Legislature(2007 - 2008)HOUSE FINANCE 519
10/20/2007 12:00 PM House OIL & GAS
| Audio | Topic |
|---|---|
| Start | |
| HB2001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB2001 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
October 20, 2007
12:02 p.m.
MEMBERS PRESENT
Representative Kurt Olson, Chair
Representative Nancy Dahlstrom
Representative Mark Neuman
Representative Jay Ramras
Representative Ralph Samuels
Representative Mike Doogan
Representative Scott Kawasaki
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Bob Buch
Representative Mike Chenault
Representative John Coghill
Representative Bryce Edgmon
Representative Anna Fairclough
Representative Les Gara
Representative Berta Gardner
Representative Carl Gatto
Representative David Guttenberg
Representative Lindsey Holmes
Representative Wes Keller
Representative Michael "Mike" Kelly
Representative Beth Kerttula
Representative Bob Roses
Representative Paul Seaton
Representative Bill Stoltze
Representative Peggy Wilson
Senator Joe Thomas
Senator Bill Wielechowski
COMMITTEE CALENDAR
HOUSE BILL NO. 2001
"An Act relating to the production tax on oil and gas and to
conservation surcharges on oil; relating to the issuance of
advisory bulletins and the disclosure of certain information
relating to the production tax and the sharing between agencies
of certain information relating to the production tax and to oil
and gas or gas only leases; amending the State Personnel Act to
place in the exempt service certain state oil and gas auditors
and their immediate supervisors; establishing an oil and gas tax
credit fund and authorizing payment from that fund; providing
for retroactive application of certain statutory and regulatory
provisions relating to the production tax on oil and gas and
conservation surcharges on oil; making conforming amendments;
and providing for an effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB2001
SHORT TITLE: OIL & GAS TAX AMENDMENTS
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
10/18/07 (H) READ THE FIRST TIME - REFERRALS
10/18/07 (H) O&G, RES, FIN
10/19/07 (H) O&G AT 1:30 PM HOUSE FINANCE 519
10/19/07 (H) Heard & Held
10/19/07 (H) MINUTE(O&G)
10/20/07 (H) O&G AT 12:00 AM HOUSE FINANCE 519
WITNESS REGISTER
MARCIA DAVIS, Deputy Commissioner
Office of the Commissioner
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 2001.
ROGER MARKS, Economist
Tax Division
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 2001.
TORSTEN WUCHERPFENNIG, Manager, Asset Valuation
PFC Energy
Houston, Texas
POSITION STATEMENT: Presented testimony during the hearing on
HB 2001.
MICHAEL D. WILLIAMS, Chief Economist
Tax Division
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 2001.
BOB GEORGE, Consultant
Gaffney, Cline & Associates Inc. (Gaffney, Cline)
Houston, Texas
POSITION STATEMENT: Answered questions during the hearing on HB
2001.
RICH RUGGIERO, Consultant
Gaffney, Cline & Associates Inc. (Gaffney, Cline)
Houston, Texas
POSITION STATEMENT: Answered questions during the hearing on HB
2001.
ACTION NARRATIVE
CHAIR KURT OLSON called the House Special Committee on Oil and
Gas meeting to order at 12:02:50 PM. Representatives Doogan,
Kawasaki, Neuman, Samuels, and Olson were present at the call to
order. Representatives Ramras and Dahlstrom arrived as the
meeting was in progress. Representatives Buch, Chenault,
Coghill, Edgmon, Fairclough, Gara, Gardner, Gatto, Guttenberg,
Holmes, Keller, Kelly, Kerttula, Roses, Seaton, Stoltz, Wilson,
and Senators Thomas and Wielechowski, were also in attendance.
HB2001-OIL & GAS TAX AMENDMENTS
12:03:38 PM
CHAIR OLSON recognized special guests Tom and Jean McNamara from
Houston, Texas. The McNamara's have visited all 50 state
capitols. He then announced that the only order of business
would be HOUSE BILL NO. 2001 "An Act relating to the production
tax on oil and gas and to conservation surcharges on oil;
relating to the issuance of advisory bulletins and the
disclosure of certain information relating to the production tax
and the sharing between agencies of certain information relating
to the production tax and to oil and gas or gas only leases;
amending the State Personnel Act to place in the exempt service
certain state oil and gas auditors and their immediate
supervisors; establishing an oil and gas tax credit fund and
authorizing payment from that fund; providing for retroactive
application of certain statutory and regulatory provisions
relating to the production tax on oil and gas and conservation
surcharges on oil; making conforming amendments; and providing
for an effective date."
12:03:51 PM
MARCIA DAVIS, Deputy Commissioner, Office of the Commissioner,
Department of Revenue (DOR), informed the committee that today's
PowerPoint presentation will focus on global competitiveness.
She explained that a possible change in the state's production
tax system will raise concerns, one of which is how a change
will impact Alaska's ability to attract investment dollars. To
answer that question legislators need to know who Alaska is
competing with and how the economics look to investors. She
assured the committee that DOR is mindful to ensure that during
the process of comparing and evaluating the tax systems, the
data requested from consultants is provided on the same basis
and results in equal comparisons.
12:06:57 PM
MS. DAVIS continued to say that today's testimony will analyze
the different measures for government take and explain the
choices made by DOR. In addition, there will be a description
of the modeling technique used by the PFC Energy analysis. The
first report will be by Roger Marks who will make a comparison
of the basic differences between the Petroleum Production
Profits Tax (PPT) versus Alaska's Clear and Equitable Share
(ACES). Before beginning the presentation, Ms. Davis noted
that, in answer to a question raised during testimony on October
19, 2007, Cook Inlet credits can be transferred to the North
Slope, but only after they are fully utilized. She offered to
explain the complexities of these transfers to the committee
members after today's hearing.
12:08:47 PM
ROGER MARKS, Economist, Tax Division, Department of Revenue
(DOR), began to explain the simple mechanics of PPT and the
changes proposed by ACES. He informed the committee that
shipping and pipeline tariffs subtracted from the Alaska North
Slope (ANS WC) West Coast price of oil equal the gross value at
the point of production. This is what is meant by "taxing at
the gross". However, for PPT and ACES, upstream capital costs,
adjusted for maintenance, and upstream operating costs are
deducted to determine the net income. At this point, PPT taxes
net income at 22.5 percent and ACES will increase this amount to
25 percent.
12:10:44 PM
REPRESENTATIVE RAMRAS asked Mr. Marks to explain the difference
between capital costs and operating costs.
12:11:04 PM
MR. MARKS explained that qualified capital costs are
expenditures for the major equipment used to produce oil and
gas. These expenditures are depreciated over a period of years
to reflect the useful life of the assets. Operating costs are
everyday expenses such as labor and fuel.
12:11:59 PM
REPRESENTATIVE RAMRAS noted that the United States Department of
Treasury, Internal Revenue Service (IRS) will look at
depreciating goods at specific dates and asked whether the state
will use the same rules.
12:12:21 PM
MR. MARKS answered that under PPT 100 percent of capital costs
are deducted the year they are incurred.
12:12:32 PM
REPRESENTATIVE RAMRAS opined that for the purpose of determining
production taxes, there is no distinction between an operating
expense and a capital cost; the state will calculate them as the
same and they will be subject to deductions under ACES or PPT.
12:12:46 PM
MR. MARKS stressed that the only big distinction is that capital
costs are subject to a credit under the 023a provision of ACES.
He continued to say that the changes proposed by ACES will
result in an increase of FY 08 revenue by $200 million, when
revenue is estimated at $60 per barrel. In addition to the base
tax rate there is a progressivity surcharge calculated on the
net income per barrel. Under PPT, for every dollar of net
income per barrel over $40, the surcharge is .25 percent. Under
ACES, progressivity begins when the per barrel net income is
above $30, and the resulting base rate surcharge is .20 percent.
12:14:34 PM
REPRESENTATIVE RAMRAS asked whether the presentation will
reflect changes in the price of oil.
12:15:32 PM
MR. MARKS stressed that the purpose of today's presentation is
to show mechanically how the taxes work; subsequent testimony
will reflect further analysis using various models.
12:15:43 PM
REPRESENTATIVE SAMUELS clarified that, mechanically speaking,
there is no difference between PPT and ACES.
12:16:05 PM
MS. DAVIS agreed.
12:16:18 PM
REPRESENTATIVE SAMUELS reminded members of the committee that,
in its calculations, DOR assumes a certain price of oil, cost
level, and production level. He pointed out that the
assumptions are variables and based on projections from a
variety of economic consultants.
12:17:31 PM
MS. DAVIS agreed and explained that when models are changed by
one economic variable, other factors must be held constant for
comparison purposes. If the legislature requests changes in
multiple variables, the models will reflect a relative "swing",
but not an exact dollar figure. She encouraged committee
members to look at the association of the tax rate,
progressivity, and high credits.
12:18:38 PM
REPRESENTATIVE SAMUELS expressed his hope that the risk
associated with constant investment and increased cost will be
charted with a drop in production, and that there will be models
that demonstrate the causal effect of money spent to increase
production.
12:19:16 PM
REPRESENTATIVE HOLMES asked for the crossover point at which PPT
progressivity would be bringing in more money than ACES.
12:19:59 PM
MR. MARKS estimated that the ACES crossover point will occur at
approximately $120 per barrel ANS.
12:20:16 PM
REPRESENTATIVE RAMRAS reminded committee members to consider the
weather pattern and changes in climate.
