Legislature(2023 - 2024)SENATE FINANCE 532

03/23/2023 09:00 AM Senate FINANCE

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09:00:29 AM Start
09:04:42 AM Presentation: Willow Project Update
10:51:12 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Presentation: Willow Project Update by
Department of Natural Resources
Department of Revenue
+ Bills Previously Heard/Scheduled TELECONFERENCED
                 SENATE FINANCE COMMITTEE                                                                                       
                      March 23, 2023                                                                                            
                         9:00 a.m.                                                                                              
                                                                                                                                
9:00:29 AM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair  Stedman   called  the  Senate   Finance  Committee                                                                    
meeting to order at 9:00 a.m.                                                                                                   
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Lyman Hoffman, Co-Chair                                                                                                 
Senator Donny Olson, Co-Chair                                                                                                   
Senator Bert Stedman, Co-Chair                                                                                                  
Senator Click Bishop                                                                                                            
Senator Jesse Kiehl                                                                                                             
Senator Kelly Merrick                                                                                                           
Senator David Wilson                                                                                                            
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Senator Cathy  Giessel; John Crowther,  Deputy Commissioner,                                                                    
Department   of  Natural   Resources;  Dan   Stickel,  Chief                                                                    
Economist,   Economic   Research    Group,   Tax   Division,                                                                    
Department  of Revenue;  Owen Stephens,  Commercial Analyst,                                                                    
Tax Division, Department of Revenue.                                                                                            
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
PRESENTATION: WILLOW PROJECT UPDATE                                                                                             
     DEPARTMENT OF NATURAL RESOURCES                                                                                            
     DEPARTMENT OF REVENUE                                                                                                      
                                                                                                                                
Co-Chair Stedman  discussed the agenda. He  relayed that the                                                                    
committee would  hear a  briefing on  the fiscal  impacts of                                                                    
the  Willow Project  on the  North Slope.  He mentioned  the                                                                    
timing of expenditures and production  and the importance of                                                                    
cash  flow. He  recounted that  the committee  had discussed                                                                    
altering the  timing of cash  flows to enhance  or constrain                                                                    
viability of a project. He  commented that the committee did                                                                    
not concern itself with the federal share.                                                                                      
                                                                                                                                
Co-Chair  Stedman  continued  that  the  presentation  would                                                                    
address the oil  and gas tax structure. He  commented on the                                                                    
complexity   of  the   state's  tax   structure,  which   he                                                                    
considered to be  one of the most complex on  the planet. He                                                                    
mentioned many  new members and  staff that would be  new to                                                                    
the terms and structure of the topic.                                                                                           
                                                                                                                                
Co-Chair Stedman  commented on the importance  of the Willow                                                                    
Project for the  future of the oil  basin, state employment,                                                                    
and revenues.  He mentioned the previous  day's presentation                                                                    
that  had  addressed  a  reduction  in  oil  price  and  the                                                                    
resultant implications. He noted  that the following day the                                                                    
Legislative  Finance Division  (LFD)  would  present on  the                                                                    
fiscal position of the state.                                                                                                   
                                                                                                                                
^PRESENTATION: WILLOW PROJECT UPDATE                                                                                          
     DEPARTMENT OF NATURAL RESOURCES                                                                                          
     DEPARTMENT OF REVENUE                                                                                                    
                                                                                                                                
9:04:42 AM                                                                                                                    
                                                                                                                                
JOHN  CROWTHER, DEPUTY  COMMISSIONER, DEPARTMENT  OF NATURAL                                                                    
RESOURCES,  introduced himself  and  relayed  that he  would                                                                    
discuss  some   contextual  information  about   the  Willow                                                                    
Project, including a recently issued record of decision.                                                                        
                                                                                                                                
Mr.  Crowther discussed  a PowerPoint  presentation entitled                                                                    
"Willow  Project  Update"  (copy   on  file).  He  made  the                                                                    
preliminary point that the Willow  Project represented a new                                                                    
era  in  the  state.  He  commented  that  the  project  was                                                                    
significant   in  terms   of  production,   employment,  and                                                                    
investment.  The project  was a  maturation of  trend, along                                                                    
with the  Pikka Project.  The projects that  were full-scale                                                                    
new developments with a new  era of potential for the state.                                                                    
He emphasized the scope and size of the investments.                                                                            
                                                                                                                                
