Legislature(2023 - 2024)BARNES 124
04/24/2023 01:00 PM House RESOURCES
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| Confirmation Hearing(s):|| Board of Game | |
| Presentation(s): Cook Inlet Update | |
| 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
April 24, 2023
1:01 p.m.
MEMBERS PRESENT
Representative Tom McKay, Chair
Representative George Rauscher, Vice Chair
Representative Kevin McCabe
Representative Dan Saddler
Representative Stanley Wright
Representative Jennie Armstrong
Representative Donna Mears
Representative Maxine Dibert
MEMBERS ABSENT
Representative Josiah Patkotak
COMMITTEE CALENDAR
CONFIRMATION HEARING(S):
Board of Game
David Lorring - Fairbanks
- CONFIRMATION(S) ADVANCED
PRESENTATION(S): COOK INLET UPDATE
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
DAVID LORRING, Appointee
Board of Game
Fairbanks, Alaska
POSITION STATEMENT: Testified as appointee to the Board of
Game.
DAN STICKEL, Chief Economist
Tax Division
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Gave the Cook Inlet Update presentation.
ED KING, Staff
Representative Tom McKay
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Gave clarification to the committee
regarding the constitutionality of a production sharing
agreement.
ACTION NARRATIVE
1:01:55 PM
CHAIR TOM MCKAY called the House Resources Standing Committee
meeting to order at 1:01 p.m. Representatives Saddler, Wright,
Mears, Armstrong, Dibert, McCabe and McKay were present at the
call to order. Representative Rauscher arrived as the meeting
was in progress.
^CONFIRMATION HEARING(S):
^Board of Game
CONFIRMATION HEARING(S):
Board of Game
1:02:50 PM
CHAIR MCKAY announced that the first order of business would be
consideration of the governor's appointee to the Board of Game.
1:03:16 PM
DAVID LORRING, Appointee, Board of Game, Testified as appointee
to the Board of Game. He began his remarks by providing his
background and credentials in wildlife conservation and
management. He read from a prepared testimony [included in
committee packet] which explained his qualifications as an
appointee of the Board of Game and his history in Alaska.
1:08:11 PM
REPRESENTATIVE MCCABE asked what kind of falcon Mr. Lorring has.
MR. LORRING said he has a Peregrine falcon, a Gyrfalcon, and a
Merlin falcon.
REPRESENTATIVE MCCABE asked Mr. Lorring if he hunts with his
falcons.
MR. LORRING said he hunts with them and has been practicing
falconry since high school.
1:09:43 PM
REPRESENTATIVE SADDLER asked Mr. Lorring what issues he thought
he might see during his possible term on the Board of Game.
1:10:10 PM
MR. LORRING replied that the management of the Nelchina Caribou
heard is something that he foresees as a possible issue during
his possible term and added his opinion that the management of
game that crosses through federal lands could be an issue.
1:12:24 PM
CHAIR MCKAY opened public testimony on the confirmation hearing
for the governor's appointee to the Board of Game. After
ascertaining that there was no one who wished to testify, He
closed public testimony.
1:12:40 PM
CHAIR MCKAY stated that the House Resources Standing Committee
has reviewed the qualifications of the governor's appointee and
recommends that the following name be forwarded to a joint
session for consideration: David Lorring, Board of Game. He
said that signing the report regarding appointments to boards
and commissions in no way reflects an individual member's
approval or disapproval of the appointee, and the nomination is
merely forwarded to the full legislature for confirmation or
rejection.
1:13:42 PM
The committee took an at-ease from 1:13 p.m. to 1:15 p.m.
^PRESENTATION(S): COOK INLET UPDATE
PRESENTATION(S): COOK INLET UPDATE
1:15:04 PM
CHAIR MCKAY announced that the final order of business would be
the Cook Inlet Update presentation.
1:16:03 PM
DAN STICKEL, Chief Economist, Tax Division, Department of
Revenue (DOR), began the Cook Inlet Update presentation on slide
2, which gave a list of acronyms [and initialisms] that would be
used throughout the duration of the presentation. Slide 3 gave
an overview of the topics that the presentation would be
addressing. He continued to slide 4, which acknowledged that
the presentation would be "boiling down" the complex nature of
Alaska's oil and gas tax system. He moved to slide 5, which
described Alaska's primary sources of oil and gas revenue.
Slide 6 displayed a spreadsheet that outlined Alaska petroleum
revenue by land type.
