Doogan's
question related to the department's estimate of additional
taxes based on future developments.
Representative Doogan agreed. He recognized that answering
the question could be difficult, but it had been brought
into the discussion.
Commissioner Butcher replied that he had simply been
agreeing with Representative Wilson when she said that an
increase in activity and jobs would bring more income into
the state. He offered to produce a matrix comparing
increases in oil and gas production tax to increases in
corporate tax for service companies.
Representative Doogan waved the white flag on the question.
Representative Gara referred to the subject of jobs. He
realized that the committee had never heard from the
Department of Labor and Workforce Development (DLWD), which
had given him the latest forecast of oil and gas jobs in
the state. He maintained that the numbers indicated that
the forecast for jobs in 2010 was 20 percent higher than
under the prior tax system. In 2006, jobs were at 10,100;
in 2005 under the Economic Limit Factor (ELF) system, jobs
were at 8,700; in 2010, jobs were at 12,700. He did not
think that a 4,000 increase by 2010 sounded like the job-
loss case that DOR had been making.
2:52:39 PM
Co-Chair Stoltze appreciated the information, but wanted to
direct attention to the fiscal note.
Representative Gara pointed to the fiscal note as it
related to jobs. He noted that page 2 included the impact
of increased production on royalties, which he thought was
fair. The department forecasted that the state would take
in $1.2 billion less in production taxes and $200 million
to $400 million less from credits if the bill resulted in 5
percent more production. He believed taking in $1.4 million
less each year would negatively impact service jobs in the
state; he wondered whether that had been factored in.
Commissioner Butcher responded that the state would have in
excess of $10 billion in the CBR at the end of a ten-year
period, assuming the preliminary spring forecast, the
passage of HB 110, no new development in the next ten
years, and factoring in the Legislative Finance estimate on
budget increases. He added information from DLWD on
comparisons of calendar-year unemployment insurance
claimants; oil and gas industry related claimants had
tripled in Alaska between 2006 and calendar year 2010.
Representative Doogan asked for more details.
Commissioner Butcher answered that in 2006, there were 904
claimants; in 2010, there were 2,540.
Representative Doogan asked whether there had been a rise
in actual employment in the oil patch and whether that had
continued.
Commissioner Butcher replied that there had been a small
increase in total jobs up until 2009; there had been a dip
in 2010. He did not think the increase was "just a blip."
2:56:24 PM
Representative Hawker pointed to page 6 of DLWD's Alaska
Economic Trends (January 2011), which highlighted that
"less oil production means more risk…the problem of low
production increases uncertainty of its potential economic
growth." He noted that Section 8 addressed how oil was no
longer fueling the state's expansion. He wanted the
committee to have the most current information.
Representative Hawker also had a technical point. He
believed the state was in uncharted territory with HB 110.
He did not think the state had ever considered a reduction
in the level at which government would confiscate wealth
from the private sector; the state had increased what it
took. He thought the film tax credits were a "spectacular
exhibit to the contrary"; the state had given $100 million
to the film industry.
Representative Hawker referenced 2013 and 2014 information
from the DOR chart presented during the department's March
26 hearing before the committee related to revenue was
anticipated under Alaska Clear and Equitable Share (ACES).
He pointed to the original fiscal note that had accompanied
the ACES legislation to the final vote on the floor of the
Senate. He reported that during the debate on the ACES
bill, the outside realm considered for oil prices had been
$80 per barrel; ACES was never "stress-tested" at higher
oil prices for consequences to the industry and the
economy.
Representative Hawker detailed that CSHB 2001(FIN) had
projected production tax revenue for 2013 at $1.9 billion;
currently the projection for 2013 was $3.1 billion. He
believed the difference was $1.2 billion more that would be
taken from industry in 2013 than was voted on in the ACES
bill.
3:00:42 PM
Representative Hawker noted that the worst-case scenario
(no production increase, the adjustments, the reduction in
government take from the private sector, the loss of as
much as $500 million) and pointed out that the state was
already taking in $1.2 billion more than what was
anticipated when the bill passed. He believed the factors
should be taken into consideration when evaluating whether
the state had reached a level of overtaxing. He noted that
the same number worked for the year 2014. The state was
currently taking in $1.7 billion more than what was
originally voted on in ACES. He thought there had been
compelling testimony about reducing taxes. He stated that
he did not subscribe to the theory of taxing industry into
production, but to a more free-market concept that lowering
taxes would increase production.
Representative Hawker addressed what motivated industry. He
pointed to Bloomberg news published March 29, 2011, related
to the United Kingdom's increase in its taxes on oil
production profits from 50 percent to 62 percent. He
reported that Statoil in Norway had officially announced
putting a $10 million plan to develop the Mariner and
Bressay fields in the UK on hold, saying it was less likely
to buy British assets after a tax increase.
Representative Hawker recalled the two-tiered graph seen
previously by the committee related to UK oil production;
he referred to the last time the UK wanted to use money to
pay for social programs. The UK had eliminated the high-
production profits tax on new oil field development and the
North Sea production rose even higher than under the
existing tax regime.
Representative Hawker summarized that HB 110 represented an
investment in a sustained and robust Alaskan economy, and
not a give-away. He believed the fiscal note pointed in the
right direction.
3:04:37 PM
Representative Gara noted that the job numbers he had
referred to earlier had come from DLWD and were from July
2010; the numbers showed jobs were 27 percent higher than
they had been in 2005.
Co-Chair Stoltze turned attention to the amendments for HB
110. He noted that Amendments 1 and 2 would be held back
for the time being.
Representative Gara MOVED Amendment 3, 27-GH1007\I.11,
Bullock, 3/28/11 (copy on file):
Page 1, lines 1 - 8:
Delete all material and insert:
""An Act relating to a tax credit applicable to
the oil and gas production tax based on capital
expenditures; relating to the alternative tax credit
for oil and gas exploration; and providing for an
effective date.""
Page 1, line 10, through page 20, line 25:
Delete all material and insert:
"* Section 1. AS 43.55.023(a) is amended to read:
(a) A producer or explorer may take a tax
credit for a qualified capital expenditure as
follows:
(1) except as limited by (p) of this
section, notwithstanding that a qualified capital
expenditure may be a deductible lease expenditure
for purposes of calculating the production tax
value of oil and gas under AS 43.55.160(a),
unless a credit for that expenditure is taken
under AS 38.05.180(i), AS 41.09.010,
AS 43.20.043, or AS 43.55.025, a producer or
explorer that incurs a qualified capital
expenditure may also elect to apply a tax credit
against a tax levied by AS 43.55.011(e) in the
amount of 20 percent of that expenditure;
however, not more than half of the tax credit may
be applied for a single calendar year;
(2) a producer or explorer may take a
credit for a qualified capital expenditure
incurred in connection with geological or
geophysical exploration or in connection with an
exploration well only if the producer or explorer
(A) agrees, in writing, to the
applicable provisions of AS 43.55.025(f)(2);
(B) submits to the Department of
Natural Resources all data that would be
required to be submitted under
AS 43.55.025(f)(2).
* Sec. 2. AS 43.55.023(d) is amended to read:
(d) Except as limited by (i) and (p) of
this section, a person that is entitled to take a
tax credit under this section that wishes to
transfer the unused credit to another person or
obtain a cash payment under AS 43.55.028 may
apply to the department for transferable tax
credit certificates. An application under this
subsection must be in a form prescribed by the
department and must include supporting
information and documentation that the department
reasonably requires. The department shall grant
or deny an application, or grant an application
as to a lesser amount than that claimed and deny
it as to the excess, not later than 120 days
after the latest of (1) March 31 of the year
following the calendar year in which the
qualified capital expenditure or carried-forward
annual loss for which the credit is claimed was
incurred; (2) the date the statement required
under AS 43.55.030(a) or (e) was filed for the
calendar year in which the qualified capital
expenditure or carried-forward annual loss for
which the credit is claimed was incurred; or (3)
the date the application was received by the
department. If, based on the information then
available to it, the department is reasonably
satisfied that the applicant is entitled to a
credit, the department shall issue the applicant
two transferable tax credit certificates, each
for half of the amount of the credit. The credit
shown on one of the two certificates is available
for immediate use. The credit shown on the second
of the two certificates may not be applied
against a tax for a calendar year earlier than
the calendar year following the calendar year in
which the certificate is issued, and the
certificate must contain a conspicuous statement
to that effect. A certificate issued under this
subsection does not expire.
* Sec. 3. AS 43.55.023 is amended by adding a new
subsection to read:
(p) The amount of credit for a capital
expenditure under (a) of this section for an
expenditure that is also a lease expenditure
under AS 43.55.165 is reduced by the amount
necessary so that the tax benefit percentage is
not more than 85 percent of the capital
expenditure. The amount of credit for a capital
expenditure under (a) of this section that may
not be taken because of the limitation in this
subsection may not be applied in a later calendar
year under (c) of this section and may not be
included in an application for a tax credit
certificate under (d) of this section. In this
subsection, "tax benefit percentage" means the
sum of the average monthly tax rate under
AS 43.55.011(e) for the calendar year in which
the credit is taken and the percentage of the
capital expenditure that may be taken as a credit
under (a) of this section.
