Legislature(2017 - 2018)BARNES 124
02/03/2017 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| Presentation(s): Update: Status of the Oil and Gas Tax Regime | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
February 3, 2017
1:01 p.m.
MEMBERS PRESENT
Representative Andy Josephson, Co-Chair
Representative Geran Tarr, Co-Chair
Representative Dean Westlake, Vice Chair
Representative Harriet Drummond
Representative Justin Parish
Representative Chris Birch
Representative DeLena Johnson
Representative George Rauscher
Representative David Talerico
MEMBERS ABSENT
Representative Chris Tuck (alternate)
OTHER LEGISLATORS PRESENT
Representative Mike Chenault
COMMITTEE CALENDAR
PRESENTATION(S): UPDATE: STATUS OF THE OIL AND GAS TAX REGIME
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
ROBIN OLIVER BRENA, Attorney/Owner
Brena, Bell & Clarkson, P.C.
Anchorage, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation entitled
"(Alaskans' Fair Share)" dated 2/3/17, and answered questions.
ACTION NARRATIVE
1:01:15 PM
CO-CHAIR GERAN TARR called the House Resources Standing
Committee meeting to order at 1:01 p.m. Representatives Tarr,
Birch, Parish, Talerico, Rauscher, Drummond, Johnson, and
Josephson were present at the call to order. Representative
Westlake arrived as the meeting was in progress. Also present
was Representative Chenault.
^PRESENTATION(S): UPDATE: STATUS OF THE OIL AND GAS TAX REGIME
PRESENTATION(S): UPDATE: STATUS OF THE OIL AND GAS TAX REGIME
1:02:55 PM
CO-CHAIR TARR announced that the only order of business would be
a presentation by Mr. Robin Brena on the status of the oil and
gas tax regime in Alaska.
CO-CHAIR TARR provided brief background information on Mr.
Brena.
REPRESENTATIVE BIRCH asked Mr. Brena if he was currently
involved in any litigation that involves suing the state.
1:06:11 PM
ROBIN OLIVER BRENA, Attorney/Owner, Brena, Bell & Clarkson,
P.C., said, "I believe that right now, for the most part, I'm
aligned, I'm aligned with the state."
REPRESENTATIVE BIRCH further inquired as to any litigation
involving the state's industry partners.
MR. BRENA said yes. He added that he represents independent
shippers and independent producers throughout Alaska against the
majors. He said he would discuss the history of some of the
litigation during his presentation.
REPRESENTATIVE BIRCH asked whether an opportunity for equal time
for testimony would be afforded to others.
CO-CHAIR TARR said there were four hours of testimony from
industry at the meetings on 2/1/17. In addition, during
hearings of forthcoming legislation, there will be ample
opportunity for invited and public testimony.
MR. BRENA provided a brief personal background and noted that he
has represented every drilling company in the state, multiple
independent producers and shippers, and the largest refinery in
the state. As an oil and gas attorney for three decades, he
expressed his respect for the industry; however, he is an
Alaskan first, and the current situation is "out of balance
...." Mr. Brena described three representative samples of
previous legal cases. He advised that the committee has a
constitutional duty to distinguish when the interests of Alaska
and the major oil producers are aligned, and when they are not.
1:12:00 PM
MR. BRENA provided a PowerPoint presentation entitled,
"(Alaskans' Fair Share)" and stated the presentation represents
his personal opinions and he was not representing any client,
was not being paid to testify, and has no direct financial
interest in whether the legislature adopts or does not adopt his
recommendations.
REPRESENTATIVE RAUSCHER pointed out that slide 1 incorrectly
identifies Article 8, Section 2, of the Alaska State
Constitution.
REPRESENTATIVE JOHNSON asked whether Mr. Brena's political
action committee (PAC) is still in existence, and whether he has
any other economic associations to disclose.
MR. BRENA said no. Directing attention to his presentation, he
said Alaska is not getting enough for its resource (slide 4).