12:21:30 PM
REPRESENTATIVE DOOGAN asked what the ANS West Coast price would
need to be in order to generate a $40 per barrel net income
under PPT.
12:22:16 PM
MR. MARKS said about $62 per barrel.
12:22:26 PM
REPRESENTATIVE DOOGAN noted that the costs are now about $22 per
barrel and asked whether these costs will remain the same.
12:22:36 PM
MR. MARKS opined that if production declines due to maintenance
issues, but costs stay the same, the previous estimate will be
higher.
12:22:52 PM
REPRESENTATIVE NEUMAN pointed out that cost estimates have
increased from $15 to $22 in one year.
12:23:02 PM
MR. MARKS confirmed that costs have increased worldwide during
the last year and the reasons will be discussed during the
hearing on October 21, 2007.
12:23:21 PM
REPRESENTATIVE NEUMAN asked for the actual tax rate with PPT
progressivity starting at $40, and a surcharge of .25 percent,
and ACES starting at $30 with a surcharge of [.20] percent.
12:23:45 PM
MR. MARKS said that at $60 per barrel, assuming a $22 deduction
under PPT, there would be no progressivity. Therefore, under
ACES, the tax rate would be 26.6 percent.
12:25:16 PM
REPRESENTATIVE NEUMAN pointed out that the increase in the cost
of production strongly affected the rate.
12:25:36 PM
REPRESENTATIVE SAMUELS asked for the amount of the production
level assumption in this example.
12:25:50 PM
MR. MARKS responded that the forecast for FY 08, used in this
example, is approximately 720,000 barrels per day.
12:26:23 PM
REPRESENTATIVE SAMUELS further asked for last month's production
figures.
12:26:38 PM
MR. MARKS said that he did not have that information.
12:26:46 PM
REPRESENTATIVE SAMUELS requested production figures for the last
three months.
12:27:04 PM
MR. MARKS noted that winter production figures will be higher
than summer.
12:27:16 PM
REPRESENTATIVE SAMUELS observed that previous revenue
projections were too high. He asked how much of the difference
was due to production levels and how much do to increases in
costs; for example, if the same costs were spread over 20
percent less barrels. Representative Samuels confirmed that the
example now is 720,000 barrels per day and again requested
actual production figures for the last three months.
12:27:49 PM
REPRESENTATIVE DOOGAN stated that if progressivity will kick in,
as a taxpayer, there is incentive to not reach that production
number. He opined that progressivity will change the behavior
of the taxpayer as the producers will want to stay under the
production number that triggers the progressivity surcharge.
12:29:03 PM
MR. MARKS responded that the producers will still be making a
profit and they are better off producing the maximum amount of
oil and paying the progressivity surcharge.
12:29:21 PM
MS. DAVIS clarified that the question is about math; producers
would put more in capital costs and upstream operating costs to
reduce the net income and keep the taxpayer below the
progressivity number. She agreed that there could be a range
where those efforts would pay off, but not always.
12:30:06 PM
REPRESENTATIVE DOOGAN made the assumption that the current
prices are not typical. The likelihood of the close range
occurring increases as oil prices go down.
12:30:39 PM
MS. DAVIS confirmed that setting the trigger price for
progressivity will affect the motive for producers to "play that
game".
12:31:00 PM
MR. MARKS continued to explain that after the base rate and
progressivity surcharge are calculated, the tax payment under
PPT and ACES is reduced by credits. The qualified capital
credit 15 AAC.55 (023a) allows 20 percent of capital cost to be
deductible as a credit in the year incurred and is unchanged
under ACES. The net operation loss credit 15 AAC.55 (023b)
benefits new producers, like Pioneer, that do not have high
levels of income to offset losses. He pointed out that larger
producers can deduct losses from income and realize the full
deduction; however, small producers that are developing fields
are incurring large costs with little income to be offset. The
net operating loss provision under PPT allows conversion of the
loss to a credit at the rate of 20 percent and monetizes the
credit within the year to benefit the net present value. Under
PPT the tax is 22.5 percent; therefore, the rate of conversion
to a credit is 22.5 percent which means a big producer could
deduct 22.5 percent of costs and a small producer, without
offsetting income, is limited to converting its loss to a credit
at a 20 percent rate. ACES will increase the tax rate to 25
percent; therefore, both large and small producers will be
allowed to convert net operating loss to a credit at the 25
percent rate.
12:35:28 PM
REPRESENTATIVE COGHILL asked whether the capital credit
limitation of one year, under PPT, changes to two years under
ACES.
12:35:44 PM
MS. DAVIS said yes.
12:35:48 PM
MR. MARKS confirmed that ACES proposes that, instead of getting
the 20 percent credit all in the year that it is incurred, the
credit can be spread over two years.
12:36:06 PM
REPRESENTATIVE DOOGAN opined that this is the provision under
which an oil company with costs, but no income, will try to sell
its credits.
12:36:37 PM
MS. DAVIS responded that under ACES the company will be able to
both sell credits and have them refunded by the state.
12:36:48 PM
REPRESENTATIVE DOOGAN clarified that under PPT, credits can be
sold if there is a market; under ACES the state is the buyer of
the credits. Under the current system, if a company has a
credit for costs, without taxes to write off, it will need to
find a buyer, or will have a loss.
MR. MARKS agreed and noted that the buyer will not pay 100 cents
on the dollar.
REPRESENTATIVE DOOGAN continued to say that, under ACES, the
state is the buyer of last resort and, therefore, becomes a
participating partner in the exploration of new prospects.
12:37:59 PM
MR. MARKS said:
Under PPT, even ... if ... ExxonMobil Corporation
(EXXON) bought ... something at ninety cents on the
dollar EXXON would, would go to the state with the
credit, so the state is paying, is really ... at the
end of the day, this doesn't affect how the state's
participation because the state is, the state, is sort
of out the full 20 percent by paying it directly under
ACES, or, or, you know, crediting EXXON when they come
forward with the credit certificate if they had bought
the credit from someone else.
12:38:41 PM
REPRESENTATIVE DOOGAN expressed his understanding that if nobody
buys the credit, there is no cost to the state.
12:38:55 PM
MR. MARKS agreed.
12:38:59 PM
REPRESENTATIVE SAMUELS expressed his assumption that the
question of the state buying credits will be covered by the
presentation, and informed the committee that the historical
context of net operating losses reveals that the legislature
failed to set the percentage of the net operating loss equal to
that of the tax rate.
12:39:33 PM
REPRESENTATIVE HOLMES asked how the capital credits are used.
12:40:21 PM
MR. MARKS answered that under PPT, a company will deduct capital
costs and compute income based on the tax rate. In addition,
PPT allows for a 20 percent credit on capital costs. ACES
proposes a change to allow the credit to be spread over two
year.
12:40:56 PM
REPRESENTATIVE HOLMES opined that, under PPT and ACES, the
deduction for capital costs, minus 30 cents, is a smaller
percentage back of the capital costs; this is written off
against the tax rate. If there was not 30 cents per barrel, a
company would be getting 22.5 to 25 percent of its capital costs
back. She concluded that the state is not really giving up 100
percent.
12:42:00 PM
MR. MARKS agreed. He then explained that the third credit, 15
AAC.55 (023i), known as the transition, or TIE credits, are in
response to producers claims that they were unaware of coming
changes under the PPT regarding deductions and qualified
expenditures were not deferred. The TIE credits allow producers
to shift spending so they may have past expenditures quality for
deductions under the new tax law.
12:42:54 PM
REPRESENTATIVE RAMRAS requested that Mr. Marks talk about the
time limit for transitional credits and the complex formula
discussed at length last year by Dr. van Meurs and Mr. Daniel
Johnston. He spoke of the complexity of the precise formula
that was to result in a new tax system that will stimulate
production in legacy and new fields and new production. New
legislators need to be aware of the disparate variables
introduced by the consultants. The presumption was that
changing elements of the formula will increase production,
leading to greater revenue over the long term due to the
stimulation of investment, exploration, and discovery, and
production. Representative Ramras continued to recall that
these changes are based on a complicated tax reward for
investment. The legislature is now in the process of tinkering
with the expert's advice. He expressed his concern that,
without the passage of ACES, future special sessions will be
called by the governor. He stressed that some business costs
are fixed units adjusted by volume. The oil and gas industry's
tax payments are affected by investment climate and possible
changes made to the PPT. In addition, costs of inflation will
mean big impacts in the future. He expressed his concern that
the result of resetting the TIE credit is less than significant.
The fact of the matter is that the legislature voted on the tax
rate and the vote was the result of the legislative process. He
concluded by saying that he fears undermining the previous
efforts to create a healthy economy and protect the state's
interests. He asked the question: "Why are we here".
12:49:08 PM
REPRESENTATIVE DOOGAN observed that the presentations involve
estimations that are changed with variables. His assumption is
that the state will gain from a lower tax rate something of
equal value. He expressed his interest determining the value of
leaving money, in the form of tax revenue, "on the table".
Constituents are asking for additional tax revenue to be spent
on projects around the state. His hope is that the
administration will provide sufficient information so that
legislators can determine what the state will get in return, for
instance, after a change in the net operating loss credit.
12:51:49 PM
MS. DAVIS informed the committee that the administration asked
DOR to look at the PPT and restore public confidence in the tax.
She opined that if the legislature, after reviewing current
information, determines that the PPT is the correct balance, the
process will restore the public's confidence. However, in the
process of the debate, new information on, for example, the TIE
credits may change revenue projections. The administration
feels its responsibility to provide updated and revised
information, and to ensure that new legislators are fully
informed.