* Sec. 4. AS 43.55.025(a) is amended to read:
(a) Subject to the terms and conditions of
this section, a credit against the production tax
levied by AS 43.55.011(e) is allowed for
exploration expenditures that qualify under (b)
of this section in an amount equal to 50 [ONE OF
THE FOLLOWING:
(1) 30] percent of the total
exploration expenditures [THAT QUALIFY ONLY UNDER
(b) AND (c) OF THIS SECTION;
(2) 30 PERCENT OF THE TOTAL
EXPLORATION EXPENDITURES THAT QUALIFY ONLY UNDER
(b) AND (d) OF THIS SECTION;
(3) 40 PERCENT OF THE TOTAL
EXPLORATION EXPENDITURES THAT QUALIFY UNDER (b),
(c), AND (d) OF THIS SECTION;
(4) 40 PERCENT OF THE TOTAL
EXPLORATION EXPENDITURES THAT QUALIFY ONLY UNDER
(b) AND (e) OF THIS SECTION; OR
(5) 80, 90, OR 100 PERCENT, OR A
LESSER AMOUNT DESCRIBED IN (l) OF THIS SECTION,
OF THE TOTAL EXPLORATION EXPENDITURES DESCRIBED
IN (b)(1) AND (2) OF THIS SECTION AND NOT
EXCLUDED BY (b)(3) AND (4) OF THIS SECTION THAT
QUALIFY ONLY UNDER (l) OF THIS SECTION].
* Sec. 5. AS 43.55.025(b) is amended to read:
(b) To qualify for the production tax
credit under (a) of this section, an exploration
expenditure must be incurred for work performed
after June 30, 2008, and before July 1, 2021
[2016], and
(1) may be for seismic or other
geophysical exploration costs not connected with
a specific well;
(2) if for an exploration well,
(A) must be incurred by an
explorer that holds an interest in the
exploration well for which the production
tax credit is claimed;
(B) may be for either a well that
encounters an oil or gas deposit or a dry
hole;
(C) must be for a well that has
been completed, suspended, or abandoned at
the time the explorer claims the tax credit
under (f) of this section; and
(D) must be for goods, services,
or rentals of personal property reasonably
required for the surface preparation,
drilling, casing, cementing, and logging of
an exploration well, and, in the case of a
dry hole, for the expenses required for
abandonment if the well is abandoned within
18 months after the date the well was
spudded;
(3) may not be for administration,
supervision, engineering, or lease operating
costs; geological or management costs; community
relations or environmental costs; bonuses, taxes,
or other payments to governments related to the
well; costs, including repairs and replacements,
arising from or associated with fraud, willful
misconduct, gross negligence, criminal
negligence, or violation of law, including a
violation of 33 U.S.C. 1319(c)(1) or 1321(b)(3)
(Clean Water Act); or other costs that are
generally recognized as indirect costs or
financing costs; and
(4) may not be incurred for an
exploration well or seismic exploration that is
included in a plan of exploration or a plan of
development for any unit before May 14, 2003.
* Sec. 6. AS 43.55.025(k) is amended to read:
(k) Subject to the terms and conditions of
this section, if a claim is filed under (f)(1) of
this section before January 1, 2021 [2016], a
credit against the production tax levied by
AS 43.55.011(e) is allowed in an amount equal to
five percent of an eligible expenditure under
this subsection incurred for seismic exploration
performed before July 1, 2003. To be eligible
under this subsection, an expenditure must
(1) have been for seismic exploration
that
(A) obtained data that the
commissioner of natural resources considers
to be in the best interest of the state to
acquire for public distribution; and
(B) was conducted outside the
boundaries of a production unit; however,
the amount of the expenditure that is
otherwise eligible under this section is
reduced proportionately by the portion of
the seismic exploration activity that
crossed into a production unit; and
(2) qualify under (b)(3) of this
section.
* Sec. 7. AS 43.55.025(c), 43.55.025(d),
43.55.025(e), 43.55.025(l), and 43.55.025(m) are
repealed.
* Sec. 8. This Act takes effect January 1, 2012."
Vice-chair Fairclough OBJECTED.
3:06:08 PM
AT EASE
3:29:16 PM
RECONVENED
Representative Gara explained that Amendment 3 would offer
a different approach than the governor's bill. He
maintained that there were two ways to approach an attempt
to increase production on the North Slope. He described the
main thrust of the governor's approach as reducing taxes
with the hope that the companies would spend the money in
the state. He did not believe the approach had worked in
2006, when tax rates were very low and investment was lower
and oil production was declining.
Representative Gara pointed to an advertisement taken out
by the state in Petroleum News and said that using credits
attracted investment; with credits, the money had to be
spent in Alaska, Alaskans had to be hired, and the activity
had to relate to what the credit was aimed at in order for
someone to receive the state's money.
Representative Gara continued that Amendment 3 would raise
the exploration credit to 50 percent and cap it at 85
percent when the other credits and deductions were
considered. The amendment intended to address the concern
from the administration raised at the beginning of the
debate that exploration and exploration wells were down. He
believed the smartest way to increase exploration was to
grant an enhanced credit to encourage companies to drill
exploration wells. He emphasized that the companies would
not get the money unless the wells were drilled.
Representative Gara argued that the measure would address
the weakness in the governor's bill, which was that
companies could get the money even if they took it out of
Alaska. The amendment would require the money to be spent
inside the state. The amendment would make it more
profitable for a company to drill an exploration well.
Representative Gara referred to DOR testimony that
development wells would not get the state out of the
production decline (even though they were at the highest
level since 2005 or 2006); new exploration was needed. He
did not believe the governor's bill would lead to new
exploration. He believed the governor's version would lead
to capital flight; under the most recent fiscal note, the
state would lose around $1.5 billion each year, even if
production went up.
Representative Gara thought Amendment 3 represented a
"smarter way to go." The amendment would provide an
exploration credit that required hiring people in Alaska to
do more exploration, in return for help paying for the
wells.
3:33:04 PM
Co-Chair Stoltze queried materials handed out by
Representative Gara.
Representative Gara explained that the handout was the
advertisement taken out by the state making the case that
ACES was working and that the state had been a good partner
for new explorers. He maintained that DOR did not make the
same case, but almost the opposite one.
Co-Chair Stoltze commended DNR for the ad.
Vice-chair Fairclough spoke in opposition to Amendment 3.
She referred to testimony before the committee that the
state already greatly incentivized exploration. She
referred to interest by companies in taking advantage of
the credits put out by the state for exploration. She
reminded the committee that it had agreed with the House
Resources Committee in accepting an amendment in the CS
currently before the Finance Committee that extended the
years; there were people interested, but she maintained
that the state did not yet have the actual capital
investment. She referred to interest in the progressivity
and the severance tax that would have to be paid, which
would mean that they could not yet take the product to
market and sell it.
Vice-chair Fairclough emphasized that there were different
phases and different entities that wanted to invest and
were attracted to different components of Alaska's tax
policy for exploration. She argued that the state already
had great exploration credits, but could not get anything
in the pipeline to monetize, because the entities were
ready to sell to someone who would have to go to the
capital market and find an investor to invest in the
facilities to take the oil and monetize it.
Vice-chair Fairclough believed the governor's amended bill
before the committee would extend the years, as recommended
by the House Resources Committee, so that there could
possibly be a few more interested parties. She agreed with
Representative Hawker that the state had never anticipated
the amount of revenue that would come into the state; the
higher level of production was not "stress-tested" at the
higher dollar amount per barrel (above $80 per barrel) to
see its effect on the opportunity to attract capital.
Vice-chair Fairclough believed Alaska already offered
excellent incentives for exploration credits, and so
opposed Amendment 3.
3:36:49 PM
Representative Hawker testified against Amendment 3. He
thought the goals in the amendment were laudable, but he
felt the execution was flawed. He addressed the technical
aspects of the amendment. He thought the first three
sections were basically adding a new limit to the amount of
credits that could be taken, in the form of a cap. He
pointed to the language on page 2, lines 28 through 30,
which stipulated that to put the cap on the credit, the
amount of the credit for the capital expenditure would be
reduced by another amount that was necessary so that the
tax benefit percentage was not more than 85 percent of the
capital expenditure. He called the proposal "accounting
alchemy." He did not know how a person could convert
percentages into hard dollar expenditures. He thought the
sentence was a technical error.
Representative Hawker turned to Section 4, related to
enhancing the majority of the credits, particularly those
affecting the North Slope, from a 30 and 40 percent tier
(depending on certain criteria) to a fixed 50 percent
allowed for exploration expenditures. The section would
delete an area where the state was taking 80 to 100 percent
of an amount described in (l) of the section, which he
maintained would actually lower the credits available. He
believed Section (l) should be of "grave concern" to those
in Southcentral Alaska, as it was the language added the
prior year intended to create the Cook Inlet land rush. The
provision provided for a substantial incentive for the
first three unaffiliated persons drilling an offshore
exploration well for the purpose of discovering oil or gas
in the Cook Inlet that drilled deep and penetrated and
evaluated a prospect in the pre-tertiary zone using a jack-
up rig.
Representative Hawker argued that there were at least two
organizations that were in the process of working towards
taking advantage of the provision already in statute and
getting the vital drilling done. He thought the issue was
keeping the heat and lights on in his community and not
letting people "freeze in the dark" while the state tried
to bring the necessary production enhancements to the Cook
Inlet. He referred to previous discussion and stated that
he did not want to compromise the issue through a new
statute.
3:40:54 PM
Representative Guttenberg acknowledged DNR for the ad
communicating that Alaska was open for business and "the
more you invest the less you pay." He hoped the
administration would continue the trend, and not give the
impression that the state was closed for business.
Representative Guttenberg spoke in support of Amendment 3.
He believed that there were two parts to the bill and that
the amendment addressed exploration, the more important
part. He referred to testimony about understanding the
nature of the oil basin, and how little was known. He
wanted to "gold plate" and not "gold fence." He thought the
amendment would help focus the issue and bring more
exploration to the state.