1:21:42 PM
CHAIR MCKAY asked whether most of the oil and gas production in
the Cook Inlet Region is done on state lands.
1:21:52 PM
MR. STICKEL answered that the majority of oil and gas production
in the Cook Inlet Region is done on state lands while some
production occurs on federal lands.
1:22:01 PM
REPRESENTATIVE RAUSCHER shared his understanding that the total
tax on an oil companies revenue would be 48 percent and asked
for confirmation whether that was a true understanding.
1:22:28 PM
MR. STICKEL clarified that the federal corporate income tax rate
is 21 percent and explained that that rate applies only to
income that is left over after royalties are calculated.
1:23:57 PM
REPRESENTATIVE SADDLER asked what the term "apportionment
factor" means in the context of state oil and gas revenue.
1:24:09 PM
MR. STICKEL answered that a company determines its Alaska-
taxable income by apportioning its worldwide income to Alaska
based on the share of its production that came from Alaska.
1:25:25 PM
MR. STICKEL moved to slide 7, which displayed a spreadsheet that
outlined the Cook Inlet production tax before and after January
1, 2022.
1:27:58 PM
REPRESENTATIVE SADDLER asked whether the Cook Inlet production
tax would stack up with other state production taxes.
1:28:15 PM
MR. STICKEL affirmed that the Cook Inlet production tax is in a
separate fiscal regime from the North Slope production tax.
1:28:32 PM
REPRESENTATIVE SADDLER asked how the taxation of oil production
in Alaska changed after 2006.
1:28:48 PM
MR. STICKEL explained that both oil and gas were under a gross
tax regime in 2006 and that the average tax rate on oil produced
in Alaska in 2006 was 0 percent.
1:29:42 PM
CHAIR MCKAY reviewed the passage of Senate Bill 138 by the
Twenty-Eighth Alaska State Legislature and explained how that
bill influenced the taxation of the oil and gas industry in
Alaska.
1:30:18 PM
MR. STICKEL clarified that the 35-percent tax rate outlined in
Senate Bill 138 was based off of the net profits of an oil
company.
1:31:41 PM
MR. STICKEL resumed his reading of slide 7. In response to
Representative Saddler, he stated that most of the repeals and
expirations of the tax credits enacted under Senate Bill 138
were brought about under House Bill 247 [passed during the
Twenty-Ninth Alaska State Legislature]. He resumed the
presentation on slide 8, which displayed a spreadsheet that
compared the current year of Oil revenue with the two previous
years and the two projected years of income.
1:36:48 PM
CHAIR MCKAY asked whether there were any oil fields in the Cook
Inlet Region that have a reduced or zero royalty rate.
1:37:00 PM
MR. STICKEL answered that there are some oil fields in the Cook
Inlet Region that have a reduced rate of 5 percent. He
continued to slide 9, which displayed a graph that gave a
history and forecast of oil and gas prices in Alaska. He moved
to slide 10, which displayed a graph that gave a history and
forecast of oil and gas production in Alaska.
1:39:49 PM
CHAIR MCKAY asked why slide 8 forecasted an increase in gas
production while slide 10 forecasted a decrease in production.
MR. SICKEL explained that slide 8 described a "modest increase"
in gas production between Fiscal Year 2023 (FY 23) and FY 25.
CHAIR MCKAY gave his understanding that the Railbelt region
would need 70 billion cubic feet (Bcf) per year to maintain
current operation.
MR. STICKEL said that the gas forecast provided by the
Department of Natural Resources was based on a decline-curve
analysis that was performed for existing oil fields.
1:42:07 PM
MR. STICKEL resumed the presentation on slide 11, which
displayed a graph that outlined the costs incurred by a company
doing business on the North Slope.
1:44:20 PM
REPRESENTATIVE SADDLER asked why there was a brief rise in the
graph during 2024.
MR. STICKEL said that the graph reflects a brief rise in
investment in the North Slope.
REPRESENTATIVE SADDLER asked whether the graph is inflation
adjusted.
MR. STICKEL said that the graph is displayed in nominal dollars,
consistent with DOR's revenue forecast.
1:46:45 PM
REPRESENTATIVE RAUSCHER asked whether companies that choose to
either invest or divest in Cook Inlet explain their decision to
the Department of Revenue.
1:47:07 PM
MR. STICKEL confirmed that DOR does meet with the operators as
part of its revenue forecast.