12:54:00 PM
REPRESENTATIVE COGHILL recalled that there were three scenarios
discussing the net operating loss credit. He asked whether the
$200 million investment represents an overcharge, or a
reasonable projection for the TIE credit.
12:54:51 PM
MR. MARKS explained that there were good estimates of costs from
2001 to 2006. Subsequent to that, inflation on the North Slope
and worldwide was substantial. The TIE credits are 20 percent
on amounts between 2001 and 2006, but they are subject to a 1:2
ratio, which results in an additional 10 percent of capital
credit on top of the 20 percent credit. Therefore, the $200
million represents about $2 billion in capital spending for FY
08. A company cannot over-recover the amount of the TIE credits
and, since they are a function of capital spending, the credits
were recovered at a fast pace. He confirmed that TIE credits
will expire in 2013 under PPT and that they are eliminated under
ACES.
12:57:13 PM
REPRESENTATIVE SAMUELS asked whether the $200 billion in the
model is a forecast number.
12:57:40 PM
MS. DAVIS answered that the model is based on the forecast for
FY 08.
12:57:53 PM
REPRESENTATIVE SAMUELS surmised that, without FY 08 audits, the
stability factor has more effect on investment than the 10
percent credit, and the forecast is really an unknown.
12:58:39 PM
MS. DAVIS informed the committee that FY 08 was chosen because
an FY 07 forecast would be based partly under PPT and partly
under ACES. The FY 08 model can be projected under PPT and
under ACES for an equal comparison.
12:59:41 PM
REPRESENTATIVE SAMUELS asked whether Pioneer Natural Resources
(Pioneer) has put in for net operation loss credits.
1:00:12 PM
MS. DAVIS said that she can not comment.
1:00:21 PM
REPRESENTATIVE SAMUELS further asked whether any company has
requested net operating loss credits.
1:00:31 PM
MR. MARKS said yes, there has been marketing of net operating
loss credits to third parties.
1:00:38 PM
REPRESENTATIVE KERTTULA asked whether DOR has audit information,
or examples, of exactly what the loss credits were for.
1:01:08 PM
MS. DAVIS responded that credits presented for certification
break down operating expenses and capital expenses; however,
that is not an audit and the expenses are judged on compliance
of form and not substance. She stated that PPT returns and
filings have not been audited at this time.
REPRESENTATIVE KERTTULA further asked for specifics on submitted
filings.
1:02:05 PM
MS. DAVIS clarified that taxpayer filings indicate some details,
but DOR does not have a breakdown regarding whether a capital
expense is for new projects or for maintaining existing projects
already on the books. This information needs to be solicited by
DOR by requesting additional information, or determined by an
audit. Presently, DOR is in the process of making inquiries
into taxpayer's submissions to determine the level of compliance
and to facilitate completion of the regulations.
1:03:41 PM
REPRESENTATIVE KERTTULA opined that without that information it
is impossible to determine whether costs are valid.
1:04:01 PM
MS. DAVIS relayed that DOR can not guarantee that every taxpayer
is complying with guidelines on submitted information. However,
these companies work with similar systems worldwide, and the
industry understands these requirements at the corporate level.
Given the penalties and interest charged on non-compliance, Ms.
Davis assured the committee that there is an expectation of
professionalism and integrity that should limit corrections to
about five or ten percent. She concluded by saying that she
cannot swear that the system is perfect.
1:05:30 PM
CHAIR OLSON asked when real audit information would be
available.
1:05:38 PM
MS. DAVIS estimated that, assuming additional personnel are
hired, the first audit of a PPT taxpayer will be underway within
a year. She noted that audits may be taken out of chronological
order, thus the need for changes in the statute of limitations.
1:06:04 PM
CHAIR OLSON further asked when the completion of the regulations
is expected.
1:06:08 PM
MS. DAVIS informed the committee that the regulations should be
out by the first of the year.
1:06:24 PM
CHAIR OLSON asked for the name of the architect of ACES.
1:06:53 PM
MS. DAVIS stated that the development of ACES has been a
collaborative effort within DOR. The administration initially
asked for a gross tax. However, using PPT as the base, DOR
consulted with economists; furthermore, the Department of
Natural Resources (DNR) provided information on new field versus
legacy field development. In addition, policy decisions about
the future of the state were made at the highest levels. The
final version of ACES was a combination of analysis, economics,
resource evaluation, and policy decisions. She added that the
legislative body will make the ultimate choice.
1:09:01 PM
REPRESENTATIVE NEUMAN called attention to the struggle to
provide income for state services and to consider tax impacts on
the reinvestment in the state by the oil and gas industry. He
asked for a model that reflects the ultimate impact on the money
that either goes to government or is reinvested by private
industry in new development.
1:10:31 PM
MS. DAVIS agreed that there is a question of whether leaving
money in the system creates development and, therefore,
ancillary benefits to the state. She stated that DOR's
testimony on October 21, 2007, will identify the base level and
extraordinary development of mature fields to determine how
investors will forecast the success of projects under PPT or
ACES. She acknowledged that proving the theory of trickle down
economics is very difficult, and that, within the state,
researchers have tried to determine the global benefits of oil
and gas development.
1:12:27 PM
REPRESENTATIVE NEWMAN agreed with the need to determine whether
industry profits go out of state or are reinvested in Alaska
though jobs. The creation of new jobs may have a "multiplier"
effect on the economy four to seven times over.
1:13:09 PM
MS. DAVIS assured the committee that DOR will attempt to
determine whether industry investments are coming to Alaska or
going to other countries offering a more lucrative fiscal
regime. Today's presentation will include case studies that
compare Alaska to other parts of the world. Secondly, is Alaska
offering a good return on the oil industry's investment? The
hearing on October 21, 2007 will reveal whether changing the tax
makes a difference and how changes will impact the industry's
evaluation of Alaska.
1:14:43 PM
REPRESENTATIVE NEUMAN reminded the committee that Alaska
competes against, not only oil and gas, but biofuel sources of
energy, also. The dynamics of competition for energy sources
has changed and now includes biofuel, hydro and solar.
1:16:01 PM
REPRESENTATIVE DAHLSTROM commented that there are too many
unanswered questions and projected numbers for investment
decisions to be made by the state or by individual investors.
She questioned whether other countries and worldwide
corporations make successful investment decisions with
incomplete information.
1:18:49 PM
MS. DAVIS confirmed that the trend, from 2000 forward, is that
other countries are increasing government take. As oil
companies search for scarce resources and prices go up,
governments are raising the price of extracting their resources;
Alaska is not out of step with the rest of the world. Our work
is to determine how much to increase government take and to
judge where Alaska stands in competition with the world.
Tomorrow's presentation will help legislators look at the tax
with the eyes of the investor.
1:21:33 PM
REPRESENTATIVE DAHLSTROM expressed her desire to see a chart
that shows what countries and companies are taking risks and the
results in case of failure. She described her personal
responsibility in making a decision affecting Alaska's citizens.
1:23:19 PM
MS. DAVIS agreed that the debate between industry and government
is perennial, thus the facts regarding investment dollars must
be proven.
1:24:20 PM
REPRESENTATIVE DAHLSTROM reiterated that the legislature is
dealing with an economic outlook that may result in negative
effects on everyday life for Alaska's citizens.
1:25:20 PM
REPRESENTATIVE SAMUELS said that most business is local, but
outside investments impact local business. He spoke of the
importance of enduring contracts and the difficulties of
maintaining a successful local business. The result is that the
economy of the state and day to day life is linked to the
success of smaller companies. Investment is not just important
to the big companies, but real to each of the smaller companies
that provide support services and supplies. He stressed that if
stability is not an issue, the correct decision may be to raise
the tax and take the risk. However; how much risk to the
general welfare of all Alaskans, is Alaska willing to take?
1:32:21 PM
REPRESENTATIVE DOOGAN expressed his feeling that this process is
troubled by the amount of uncertainty regarding last year's
projections. In addition, the risk of proceeding at this time
with fictitious numbers has undermined his confidence in the
administration's recommendations.
1:35:07 PM
MR. MARKS referred to the general calculation of the tax rate
floor and explained that, under PPT, the net payment is compared
against 4 percent of gross income when the ANS West Coast price
is above $25 per barrel of oil. There is also some adjustment
with credits that will be explained in the sectional analysis.
Under ACES, the floor is limited to units with cumulative
production over one billion barrels and daily production over
one hundred thousand barrels per day. In addition, the ACES net
tax payment is compared with ten percent of gross for Prudhoe
Bay and Kuparuk River units and payment is made on the "higher
of".
1:36:43 PM
REPRESENTATIVE SAMUELS opined that when the operators are
spending more money they will generate less taxes. However,
less taxes will drive the limit to the floor and then the tax
rate goes up.
1:37:14 PM
MR. MARKS agreed.
1:37:19 PM
REPRESENTATIVE HOLMES pointed out that the small producer credit
and the exploration credit were not discussed by the presenters.
1:37:43 PM
MR. MARKS explained that the small producer's credit will not
change under ACES. However, the exploration credit will have a
small change to include additional delineation wells.
1:38:53 PM
REPRESENTATIVE SAMUELS asked how much of the exploration credits
have been used.
MR. MARKS answered about 50 million per year. He added that
exploration (025) credits do not reflect all the exploration
credits. Mr. Marks began to describe how the administration
measures government fair share. Fair share to government is an
objective of fiscal systems from the perspective of government.
Investors are free to invest worldwide, capital is fluid, and
investment can occur on a competitive basis. The state's
definition of fair share is the portion of the value of projects
that is going to government commensurate with business risk.