Representative Wilson voiced opposition to Amendment 3. She
believed the state was already open for business and that
more explorers had come and drilled, but the key question
was why there was no development. She thought the
incentives had to be for the producers. She had learned
that the Interior had less than two weeks of heating oil in
reserve if the pipeline shut down. She wanted effort to go
towards development.
3:45:31 PM
Representative Gara MOVED Conceptual Amendment 1 to
Amendment 3:
Page 3, lines 21-25
Delete text
Representative Hawker OBJECTED. He argued against making
"conceptual amendments on the fly." He questioned whether
there could be absolute assurance that the conceptual
amendment would do what it intended to do.
Co-Chair Stoltze acknowledged that Representative Gara
could not guarantee that, but thought he could clarify his
intentions.
Representative Hawker REMOVED his OBJECTION.
There being NO further OBJECTION, it was so ordered.
Representative Gara MOVED Conceptual Amendment 2 to
Amendment 3 to include a possible conforming language
change that could be required later in Amendment 3:
Page 5, line 8
Eliminate the repealer to 43.55.025(l)
There being NO OBJECTION, it was so ordered.
3:48:29 PM
Representative Gara noted a further need for conforming
language page 2, line 29. He responded to Representative
Hawker's statement that the 85 percent cap was not clear.
He believed line 29 stated the issue clearly, and said that
a company would only get as high as 85 percent of the
capital expenditure.
Representative Gara pointed out that ACES had passed over
three years prior. He summarized that all the testimony had
shown that it took five to seven years to get a field from
exploration to being on-line; there had only been three and
one-half years since exploration started. The unopposed
testimony had been that there had been lots of exploration
on the North Slope. He did not think companies would spend
money on exploration if they did not think there would be
the capital to produce.
Representative Gara emphasized that the three to seven
years needed in order to produce had not passed, and he did
not want to put a stop to a process that was probably
working before the necessary time needed to get fields to
development.
Representative Gara argued that Amendment 3 was necessary
(along with another amendment that was forthcoming) if the
goal was more jobs, more exploration, and more oil in the
pipeline.
3:50:26 PM
Vice-chair Fairclough MAINTAINED her OBJECTION to Amendment
3.
A roll call vote was taken on the motion.
IN FAVOR: Guttenberg, Doogan, Gara
OPPOSED: Joule, Hawker, Wilson, Costello, Edgmon,
Fairclough, Stoltze, Thomas
The MOTION FAILED (8/3). Amendment 3 was not adopted.
Vice-chair Fairclough requested fiscal notes for Amendment
3 and Amendment 4. She wanted to know the potential costs
of the proposals.
Representative Gara MOVED Amendment 4, 27-GH1007\I.13,
Bullock, 3/28/11 (copy on file):
Page 1, lines 1 - 8:
Delete all material and insert:
""An Act providing for a tax credit applicable to
the oil and gas production tax based on capital
expenditures for a production facility for new oil and
gas production; and providing for an effective date.""
Page 1, line 10, through page 20, line 25:
Delete all material and insert:
"* Section 1. AS 43.20.043(g) is amended to read:
(g) A taxpayer that obtains a credit for a
qualified capital investment or cost incurred for
qualified services under this section may not
also claim a tax credit or royalty modification
for the same qualified capital investment or cost
incurred for qualified services under
AS 38.05.180(i), AS 41.09.010, AS 43.55.023, [OR]
43.55.025, or 43.55.026. However, a taxpayer may
elect not to obtain a credit under this section
in order to qualify for a credit provided under
AS 38.05.180(i), AS 41.09.010, AS 43.55.023, [OR]
43.55.025, or 43.55.026.
* Sec. 2. AS 43.55.023(a) is amended to read:
(a) A producer or explorer may take a tax
credit for a qualified capital expenditure as
follows:
(1) except as limited by (p) of this
section, notwithstanding that a qualified capital
expenditure may be a deductible lease expenditure
for purposes of calculating the production tax
value of oil and gas under AS 43.55.160(a),
unless a credit for that expenditure is taken
under AS 38.05.180(i), AS 41.09.010,
AS 43.20.043, [OR] AS 43.55.025, or 43.55.026, a
producer or explorer that incurs a qualified
capital expenditure may also elect to apply a tax
credit against a tax levied by AS 43.55.011(e) in
the amount of 20 percent of that expenditure;
however, not more than half of the tax credit may
be applied for a single calendar year;
(2) a producer or explorer may take a
credit for a qualified capital expenditure
incurred in connection with geological or
geophysical exploration or in connection with an
exploration well only if the producer or explorer
(A) agrees, in writing, to the
applicable provisions of AS 43.55.025(f)(2);
(B) submits to the Department of
Natural Resources all data that would be
required to be submitted under
AS 43.55.025(f)(2).
* Sec. 3. AS 43.55.023(d) is amended to read:
(d) Except as limited by (i) and (p) of
this section, a person that is entitled to take a
tax credit under this section that wishes to
transfer the unused credit to another person or
obtain a cash payment under AS 43.55.028 may
apply to the department for transferable tax
credit certificates. An application under this
subsection must be in a form prescribed by the
department and must include supporting
information and documentation that the department
reasonably requires. The department shall grant
or deny an application, or grant an application
as to a lesser amount than that claimed and deny
it as to the excess, not later than 120 days
after the latest of (1) March 31 of the year
following the calendar year in which the
qualified capital expenditure or carried-forward
annual loss for which the credit is claimed was
incurred; (2) the date the statement required
under AS 43.55.030(a) or (e) was filed for the
calendar year in which the qualified capital
expenditure or carried-forward annual loss for
which the credit is claimed was incurred; or (3)
the date the application was received by the
department. If, based on the information then
available to it, the department is reasonably
satisfied that the applicant is entitled to a
credit, the department shall issue the applicant
two transferable tax credit certificates, each
for half of the amount of the credit. The credit
shown on one of the two certificates is available
for immediate use. The credit shown on the second
of the two certificates may not be applied
against a tax for a calendar year earlier than
the calendar year following the calendar year in
which the certificate is issued, and the
certificate must contain a conspicuous statement
to that effect. A certificate issued under this
subsection does not expire.
* Sec. 4. AS 43.55.023 is amended by adding a new
subsection to read:
(p) The amount of credit for a capital
expenditure under (a) of this section for an
expenditure that is also a lease expenditure
under AS 43.55.165 is reduced by the amount
necessary so that the tax benefit percentage is
not more than 85 percent of the capital
expenditure. The amount of credit for a capital
expenditure under (a) of this section that may
not be taken because of the limitation in this
subsection may not be applied in a later calendar
year under (c) of this section and may not be
included in an application for a tax credit
certificate under (d) of this section. In this
subsection, "tax benefit percentage" means the
sum of the average monthly tax rate under
AS 43.55.011(e) for the calendar year in which
the credit is taken and the percentage of the
capital expenditure that may be taken as a credit
under (a) of this section.
* Sec. 5. AS 43.55 is amended by adding a new
section to read:
Sec. 43.55.026. Production facility cost
credit. (a) This section applies to a credit for
a qualified production facility expenditure
incurred before the date of production of oil or
gas in paying quantities for a lease or property
that is taxable under AS 43.55.011(e) and that
contains land that, as of December 31, 2010, is
not or previously had not been within a unit or
produced oil or gas in paying quantities.
(b) The amount of the credit under this
section is equal to 50 percent of the qualified
production facility expenditures that are
incurred after the completion of the first well
drilled that discovers a pool capable of
commercial production from the lease or property
and before the commencement of production in
paying quantities. The department, in
consultation with the
(1) Alaska Oil and Gas Conservation
Commission, shall determine the date on which the
first well drilled discovered a pool capable of
production from a lease or property for which the
credit is taken; and
(2) Department of Natural Resources,
shall determine the date of the commencement of
production in paying quantities from the lease or
property for which the credit is taken.
(c) The credit under this section may be
applied against the tax due under AS 43.55.011(e)
during the two-year period immediately following
the date of the commencement of production in
paying quantities.
(d) A qualified production facility
expenditure that is taken as a credit under this
section may not be used as an expenditure for
which a credit may be taken under AS 43.20.043 or
AS 43.55.023. A credit under AS 43.55.023 for a
qualified production facility expenditure may not
be taken against the tax due under
AS 43.55.011(e) during the same month in which a
credit is taken or purchased by the department
under this section.
(e) A credit or portion of a credit under
this section may not be used to reduce a
taxpayer's tax liability under AS 43.55.011(e)
below zero for any calendar month. A person
eligible for the credit under this section that
does not take the credit within the two-year
period immediately following the date of the
commencement of production in paying quantities
may apply to the department for a cash payment
under AS 43.55.028. An application under this
subsection must be in a form prescribed by the
department and must include supporting
information and documentation that the department
reasonably requires. The department shall grant
or deny an application, or grant an application
as to a lesser amount than that claimed and deny
it as to the excess, not later than 120 days
after the date the department receives the
application. If, based on the information then
available to it, the department is reasonably
satisfied that the applicant is entitled to a
payment, the department shall issue the cash
payment or a lesser amount after applying all or
a portion of the credit to any outstanding unpaid
balance of a tax owed by the applicant under this
title.
(f) The department shall adopt regulations
describing the procedures for determining the
amount of the credit, record keeping,
verification of the accuracy of the credit
claimed, and other regulations necessary to
administer this section.
(g) In this section,
(1) "production facility" means a flow
station, a gathering center, a pump station, a
storage tank, and related appurtenances, and
other facilities that gather, clean, dehydrate,
condition, or store crude oil, natural gas, or
associated hydrocarbons and that are located on a
lease or property leased from the state;
(2) "production in paying quantities"
means production of oil and gas in quantities
sufficient to recover the cost of operating and
marketing, although the quantity may be
insufficient to recover the cost of drilling;
(3) "qualified production facility
expenditure" means an expenditure for a
production facility that may be recognized as a
qualified capital expenditure as defined in
AS 43.55.023.