REPRESENTATIVE RAUSCHER asked whether DOR shares the revenue
forecast with the legislature.
MR. STICKEL responded that the economics of the Cook Inlet
Region are challenging because it is a mature basin.
1:48:03 PM
MR. STICKEL continued to slide 12, which displayed a bar graph
that depicted tax credits that Alaska has awarded to producers
doing business elsewhere in the state than the North Slope.
1:49:18 PM
CHAIR MCKAY asked how much money Alaska has to pay off in its
tax credits.
MR. STICKEL explained that the estimated appropriation for 2023
was $312 million to pay off its oil and gas tax credits.
1:50:27 PM
MR. STICKEL moved to slide 13, which elaborated on the tax
credits that Alaska has awarded to producers doing business
elsewhere in the state than the North Slope by giving a list of
related statistics. He continued to slide 14, which described
the correlation between Alaska's oil and gas tax credits and
company activity in the State. He moved to slide 15, which
illustrated the production tax calculation in the Cook Inlet
Region and how it interacts with oil producers and their product
in the region.
1:55:58 PM
REPRESENTATIVE WRIGHT asked what the royalties that an importer
of liquified natural gas (LNG) might have to pay to the state
are.
MR. STICKEL answered that an importer of LNG would not have to
pay royalties; in the state of Alaska, royalties are paid only
on the production of oil and gas.
1:56:57 PM
CHAIR MCKAY compared the spreadsheets displayed on slide 8 and
slide 15 and asked why the numbers displayed are different.
MR. STICKEL explained that the numbers are different because the
spreadsheets are referring to different sectors of the oil and
gas industry.
CHAIR MCKAY asked whether there is a production tax on oil and
gas produced in the Cook Inlet Region.
MR. STICKEL answered that a state royalty tax would apply and
added that the production tax in the Cook Inlet Region is
effectively zero.
1:58:27 PM
REPRESENTATIVE SADDLER asked what the term "tax ceiling" is
referring to on slide 15.
MR. STICKEL explained that the term "tax ceiling" applies to the
taxing practices in the Cook Inlet Region. In response to a
follow-up question, he further explained that the production tax
on oil produced is 35 percent before the tax ceiling is reached
and emphasized that the net profit calculation on oil is zero
because all of the lease expenditures may be deducted against
the oil tax.
2:01:05 PM
MR. STICKEL resumed the presentation on slide 16, which
displayed a spreadsheet that described the gas tax in the Cook
Inlet Region.
2:04:11 PM
MR. STICKEL moved to slide 17, which displayed a spreadsheet
that outlined the total tax calculations made between oil and
gas in the Cook Inlet Region.
2:05:26 PM
REPRESENTATIVE SADDLER shared his understanding of how the state
collects royalties from oil and gas production tax.
2:05:55 PM
MR. STICKEL affirmed Representative Saddler's understanding of
gas production tax in Alaska.
2:06:59 PM
MR. STICKEL continued to Slide 18, which described how profits
that Alaska has gained from the oil and gas royalties are
distributed among the state's finances. He moved to slide 19,
which displayed two, three-dimensional cylinders depicted as
graphs used to explain the distribution of oil royalties with
and without a corporate income tax.
2:09:17 PM
REPRESENTATIVE SADDLER asked what value per barrel was being
used on slide 19.
MR. STICKEL said that the graph used a barrel value of $63.39
per barrel.
2:09:52 PM
CHAIR MCKAY asked whether the barrel value was consistent
throughout the entire presentation.
MR.STICKEL clarified that the presentation uses the same barrel
value throughout.
MR. STICKEl resumed the presentation on slide 20, which
displayed two, three-dimensional cylinders depicted as graphs
used to explain the distribution of gas royalties with and
without a corporate income tax.
2:11:54 PM
CHAIR MCKAY asked whether the corporate income tax was being
displayed because of a current controversy surrounding it.
MR. STICKEL answered that the tax is being displayed because
some companies producing oil and gas in Cook Inlet are subject
to corporate income tax and some are not.
2:12:44 PM
MR. STICKEL continued to slide 21, which displayed two, three-
dimensional cylinders depicted as graphs used to explain the
distribution of oil and gas royalties per barrels of oil
equivalent with and without a corporate income tax.
2:13:32 PM
REPRESENTATIVE SADDLER asked whether the graph accounts for the
federal government's tax on oil and gas production.