The concept of Alaskans' Fair Share begins with the
constitutional requirement and duty to the legislature to
provide for the maximum benefit of the people of Alaska (slide
6). He provided a quote from former Governor Jay Hammond, and
said the original division of the revenue from the state's
resources was one-third to the state, one-third to oil, and one-
third to the federal government (slide 7).
REPRESENTATIVE BIRCH referred to a slide provided during recent
testimony that indicated the state's current share is
approaching 46 percent, well exceeding a one-third share [slide
not provided]. He pointed out that at [oil] prices below $45
[per barrel of oil] the state's share is well in excess of that
of the industry.
CO-CHAIR TARR noted the aforementioned slide includes royalty
and is not reflective of the production tax.
1:16:35 PM
REPRESENTATIVE PARISH added that the referenced slide indicated
net cash flow.
MR. BRENA clarified that former Governor Hammond referred to the
state's take as a percentage of gross market revenues; in 2004,
state revenues were 27 percent of gross market revenues (slide
8). Further, former Governor Hammond said that the state should
begin with a 99 percent severance tax, and lower it until the
desired behavior was achieved in order encourage development and
meet the state's constitutional mandate (slide 9). He stressed
that one-third share is an overall concept, not field- by-field,
because some fields are challenged and need support and others
produce massive amounts of profits (slide 10). Further, there
are many factors of market conditions: when prices are lower,
state share should be reduced, when prices are higher, state
share should be increased, which would average out to be one-
third of gross revenues (slide 11). He directed attention to
slide 16 that was provided at an earlier hearing by the
Department of Revenue (DOR) indicating - depending on whether
the market value of Alaska oil is focused on either Alaska North
Slope (ANS) West Coast (WC) price or wellhead value - the state
has generally collected between 27 percent and 35 percent.
REPRESENTATIVE TALERICO observed that the constitutional mandate
for maximum benefit includes all of Alaska's resources. He
expressed his concern for the fair share of future generations
of Alaskans, and reminded the committee that previous
legislators have had concerns about the potential from
exploration and development, and not just about revenue
collected in the next few years. He asked whether the state
should also consider its future and continue development.
MR. BRENA agreed that should be the state's goal. Regarding
Alaska's fair policy, with their two-thirds share, producers
have an opportunity to realize substantial profits (slide 13).
He emphasized the need for competitive entry into Alaska's
basins because market power is held by a few major companies.
The state does not attract independent producers for many
reasons such as the high cost environment and significant
barriers to entry regarding field facilities, transportation,
and tankers. Another major barrier to entry is the state's
failure to work with the industry to foster competition (slide
14).
1:23:08 PM
REPRESENTATIVE BIRCH stated previous testimony has indicated
that tax credits are bringing new business and investors to
Alaska, and questioned whether vetoed tax credits that remain
unpaid would "dampen the enthusiasm of this investment in
Alaska."
MR. BRENA agreed, and also expressed concern that the state
cannot pay the tax credits in a timely manner, thus the state
needs to get revenue from the fields that can afford it and give
support to challenged fields. However, Mr. Brena cautioned
against incenting behavior that is legally required or that the
market would otherwise create. He agreed that independents are
"being hung out to dry because they rely on ... credits to
continue drilling." As an aside, he gave 10 reasons that
production tax reform is needed: the industry says it's
working; information is not forthcoming; no one understands the
tax calculations except the tax director; dissimilar to that of
other states; production tax is no longer blamed for job cuts;
raising production is not discussed; unbalanced reporting of its
impacts; tax incentives for a field that required litigation;
projects are the result of two-year-old tax system; state pays
for oil to be produced. He returned attention to slides 15 and
16 that indicated declines in revenue: total production tax
revenues are down 98 percent and total net [production tax]
revenues are down 109 percent, and he concluded that for the
first time, through production tax, the state is paying the
producers to produce its oil. Further, there is not enough
revenue to pay the petroleum credits incurred, and Alaskans are
getting less for their petroleum resources than at any time in
the state's history (slide 17).