* Sec. 6. AS 43.55.028(a) is amended to read:
(a) The oil and gas tax credit fund is
established as a separate fund of the state. The
purpose of the fund is to purchase transferable
tax credit certificates issued under AS 43.55.023
and production tax credit certificates issued
under AS 43.55.025 and to pay for unused credits
under AS 43.55.026 and refunds claimed under
AS 43.20.046.
* Sec. 7. AS 43.55.028(g) is amended to read:
(g) The department may adopt regulations to
carry out the purposes of this section, including
standards and procedures to allocate available
money among applications for purchases and
payments for unused credits under this chapter
and claims for refunds under AS 43.20.046 when
the total amount of the applications for purchase
and claims for refund exceed the amount of
available money in the fund. The regulations
adopted by the department may not, when
allocating available money in the fund under this
section, distinguish an application for the
purchase of a credit certificate issued under
AS 43.55.023(m), a payment for an unused credit
under AS 43.55.026(e), or a claim for refund
under AS 43.20.046.
* Sec. 8. AS 43.55.028 is amended by adding a new
subsection to read:
(j) The department, on the written
application of a person for the payment of an
unused credit under AS 43.55.026(e) after the end
of the two-year period immediately following the
date of the commencement of production in paying
quantities, may use available money in the oil
and gas tax credit fund to purchase, in whole or
in part, the certificate if the department finds
that
(1) the applicant does not have an
outstanding liability to the state for unpaid
delinquent taxes under this title;
(2) the applicant's total tax
liability under AS 43.55.011(e) for the calendar
year in which the application is made, after
application of all available tax credits, is
zero; and
(3) the purchase is consistent with
this section and regulations adopted under this
section.
* Sec. 9. AS 43.55.180(a) is amended to read:
(a) The department shall study
(1) the effects of the provisions of
this chapter on oil and gas exploration,
development, and production in the state, on
investment expenditures for oil and gas
exploration, development, and production in the
state, on the entry of new producers into the oil
and gas industry in the state, on state revenue,
and on tax administration and compliance, giving
particular attention to the tax rates provided
under AS 43.55.011, the tax credits provided
under AS 43.55.023 - 43.55.026 [AS 43.55.023 -
43.55.025], and the deductions for and
adjustments to lease expenditures provided under
AS 43.55.160 - 43.55.170; and
(2) the effects of the tax rates under
AS 43.55.011(i) on state revenue and on oil and
gas exploration, development, and production on
private land, and the fairness of those tax rates
for private landowners.
* Sec. 10. This Act takes effect January 1, 2012."
Vice-chair Fairclough OBJECTED.
Representative Gara explained Amendment 4. He maintained
that two things were needed to get oil in the pipeline,
exploration and the ability to monetize. He noted that
small producers had testified that it was very difficult to
take a moderate-sized field on the North Slope without a
production facility and monetize the oil. A production
facility was needed, which cost in the tens of billions of
dollars or more. He thought the state should be a partner
in helping to finance the facilities.
Representative Gara argued that Amendment 4 would grant a
50 percent credit for the construction of production
facilities, with a cap of 85 percent with the stackable
credits. He pointed out that there had only been one case
in which a big producer had allowed their processing
facilities to be used by an independent company. The state
wanted to spur the development of the necessary production
facilities.
Representative Gara continued that Amendments 3 and 4 in
combination would get exploration and then monetize the oil
through production. He said that members of the legislature
had made the case that access to processing facilities had
been unfairly blocked; he set that argument aside for the
moment. He believed the state should be a partner in
establishing the production facilities needed to get the
oil out of the ground. He wanted the state to give money
that would not be sent outside the state and to
shareholders, but money that would be tied to Alaska. In
order to use the funds that Amendment 4 would make
available, a company would have to spend money in Alaska,
hire Alaskan workers, and spend the money to build
production facilities.
3:55:20 PM
Representative Hawker spoke in opposition to Amendment 4.
He maintained that the proposed amendment would essentially
delete the entire bill that was before the committee. In
addition, he believed that the specifics of the production
facility cost credit in the amendment looked familiar, and
he wondered whether there was another piece of legislation
proposing the same thing.
Representative Hawker pointed to page 4, line 28, which
discussed what a production facility was, including such
things as the flow station, gathering center, pump station,
and storage tank. He argued that pump stations were
upstream assets and not downstream assets. He did not
believe the committee had had the technical discussion to
be able to understand what the amendment could empower. He
cited the next line, related to definitions of production
and quantities "sufficient to recover the cost of operating
and marketing." He argued that the committee had strongly
avoided allowing any tax benefits for marketing activities
in any of the tax work done.
Representative Hawker believed that Amendment 4 would
require a great deal more consideration than the committee
could give it.
Representative Guttenberg spoke in support of Amendment 4.
He stated that he had a bill related to the production
facility, and that the bill was nothing like the proposed
amendment. He believed the other bill that was being
contemplated was also nothing like the amendment.
Representative Guttenberg listed the various aspects of
production facilities. He pointed out that a well could
cost $20 million. The process started with exploration,
with seismic work; there were credits for that. When
sufficient oil or gas was found to warrant production, a
road was built, wells were drilled, pipelines were
constructed, and the oil was pumped to the facilities. In
order to get into a facility, a company had to either make
a commercial agreement with someone who already had a
facility, or have findings in sufficient quantities to
finance their own facility.
Representative Guttenberg noted that one of the small
explorers who had visited his office had said that they
would either come up with a sound fiscal contract to put
their oil into an existing facility, or build one
themselves. The explorer had mentioned that the existing
facilities were old and had built-in inefficiencies. He
referred to past corrosion problems and emphasized that
some explorers might not want to use existing facilities
because of safety issues.
Representative Guttenberg argued that many things had to be
done to oil before a company could get it into a pipeline,
which was a common carrier. For example, the sediments had
to be separated out as well as the gas and water, and the
resulting product had to be at a standard approved of by
Alyeska. In addition, the oil had to be metered because of
tariffs and costs. He emphasized that it was expensive to
build a new facility. He referred to Gubik (100 miles south
of the pipeline) and said a company would not want to ship
oil that far and then be charged to ship it through several
legs north and south in order to get to TAPS. A company
would want to build a facility near Gubik, which would
require a small pump station. He questioned why a producer
out on the Colville River (near Umiat) would want to pay to
ship all the external and wasteful components, such as
water and sediment.
Representative Guttenberg pointed out that the state should
give new producers credits related to building a facility
if the state wanted to give new producers opportunities and
the ability to do things efficiently. Once a facility was
in a location, someone else could explore in that location
as well.
Representative Guttenberg referred to a presentation by
Gaffney, Cline & Associates to the House Resources
Committee on February 11, 2011. The presenter had spoken to
how Alaska was perceived as "stranded," which meant that
producers could not get access to infrastructure.
Representative Guttenberg summarized that new exploration
would be encouraged if the state could build new
infrastructure. He believed that Amendment 4 could provide
the infrastructure that new explorers and producers would
want.
Representative Gara acknowledged that Representative Hawker
had been correct in saying that both Amendment 3 and
Amendment 4 intentionally deleted the entirety of the
governor's bill. He argued that there were many good
reasons for such extensive change to the legislation,
including the current fiscal note, which showed that the
state would lose over $1 billion each year in revenue.
Representative Gara maintained that Amendment 4 would
accomplish something very important. He did not think a
producer would build a facility unless it was on the verge
of producing oil. He believed that Amendment 4 would
incentivize the production of oil. He stressed that all the
other credits, such as the development well and service
credits, might or might not stem a production decline. He
maintained that a production facility would add new oil
into the pipeline, which was what the state needed. The
entire goal was to make sure that the state got exploration
and production in exchange for the money it spent.
4:03:54 PM
Vice-chair Fairclough MAINTAINED her OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Gara, Guttenberg, Doogan
OPPOSED: Joule, Hawker, Wilson, Costello, Edgmon,
Fairclough, Thomas, Stoltze
The MOTION FAILED (8/3). Amendment 4 was not adopted.
Representative Doogan MOVED Amendment 5, 27-GH1007\I.9,
Bullock, 3/28/11 (copy on file):
Page 1, lines 5 - 6:
Delete "relating to certain additional
nontransferable oil and gas production tax credits;"
Page 1, following line 12:
Insert a new bill section to read:
"* Sec. 2. AS 05.15.095(c) is amended to read:
(c) A delinquent fee bears interest at the
rate set by AS 43.05.225 [AS 43.05.225(2)]."
Renumber the following bill sections accordingly.
Page 2, following line 5:
Insert a new bill section to read:
"* Sec. 4. AS 34.45.470(a) is amended to read:
(a) A person who fails to pay or deliver
property within the time prescribed by this
chapter may be required to pay to the department
interest at the annual rate calculated under
AS 43.05.225 [AS 43.05.225(2)] on the property or
the value of it from the date the property should
have been paid or delivered."
Renumber the following bill sections accordingly.
Page 2, following line 17:
Insert a new bill section to read:
"* Sec. 6. AS 43.05.225 is amended to read:
Sec. 43.05.225. Interest. Unless otherwise
provided,
(1) when a tax levied in this title
becomes delinquent, it bears interest in a
calendar quarter at the rate of five [THREE]
percentage points above the annual rate charged
member banks for advances by the 12th Federal
Reserve District as of the first day of that
calendar quarter, or at the annual rate of 11
percent, whichever is greater [LESSER],
compounded quarterly as of the last day of that
quarter;
(2) the interest rate is 12 percent a
year for
(A) delinquent fees payable under
AS 05.15.095(c); and
(B) unclaimed property that is
not timely paid or delivered, as allowed by
AS 34.45.470(a)."