For example, Angola is a geologically rich country. There is a
question of political stability, but investors are willing to
pay a premium for low geological risk. However, Alaska can not
be compared to Angola do to its weaker geology and, therefore,
higher business risk.
1:43:27 PM
MR. MARKS continued to explain that Prudhoe Bay, although a big
field, is 70 percent to 80 percent depleted. Fair share is a
comparable concept and the objective measurements need to be
systematically comparable. The final principle for determining
fair share is that the measurement needs to recognize that
investment decisions look at new fields differently than mature,
or legacy fields, in terms of the value. New fields can be
measured over the lifetime of the project. Mature fields have
other factors to consider such as: costs that are incurred in
discreet time-frames, returns realized after investments,
economics depicted in a single year, and meaningless systematic
international comparisons for a particular year. The pattern of
development is that first there is investment, followed by
return. Again, investments are made based on forward looking
economics.
1:46:06 PM
REPRESENTATIVE NEUMAN requested information that would identify
where the industry is re-investing.
1:46:55 PM
MS. DAVIS assured the committee that this information will be
provided later in the hearing.
1:47:05 PM
REPRESENTATIVE DAHLSTROM asked for further information on legacy
fields.
1:47:20 PM
MR. MARKS responded that the fair share to government for legacy
fields must be measured differently due to the fact that after
20 years to 30 years there are past costs to consider. A single
year's revenue will not reflect the costs of developing the
project.
1:48:14 PM
REPRESENTATIVE DAHLSTROM surmised that the information from a
legacy field is necessary to understand the pattern of costs and
revenue.
1:49:02 PM
MS. DAVIS explained that DOR can not model legacy fields because
the tax structure has changed, thus cradle to grave analysis is
not possible. The next best measure to understand the impact on
mature fields is to do a marginal take of the next dollar
increment. She assured the committee that the data from
consultants comparing Alaska to other investment areas was
limited to the identical scope and measurements of both
subjects. Data on new fields was compared only to cradle to
grave full field analysis; data to be compared to Prudhoe Bay
and Kuparuk River was data that represented the tenth year of a
field.
1:51:27 PM
MR. MARKS cautioned the committee that raising government take
high enough to make up for the years Alaska was collecting at a
lower rate would put Alaska in a non-competitive position with
the current international investment climate.
1:52:55 PM
REPRESENTATIVE DAHLSTROM informed the presenters that she is
unsure of the data being represented.
1:53:42 PM
MS. DAVIS answered that investments will be based on future
expansions and comparisons with alternative investment
opportunities.
1:54:23 PM
REPRESENTATIVE DAHLSTROM expressed her interest in the past
history of investors, including how a company handles past
crisis and failures.
1:55:04 PM
MS. DAVIS agreed that a track record is helpful.
1:55:11 PM
REPRESENTATIVE SAMUELS agreed that investors look forward;
however, if the price of oil dips, and a company spends more,
the more the floor is activated and more tax is owed.
1:56:34 PM
MR. MARKS added that, prior to hitting the floor; PPT allows
savings to producers by investing.
1:56:43 PM
REPRESENTATIVE SAMUELS recalled that the crossover rate under
ACES is $50.
MS. DAVIS said that the crossover rate is now estimated in the
$40 range.
REPRESENTATIVE SAMUELS asked whether Oooguruk is considered a
legacy field.
1:57:03 PM
MS. DAVIS answered that the only new field developments analyzed
were fields that have not been sanctioned and built.
1:57:33 PM
REPRESENTATIVE SAMUELS then asked for the percentage of revenues
that are from Prudhoe Bay, Kuparuk River, and Alpine Units.
1:58:08 PM
MR. MARKS answered 80 to 90 percent. In response to a question,
MR. MARKS informed the committee that there is no revenue from
oil from Cook Inlet and the remaining percentage comes from
Northstar and Milne Point Units.
1:58:27 PM
REPRESENTATIVE SAMUELS opined that the floor will impact 80 to
90 percent of Alaska's revenues.
MR. MARKS noted that the floor will not hit Alpine Unit.
REPRESENTATIVE SAMUELS remarked:
If 85 percent of the oil comes out of Prudhoe, Kuparuk
and Alpine, how much of the costs go into Prudhoe,
Kuparuk and Alpine. All, all of the money is coming
out of there, how much money is going into there?
1:58:49 PM
MS. DAVIS indicated that she was unsure whether DOR reports
costs on a per unit basis. She will research the availability
of this information.
1:59:06 PM
REPRESENTATIVE SAMUELS confirmed the value in knowing where
investments are currently being made.
1:59:26 PM
MS. DAVIS warned that this information may be confidential.
1:59:37 PM
REPRESENTATIVE NEUMAN expressed his concern that the presenters
were confused about some of the facts.
2:00:08 PM
MS. DAVIS responded that the discussion wandered from the
previous subject.
2:00:26 PM
REPRESENTATIVE NEUMAN asked whether specific information on the
floor will be provided.
2:00:35 PM
MS. DAVIS answered that the analysis of the floor changed when
figures for Prudhoe Bay and Kuparuk were consolidated and the
ringfence was removed. Also, in the process of insuring that
the numbers being provided to the committee are accurate,
estimates are constantly revised.
2:01:33 PM
REPRESENTATIVE NEUMAN shared that production forecasts have been
revised since recent public testimony in the Mat-Su Valley.
2:02:20 PM
MR. MARKS expressed his belief that the hearing is not the best
forum for asking for variable rates and estimates.
2:03:00 PM
The committee took an at-ease from 2:03 p.m. to 2:23 p.m.
2:23:33 PM
CHAIR OLSON invited Mr. Marks to continue with his presentation.
MR. MARKS explained that government take for new fields is
calculated over the entire life of the field and is the
percentage of economic rent going to government. Economic rent
is the gross revenue less costs, or pre-tax profit. In
addition, discounting by ten percent recognizes the cost of
capital. In Alaska, there is some front-end loading of property
taxes and royalties. Last year, the projected revenues were
undiscounted numbers; this year they will be discounted.
2:25:56 PM
MR. MARKS then explained how to measure fair share for the
legacy fields. He said that this is a look at the marginal tax
rate (MTR) which is the incremental share of the dollar going to
the government. In Alaska, this is derived by looking at a
given price, for example $60 per barrel, and determining
property taxes, royalties, severance tax, state corporate income
tax, and federal corporate income tax. The price is then
increased by one dollar and the new government take estimate is
compared to the original. The difference between the two
figures is the marginal tax rate. Mr. Marks noted that often
interested parties request annual "share" data, however, that
figure is based on net cash flow from one year and may not be
appropriate for legacy fields.
2:28:06 PM
REPRESENTATIVE NEUMAN stressed that total government take
includes local taxes and property taxes, royalties, income
taxes, and severance taxes.
2:29:15 PM
MS. DAVIS agreed that there is some concern that the same
standard was not used when total government take was compared to
other counties. She assured the committee that the present
comparisons include all possible variables.
2:30:05 PM
MR. MARKS informed the committee that, worldwide, oil and gas
producing entities are separated into two systems for collecting
government take. Developed nations with stable democracies and
diverse economies collect revenue by royalties and production
tax programs written in statute. Underdeveloped and politically
risky nations use production sharing contracts to administer
their fiscal systems. Contracts are negotiated field by field.
Alaska should be compared with the tax and royalty jurisdictions
and its government take, under PPT and ACES, falls between the
United Kingdom and Norway in its peer group. Mr. Marks
summarized by pointing out that the conclusions from this report
differ from the past due to a more exhaustive search of
international jurisdictions, the study of real projects, and use
of an internal Schlumberger, Merak Peep model with detailed
fiscal systems. In addition, fundamental changes to the
approach of the data are the differences between legacy and new
fields and comparisons to relevant competition.
2:33:54 PM
TORSTEN WUCHERPFENNIG, Manager, Asset Valuation, PFC Energy,
Houston, Texas, informed the committee that he is responsible
for preparing all field economic and asset evaluations for
consulting projects and subscription services together with
other analysts who are involved in monitoring 300 oil and gas
fields. He will discuss data from 190 fields. The first
section of his presentation will cover government take.
2:35:29 PM
REPRESENTATIVE SAMUELS asked whether PFC Energy advises any
other governments, oil companies, or U.S. states, and whether it
owns real estate in Alaska.
2:35:54 PM
MR. WUCHERPFENNIG stated that, to his knowledge, PFC Energy does
not own any real estate in Alaska. Its clients include
international oil companies, national oil companies,
governments, and financial institutions.
2:36:15 PM
REPRESENTATIVE SAMUELS requested the percentage of PFC Energy's
government versus oil company clients.
2:36:31 PM
MR. WUCHERPFENNIG responded that, this year, its largest client
is a national oil company.
2:36:42 PM
REPRESENTATIVE RAMRAS reminded the committee that Dr. Pedro van
Meurs only works for government agencies.
2:36:57 PM
REPRESENTATIVE SAMUELS confirmed that Dr. van Meurs provides
consulting classes for individual companies and consults for
governments.
2:37:02 PM
REPRESENTATIVE RAMRAS stated that Dr. van Meurs developed the
PPT to optimize the production, development, and exploration of
oil and gas, and a healthy investment climate, for the State of
Alaska versus the rest of the world.