REPRESENTATIVE BIRCH recalled testimony stating that Senate Bill
21 [passed in the 28th Alaska State Legislature] generates more
revenue than the previous tax system; he asked whether any of
the loss of revenue could be attributed to the fall of the price
of oil.
MR. BRENA said yes. He explained that one-half of the decline
in revenue is attributable to the price of oil and about $4
billion is a result of the change in tax rate. He provided
graphs that illustrated production tax revenue and net
production tax revenue from 2012 to 2016 (slides 19 and 20). He
questioned how a production tax can "turn negative."
1:30:21 PM
REPRESENTATIVE JOHNSON reminded the committee there was a
referendum for change [Ballot Measure 1, a referendum to repeal
SB 21, failed to pass on 8/19/14] that did not pass, thus the
current tax system was affirmed by Alaskans.
MR. BRENA opined the referendum narrowly [lost] in a primary
election and would have [passed] in a general election. He
returned to the presentation and said the decline in the price
of oil does not explain the decline in the percentage of
production tax (slide 21). A comparison of Senate Bill 21 and
Alaska's Clear and Equitable Share (ACES) [passed in the 25th
Alaska State Legislature] is unproductive because both fail
under current market conditions (slide 22). Additional graphs
on slides 23 and 24 illustrate that if Senate Bill 21 had been
in effect during the period of the ACES tax system, the state
would have under-recovered $11 billion, and would not have had
savings sufficient for the last five years.
REPRESENTATIVE BIRCH pointed out as owner, the state derives its
one-eighth portion, and questioned whether [royalty] is viewed
as a part of its one-third fair share.
MR. BRENA said yes. He restated that the cause of the state's
fiscal problem is that the petroleum production tax failed. The
first solution to the problem is for the state to recover its
share of the resource under all circumstances, which is not a
partisan issue. The problem is also not caused by government
wasteful spending. He provided a quote from former Governor
Hammond (slides 26 and 27). The second solution is to reduce
spending and ensure that government runs efficiently, although
further cuts may have recessionary impacts (slide 28). The
third solution is to spend savings only for the public benefit
and to refill savings accounts (slide 29). Further, the Alaska
Permanent Fund (permanent fund) was intended to permit the
state's transition from a petroleum to a non-petroleum economy
when Alaska's petroleum resources are exhausted; to achieve this
goal the permanent fund needs to grow double its present size
(slide 31).
1:41:01 PM
REPRESENTATIVE BIRCH inquired as to whether Mr. Brena has
proposed that the earnings from the permanent fund would support
government once the fund has doubled in size.
MR. BRENA opined in order for the permanent fund to achieve its
purpose, it will have to grow to twice its current size. In
further response to Representative Birch, he restated the
purpose of the permanent fund is to allow the state to
transition from a petroleum to a non-petroleum economy without
significant economic disruption. He said he was not making a
comment on the distribution of the permanent fund.
REPRESENTATIVE RAUSCHER asked for clarification of Mr. Brena's
opinion on the purpose of the permanent fund.
MR. BRENA restated the purpose as shown on slide 31. In further
response to Representative Rauscher, he said the permanent fund
was designed to help answer the question of sustaining the
state's economy after the oil is gone.
REPRESENTATIVE TALERICO stated that the University of Alaska
Anchorage (UAA), Institute of Social and Economic Research
(ISER) has identified transitional ways to use the earnings
reserve of the permanent fund.
MR. BRENA opined all of the financial resources of the state
should be used; in fact, some money should go to building
infrastructure and investment in Alaska.
REPRESENTATIVE TALERICO surmised some of the permanent fund
earnings reserve could be made available.
MR. BRENA agreed there are many "levers you can pull" but
restated the goal is to ensure that the state receives its one-
third share of petroleum revenues based on the market share.
In further response to Representative Talerico, he said he did
not think permanent fund earnings should be spent to ensure the
profitability of the producers.