Renumber the following bill sections accordingly.
Page 2, following line 25:
Insert a new bill section to read:
"* Sec. 8. AS 43.20.046(i) is amended to read:
(i) The issuance of a refund under this
section does not limit the department's ability
to later audit or adjust the claim if the
department determines, as a result of the audit,
that the person that claimed the credit was not
entitled to the amount of the credit. The tax
liability of the person receiving the credit
under this chapter is increased by the amount of
the credit that exceeds that to which the person
was entitled. If the tax liability is increased
under this subsection, the increase bears
interest under AS 43.05.225 [AS 43.05.225(1)]
from the date the refund was issued."
Renumber the following bill sections accordingly.
Page 3, following line 2:
Insert a new bill section to read:
"* Sec. 10. AS 43.50.570 is amended to read:
Sec. 43.50.570. Interest. A licensee who
fails to pay an amount due for the purchase of
stamps within the time required
(1) is considered to have failed to
pay the cigarette taxes due under this chapter;
and
(2) shall pay interest at the rate
established under AS 43.05.225 [AS 43.05.225(1)]
from the date on which the amount became due
until the date of payment."
Renumber the following bill sections accordingly.
Page 3, following line 20:
Insert a new bill section to read:
"* Sec. 12. 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
(1) the annual production tax value of
the taxable oil and gas as calculated under
AS 43.55.160(a)(1) multiplied by 25 percent; and
(2) the sum, over all months of the
calendar year, of the tax amounts determined
under (g) of this section."
Renumber the following bill sections accordingly.
Page 7, following line 24:
Insert a new bill section to read:
"* Sec. 14. 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 tax rate calculated as follows:
(1) if the producer's average monthly
production tax value for each 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 for each BTU equivalent
barrel and $30; or
(2) if the producer's average monthly
production tax value for each 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 for each BTU equivalent barrel and
$92.50, except that the sum determined under this
paragraph may not exceed 50 percent."
Renumber the following bill sections accordingly.
Page 10, following line 13:
Insert a new bill section to read:
"* Sec. 16. AS 43.55.020(a) is amended to read:
(a) For a calendar year, a producer subject
to tax under AS 43.55.011(e) - (i) shall pay the
tax as follows:
(1) an installment payment of the
estimated tax levied by AS 43.55.011(e), net of
any tax credits applied as allowed by law, is due
for each month of the calendar year on the last
day of the following month; except as otherwise
provided under (2) of this subsection, the amount
of the installment payment is the sum of the
following amounts, less 1/12 of the tax credits
that are allowed by law to be applied against the
tax levied by AS 43.55.011(e) for the calendar
year, but the amount of the installment payment
may not be less than zero:
(A) for oil and gas produced from
leases or properties in the state outside
the Cook Inlet sedimentary basin but not
subject to AS 43.55.011(o), other than
leases or properties subject to
AS 43.55.011(f), the greater of
(i) zero; or
(ii) the sum of 25 percent
and the tax rate calculated for the
month under AS 43.55.011(g) multiplied
by [APPLICABLE TAX RATES IN
AS 43.55.011(e), AS APPLICABLE, AND
43.55.011(g), AS APPLICABLE, APPLIED
TO] the remainder obtained by
subtracting 1/12 of the producer's
adjusted lease expenditures for the
calendar year of production under
AS 43.55.165 and 43.55.170 that are
deductible for the leases or properties
under AS 43.55.160 from the gross value
at the point of production of the oil
and gas produced from the leases or
properties during the month for which
the installment payment is calculated;
(B) for oil and gas produced from
leases or properties subject to
AS 43.55.011(f), the greatest of
(i) zero;
(ii) zero percent, one
percent, two percent, three percent, or
four percent, as applicable, of the
gross value at the point of production
of the oil and gas produced from all
leases or properties during the month
for which the installment payment is
calculated; or
(iii) the sum of 25 percent
and the tax rate calculated for the
month under AS 43.55.011(g) multiplied
by [APPLICABLE TAX RATES IN
AS 43.55.011(e), AS APPLICABLE, AND
43.55.011(g), AS APPLICABLE, APPLIED
TO] the remainder obtained by
subtracting 1/12 of the producer's
adjusted lease expenditures for the
calendar year of production under
AS 43.55.165 and 43.55.170 that are
deductible for those leases or
properties under AS 43.55.160 from the
gross value at the point of production
of the oil and gas produced from those
leases or properties during the month
for which the installment payment is
calculated;
(C) for oil and gas produced from
each lease or property subject to
AS 43.55.011(j), (k), or (o), the greater of
(i) zero; or
(ii) the sum of 25 percent
and the tax rate calculated for the
month under AS 43.55.011(g) multiplied
by [APPLICABLE TAX RATES IN
AS 43.55.011(e), AS APPLICABLE, AND
43.55.011(g), AS APPLICABLE, APPLIED
TO] the remainder obtained by
subtracting 1/12 of the producer's
adjusted lease expenditures for the
calendar year of production under
AS 43.55.165 and 43.55.170 that are
deductible under AS 43.55.160 for oil
or gas, respectively, produced from the
lease or property from the gross value
at the point of production of the oil
or gas, respectively, produced from the
lease or property during the month for
which the installment payment is
calculated;
(2) an amount calculated under (1)(C)
of this subsection for oil or gas produced from a
lease or property subject to AS 43.55.011(j),
(k), or (o) may not exceed the product obtained
by carrying out the calculation set out in
AS 43.55.011(j)(1) or (2) or 43.55.011(o), as
applicable, for gas or set out in
AS 43.55.011(k)(1) or (2), as applicable, for
oil, but substituting in AS 43.55.011(j)(1)(A) or
(2)(A) or 43.55.011(o), as applicable, the amount
of taxable gas produced during the month for the
amount of taxable gas produced during the
calendar year and substituting in
AS 43.55.011(k)(1)(A) or (2)(A), as applicable,
the amount of taxable oil produced during the
month for the amount of taxable oil produced
during the calendar year;
(3) an installment payment of the
estimated tax levied by AS 43.55.011(i) for each
lease or property is due for each month of the
calendar year on the last day of the following
month; the amount of the installment payment is
the sum of
(A) the applicable tax rate for
oil provided under AS 43.55.011(i),
multiplied by the gross value at the point
of production of the oil taxable under
AS 43.55.011(i) and produced from the lease
or property during the month; and
(B) the applicable tax rate for
gas provided under AS 43.55.011(i),
multiplied by the gross value at the point
of production of the gas taxable under
AS 43.55.011(i) and produced from the lease
or property during the month;
(4) any amount of tax levied by
AS 43.55.011(e) or (i), net of any credits
applied as allowed by law, that exceeds the total
of the amounts due as installment payments of
estimated tax is due on March 31 of the year
following the calendar year of production."
Renumber the following bill sections accordingly.
Page 10, following line 25:
Insert a new bill section to read:
"* Sec. 18. AS 43.55.020(g) is amended to read:
(g) Notwithstanding any contrary provision
of AS 43.05.225, an unpaid amount of an
installment payment required under (a)(1) - (3)
of this section that is not paid when due bears
interest (1) at the rate provided for an
underpayment under 26 U.S.C. 6621 (Internal
Revenue Code), as amended, compounded daily, from
the date the installment payment is due until
March 31 following the calendar year of
production, and (2) as provided for a delinquent
tax under AS 43.05.225 [AS 43.05.225(1)] after
that March 31. Interest accrued under (1) of this
subsection that remains unpaid after that
March 31 is treated as an addition to tax that
bears interest under (2) of this subsection. An
unpaid amount of tax due under (a)(4) of this
section that is not paid when due bears interest
as provided for a delinquent tax under
AS 43.05.225 [AS 43.05.225(1)]."
Renumber the following bill sections accordingly.
Page 11, following line 12:
Insert a new bill section to read:
"* Sec. 20. AS 43.55.023(a) is amended to read:
(a) A producer or explorer may take a tax
credit for a qualified capital expenditure as
follows:
(1) notwithstanding that a qualified
capital expenditure may be a deductible lease
expenditure for purposes of calculating the
production tax value of oil and gas under
AS 43.55.160(a), unless a credit for that
expenditure is taken under AS 38.05.180(i),
AS 41.09.010, AS 43.20.043, or AS 43.55.025, a
producer or explorer that incurs a qualified
capital expenditure may also elect to apply a tax
credit against a tax levied by AS 43.55.011(e) in
the amount of 20 percent of that expenditure;
however, not more than half of the tax credit may
be applied for a single calendar year;
(2) a producer or explorer may take a
credit for a qualified capital expenditure
incurred in connection with geological or
geophysical exploration or in connection with an
exploration well only if the producer or explorer
(A) agrees, in writing, to the
applicable provisions of AS 43.55.025(f)(2);
(B) submits to the Department of
Natural Resources all data that would be
required to be submitted under
AS 43.55.025(f)(2)."
Renumber the following bill sections accordingly.