2:37:23 PM
MR. WUCHERPHENNIG called the committee's attention to a graph
illustrating the distribution of the marginal tax rates of 190
oil and gas fields. He pointed out that, although there are
1,400 data points on the chart, for three areas of tax regimes
the marginal tax rate remains about the same. These tax regimes
are: the Gulf of Mexico at 4.83 percent, the United Kingdom at
50 percent, and Norway at 78 percent. He further explained that
these tax systems are not progressive and that the tax rate does
not change as the project becomes more profitable or as prices
or volumes increase.
2:38:47 PM
MS. DAVIS added that the data reviewed to develop the charts and
graphs supplied by PFC Energy is supported by extensive research
information.
2:39:45 PM
MR. WUCHERPFENNIG then referred to a bar chart that indicates
the median marginal tax rate in year ten of sample projects.
Year ten was chosen as a convention rather than to look at the
full cycle of government take. He clarified that median means
the results of all the projects are sorted to find the project
that falls in the exact middle of the ascending or descending
order. He determined that the median tax project is in the Gulf
of Mexico, that it is taxed on a 43 percent marginal rate.
Production sharing agreements (PSAs) reflect a mild progressive
nature.
2:40:30 PM
REPRESENTATIVE SAMUELS pointed out the disadvantage of not
seeing the complete information reflecting field size,
prospectivity, and other factors.
2:40:53 PM
MS. DAVIS assured the committee that all the data will be
available to the members.
2:41:03 PM
MR. WUCHERPFENNIG explained that the mild progressive nature of
government take ends at the point of approximately $30 per
barrel as the highest government take bracket has been reached.
As the median project was found in the Gulf of Mexico, a chart
was provided that displayed tax regimes for the Gulf of Mexico,
the United Kingdom, and Norway. The chart indicated that Norway
collects the highest government take at 78 percent, the United
Kingdom collects government take at 50 percent, and the Gulf of
Mexico collects government take at 43 percent. Mr.
Wucherpfennig then pointed out that the median undiscounted
government take in economic rent and by fiscal structure reveals
that a tax royalty regime, such as the Gulf of Mexico, is
regressive in nature. Thus, the more profitable a project, the
less government share on a percentage basis, whereas, a
production sharing agreement is clearly of a progressive nature.
2:42:39 PM
REPRESENTATIVE RAMRAS asked whether the undiscounted government
take tax is similar to the Economic Limit Factor (ELF) system.
2:43:00 PM
MR. MARKS confirmed that any system based on gross is
regressive, therefore, even PPT can be regressive because of
royalties; ELF was regressive due to the severance tax assessed
in addition to royalties.
2:43:18 PM
MR. WUCHERPFENNIG displayed a chart showing median undiscounted
government take in economic rent by country. Only the Gulf of
Mexico is regressive due to the gross tax and royalty on
revenues. In the United Kingdom and Norway the taxation is on a
profit, or net, basis that is not regressive.
2:43:59 PM
REPRESENTATIVE NEUMAN questioned why Norway and the United
Kingdom do not use a gross tax.
2:45:01 PM
MR. WUCHERPFENNIG responded that a gross tax does not account
for costs occurred to produce the oil; the desire is to tax the
value added, or the profit, of the company.
2:45:30 PM
REPRESENTATIVE NEUMAN noted the importance of adding in
incentives for future investment and development.
2:45:38 PM
MR. WUCHERPFENNIG further explained that Norway uplifts 30
percent of the capital investment to encourage investment in the
Norwegian continental shelf.
2:46:03 PM
REPRESENTATIVE SAMUELS opined that Norway is not a good
comparison with Alaska because of its higher prospectivity.
2:47:04 PM
MS. DAVIS pointed out that comparisons between countries must
contain a range of factors; prospectivity is just one important
factor.
2:48:00 PM
MR. WUCHERPFENNIG pointed out that developers in Norway can
recover 95 percent of costs of development on the continental
shelf due to uplift.
2:48:27 PM
REPRESENTATIVE DOOGAN asked for the name of the taxing authority
in the Gulf of Mexico.
2:48:55 PM
MR. WUCHERPFENNIG answered that the total taxes are assessed in
the Gulf of Mexico by the federal government. He encouraged the
committee to look at the table that indicated the same
regressive nature of median discounted government take in
economic rent. The PSA progression is diluted because the
longer the project lead time results in lower present value of
cash flows and in lower government take. In general, the tax
royalty regime remains regressive and PSA is mildly progressive.
He concluded by saying that the interpretation of median
discounted government take in economic rent by country indicates
that the Gulf of Mexico tax regime shows a regression, whereas,
the United Kingdom and Norway show a flat line. Thus the
absolute values are slightly higher than on an undiscounted
basis.
2:51:30 PM
MICHAEL D. WILLIAMS, Chief Economist, Tax Division, Department
of Revenue (DOR), began by introducing Rich Ruggiero and Bob
George, economists with Gaffney, Cline & Associates Inc.
2:51:56 PM
REPRESENTATIVE SAMUELS asked for a description of Gaffney, Cline
& Associates Inc.
2:52:14 PM
}BOB GEORGE, Consultant* Gaffney, Cline & Associates Inc.
(Gaffney, Cline)* Houston, Texas* Answered questions during the
hearing on HB 2001.{ explained that Gaffney, Cline works for oil
companies and governments around the world and it is not unusual
for it to consult with governments or to advise a national oil
company in situations such as licensing promotions or fiscal
system structures.
2:52:39 PM
REPRESENTATIVE SAMUELS further asked whether a situation could
arise whereas Gaffney, Cline may be working for the State of
Alaska and also for the oil companies that will be affected by
its advice to Alaska.
2:53:06 PM
MR. GEORGE responded that advising both government and the
industry is not unusual; generally there is not a conflict of
interest.
2:53:25 PM
DR. WILLIAMS referred to a statement by the governor that Alaska
wants to get its fair share of revenue while maintaining its
competitiveness worldwide. He informed the committee that the
purpose of his presentation will be to look at the issue of the
rate of government take in Alaska and whether it is comparable
to other regions. His first chart was provided by the Alberta
Royalty Review Panel and indicated how government take in 17
petroleum regions had increased between 2002 and 2006. He noted
that tax increases in tax regimes have become very common
recently.
2:55:16 PM
REPRESENTATIVE DOOGAN asked whether the increase would be larger
when calculated over the life of the projects.
2:56:44 PM
DR. WILLIAMS answered that he would have to research the source
of data in order to respond.
2:57:01 PM
REPRESENTATIVE NEUMAN asked whether the increase in fair share
could have been due to the higher cost of oil. Furthermore,
additional investments could explain the increases, also.
2:58:08 PM
DR. WILLIAMS reminded the committee that when looking at
marginal take, with the same costs percentage, actual government
share would also remain the same. He continued to explain that
an increase in the cost of oil would reflect in an increase in
the dollar amounts, not percentages.
2:59:04 PM
MR. GEORGE agreed that the increase in the price of oil is a
huge factor in the total increase of government take worldwide.
However, the graph shows that other countries are changing the
tax systems as a reaction to increased profits by the oil
industry.
2:59:52 PM
DR. WILLIAMS announced that the presentation will provide
information on prospectivity, oil production cost, political
risk, fiscal stability, speed of capital recovery, and
government take in various oil producing regions. He will
discuss background information and details on five regions that
are being compared to Alaska. He informed the committee that
the largest oil producing countries in the world are: Saudi
Arabia, producing 10.4 million barrels per day; Russia,
producing 9.8 million barrels per day; U. S., producing 6.9
million barrels per day; Iran, producing 4.3 million barrels per
day; China, producing 3.7 million barrels per day; Mexico,
producing 3.7 million barrels per day; Canada, producing 3.1
million barrels per day; United Arab Emirates, producing 3
million barrels per day; Venezuela, producing 2.8 million
barrels per day; and Norway, producing 2.8 million barrels per
day. Oil companies have limited access to many of these
countries; those available for new oil production are: U. S.,
Canada, Norway, and with constraints, Venezuela.
3:02:36 PM
REPRESENTATIVE SAMUELS commented that countries like Venezuela
have never been a good risk due to the political climate. He
questioned why oil companies make large cash investments in
Venezuela instead of Alaska. He further asked how much oil is
produced in Iraq.
3:04:13 PM
DR. WILLIAMS answered that Iraq produces about 1.8 to 2 million
barrels a day. In addition, although Iraq has similar geology
to Saudi Arabia, its recent string of wars has meant there has
been little exploration and production. Dr. Williams began to
review the legal systems of Alaska, Alberta, Norway, the United
Kingdom, and the Gulf of Mexico in order to compare Alaska to
similar tax and royalty systems. The components of the tax
regimes to be compared are: signature bonus, royalty,
production tax, tax credits and uplift, property tax, and
corporate income tax. In Alaska, there is a signature bonus;
there is a royalty of about 12.5 percent; a production tax based
on net income; tax credits, however, there is no uplift; there
are property taxes, based on assessed value; and corporate
income taxes at the state and federal level, with deductions for
bonuses, royalty, production tax, property tax, and state
corporate income tax.
3:04:36 PM
DR. WILLIAMS said that Alberta has a complex tax system that is
different for tar sands, gas, and conventional oil.
3:07:47 PM
REPRESENTATIVE SAMUELS asked whether the conventional oil in
Alberta is located near the tar sands and how tar sands, gas,
and conventional oil are taxed at different rates. He compared
this to the similar situation in Alaska with conventional and
heavy oil.
3:08:34 PM
DR. WILLIAMS indicated that the tar sands and conventional oil
are in the same province. However, the material is uniform and
when leases are put up for bid, government approval is
requested. Thus, the company and the government know the scope
of the project and agreements are already in place.