1:45:52 PM
CO-CHAIR JOSEPHSON expressed his concern that the state operates
under a profit system, but the information presented is based on
[a gross tax system]. Not using the earnings reserve when
industry is profitable may send a message to "hold out ... [in]
a game of chicken." He said the state may have to go to the
permanent fund earnings.
1:46:58 PM
MR. BRENA advised even if the state garners one-third share, it
will still be short of revenue; thus getting a fair share is the
first solution, and then using the permanent fund "makes a lot
of sense." The permanent fund structure was adopted to protect
it from politicians; therefore, the permanent fund and the
Permanent Fund Dividends (PFDs) are the last alternative
solution (slides 32 and 33).
REPRESENTATIVE BIRCH advised that Alaska is trying to attract
oil industry investment and inquired as to how the "recommended
changes" will achieve more investment.
MR. BRENA stated that providing $8 billion or $9 billion to gain
$1 billion or $2 billion in investment is not sound public
policy; in fact, independents are not working in Alaska because
of barriers to entry, market power, and a high-cost environment.
He stressed the importance of a competitive marketplace and a
free market.
1:50:40 PM
REPRESENTATIVE BIRCH asked whether the administration has
reviewed and supports Mr. Brena's tax changes and revisions.
MR. BRENA said, "I wouldn't characterize that either way, I was
invited down to express my opinions and that's what I'm doing."
CO-CHAIR TARR said there has been no coordination in that
regard.
MR. BRENA explained he used DOR slides so that the committee can
be assured of the facts presented and to avoid arguments over
models and technicalities. He continued to other solutions, and
pointed out that the state's tax system is a hybrid of a gross
and a net tax, but no one present has the sufficient information
to properly administer a net system. The industry's profits in
Alaska - its actual costs and profits - are unknown to the
legislature due to the complexity of the system. Complexity
works against the state because the taxpayers are far more
sophisticated than the state. For example, much of the audit
information is confidential, and audits are five years behind
schedule. Therefore, the state must be diligent about all
deductions, carry forwards, new oil, credits, and minimum tax
and interest, as all of these complexities can be "gamed"
(slides 34 and 35). [All] other states have gross systems, and
governments in other countries with net systems receive 70-80
percent of the profit from a certain point. In 2020, North
Slope gas will convert to a gross system (slide 36). In
summary, a gross system is a better approach in its simplicity:
base on market prices for ANS crude on the West Coast; set
revenue to one-third share; adjust for field economics and
market conditions (slide 37). Directing attention to Alaska's
hybrid tax system, he provided two DOR slides that illustrated
statewide tax credits and unrestricted petroleum revenue, and
statewide tax credits and production tax, from fiscal year 2007
(FY 07) through FY 25 (slides 39 and 40). Also provided was a
DOR slide that listed concerns with the current tax and credit
system including the impact of a large discovery, eliminating
exceptions to the minimum tax, equity between major producers
and new explorers, and a volatile and complex minimum tax (slide
41).
1:59:44 PM
CO-CHAIR JOSEPHSON asked Mr. Brena to reconcile his stance on
tax credits, which is aligned with that of the administration,
and his published opinions in support of independent, small
producers.
MR. BRENA cautioned that without enough revenue the state can't
create a balance between fields in order to optimize
development. He opined the state should help the independents,
work to open markets, and pay the credits that are due with
revenue from profitable fields. Although under a net system
there is no tax without profit, he said the oil industry bases
investment on long-term profitability, not on price spikes, and
has made a lot of money over the long term. He questioned why
the state has invested $15 billion in the last three to four
years so that the major producers can avoid losing money.
Further, the legislature cannot manage extreme market conditions
through its tax structure (slide 43). Alaska should not ensure
producer profits, pay a statewide tax, not collect its one-third
share, or convert the permanent fund to ensure producer profits
(slide 44). He stressed that Alaska is in a business position
with a partner that withholds financial information (slide 45).
REPRESENTATIVE BIRCH said it would be helpful if the
administration could indicate whether it supports Mr. Brena's
proposals at this point.