Mr. Crowther added  that the projects were  not assured, and                                                                    
thought  it would  be fair  to  say that  the projects  were                                                                    
fragile. He  noted there was ongoing  litigation against the                                                                    
project. He  noted that the final  investment decision (FID)                                                                    
had   not  been   made  by   ConocoPhillips.  He   mentioned                                                                    
logistics,  timelines, and  costs, which  were all  elements                                                                    
for a multi-year project such as the Willow Project.                                                                            
                                                                                                                                
Mr. Crowther looked at slide 2, "INTRODUCTION AND OUTLINE":                                                                     
                                                                                                                                
     1. North Slope Units  Willow Project Location                                                                              
     2. Ownership/Royalty Interest on the North Slope                                                                           
     3. ConocoPhillips Slope-Wide Activity                                                                                      
     4. Willow Approved Development Plan and Infrastructure                                                                     
     5. Willow History, Timeline, and Outlook                                                                                   
                                                                                                                                
Mr. Crowther  spoke to slide  3, "WILLOW  PROJECT LOCATION,"                                                                    
which was an overview map of  the North Slope. He noted that                                                                    
the  state units  were in  yellow. The  other colors  of the                                                                    
units  indicated ownership.  The gold  or orange  were state                                                                    
and federal leases. The green  denoted fully federal leases.                                                                    
The  pink and  purple  were affected  by  a 1991  settlement                                                                    
agreement by  the Arctic  Slope Regional  Corporation (ASRC)                                                                    
and the  state that provided some  shared ownership interest                                                                    
in  some  of  the  leases.  He noted  that  the  red  circle                                                                    
represented the Willow Project, which  was in the Bear Tooth                                                                    
Unit,  which was  a federal  unit in  the Natural  Petroleum                                                                    
Reserve-Alaska (NPRA).                                                                                                          
                                                                                                                                
9:08:49 AM                                                                                                                    
                                                                                                                                
Mr.   Crowther   referenced  slide   4,   "OWNERSHIP/ROYALTY                                                                    
INTEREST,"  which  showed  a map  with  overlays.  The  read                                                                    
outline  showed the  coastal plain  of  the Alaska  National                                                                    
Wildlife Refuge (ANWR), which was  federally owned and had a                                                                    
50-50  split  of royalties  between  the  state and  federal                                                                    
government.  He  pointed  out the  red  circle  showing  the                                                                    
Willow Project  on the western  side of the North  Slope. He                                                                    
highlighted   the  outer   continental   shelf,  which   was                                                                    
federally managed, had no active  leases, and from which the                                                                    
state  received  royalties.  The gold  band  was  near-shore                                                                    
federal  land, which  had a  12.5 percent  royalty rate  for                                                                    
leases  and  was  managed by  the  federal  government,  and                                                                    
Through the  Outer Continental Shelf  Lands Act  (OCSLA) the                                                                    
state received 27 percent of any revenue generated.                                                                             
                                                                                                                                
Mr.  Crowther  noted  that the  blue  band  was  state-owned                                                                    
offshore  areas with  100 percent  state royalties  and were                                                                    
managed and  leased by  the state.  Similarly the  center of                                                                    
the  map  showed state-owned  land  subject  to 100  percent                                                                    
royalty share.                                                                                                                  
                                                                                                                                
Mr.  Crowther  pointed out  that  there  were a  variety  of                                                                    
royalty rates in  the NPRA Willow project, and  a 50 percent                                                                    
royalty share dedicated to the Impact Mitigation Fund.                                                                          
                                                                                                                                