MR. STICKEL answered that the 21 percent federal corporate
income tax would apply to royalties regardless of whether they
have already been subject to a certain tax. He moved to slide
22, which listed a history of the tax incentives that the State
of Alaska has offered to oil producers in the state.
2:16:05 PM
CHAIR MCKAY asked for the definition of the [initialism] "NOL."
MR. STICKEL answered that "NOL" meant "net operating loss."
2:17:11 PM
REPRESENTATIVE DIBERT asked for the definition of the
[initialism] "PPT."
MR. STICKEL answered that "PPT" meant "petroleum profits tax."
2:17:50 PM
REPRESENTATIVE RAUSCHER asked whether the state has paid off its
NOL tax credits.
MR. STICKEL answered no.
2:18:29 PM
REPRESENTATIVE MCCABE asked whether the state could sell off its
NOL tax credits and further questioned how the NOL tax credits
work.
MR. STICKEl replied that the State of Alaska could not sell its
NOL credits and explained that the NOL credits are meant to
reduce a company's tax liability and to level the playing field
for new companies tying to enter the oil and gas industry in
Alaska.
REPRESENTATIVE MCCABE asked whether Alaska's Clear and Equitable
Share (ACES) was good for Alaska's oil and gas industry.
MR. STICKEL explained that there could be correlations made
between the revenue and production at the time and emphasized
that the answer was most likely political.
2:22:01 PM
MR. STICKEL continued the presentation on slide 23, which
outlined the current series of tax incentives that the State of
Alaska is offering to oil and gas companies doing business in
Alaska. He moved to slide 24, which described a list of
potential avenues the state could take in its tax incentive
strategy.
2:25:05 PM
REPRESENTATIVE MCCABE asked for confirmation that his
understanding of the term "ring fencing" was correct.
MR. STICKEL confirmed it was.
2:25:39 PM
REPRESENTATIVE SADDLER asked if the suggestions on slide 24 are
ranked by efficacy.
MR. STICEKL clarified that the list on slide 24 is more the
result of brainstorming and does not represent a hierarchical
list of taxation strategies that the state could enact. In
response to a follow-up questions, he said ranking the proposed
taxation strategies would depend on the situation.
REPRESENTATIVE SADDLER shared his opinion that the most
efficacious way to get production out of the Cook Inlet Region
would be to fund loan guarantees for current discoveries in the
region.
2:28:33 PM
REPRESENTATIVE RAUSCHER pointed to the first bullet point on
slide 24 and asked how much money each scenario listed below the
said bullet point would cost the state.
MR. STICKEL explained that there is more context to each bullet
point on slide 8.
2:30:31 PM
REPRESENTATIVE MEARS asked whether the State of Alaska has been
asked specifically to enact any specific fiscal strategy toward
the oil and gas industry.
MR. STICKEL explained that DOR's role in fiscal strategy is to
provide a baseline revenue forecast off which the legislature
can base its decisions.
REPRESENTATIVE MEARS asked whether the suggested taxation
strategies were assumed to be necessary to oil and gas companies
in the Cook Inlet Region.
MR. STICKEL responded that Hilcorp is the main producer in Cook
Inlet and the State of Alaska would need to seek council from
Hilcorp to move forward.
2:32:32 PM
CHAIR MCKAY observed that Indonesia utilizes a production
sharing agreement (PSA), which allows reimbursement of all costs
of initial development in exchange for a shared revenue on
production.
MR. STICKEL remarked that the state has a limited ability to
sign a long-term agreement.
CHAIR MCKAY then pointed out that the Alaska Constitution does
not allow for PSAs.
2:36:37 PM
ED KING, Staff, Representative Tom McKay, Alaska State
Legislature, gave clarification to the committee regarding the
constitutionality of a PSA.
2:37:46 PM
MR. STICKEL thanked the committee and said that DOR's contact
information could be found on slide 25.
2:38:13 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:38 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Cook Inlet Update HRES 2023.04.24.pdf |
HRES 4/24/2023 1:00:00 PM |
|
| 3.31.23 David Lorring BOG App_Redacted.pdf |
HRES 4/24/2023 1:00:00 PM |
|
| Letters of Support for David Lorring.pdf |
HRES 4/24/2023 1:00:00 PM |
|
| 3.31.23 David Lorring BOG Resume_Redacted.pdf |
HRES 4/24/2023 1:00:00 PM |