Page 12, following line 7:
Insert a new bill section to read:
"* Sec. 22. AS 43.55.023(d) is amended to read:
(d) Except as limited by (i) of this
section, a person that is entitled to take a tax
credit under this section that wishes to transfer
the unused credit to another person or obtain a
cash payment under AS 43.55.028 may apply to the
department for [A] transferable tax credit
certificates [CERTIFICATE]. An application under
this subsection must be in a form prescribed by
the department and must include supporting
information and documentation that the department
reasonably requires. The department shall grant
or deny an application, or grant an application
as to a lesser amount than that claimed and deny
it as to the excess, not later than 120 days
after the latest of (1) March 31 of the year
following the calendar year in which the
qualified capital expenditure [, WELL LEASE
EXPENDITURE,] or carried-forward annual loss for
which the credit is claimed was incurred; (2) the
date the statement required under AS 43.55.030(a)
or (e) was filed for the calendar year in which
the qualified capital expenditure [, WELL LEASE
EXPENDITURE,] or carried-forward annual loss for
which the credit is claimed was incurred; or (3)
the date the application was received by the
department. If, based on the information then
available to it, the department is reasonably
satisfied that the applicant is entitled to a
credit, the department shall issue the applicant
two [A] transferable tax credit certificates,
each for half of [CERTIFICATE FOR] the amount of
the credit. The credit shown on one of the two
certificates is available for immediate use. The
credit shown on the second of the two
certificates may not be applied against a tax for
a calendar year earlier than the calendar year
following the calendar year in which the
certificate is issued, and the certificate must
contain a conspicuous statement to that effect. A
certificate issued under this subsection does not
expire."
Renumber the following bill sections accordingly.
Page 13, following line 4:
Insert a new bill section to read:
"* Sec. 25. AS 43.55.023(g) is amended to read:
(g) The issuance of a transferable tax
credit certificate under (d) of this section,
[OR] former (m) of this section, or (p) of this
section, or the purchase of a certificate under
AS 43.55.028 does not limit the department's
ability to later audit a tax credit claim to
which the certificate relates or to adjust the
claim if the department determines, as a result
of the audit, that the applicant was not entitled
to the amount of the credit for which the
certificate was issued. The tax liability of the
applicant under AS 43.55.011(e) and 43.55.017 -
43.55.180 is increased by the amount of the
credit that exceeds that to which the applicant
was entitled, or the applicant's available valid
outstanding credits applicable against the tax
levied by AS 43.55.011(e) are reduced by that
amount. If the applicant's tax liability is
increased under this subsection, the increase
bears interest under AS 43.05.225
[AS 43.05.225(1)] from the date the transferable
tax credit certificate was issued. For purposes
of this subsection, an applicant that is an
explorer is considered a producer subject to the
tax levied by AS 43.55.011(e)."
Renumber the following bill sections accordingly.
Page 13, line 8:
Delete "2021"
Insert "2015"
Page 13, line 31:
Delete "2020"
Insert "2014"
Delete "2021"
Insert "2015"
Page 14, line 9, following "expenditure;":
Insert "a tax credit under this paragraph may be
applied for a single calendar year;"
Page 15, line 3, following "(l)":
Insert "and (p)"
Page 15, following line 15:
Insert a new bill section to read:
"* Sec. 30. AS 43.55.023 is amended by adding a new
subsection to read:
(p) For a lease expenditure incurred in the
state south of 68 degrees North latitude after
December 31, 2014, that qualifies for tax credits
under (a) and (b) of this section, and for a well
lease expenditure incurred in the state south of
68 degrees North latitude that qualifies for a
tax credit under (l) of this section, the
department shall issue transferable tax credit
certificates to the person entitled to the credit
for the full amount of the credit. The
transferable tax credit certificates do not
expire."
Renumber the following bill sections accordingly.
Page 15, line 16, through page 17, line 16:
Delete all material.
Renumber the following bill sections accordingly.
Page 18, following line 6:
Insert a new bill section to read:
"* Sec. 32. AS 43.55.028(e) is amended to read:
(e) The department, on the written
application of a person to whom a transferable
tax credit certificate has been issued under
AS 43.55.023(d), [OR] former AS 43.55.023(m), or
AS 43.55.023(p), or to whom a production tax
credit certificate has been issued under
AS 43.55.025(f), may use available money in the
oil and gas tax credit fund to purchase, in whole
or in part, the certificate if the department
finds that
(1) the calendar year of the purchase
is not earlier than the first calendar year for
which the credit shown on the certificate would
otherwise be allowed to be applied against a tax;
(2) the applicant does not have an
outstanding liability to the state for unpaid
delinquent taxes under this title;
(3) the applicant's total tax
liability under AS 43.55.011(e), after
application of all available tax credits, for the
calendar year in which the application is made is
zero;
(4) the applicant's average daily
production of oil and gas taxable under
AS 43.55.011(e) during the calendar year
preceding the calendar year in which the
application is made was not more than 50,000 BTU
equivalent barrels; and
(5) the purchase is consistent with
this section and regulations adopted under this
section."
Renumber the following bill sections accordingly.
Page 18, following line 15:
Insert a new bill section to read:
"* Sec. 34. AS 43.55.028(g) is amended to read:
(g) The department may adopt regulations to
carry out the purposes of this section, including
standards and procedures to allocate available
money among applications for purchases under this
chapter and claims for refunds under AS 43.20.046
when the total amount of the applications for
purchase and claims for refund exceed the amount
of available money in the fund. The regulations
adopted by the department may not, when
allocating available money in the fund under this
section, distinguish an application for the
purchase of a credit certificate issued under
former AS 43.55.023(m) or AS 43.55.023(p) or a
claim for refund under AS 43.20.046."
Renumber the following bill sections accordingly.
Page 19, following line 12:
Insert a new bill section to read:
"* Sec. 36. AS 43.55.890 is amended to read:
Sec. 43.55.890. Disclosure of tax
information. Notwithstanding any contrary
provision of AS 40.25.100, and regardless of
whether the information is considered under
AS 43.05.230(e) to constitute statistics
classified to prevent the identification of
particular returns or reports, the department may
publish the following information under this
chapter, if aggregated among three or more
producers or explorers, showing, by month or
calendar year and by lease or property, unit, or
area of the state:
(1) the amount of oil or gas
production;
(2) the amount of taxes levied under
this chapter or paid under this chapter;
(3) the effective tax rates under this
chapter;
(4) the gross value of oil or gas at
the point of production;
(5) the transportation costs for oil
or gas;
(6) qualified capital expenditures, as
defined in AS 43.55.023;
(7) exploration expenditures under
AS 43.55.025;
(8) production tax values of oil or
gas under AS 43.55.160;
(9) lease expenditures under
AS 43.55.165;
(10) adjustments to lease expenditures
under AS 43.55.170;
(11) tax credits applicable or
potentially applicable against taxes levied by
this chapter [; THE INFORMATION RELATING TO TAX
CREDITS UNDER THIS PARAGRAPH, TO THE EXTENT THE
INFORMATION IS AVAILABLE TO THE DEPARTMENT, MUST
INCLUDE THE STATUTORY AUTHORITY FOR EACH TYPE OF
CREDIT TAKEN, THE AMOUNT OF CREDITS TAKEN UNDER
EACH STATUTE AUTHORIZING A TAX CREDIT, AND
WHETHER THE CREDIT IS FOR AN EXPENDITURE RELATED
TO OIL OR GAS EXPLORATION, DEVELOPMENT, OR
PRODUCTION, INCLUDING THE DRILLING OF WELLS;
PERFORMING WORK ON EXISTING WELLS; CONDUCTING
GEOLOGICAL OR GEOPHYSICAL EXPLORATION; ACQUIRING,
CONSTRUCTING, OR INSTALLING NEW FACILITIES OR
EQUIPMENT; AND MAINTAINING, REPAIRING, OR
REPLACING EXISTING FACILITIES OR EQUIPMENT]."
Renumber the following bill sections accordingly.
Page 19, following line 17:
Insert a new bill section to read:
"* Sec. 38. AS 43.56.160 is amended to read:
Sec. 43.56.160. Interest and penalty. When
the tax levied by AS 43.56.010(a) becomes
delinquent, a penalty of 10 percent shall be
added. Interest on the delinquent taxes,
exclusive of penalty, shall be assessed at a rate
of eight percent a year [THE RATE SPECIFIED IN
AS 43.05.225(1)]."
Renumber the following bill sections accordingly.
Page 19, following line 28:
Insert a new bill section to read:
"* Sec. 40. AS 43.77.020(d) is amended to read:
(d) A person subject to the tax under this
chapter shall make quarterly payments of the tax
estimated to be due for the year, as required
under regulations adopted by the department. A
taxpayer will be subject to an estimated tax
penalty, determined by applying the interest rate
specified in AS 43.05.225 [AS 43.05.225(1)] to
the underpayment for each quarter, unless the
taxpayer makes estimated tax payments in equal
installments that total either
(1) at least 90 percent of the
taxpayer's tax liability under this chapter for
the tax year; or
(2) at least 100 percent of the
taxpayer's tax liability under this chapter for
the prior tax year."
Renumber the following bill sections accordingly.
Page 20, following line 1:
Insert a new bill section to read:
"* Sec. 42. AS 43.90.430 is amended to read:
Sec. 43.90.430. Interest. When a payment due
to the state under this chapter becomes
delinquent, the payment bears interest at the
rate applicable to a delinquent tax under
AS 43.05.225 [AS 43.05.225(1)]."
Renumber the following bill sections accordingly.
Page 20, line 5:
Delete "Sections 10 - 12, 14, 16, and 28"
Insert "Sections 19, 21, 23, 26, 28, and 43"
Page 20, line 7:
Delete "Sections 6 - 8"
Insert "Sections 11, 13, and 15"
Page 20, line 8:
Delete "Sections 15 and 17"
Insert "Sections 20, 22, 25, 27, 29, and 30"
Page 20, line 9:
Delete "2020"
Insert "2014"
Page 20, following line 9:
Insert a new subsection to read:
"(d) Sections 12, 14, and 16 of this Act apply
to oil and gas produced after December 31, 2014."