CO-CHAIR TARR pointed out that Mr. Brena is offering his
independent opinions and there is no proposal presently under
consideration by the committee.
2:06:18 PM
CO-CHAIR JOSEPHSON recalled an earlier question asked and
answered that Mr. Brena was before the committee at the behest
of the co-chairs. He then pointed out that DOR estimates the
industry's cost to produce oil is between $41 and $45 per
barrel.
REPRESENTATIVE RAUSCHER questioned whether the presentation was
based on a model.
MR. BRENA said no. In further response to Representative
Rauscher, he said he has not provided his presentation to any of
the major oil producers, although they have made their positions
known to him.
REPRESENTATIVE PARISH compared the current tax system to an
example of a taxpayer who underreports income and withholds
proprietary information, intending to settle an audit favorably
in the future.
MR. BRENA stated the aforementioned "is the system you have in
place." Returning to the topic of information under the net tax
system, he opined the system should be more transparent in order
for Alaskans and the legislature to know more about their
business partners in developing the state's resources; ignorance
is not conducive to creating sound tax policy.
CO-CHAIR TARR relayed that there is forthcoming legislation in
this regard and urged the committee to research House Bill 247
[passed in the 29th Alaska State Legislature] for related
background information.
2:12:06 PM
REPRESENTATIVE JOHNSON recalled previous testimony that
producers pay 46 percent, and asked for more information. She
expressed her concern about seeking one-third fair share with a
disregard for the market and impacts to the industry; in fact,
the foregoing discussion relates to the budget and how to
balance the budget by changing the tax structure. She
characterized the discussion as mixing up the budget deficit and
sound policies, and questioned whether there is any "good news"
ahead for Alaska.
MR. BRENA responded that Alaska's one-third share is just the
first step to a solution that does include incentives.
Secondly, Alaska should incentivize, as he will discuss later in
the presentation, but the concept is the state cannot
incentivize through a paid credit system without first
collecting revenue, which is why the budget and sound policies
do mesh. Regarding good news, he said there are amazing
petroleum reserves in the state awaiting proper management.
REPRESENTATIVE BIRCH asked how the evaluation of the Trans-
Alaska Pipeline System (TAPS) changed after it was reassessed by
the court.
MR. BRENA answered that at one time the assessed value of TAPS
was between $3 billion and $4 billion, the State Assessment
Review Board (SARB) value was $4.3 billion, and the court
decisions ranged between $10 billion and $12 billion;
ultimately, the case was settled through an arrangement with the
owners at a "complicated" $8 billion.
REPRESENTATIVE BIRCH surmised that at $8 billion, and with a
flat 20 [mill rate] property tax rebated to some cities along
the route, there is an addition of approximately $160 million to
the tariff component.
MR. BRENA further explained that one issue associated with the
legal case that is still outstanding are $377 million in
supplemental assessments that were disallowed by the Federal
Energy Regulatory Commission (FERC) and are not included in the
current rate.
REPRESENTATIVE BIRCH questioned whether the cost of property
taxes along TAPS does not get calculated as a part of the cost
of transporting oil.
2:18:59 PM
MR. BRENA responded:
... You don't get to go backwards when you ... under-
recover, and collect from future shippers what you
didn't collect from the prior shippers. ... Ratemaking
is projective in nature, so when you put a rate in
effect you're estimating costs going into the future.
... And that's the way it works, and if there is a
rate element that you think there is uncertainty in,
... then you have to come forward and put your
shippers on notice that that isn't your permanent
rate, that that rate element may vary, and engage the
regulator in that process so it could be adjusted out
so that you're charging the right shipper for the
right movement. So, it was held that they didn't,
they decided to roll the dice and gamble, and their
taxes went up and they didn't take the appropriate
steps to ensure that they would be included in rates.
REPRESENTATIVE WESTLAKE returned attention to slide 46, and
observed that municipalities are struggling for money. He asked
whether all states have a nondisclosure clause in this regard.
MR. BRENA said he was not qualified to respond to that question.