9:11:23 AM                                                                                                                    
                                                                                                                                
Mr. Crowther  turned to slide 5,  "CONOCOPHILLIPS SLOPE-WIDE                                                                    
ACTIVITY,"   which  showed   a   map   to  illustrate   that                                                                    
ConocoPhillips, the  proprietor and developer of  the Willow                                                                    
Project, had undertaken a significant  amount of activity in                                                                    
the state. He pointed out ConocoPhillips locations.                                                                             
                                                                                                                                
Senator  Bishop  asked about  the  Bear  1 exploration  well                                                                    
shown on the map  on slide 5. He asked if  the well was back                                                                    
on state land in the same formation.                                                                                            
                                                                                                                                
Mr.  Crowther   did  not  believe  there   was  much  public                                                                    
statement about the  project and thought it  was targeting a                                                                    
formation in the Horseshoe Unit.                                                                                                
                                                                                                                                
Mr. Crowther considered  slide 6, which showed a  map of the                                                                    
project  approval and  record of  decision  included in  the                                                                    
recently issued  U.S. Department  of Interior  document. The                                                                    
map showed three pads that  were approved for the Bear Tooth                                                                    
Unit,  the infrastructure  associated with  the approval  to                                                                    
include an  airstrip, operations  center and  the processing                                                                    
facilities approved  for the Willow Project.  The map showed                                                                    
pipelines  tying into  the central  facilities  and the  ice                                                                    
road that  would be used  to complete  project construction,                                                                    
which was shown in a dashed blue line.                                                                                          
                                                                                                                                
Mr. Crowther  displayed slide 7, "WILLOW  HISTORY, TIMELINE,                                                                    
and OUTLOOK,"  and discussed the  permitting history  of the                                                                    
Willow Project.  He recounted  that the  Integrated Activity                                                                    
Plan (IAP), the  federal land management plan  for the area,                                                                    
was approved  in 2013. The  Willow Project design  under the                                                                    
IAP  and the  initial environmental  impact statement  (EIS)                                                                    
was  completed  in  2020.  Contemporaneously,  the  EIS  had                                                                    
addressed  community concerns,  which ConocoPhillips  sought                                                                    
to  meet by  modifying the  project. He  mentioned the  2023                                                                    
record of  decision, which involved  completion of  a second                                                                    
EIS as mandated by district court remand in Alaska.                                                                             
                                                                                                                                
Mr.  Crowther  discussed   the  development  timeline  going                                                                    
forward and noted that  initialized construction and project                                                                    
activities  were  underway, and  a  lawsuit  had been  filed                                                                    
against  the  approval. The  state  was  intervening in  the                                                                    
matter and  was in opposition to  the preliminary injunction                                                                    
to pause  project activity  while litigation  proceeded. The                                                                    
project permitting continued  with state pipeline rights-of-                                                                    
way  and other  authorizations. He  reiterated that  the FID                                                                    
had  not occurred  yet, and  ConocoPhillips announcement  of                                                                    
the  FID   was  subject   to  its  corporate   policies  and                                                                    
practices.  Potential construction,  pending disposition  of                                                                    
preliminary injunction  matters in  the court,  was expected                                                                    
to begin  as soon  as the  current year  and continue  for a                                                                    
period of five to seven years.                                                                                                  
                                                                                                                                
Co-Chair  Stedman mentioned  the  upcoming  slides from  the                                                                    
Department of Revenue (DOR).                                                                                                    
                                                                                                                                
9:15:34 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:16:26 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
DAN STICKEL,  CHIEF ECONOMIST, ECONOMIC RESEARCH  GROUP, TAX                                                                    
DIVISION, DEPARTMENT OF REVENUE, introduced himself.                                                                            
                                                                                                                                
OWEN STEPHENS, COMMERCIAL  ANALYST, TAX DIVISION, DEPARTMENT                                                                    
OF REVENUE, introduced himself.                                                                                                 
                                                                                                                                