Page 20, line 18:
Delete "Sections 10 - 12, 14, 16, 22, 23, and 28"
Insert "Sections 19, 21, 23, 26, 28, 31, 33, and
43"
Page 20, line 20:
Delete "Section 24"
Insert "Section 35"
Page 20, line 21:
Delete "Sections 6 - 8 and 29(b)"
Insert "Sections 11, 13, 15, and 44(b)"
Page 20, line 22:
Delete "Sections 15, 17, and 29(c)"
Insert "Sections 2, 4, 6, 8, 10, 12, 14, 16, 18,
20, 22, 25, 27, 29, 30, 32, 34, 36, 38, 40, 42, and
44(c)"
Delete "2021"
Insert "2015"
Page 20, line 23:
Delete "Sections 10 - 12, 14, 16, 22, 23, 28,
29(a), and 31"
Insert "Sections 19, 21, 23, 26, 28, 31, 33, 43,
44(a), and 46"
Page 20, line 25:
Delete "secs. 32 - 35"
Insert "secs. 47 - 50"
Vice-chair Fairclough OBJECTED.
Representative Doogan explained Amendment 5. He noted that
Don Bullock had drafted the amendment. He summarized that
the amendment would essentially set a sunset date for 2014.
Representative Doogan stated that the committee was being
asked to pass HB 110 without knowing its cost, the effects
it would have, and the fiscal situation it could create at
any given point in time. He said that Amendment 5 would
allow the state to see what the proposed bill would do; by
2014, the effects could be re-evaluated. The measure could
then be sunsetted if it was not working.
4:07:51 PM
Representative Doogan reminded the committee that a sunset
provision provided an opportunity at a specific date to
change a measure rather than shut it down.
Vice-chair Fairclough spoke in opposition to Amendment 5.
She reported that she had voted in favor of the 25 percent
on the House floor when ACES was being considered, but
voted against the overall bill because of progressivity and
other issues. She liked the idea of a sunset date in 2014,
but was fearful that the sunset date would still create
uncertainty for investors.
Vice-chair Fairclough recalled at least one entity that had
testified that it had made investment decisions under the
Petroleum Production Tax (PPT), and then under ACES, and
were having difficulty being forced into production. She
was afraid Amendment 5 would create a climate of
uncertainty for investors. She stated that she supported
holding industry accountable through the 15 percent
bracketing proposal in HB 110, so that the units would be
taxed in a fair way.
Representative Wilson spoke against Amendment 5. She
pointed out that most of the bill would not go into effect
until 2013, so there would only be one year in which to
find out what could happen. She believed that at some
point, the state had to stop changing the rules.
4:12:07 PM
Representative Guttenberg testified in support of Amendment
5. He argued that the entire premise of HB 110 was based on
things that he did not think the administration had been
able to make a case for. He pointed out that the
administration had not done modeling to show how a reduced
tax rate and changes to credits would increase exploration
and production. He wanted a "hard line" with things
happening by a certain date, as well as data about the
number of permits and the resulting infrastructure and
employment.
Representative Gara spoke in support of the amendment. He
spoke to fears that the industry would follow through on
promises made during the discussion about the bill. For
example, Exxon and BP had promised that they would not
drill a single new exploration well if the bill was passed,
while ConocoPhillips had said they might or might not. He
believed the amendment would address the concerns;
companies who kept the promises would lose the benefits of
the bill. He also thought the amendment would encourage
companies to do something better than what they promised if
they wanted to keep the money the state would offer.
Vice-chair Fairclough protested against "disparaging
comments" said about larger producers. She stated that she
had not heard companies promise not to do something; she
heard companies say they could not promise to DO something.
For example, companies would have to change their stance to
projects and would compete for the assets. She did not
think all companies were alike and she did not want to lump
all oil and gas companies together. She believed that there
were many different businesses and that companies with
large capital assets were buying smaller companies. She
thought smaller producers were conducting exploration with
a business model of looking for oil, coal, or other
resources.
4:18:01 PM
Vice-chair Fairclough maintained that "labor" referred to
service industry businesses that built infrastructure and
supported the oil and gas industry in many different ways.
She resonated with people who had run businesses and worked
on the North Slope, and then had to move to North Dakota to
remobilize their assets.
Vice-chair Fairclough believed that the bill before the
committee had to do with a "balanced approach" to the
different kinds of models and companies that were investing
in Alaska. She believed that the state was doing a good job
on exploration and credits. She believed it was valid to
say that it was expensive to try to capitalize production
facilities, but she thought there was a combination of two
credits adding up to 45 percent for that. She wanted to
balance policy approaches.
Vice-chair Fairclough stressed that Amendment 3 would
create uncertainty for capitalization on the production
side and not the development level for producers. She
thought there three different types of business (with the
service industry making a possible forth type) and that the
state (as far as credits went) was divided into three
different regions. She reported that she had learned about
"Middle Earth," or the regions that credits were associated
with that were between the North Slope region (north of 68
degrees Latitude) and the Cook Inlet region.
Vice-chair Fairclough appreciated the effort to hold
industry accountable. She believed ACES had gone too far
and that the state had to revisit the policies.
Representative Doogan explained that the year 2014 was
selected as the date in the amendment because it reflected
how long ACES was in place before the current attempt to
amend it. He thought the timeframe was long enough.
Representative Doogan stated that his intention was to make
sure the committee did not inadvertently commit the state
to buying something it did not intended to buy ("buying a
pig in a poke"). He asserted that it was not possible to
know what was going to happen; he believed there was no
assurance that HB 110 would result in a single drop of oil.
Representative Doogan did not think it was responsible to
give companies the money without holding them to anything,
and without having a sunset date in order to re-evaluate
the situation. He pointed out that the state went to great
lengths to do reviews of other issues. He wanted the state
to at least have a safety net.
4:24:05 PM
Vice-chair Fairclough MAINTAINED her OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Gara, Guttenberg, Doogan
OPPOSED: Fairclough, Joule, Hawker, Wilson, Costello,
Edgmon, Stoltze, Thomas
The MOTION FAILED (8/3). Amendment 5 was not adopted.
Representative Gara referred to accusations that had been
made that the truth was not being told, particularly the
comment that he had not accurately represented what was
said by BP and ExxonMobil. He read from transcripts related
to the companies claiming that they would not go ahead with
exploration wells. He quoted Clair Fitzpatrick (from BP):
BP does not do what is referred to as traditional
exploratory wells…It is not BP's current intention,
(although that may change; I only own 20 percent of
Prudhoe Bay) to do it as technically classified as an
exploration well.
Representative Gara continued that he had asked ExxonMobil
if it had drilled an exploration well in the last twenty
years. The answer was, "I think the last one we did was in
1982." He had asked ExxonMobil whether their plan was to
continue the practice of not drilling exploration wells.
The answer had been, "I can't promise you that it (the
governor's bill) would lead to increased exploration."
Representative Gara recommended disagreeing on the merits
of the issue without accusing the person being disagreed
with of misrepresenting the facts.
Representative Hawker agreed that Representative Gara was
correct about his characterization of one part of the
conversation. He wanted the record to reflect that BP-
Alaska and ExxonMobil had corporate business profiles that
were not exploration; in other words, the companies were
not the explorers. He claimed that BP had never explored
for and found oil in the state (other than the
[unintelligible] prospect); BP acquired production from the
explorers whose business it was to locate and find oil. He
added that the same was largely true of ExxonMobil. He
believed that characterizing their testimony as
disrespecting the state was not accurate. He believed the
entities were looking for the support needed to operate
profitably. He believed HB 110 would try to restore balance
to the state's tax-production system.
4:28:14 PM
Co-Chair Stoltze MOVED Amendment 2, 27-GH1007\I.6, Bullock,
3/28/11 (copy on file):
Page 7, line 23:
Delete "15"
Insert "25"
Representative Wilson OBJECTED.
Co-Chair Stoltze explained that the amendment would correct
a typographical error.
Commissioner Butcher agreed that the number was a technical
error, and that the number should indicate a rise from 22.5
to 25, and not down to 15.
There being NO OBJECTION, it was so ordered. Amendment 2
was adopted.
4:30:42 PM
Co-Chair Stoltze explained that Amendment 1 would be
replaced by Amendment 6.
Co-Chair Stoltze MOVED Amendment 6, 27-GH1007\I.15,
Kurtz/Bullock, 3/29/11 (copy on file):
Page 3, line 15, following "production":
Insert "or produced during the first seven years after
the effective date of this bill section, whichever is
later,"
Representative Wilson OBJECTED.
Representative Hawker explained Amendment 6. He directed
attention to the provision referenced on page 3, line 14,
which would authorize the 15 percent base progressivity and
the curve for certain production from certain areas limited
to the first seven consecutive years after production
commenced. The areas referred to (on lines 16 and 17) were
those that had not previously been within an established
unit, or areas that had not been in commercial production
as of December 31, 2008.
Representative Hawker detailed that HB 110 as introduced by
the administration had originally contained the date
December 31, 2010. The date was moved back to December 31,
2008 by the House Resources Committee, specifically to make
certain that prospective developments (related to Armstrong
and Repsol) would qualify to incentivize and bring new
exploration into the state. During the House Finance
Committee process, the decision had been made that the 15
percent benefit would only exist for the first seven
consecutive years of production for the particular lease or
property.