He opined that if one is in business with an industry one should
be informed, and there is no barrier to the state [providing
taxpayer information to municipalities] legally. Leaving the
topic of information in the net tax system, he turned to
different kinds of deductions, such as field, for operating and
capital, transportation, for pipeline and marine, and loss carry
forward (slide 48). As previously discussed, deductions are
shielded through confidentiality designations and are on the
rise because of the net tax system. His experience suggests
that the state should be diligent in its audits and he gave an
example of tariff overcharges on TAPS (slide 49). Further, for
an integrated major producer, cost centers are profit centers
because the major producers make money on TAPS and tanker
transportation, yet deduct these as costs from production tax.
He stressed that the aforementioned strategy is known and
explains how the early recovery of TAPS tariffs lagged behind
because of the over-collections of TAPS transportation rate. In
addition, the owners of TAPS have collected and earned $4.5
billion to cover their $2.5 billion obligation to dismantle TAPS
at the end of its useful life: an over-collection of their
demolition, removal, and restoration (DR&R) estimate by $2
billion. If refunded, over $0.5 billion of the DR&R fund would
go to the state. Mr. Brena pointed out that the owners have
drained their capital investment from TAPS due to their over-
collection in early years and the DR&R fund, yet under common
rate principles, the state is unable to capture either. He
dismissed the idea that the owners of TAPS will leave the state
because they can continue to operate TAPS and produce from the
fields, but if they go out of business they will "have to pay a
massive amount of money, and it's the value of that money that's
going to keep them operating even in the negative." He then
provided two DOR slides illustrating increases to marine costs
and the TAPS tariff (slides DOR Tax Division, Revenue Sources
Book (RSB) Fall 2016, pages 109 and 110).
2:28:05 PM
CO-CHAIR TARR asked whether any of these particular matters have
been litigated, for example, the over-collection of tariff.
MR. BRENA stated FERC requires the owners to maintain a running
total of DR&R collections and earnings at their pipeline
regulated utility rate. He said the owners have unrestricted
access to the DR&R fund, and their return on equity is two or
three times that of a utility, thus the DR&R "pot" provides a
"massive economic benefit". He restated that costs are
sometimes profit centers due to over-collection (slide 52).
CO-CHAIR TARR asked for supporting documents related to this
topic that will then be made available to the committee.
CO-CHAIR JOSEPHSON questioned whether the remedy for over-
collection is found in Congress or Juneau.
MR. BRENA responded that FERC delayed DR&R refunds to "the end
of the line" and the state was opposed to refunds "and its own
financial interest, as it often has been in these cases" and
provided an example. He questioned why the state has instigated
a net tax system with one of the highest cost operators in the
world. The effect of the aforementioned deductions has been to
reduce production tax and thereby reduce the size of the
permanent fund (slides 52 and 53). Mr. Brena said he is not
suggesting raising taxes on the entire North Slope, but only for
the fields of Prudhoe and Kuparuk, two profitable legacy fields,
and he provided information that illustrated producing oil -
under 2016 price conditions - from the Prudhoe Unit is
profitable (slide 54). He concluded that collecting "a little
extra" from Prudhoe and Kuparuk will provide the state
sufficient revenue to support government and to create
incentives for the marginally challenged fields. Slide 55
illustrated the costs of production using a production tax of 33
percent of gross from the Prudhoe Unit. However, he offered
that slide 55 creates a controversial issue because he revised
the pipeline tariff to $0.63 due to litigation that is currently
underway, and that the variable shipping cost of a barrel of oil
through TAPS is 7 percent of the tariff, but the owners have
already recovered their investment and capital.
2:38:33 PM
REPRESENTATIVE BIRCH asked to review the "Stickel Report."
MR. BRENA offered to provide any source materials. Turning to
the topic of new oil, he questioned why the state provided
incentives to a company to develop a field that it was legally
compelled to develop: Point Thomson should not be designated
new oil (slide 56). Further, the minimum tax should be hardened
for all fields, and raised on Prudhoe and Kuparuk because
greater Prudhoe Bay production is 281,000 barrels per day and
Kuparuk production is 103,000 barrels, of which 22,000 are from
the satellites, totaling about 74 percent of total production.