3:09:24 PM
REPRESENTATIVE NEUMAN requested a range, or an average amount,
for each cost factor listed.
3:10:30 PM
DR. WILLIAMS said those figures are forthcoming. For
conventional oil in Alberta there is a signature bonus; royalty
at 14.78 percent, based on the age of the well; no production
tax, no tax credits and uplift; no property tax; and corporate
income taxes that are based on 20 percent of profit for federal
and 10 percent for provincial, and that both are an additive
tax.
3:12:14 PM
REPRESENTATIVE SAMUELS requested the percentage of revenues from
tar sands versus conventional oil in Alberta.
3:13:18 PM
DR. WILLIAMS expressed his guess that, at one time, conventional
oil represented the largest portion of revenue to Alberta.
However, there may have been a reversal.
3:13:27 PM
REPRESENTATIVE SAMUELS asked for the names of the big companies
doing business in Alberta.
3:13:34 PM
DR. WILLIAMS listed Cinco Oil, ExxonMobil Corporation,
PetroCanada and EnCana oil companies.
3:13:51 PM
REPRESENTATIVE HOLMES asked whether Alberta is revising its
conventional oil tax regime.
3:14:06 PM
DR. WILLIAMS said yes, and noted that Alberta is simplifying its
system.
3:14:26 PM
MR. GEORGE added that most changes affect the oil sands tax.
3:14:36 PM
REPRESENTATIVE NEUMAN referred to the increase in production in
oil sands in Canada and inquired whether this is due to a change
in the tax structure.
3:15:04 PM
DR. WILLIAMS opined that he is not sure. However, the ability
to recover costs prior to the payment of royalty may be
significant.
3:15:17 PM
MR. GEORGE informed the committee that growth is an ongoing
process in the oil sands area. In addition, technical
improvements and the increase in oil price, despite the increase
in production costs and labor shortages, still result in
strengthened economics.
3:16:06 PM
DR. WILLIAMS added that a 2005 study published by the
International Energy Agency (IEA) revealed that the tar sand
production in Alberta was benefiting from new production
technology along with increased prices.
3:17:13 PM
REPRESENTATIVE NEUMAN asked for the correlation between the new
tax structure and additional profits in Alberta.
3:17:38 PM
DR. WILLIAMS expressed his belief that the improvement in
technology is the major factor. He pointed out that Alberta has
massive reserves and uniform characteristics that will allow for
large scale production. Dr. Williams then described Norway's
tax regime. Norway has no signature bonus; no royalty;
production tax is based on 50 percent of profit and is additive;
has tax credits and uplift; no property tax; and a corporate
income tax that is based on 28 percent of profit and is
additive.
3:19:08 PM
REPRESENTATIVE SAMUELS questioned how companies qualify for a
signature bonus.
3:19:36 PM
MR. GEORGE answered that companies submit speculative seismic
surveys pursuant to licensing rounds, and will individually
apply to the Norwegian Petroleum Directorate Ministry and be
selected without payment. Payments will be collected through
taxes at a later date.
3:20:00 PM
DR. WILLIAMS began to describe the United Kingdom tax regime:
no signature bonus; no royalty; production tax on fields
developed before March 1993 pay 50 percent and there is no tax
on fields with development approval after March 1993 and there
are further adjustments; no tax credits and uplift; no property
tax; corporate income tax is based on 50 percent of profit.
3:21:26 PM
REPRESENTATIVE NEUMAN asked whether the United Kingdom tax is a
gross tax.
3:21:57 PM
DR. WILLIAMS said no. A gross tax is computed by volume times
price, and then times 50 percent. In the United Kingdom, the
tax is 50 percent of profit which is volume times price, with
costs subtracted.
3:22:16 PM
}RICH RUGGIERO, Consultant* Gaffney, Cline & Associates Inc.*
Houston, Texas* Answered questions during the hearing on HB
2001.{ recalled that last year there was discussion regarding
the March, 1993, tax cut that basically eliminated the
production tax and royalty for new development. For the period
from 1993 to 2002, the United Kingdom was only collecting
corporate income taxes from the oil industry. He continued to
say that the supposition was that this was responsible for new
production activity. However, he opined that other factors such
as; the availability of onshore facilities, the elimination of
the restriction on natural gas being burned for power
generation, and a pipeline to Belgium for the export of excess
gas, contributed to the increase in development.
3:25:12 PM
DR. WILLIAMS outlined the tax regime for the Gulf of Mexico
(GOM): signature bonus; royalty, with some relief for deep
water.
3:26:20 PM
REPRESENTATIVE SAMUELS asked whether Congressional action
regarding the leases and tax systems in GOM is anticipated.
3:26:53 PM
DR. WILLIAMS answered yes, and expressed his belief that there
is still a lot of legislative activity concerning the old
contracts in the Gulf of Mexico. He continued to describe the
tax regime for GOM as follows: there is no production tax; has
tax credits and uplift; no property tax; and has federal
corporate income tax based on 35 percent of profits. He then
turned to the factor of prospectivity and pointed that the data
being presented is based on all exploration and discoveries
since 1990, and on reserves that have been added since 1990.
The data presented is for eighteen countries during a ten year
period and includes exploration wells, post 1990; discoveries,
post 1990; wells per discovery; success rate; reserves; and
reserves per well. Dr. Williams pointed out that Angola ranks
highest for prospectivity with a ratio of 2.3 wells per
discovery, a 44 percent success rate, and 62 million barrels of
reserves booked per wells drilled. Argentina and Australia rank
lowest with one million barrels of oil for each well drilled.
The order of rank by reserves and number of wells drilled places
Alaska, with 6.9 wells per discovery, a 15 percent success rate,
and 10 million barrels per well drilled, eleventh out of
eighteen countries studied.
3:30:25 PM
REPRESENTATIVE SAMUELS observed that this data is based on new
exploration wells only.
3:30:44 PM
DR. WILLIAMS agreed. He then pointed out that prospectivity can
also be compared by conventional oil pool size and introduced
data from 1994 to 2003. This data was compiled by the Albert
Royalty Review Panel and is included for the committee's
consideration. Dr. Williams relayed that for an oil company,
the larger the pool size, the lower the capital cost of the oil
produced. He stressed that the countries with discoveries of
over 200 million barrels, such as Kazakhstan, Nigeria, Angola,
Vietnam, Cote d'Ivoire, and Thailand, lead the world; however,
Alaska with a conventional oil pool size of about 100 million
barrels, is again in the middle of the global average and on the
high side of its peer group. He turned to the comparison of
upstream per barrel production cost, including capital and
operating expense but not transportation costs, that was
compiled from data collected in 2006 and 2007. The bar graph
illustrates that Alaska is seventh highest out of eleven
samples. Actual dollar figures are not shown. He explained
that Alaska cost estimates are from January to June, 2007, and
that the estimates for Alberta, which are very close to
Alaska's, are only for the development of conventional oil. The
next highest comparison is Norway, and its estimates are for
development from offshore oil platforms and are a combination of
operating and capital expenses from 2007.
3:33:27 PM
REPRESENTATIVE NEUMAN asked Dr. Williams to explain upstream
costs.
3:33:48 PM
DR. WILLIAMS explained that upstream costs are all of the costs
necessary to produce the oil including the cost to get the oil
out of the ground and transportation to a processing plant. The
cost of the oil that is flowing down the Trans-Alaska Pipeline
System (TAPS) is the midstream cost. Finally, downstream cost
is the cost of marketing the refined product.
3:34:37 PM
REPRESENTATIVE HOLMES observed that the chart did not reflect
the actual estimated cost of production per barrel for the
eleven countries given as examples to compare.
3:35:04 PM
DR. WILLIAMS explained that the costs are not strictly
comparable and this information is provided to illustrate the
range of costs. For example, Libya has a very low cost
environment with relatively large fields. He opined that
Norway, with its offshore development in deep water, can expect
much higher costs.
3:35:50 PM
REPRESENTATIVE SAMUELS pointed out that Australia is shown in
Alaska's peer group in estimated upstream production cost, but
its prospectivity is judged at the lowest.
3:36:51 PM
MR. RUGGIERO explained that Australia has a lot of coal
production activity onshore and near the population centers. In
addition, improvements in technology have increased activity
offshore.
3:37:54 PM
DR. WILLIAMS, in response to a question, further explained that
the prospectivity data identifies Vietnam, Alaska, Norway, GOM,
UK, Argentina, and Australia as tax and royalty regimes. He
also explained that only oil reserves are booked and gas
reserves are not included.
3:38:18 PM
REPRESENTATIVE SAMUELS confirmed that exploration wells could be
for gas.
3:38:27 PM
REPRESENTATIVE KERTTULA confirmed that upstream per barrel
production costs were shown for January through June, 2007, for
Alaska, and requested the timeframe of the costs shown for the
other examples.
3:38:57 PM
DR. WILLIAMS answered that the costs for Alberta occurred in
2007; for Norway operating costs are for 2006 and capital costs
are for 2007; for the United Kingdom, operating costs are for
2007, capital costs were reported in April, 2007; for Gulf of
Mexico, deep water operating costs were reported for 2006;
capital costs were [undated].
3:40:16 PM
REPRESENTATIVE KERTTULA asked whether all fields were included.
3:40:39 PM
DR. WILLIAMS relayed that the production cost information was
compiled from data on offshore platform wells in GOM, the United
Kingdom, and Norway; in Alberta, the information is on
conventional oil; in Alaska, the information is on the North
Slope.