Representative Hawker reported that he had had concerns and
had conferred with Mr. Bullock (the drafter of the
legislation) and Co-Chair Eric Feige of the House Resources
Committee, who concurred that the effective date of the
provision (January 1, 2012) would have been the starting
date for the seven consecutive years, rather than after the
start of sustained production.
Representative Hawker summarized that the language in the
amendment would ensure that anyone that qualified would get
seven years of benefit. He believed there had been
sufficient ambiguity in the bill's language that someone
who had actually started production before the effective
date could be denied the benefits. He emphasized that the
provision would be directed at new production and that
there would be no fiscal note consequence to the change.
4:34:37 PM
Representative Gara questioned whether the dates were right
for the Liberty field. He wondered whether Liberty field
would get the 15 percent rate under the amendment, since it
had not started production; he noted that the field would
pay the 25 percent tax rate plus progressivity without the
amendment. He wondered which fields would pay 15 percent
rather than 25 percent if the amendment were adopted.
Representative Hawker responded that the amendment would
clarify the intent of the House Resources Committee and
would not expand the intent or scope of the original
language.
Co-Chair Stoltze wanted to keep consistent with intent. He
referred to mistakes related to the Cook Inlet.
Representative Hawker pointed out that the Liberty field
was federal and not state. He stated that the amendment
would have no effect on the field.
Representative Doogan asked whether the amendment language
would change who would get seven "low-cost" years before
paying an enhanced tax. He asked whether current fields
would be affected.
Commissioner Butcher replied that the discussed aspect of
HB 110 covered fields that had not been unitized or
developed.
Co-Chair Stoltze noted that during the CS process, the
Finance Committee had inadvertently undone some of the work
of the previous committee.
4:38:03 PM
Representative Gara questioned the intent of the House
Resources Committee related to the language. He wondered
whether the amendment would affect a field already unitized
under ACES and whether the field would get the 15 percent
tax rate because production was not started until after the
effective date of the bill.
REPRESENTATIVE ERIC FEIGE, CO-CHAIR, HOUSE RESOURCES
COMMITTEE, explained that the intent of the date in the
provision was to segregate areas that had not been put into
production from those already in production. The intent was
to leave the effective base rate at 25 percent for areas
already in production; the intent for areas outside was a
lower base-rate tax. He added that the problem with the
language in the original bill was the discussion of
"units." Brooks Range Petroleum and Armstrong Petroleum had
leases that did not have current production, but the leases
were already in existing units; leaving the original date
would have exempted those units and kept as-yet-to-be-
produced areas at the higher base tax rate. He underlined
that the House Resources Committee changed the date in
order to segregate the producing areas from the undeveloped
areas.
Representative Wilson REMOVED her OBJECTION to Amendment 6.
Representative Gara OBJECTED. He did not want to grant the
lower tax rate to fields that would be produced anyway.
Representative Gara WITHDREW his OBJECTION. There being NO
further OBJECTION, it was so ordered. Amendment 6 was
adopted.
4:42:32 PM
AT EASE
4:59:04 PM
RECONVENED
Vice-chair Fairclough MOVED to report CSHB 110(FIN) out of
Committee with individual recommendations and the
accompanying fiscal notes.
Representative Gara OBJECTED.
Representative Gara spoke against the legislation. He
acknowledged that the state would be smart to do something
like HB 110. He noted that he and Senator Hollis French had
asked the governor to start selling the positive aspects of
ACES.
Representative Gara reviewed that the governor had proposed
HB 110 as a provision that would not cost the state money
over the long-term and that would increase production. He
continued that based on the second page of the fiscal note,
the state would lose over $3.5 billion in revenue over the
next five years, even with a 5 percent increase in
production. He believed the amount of revenue loss would
grow as the years passed.
Representative Gara wanted the whole economy of the state
to be addressed. He was concerned that the $1.5 billion
loss would affect state operations, such as hiring
teachers, fire-fighters, and state troopers. He believed
more damage would be done to Alaska's economy by adopting
the bill than would be done by leaving the situation as it
was. He believed it made more sense to give companies
credits only if they did what the state wanted them to do
than to give companies money and hope they put it back into
the state.
Representative Gara referred to the decline of the ELF tax
rate to zero percent on 15 of 19 North Slope fields, when
the production decline remained at 6 percent each year, and
employment and investment were lower. He thought
historically, giving companies tax money and allowing them
to decide what to do with it had resulted in flight of
money from the state. He thought the smart approach would
be to pay for things that resulted in more oil, which was
why the minority had proposed the series of amendments
offered in the committee. The goal was more money for more
exploration wells, and money for processing facilities; the
only way a company could get more money would be to help
increase production.
Representative Gara believed HB 110 would accomplish
something that DOR had said was not wise four years prior.
Companies that invested in major oil field developments had
an economic incentive to continue the production of wells
in certain fields, which was why ACES granted only a 20
percent credit for in-field production. The legislature had
been told that giving the companies more money would fund
what the companies wanted to do to maintain the lives of
the fields.
Representative Gara summarized that he wanted to get
something back for state investment. He did not believe the
governor's bill could provide adequate assurance that the
state would get anything other than a loss in revenue.
5:04:03 PM
Representative Guttenberg spoke against HB 110. He
recommended looking at the long view. He believed that
changing a tax fiscal regime was an equation: there was an
equal sign in the middle, and two equations on either side
of it. He felt that sometimes, "two plus two equaled five"
and believed the value had to be weighed as to its return
to the state.
Representative Guttenberg referred to testimony from the
administration, the producers, and others, and noted that
there had been two assumptions: the competitive nature of
the fiscal policy and chasing capital. The themes seemed
like a marketing plan rather than a balanced equation. He
was troubled by the lack of modeling done to demonstrate
numbers moving towards increased production. He was also
troubled that the two consultants who had testified (who
were private consultants, outside the realm of the
administration, and not producers with a "ball in the
game") had disagreed with the assumption.
Representative Guttenberg referred to the DOR presentation
by Gaffney, Cline & Associates to the House Resources
Committee, in which there had been discussion about
designing a fiscal system with two parts art and one part
science. There was discussion of nine "influencing
factors"; the last one was "competition from everywhere."
Representative Guttenberg pointed out that the consultant
was someone with a lot of private-sector experience who had
been an industry man and had to evaluate a lot of things;
he was not seen before the Finance Committee.
5:08:20 PM
Representative Guttenberg recalled testimony by consultant
Rick Harper in the committee ["An Independent View of HB
110, March 24, 2011"], who "rolled his eyes" during his
presentation. He quoted Mr. Harper as saying, "the things
that should be important in building a fiscal structure are
the things you are not hearing." He questioned what those
"things" were and expressed disappointment that the
administration had not addressed the issue. He claimed that
the only two people who had come from outside the
administration had serious questions about the proposal. He
did not believe the administration had made the case for
the state to adopt the proposed fiscal regime.
Representative Wilson spoke in support of HB 110. She
agreed that the entire picture had to be considered; the
bigger picture for her was about jobs, development, and
keeping oil coming down the pipeline. She had not seen any
new oil coming online and wanted to know why. She thought
there were explorers, but she questioned why the explorers
were not developing and becoming producers. She thought the
answer was that explorers were explorers; the next step was
to sell the package, which consisted of some credits. She
thought the worst part was that the more money a company
made, the more money the state would take. She thought that
was a "hard sell."
Representative Wilson argued that not using incentives to
bring business in was an avoidance of reality. She believed
it was "normal" in everyday business to provide tax relief
for developers in order to create jobs. She felt HB 110
would produce more jobs and allow her community to have
heating oil (although she also hoped to look at other
energy options).
Representative Wilson agreed that there could always be
more information. She reported that she had gone to the
community and asked people if they had seen jobs leave with
ACES; the answer in the Fairbanks and North Pole area was
that jobs had declined. People believed that making changes
in the tax regime would get the service industry jobs back.
5:12:08 PM
Representative Doogan spoke against the legislation. He
opined that HB 110 would give a lot of state money to the
oil industry, would not require anything in return, and
would go on forever. He maintained that he could not
support a bill with such a profile, and was surprised that
any committee member could support it.
Co-Chair Stoltze acknowledged the work done on the bill and
expressed appreciation to staff. He thought the process in
the committee was good.
5:16:34 PM
Representative Doogan appreciated the process and tolerance
shown.
Representative Gara MAINTAINED his OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Edgmon, Fairclough, Joule, Hawker, Wilson,
Costello, Thomas, Stoltze
OPPOSED: Gara, Guttenberg, Doogan
The MOTION PASSED (8/3).
CSHB 110(FIN) was REPORTED out of Committee with a "do
pass" recommendation and with new zero note by the
Department of Natural Resources, new zero note by the
Department of Labor and Workforce Development, and new
fiscal impact note by the Department of Revenue.
5:18:20 PM
ADJOURNMENT
The meeting was adjourned at 5:18 PM.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 110 Amendments 1-5 03292011.pdf |
HFIN 3/29/2011 1:30:00 PM |
HB 110 |
| HB 110 Handout 03292011.pdf |
HFIN 3/29/2011 1:30:00 PM |
HB 110 |
| HB110 NEW FN(FIN)-DOR-TAX-03-29-11.pdf |
HFIN 3/29/2011 1:30:00 PM |
HB 110 |
| HB 110 Amendment #6 03292011.pdf |
HFIN 3/29/2011 1:30:00 PM |
HB 110 |
| HB 110 Public Testimony #2.pdf |
HFIN 3/29/2011 1:30:00 PM |
HB 110 |
| Public Testimony HB 110 #1.pdf |
HFIN 3/29/2011 1:30:00 PM |
HB 110 |
| HB110 Public Testimony #3.pdf |
HFIN 3/29/2011 1:30:00 PM |
HB 110 |