A 1 percent change in the minimum tax results in an additional
$75 million in revenue, and an increase on Prudhoe Bay and
Kuparuk would represent 74 percent of the additional benefit;
therefore, the minimum tax should be raised on Prudhoe and
Kuparuk for revenues to pay the unpaid tax credits to the
independents (slide 57). Turning to the topic of credits, he
advised that credits should be paid in a timely manner and
independents should have economic parity. Further, credits
should be reduced unless demonstrated as necessary to develop a
marginal field, not because required by law, or if likely to be
achieved by the marketplace (slide 58). On the topic of
interest on underpaid revenues, he said the current tax
structure is a system that encourages gamesmanship, underpaying
and litigation; in addition, audits should be resourced and
completed within one year, and the interest on underpaid
revenues should be raised (slide 59).
2:43:42 PM
MR. BRENA provided a summary of his recommendations under a net
tax system: require public reporting on the financial
performance of the producers; simplify the net tax system;
resource and require timely audits; amortize capital field
expenses over depreciation life and not each year; fix
transportation deductions to prevent litigation; eliminate or
reduce loss carry-forwards; eliminate or reduce production under
the new oil designation, including Point Thomson; harden the
minimum tax and raise it for Prudhoe and Kuparuk; pay
outstanding credits to ensure economic parity for independents,
but withhold incentives when behavior is otherwise legally
required; adjust interest structure on underpaid petroleum
revenues (slides 60 and 61). Mr. Brena urged the committee to
help Alaskans get a fair share in a sustainable and fair way
(slide 62).
CO-CHAIR TARR pointed out that source information is included on
slide 64.
REPRESENTATIVE PARISH inquired as to whether there would be a
standard to determine at what point a field becomes an
elephantine field such as Prudhoe.
MR. BRENA said there is no question that Prudhoe and Kuparuk are
massive fields. In further response to Representative Parish,
he estimated the value to the state of lawsuits in which he has
participated to be greater than $10 billion.
2:49:11 PM
REPRESENTATIVE BIRCH read a quote he attributed to the
commissioner of the Department of Revenue [document not
provided]. He asked for a response from the witness and also
that the committee formally request a response from the
administration on the proposals put forth before the committee.
MR. BRENA restated that his proposition is this: in periods of
low oil prices, the state can take less revenue if, when oil
prices increase, state revenue also increases. The concept is
one-third over time, not one-third at any point in time. The
present system under-collects in good and bad times; however,
under the ACES system, the state accumulated wealth during times
of high prices.
CO-CHAIR TARR, in response to Representative Birch, noted that
the request for a response from the administration could be
submitted through her office, or through his, and shared with
the committee.
REPRESENTATIVE BIRCH restated his interest in hearing the
administration's stance on the foregoing recommendations.
CO-CHAIR JOSEPHSON directed attention to DOR slide page 16
[presentation slide 12], pointed out since 1978 Alaska has
received $403 billion at the wellhead - which is 35 percent -
and inquired as to whether this is the one-third amount sought.
MR. BRENA said no. He clarified that the one-third share that
should be the goal of the legislature is one-third of the gross
market [value]. Wellhead value is after [producers] take
deductions for marine and transportation, which in economic
terms are inflated costs.
CO-CHAIR JOSEPHSON recalled that in 2009 and 2010, the state got
at least a 40 percent to 70 percent share, which may be "the
nature of this profit beast." If prices were high, there would
be debate by legislators comparing ACES and Senate Bill 21;
however, there is no debate because prices are not high.
2:55:08 PM
MR. BRENA observed that the state is in a recession and is
under-collecting revenue to which it is entitled. He cautioned
against living on savings and the permanent fund instead of
actual income, and urged the committee to act by increasing the
petroleum tax. He said, "There has never been a period in which
we have so under-recovered our petroleum tax ...."