3:40:57 PM
REPRESENTATIVE SAMUELS opined that Alaska is roughly comparable
to Norway, although Norway's oil is offshore and they operate
all year around.
3:41:19 PM
DR. WILLIAMS agreed. He then turned to a breakdown of oil
reserves designated by political risk. In 2006, Canada, U. S.,
U. K., Norway, and Australia were designated with negligible
risk. Countries with moderate risk were: Qatar, United Arab
Emirates, Malaysia, Egypt, and Brazil. Countries with
significant risk were: Russia, Saudi Arabia, Iran, Kuwait,
Venezuela, Nigeria, Algeria, Libya, Indonesia, Kazakhstan,
Mexico, and China. Iraq was considered of high risk. In 2007,
Russia and Venezuela were added to the high risk category. Dr.
Williams called the committee's attention to a graph that
illustrated fiscal stability and stated that the data was
supplied by PFC Energy. The graph illustrates negative and
positive changes in fiscal systems since 1999, and is from the
prospective of the oil industry. Norway was cited as having the
highest score for stability because, although there had been a
change, the change reduced tax liability for the oil companies.
Venezuela was cited as having the lowest cumulative stability
score, as it has raised taxes and nationalized oil company
property. Alaska was listed in the middle, with a score
slightly below neutral. He opined that, although there have
been changes in Alaska's tax system, tax credits and taxes based
on income have benefits to the oil companies; therefore, Alaska
remains grouped closely with its peers in the category of fiscal
risk.
3:46:52 PM
REPRESENTATIVE NEUMANN asked whether DOR would provide a similar
graph that illustrates oil and gas industry investments in the
same countries over a ten year period of time.
3:47:25 PM
DR. WILLIAMS opined that successful investments change from year
to year.
3:47:39 PM
REPRESENTATIVE NEUMANN suggested that a country's investments
should be comparable to higher levels of fiscal stability.
3:47:56 PM
DR. WILLIAMS encouraged committee members to think about the
previous information in the same way oil companies look at
future investments; they consider geology, stability, and
portfolio diversification.
3:48:37 PM
MR. RUGGIERO stressed that Norway and Indonesia score high
because they have had no recent changes, even though their tax
rates are high. He encouraged the committee to look at this
data as a snapshot instead of the whole picture.
3:49:46 PM
REPRESENTATIVE NEUMAN agreed that much of the information
presented represents a small snapshot in time.
3:50:19 PM
MR. RUGGIERO noted that oil company managers look at possible
projects each year and make choices on where to invest.
3:50:33 PM
REPRESENTATIVE DOOGAN asked whether lowering the tax rate would
result in a negative rating on the scale illustrated.
3:51:04 PM
DR. WILLIAMS answered no. Decreasing the tax rate is positive
from the perspective of the oil companies.
3:51:23 PM
REPRESENTATIVE DOOGAN concluded that the scale is not measuring
stability, but tax increases.
DR. WILLIAMS said that this scale measures changes.
3:51:38 PM
REPRESENTATIVE DOOGAN stated that measuring changes would entail
measuring all changes.
MR. GEORGE clarified that the scale is just one of many
measurements.
3:52:47 PM
REPRESENTATIVE DOOGAN further asked what is meant by fiscal
stability; does stability mean that there are no changes. He
opined that if the scale only measures changes that are not
beneficial to the oil and gas industry, the scale is not about
measuring stability but is about citing countries that raised
government take.
3:53:25 PM
DR. WILLIAMS pointed out that Nigeria and Ireland are shown as
neutral; there were no changes, thus, the scale does indicate
positive and negative changes.
REPRESENTATIVE DOOGAN remarked:
I'm sorry, but that's not the answer I got to my
initial question. What I asked was, if I, if I was
one of those countries, and I lowered, one of those
tax regimes, there're not all countries I guess, and I
lowered my taxes, would that count against me on this
stability scale.
3:53:42 PM
DR. WILLIAMS answered no, that would be a positive change.
REPRESENTATIVE DOOGAN agreed and stated that, therefore, the
scale does not really measure stability, but whether or not
countries raised their taxes.
DR. WILLIAMS expressed his belief that the scale measures both.
MS. DAVIS opined that a better title for this scale would be
fiscal risk; the scale shows change and the positive or negative
direction of that change.
CHAIR OLSON expressed his assumption that the oil companies
viewed PPT in a negative fashion.
3:54:09 PM
DR. WILLIAMS said yes, with some positive attributes.
3:54:15 PM
MR. RUGGIERO pointed out that the committee is faced with an
objective analysis of a subjective process.
3:54:53 PM
REPRESENTATIVE DOOGAN expressed his objection to the improper
use of the word "stability".
3:55:07 PM
REPRESENTATIVE KERTTULA asked whether the fact that there will
be a review of PPT in 2011 affects the industry's regard for
Alaska's fiscal stability. She stated the value of small
changes now, rather than a total re-write in the future.
3:56:27 PM
DR. WILLIAMS suggested that the oil companies should be asked
that question directly.
MR. RUGGIERO added that oil companies are now requesting
agreements on fiscal stability from all tax regimes.
3:57:12 PM
REPRESENTATIVE NEUMAN recalled testimony from oil industry
specialists that favored a set review date in the future for
PPT.
3:57:30 PM
REPRESENTATIVE KERTTULA expressed her belief that the United
Kingdom is viewed as a stable regime that has made changes in
response to the market. She asked why it was charged with
negative change.
3:57:53 PM
MR. GEORGE reiterated that the United Kingdom made changes that
increased costs to oil companies.
3:58:17 PM
REPRESENTATIVE KERTTULA asked for confirmation that flexibility
and response to the market are not viewed as negative.
MR. GEORGE stressed that the total number of changes in both
directions is high; however, the amount of change is also a
factor.
3:59:08 PM
DR. WILLIAMS presented the next slide that depicted the capital
depreciation time frames for five tax regimes. He stated that
data was collected from tax codes and indicated that Alaska has
one year depreciation for state taxation and six years for
federal taxation; the Gulf of Mexico and Norway have six years
for taxation; the United Kingdom has one year for taxation; and
Alberta has ten or more years for taxation. Dr. Williams opined
that Alaska is a little better than its peers regarding the
speed of recovery of capital, and analysts must look at several
sources to get an accurate picture. He began the presentation
on marginal government take by informing the committee that
sources for this information include: the Alberta Panel Review
2007, Wood Mackenzie 2007, PFC Energy 2007, and the U.S. General
Accounting Office 2007. He then pointed out that the estimated
marginal government take for Alaska is based on data from the
North Slope and is shown separately under PPT and ACES. The
data assumes each project is in its tenth year of operation.
The data for the United Kingdom is divided into two sections to
allow for the different level of contributions from legacy or
from new fields.
4:02:28 PM
DR. WILLIAMS pointed out that Alberta and GOM are at about 44
percent, which is lower than Alaska, and Norway is significantly
higher at about 78 percent. The total estimate for the United
Kingdom is about 75 percent. Again, Alaska is in the middle at
about 61 percent under PPT, and 65 percent under ACES. Cradle
to grave government take estimates are similar, although the
data for Alaska is from six specific projects whose details will
be discussed during the hearing on October 21, 2007. Dr.
Williams began discussion on where capital dollars are being
spent and said that public records indicate, for example, that
BP spent $6,592 million dollars in the U. S. during 2006, and
spent $6,526 million in international development during 2006.
4:05:32 PM
MR. RUGGIERO clarified that this data is limited to upstream
spending.
4:05:43 PM
DR. WILLIAMS pointed out that ConocoPhillips Alaska, Inc. breaks
exploration costs in Alaska into a subset of its total costs.
4:06:20 PM
MR. RUGGIERO added that in spite of the favorable tax rates and
prospectivity of the lower 48 states, oil companies are spending
a high percentage of capital dollars outside the U. S.
4:06:43 PM
REPRESENTATIVE SAMUELS asked whether transportation costs are
included in the upstream per barrel production cost estimates.
4:07:07 PM
DR. WILLIAMS said no.
4:07:13 PM
REPRESENTATIVE SAMUELS suggested that Alaska's wellhead value
should be compared to its peer group.
4:07:23 PM
REPRESENTATIVE NEUMAN observed that in 2006, ConocoPhillips
Alaska, Inc. spent less than half what was spent for capital
costs in 2002. He asked whether this decrease is a trend.
4:08:25 PM
MR. RUGGIERO clarified that the numbers shown are a percentage
of overall portfolio spending. Absolute numbers show an
increase in total spending. It is difficult to say how the
percentages have changed for the other major oil companies
because they do not report their capital spending in Alaska
separately.
4:09:15 PM
REPRESENTATIVE NEUMAN also observed that inflation may have an
effect on the percentages shown.
4:09:44 PM
DR. WILLIAMS said that he did not know.
MR. RUGGIERO responded that this data will reveal whether or not
oil companies invest where the tax rates are lowest. He pointed
out that oil companies do not always invest where the tax rate
is lowest.
4:10:17 PM
REPRESENTATIVE SAMUELS asked whether the data on capital
investments includes investments that are made in the pipeline
company by the owners. For example, BP owns 50 percent of the
pipeline, thus, a capital investment for them would not be
included in this data, but would be rolled into the tariff.
4:11:12 PM
DR. WILLIAMS agreed.
MR. RUGGIERO said that some oil companies will include pipeline
costs as part of their upstream sector; others include them as a
midstream sector; and for others spending on assets is difficult
to determine.