CO-CHAIR JOSEPHSON asked whether any other states use a gross
system that includes stair step progressivity.
MR. BRENA said he would provide that information.
CO-CHAIR JOSEPHSON questioned whether the state should require a
plan of approval so DNR could look at financing, the play, and
the viability of a prospective development.
MR. BRENA opined a plan should also be public information; for
example, at Prudhoe Bay there is no opportunity for real damage
to commercial interests, but still there is secrecy. Further,
public funds should not be spent on hidden information.
CO-CHAIR JOSEPHSON stated Mr. Brena has previously spoken of two
systems that assessed a gross tax in the legacy fields, and a
net tax, with assistance in newer fields.
MR. BRENA said he did not. Although a gross system is
preferable, he surmised that cannot be achieved; however, to
improve the existing system, he recommended raising the
minimums, which has the effect of creating a gross system during
periods of low prices.
2:59:36 PM
REPRESENTATIVE TALERICO stated Mr. Brena has recently written
that the current tax rate is insufficient for harvesting
behavior and production. Of course, evidence has shown that
there is a recent increase in production after a 14 years;
further, along with an increase in production, there are new
discoveries at Smith Bay, Pikka, and Willow. He asked "Do you
see any upside in this, with these, our ability to go out and
explore and find these major fields and increase our production
after a 14 or 15 year slide ...?
MR. BRENA said yes, there is positive news, and questioned
whether it is causable-related to state policies. He opined
that finds are decades in the making and cannot be credited to a
two-year-old tax program; the 3 percent "uptick" was predicted
based on market conditions, along with a production level of
between 500,000 and 550,000 barrels of oil. These predictions
were based on information available before the passage of Senate
Bill 21. Mr. Brena noted that the finds were there, but the
companies "in our basin" are harvesters, and what is needed are
independent companies that explore and drill. In the lifecycle
of a petroleum basin, the first companies working there make
major investments and a lot of money; the following industry
needs support to be successful. Finally, he advised that the
production from elephantine fields levels out and continues for
decades, as in, for example, Prudhoe and Kuparuk.
REPRESENTATIVE TALERICO asked whether the drop in the price of
oil was predicted.
MR. BRENA said no.
REPRESENTATIVE JOHNSON inquired as to the purpose of the
presentation and supported Representative Birch's request for
testimony from the administration in this regard. She also
requested a copy of Mr. Brena's source "Diapering the Devil."
Further, she asked whether a bill is forthcoming.
CO-CHAIR TARR responded that testimony today and during recent
meetings "was an educational exercise" to aid new legislators in
their understanding of an oil and gas bill.
REPRESENTATIVE JOHNSON stated her interest in hearing more
presentations from different perspectives.
CO-CHAIR TARR assured the committee that any forthcoming bills
will be heard fully, and encouraged members of the committee to
request additional testimony from others. She said the
committee would hear from the administration and cautioned that
some invited testifiers charge fees.
CO-CHAIR JOSEPHSON added that the Legislative Budget and Audit
Committee has hired consultants.
3:10:24 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 3:10 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Alaska's fair share of oil revenue is foundation of fiscal plan - Robin Brena.pdf |
HRES 2/3/2017 1:00:00 PM |
|
| Alaskans' fair share of petroleum revenue - Robin Brena.pdf |
HRES 2/3/2017 1:00:00 PM |
|
| Alaska needs to reclaim its fair share of oil revenue-Robin Brena.pdf |
HRES 2/3/2017 1:00:00 PM |
|
| Diapering the Devil - Jay Hammond.pdf |
HRES 2/3/2017 1:00:00 PM |
|
| Critiquing a flawed oil analysis (Fineberg News-Miner Jan. 15 2017).pdf |
HRES 2/3/2017 1:00:00 PM |
|
| Presentation-Brena.2017-02-03.FINAL.pdf |
HRES 2/3/2017 1:00:00 PM |