4:11:41 PM
REPRESENTATIVE SAMUELS opined that BP Alaska, Inc. would include
shipping as an operating expense even though BP, as an owner,
made capital improvements to the pipeline.
4:12:19 PM
DR. WILLIAMS informed the committee that there is not a good
history of capital spending in Alaska since the first filings
were received in March, 2007. He then called the committee's
attention to a listing that indicates where four oil companies
are making investments. BP is making investments in: Algeria,
Angola, Australia, Azerbaijan, China, Egypt, Indonesia, Russia,
and Trinidad and Tobago. Chevron is making investments in:
Angola, Australia, Brazil, Canada, Indonesia, Kazakhstan,
Nigeria, Norway, the Partitioned Neutral Zone, Thailand, the
United Kingdom, and Trinidad and Venezuela. ConocoPhillips is
making investments in: Australia, Canada, China, Indonesia,
Kazakhstan, Libya, Malaysia, Peru, Qatar, Russia, the United
Kingdom, Vietnam, and Venezuela. ExxonMobil Corporation is
making investments in: Australia, Canada, Indonesia, Ireland,
Venezuela, Norway, Philippines, Qatar, and the United Arab
Emirates.
4:13:38 PM
MR. RUGGIERO added that the data complied is listed in
alphabetical order, and the sources of the data are industry
annual reports and public documents for investors and
shareholders.
REPRESENTATIVE SAMUELS confirmed that this data is of
investments in oil and gas.
4:14:12 PM
REPRESENTATIVE DOOGAN asked for the location of the Partitioned
Neutral Zone.
4:14:35 PM
DR. WILLIAMS answered that it is between Kuwait and Saudi
Arabia.
4:14:57 PM
MR. RUGGIERO, in answer to a question, stated that this data is
supplied to highlight investments outside of the U.S. and
Alaska.
4:15:18 PM
REPRESENTATIVE SAMUELS noted that most of the companies hold
investments in the same countries and asked whether a trend, or
guidelines for oil industry investments, have been identified.
4:15:53 PM
DR. WILLIAMS pointed out that investors will diversify their
portfolios.
4:16:34 PM
MR. RUGGIERO noted that, in contrast with 13 years ago, most of
the South American countries are missing from the list of recent
industry investments. Presently, there is a concentration of
interest in the former Soviet Union, North Africa, and West
Africa. He concluded that interest by the industry is
constantly changing over the years depending on changing
technology and political climate.
4:17:46 PM
DR. WILLIAMS informed the committee that the presentation had
covered prospectivity, fiscal stability, government take, and
political risk, and his conclusion is that Alaska is very
competitive within its peer group and worldwide. The
perspective of DOR is that it seems possible to increase
government take and remain competitive.
4:18:51 PM
REPRESENTATIVE RAMRAS recalled a bill he introduced two years
ago that proposed a ban on state investment in companies and
countries that support terrorism. The resulting fiscal cost was
$200 million dollars. He questioned how to quantify the risk
associated with DOR's second conclusion that it is possible to
increase government take and remain competitive. Representative
Ramras noted that the risk is accrued to the legislature on
behalf of the people of Alaska. He asked whether it is
worthwhile to pay this kind of risk premium.
4:22:55 PM
DR. WILLIAMS replied that the risk can be modeled, but the
challenge is to make the correct assumptions for the model.
4:23:18 PM
MS. DAVIS stated that Alaska established a gross tax system
under ELF and it was in effect for 18 years. During that time
there was intense industry pressure not to make any adjustments.
This legislature had the courage to make a big change and update
Alaska's tax system by the passage of PPT. She suggested that
small changes, similar to adjustments made by the United
Kingdom, may be the solution to eliminate the fear that, in
2011, there will again be a major change. Industry and
legislators could see these smaller changes as correcting
course, or fine tuning. She expressed her belief that Alaska
can continue to accept the idea that no change is ideal, or to
review PPT in the short term and look at a change. The
legislature can make this choice; the administration takes the
position that the tax law needs to be studied in light of new
information, and then be ratified or adjusted.
4:28:48 PM
REPRESENTATIVE RAMRAS further asked what DOR can do to make
assumptions that tax policy follows behavior and model this
against raising the tax rate. He encouraged the DOR to define
the risk premium in order to study it. Others have said that
wanting more money is a given; however, the hazards must be
considered. As the $200 million fiscal note stopped his bill
last session, Representative Ramras expressed his hope that the
risk of raising taxes will be moved from philosophical banter to
hard numbers. He suggested that the fiscal note on risk
premiums for ACES may total two and one-half billion dollars
over five years.
4:33:20 PM
MS. DAVIS explained that DOR quantified its analysis of the oil
industry's net present value and has the ability to extrapolate
each company's outlook. However, she said, DOR cannot speak for
the companies and must continue to search for expert advice.
4:34:05 PM
REPRESENTATIVE RAMRAS referred to recent meetings called by the
administration to articulate why the gross tax methodology did
not work and noted that the administration is now strongly
advocating for ACES. He expressed his hope that the same effort
will be made to quantify the risk of increasing taxes and to
show committee members how much risk the legislature is taking
for all Alaskans. He challenged the administration to provide a
range of numbers at the hearing on October 21, 2007, that will
convince legislators that the risk premium for all Alaskans is
not great enough to show caution when increasing costs to the
oil industry.
4:37:05 PM
REPRESENTATIVE SAMUELS reiterated that the administration feels
that a 25 percent tax rate will not adversely affect investment.
He questioned how high the rate could go before the
administration feels investment would be affected, and how the
25 percent rate was determined.
4:38:37 PM
MS. DAVIS acknowledged that there was no way to determine a
single safe number. The DOR looked at the ranges of tax
regimes, bracketed by Alaska's peers, with Norway at the top and
GOM on the bottom, and modeled the impacts of differing tax
rates against new and mature fields. She stressed that this is
a reasoned and conservative recommendation that DOR is making to
legislators. The 25 percent tax rate is within a comfort zone
and is a government take number that has been quantified and is
in step with global norms. She welcomed the member's questions
and assured the committee that quantitative elements to support
the 25 percent tax rate recommendation will be provided at the
hearing on October 21, 2007.
4:41:50 PM
REPRESENTATIVE SAMUELS expressed his belief that citizens will
have different opinions about the appropriate tax rate that will
range from 15 percent to 40 percent and no one will be
satisfied.
4:43:09 PM
MS. DAVIS agreed and stated that the legislature will have to
find the middle ground and DOR will provide guidance to make the
decision.
4:43:42 PM
REPRESENTATIVE DOOGAN asked whether DOR knows how much
individual oil companies invest in exploration and development
in Alaska.
4:44:11 PM
MS. DAVIS responded that DOR collects applications for
investment credits; however, some costs of exploration fall into
the capital credits category. Audits and new forms are needed
to determine the details of capital costs listings such as those
listed on unit returns.
4:44:58 PM
REPRESENTATIVE DOOGAN questioned whether this information is
available historically.
4:45:22 PM
MS. DAVIS answered that historical data is available from DNR
through royalty relief applications and plans for development.
In addition, this information is compiled from many sources and
the majority of it is confidential, thus compilations are made.
DOR then looks at the historical data and, with the addition of
global data, forecasts future costs.
4:46:13 PM
REPRESENTATIVE DOOGAN restated his question regarding the
availability of historical data on annual oil company
investments in exploration and development in Alaska.
4:46:38 PM
MS. DAVIS affirmed that DOR has some data.
4:46:54 PM
REPRESENTATIVE DOOGAN stressed that Alaskans will only know that
the tax rate is too high if the investment in exploration and
development of new sources of oil declines. Committee members
need to know which data will tell whether the oil industry
investment in exploration and development had changed as a
percentage of its overall investment in exploration and
development. If more investment is spurred just because of
higher prices the possible influence of a changed tax policy
will be obscured. He said that he is searching for this
information.
4:48:51 PM
MS. DAVIS affirmed that, for the hypothetical fields that were
modeled, good cost data was available from DNR regarding costs
and production profiles. Conclusions are being benchmarked by
changes in taxes, which is a step beyond what was done before.
4:50:14 PM
REPRESENTATIVE DOOGAN clarified his previous statement and
remarked:
What I said with respect to those two numbers is all
other things being equal; we'd all take the two
billion dollars, right. The problem here is that all
other things aren't equal. When you couple that kind
of uncertainty with this perception that you talked
about earlier, that we are doing this for the next 15
years ... I don't believe that we should sit here and
think that we're going to be able to write a piece of
legislation, or even leave in place, a piece of
legislation that's so perfect that we're not going to
have to look at it again for 15 years.
4:51:18 PM
CHAIR OLSON opined that there are two issues being discussed.
Firstly, there is the critical audit issue that must be
addressed. Without the additional staffing of auditors, to
complete the audits and collect information, there is
insufficient information to make an informed decision of this
magnitude.
4:52:37 PM
REPRESENTATIVE NEUMAN spoke of his priority to know where best
to direct the dollars that are spent in Alaska. He recalled
that ConocoPhillips Alaska, Inc. increased its total investment
dollar amount, but Alaska's percentage is less. He expressed
his hope that legislation will be passed to enable DOR to
determine where the dollars are going and, thus, then will know
how much is being spent in Alaska. Representative Neuman said
that the information is needed in order to answer the public
opinion messages that he has received.
4:56:03 PM
MS. DAVIS added that legislature and administration must also
consider the timeline of declining revenues and the forecast of
oil prices falling to $50 pr barrel by FY 11.
[HB 2001 was held in committee]
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Oil and Gas meeting was adjourned at
4:58:02 PM.
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