Mr.  Stickel discussed  a  PowerPoint presentation  entitled                                                                    
"Willow Fiscal  Analysis" (copy on file).  He explained that                                                                    
the  presentation  was  broken  into  two  parts.  He  would                                                                    
address  the first  portion, which  was intended  to provide                                                                    
foundational  information to  understand  the background  of                                                                    
the  state's fiscal  system and  some of  the nuance  of the                                                                    
production    tax    calculation.   He    considered    that                                                                    
understanding the production tax  nuance was foundational to                                                                    
understanding  some of  the Willow  Project impacts  and how                                                                    
the  lease  expenditures   and  operator  investments  could                                                                    
potentially impact the state treasury.                                                                                          
                                                                                                                                
Mr.  Stickel   continued  that  the   second  part   of  the                                                                    
presentation would  be addressed  by Mr. Stephens  and would                                                                    
provide a  detailed fiscal analysis  of the  Willow Project.                                                                    
He referenced  a white  paper issued  in late  February, and                                                                    
noted that  there had  been refinements  to the  analysis in                                                                    
terms of assumptions of how  lease expenditures would apply.                                                                    
The analysis had also incorporated the spring forecast.                                                                         
                                                                                                                                
Mr. Stickel looked at slide 2, "Acronyms                                                                                        
                                                                                                                                
     ANS  Alaska North Slope                                                                                                    
     Bbl  Barrel                                                                                                                
     CBRF  Constitutional Budget Reserve Fund                                                                                   
     CIT  Corporate Income Tax                                                                                                  
     DNR  Department of Natural                                                                                                 
     Resources                                                                                                                  
     DOR  Department of Revenue                                                                                                 
     FY  Fiscal Year                                                                                                            
     GVPP  Gross Value at Point of Production                                                                                   
     GVR  Gross Value Reduction                                                                                                 
     NPR-A  National Petroleum Reserve Alaska                                                                                   
     NSB  North Slope Borough                                                                                                   
     PTV  Production Tax Value                                                                                                  
     SB21  Senate Bill 21, passed in 2013                                                                                       
     SEIS  Supplemental Environmental                                                                                           
     Impact Statement                                                                                                           
     TAPS  Trans Alaska Pipeline System                                                                                         
     Ths - Thousands                                                                                                            
                                                                                                                                
Mr. Stickel spoke to slide 3, "Disclaimer":                                                                                     
                                                                                                                                
     • Alaska's severance tax is one of the most complex in                                                                     
     the world and portions are subject to interpretation                                                                       
     and dispute.                                                                                                               
     • These numbers are rough approximations based on                                                                          
     public data, as presented in the Spring 2023 Revenue                                                                       
     Sources Book and other revenue forecasts.                                                                                  
     • This presentation is solely for illustrative general                                                                     
     purposes.                                                                                                                  
     • Not an official statement as to any particular tax                                                                       
     liability, interpretation, or treatment.                                                                                   
     • Not tax advice or guidance.                                                                                              
     • Some numbers may differ due to rounding.                                                                                 
                                                                                                                                
Mr.  Stickel  relayed  that  the  presentation  distilled  a                                                                    
complex  system  with  many  past  changes  into  an  easily                                                                    
understood  analysis, and  noted that  some assumptions  had                                                                    
been   made.  He   shared  that   when  going   through  the                                                                    
introductory   information  as   well   as  Willow   Project                                                                    
analysis,  he  had  used aggregated  data  and  had  avoided                                                                    
presenting any company-specific confidential information.                                                                       
                                                                                                                                
Mr. Stickel referenced slide 4, "Foundational Discussion                                                                        
                                                                                                                                
     • Order of Operations Refresher                                                                                            
     • Increased Investment Example                                                                                             
     • Gross Value Reduction (GVR) Discussion and Mechanics                                                                     
     • Lease Expenditure Deductions                                                                                             
                                                                                                                                
Mr.   Stickel  relayed   that   the   Order  of   Operations                                                                    
presentation had been updated  since he previously discussed                                                                    
the topic in earlier weeks.                                                                                                     
                                                                                                                                
9:20:09 AM                                                                                                                    
                                                                                                                                
Mr.  Stickel  turned  to  slide  5,  "Oil  and  Gas  Revenue                                                                    
Sources                                                                                                                         
                                                                                                                                
     • Royalty  based on gross value of production                                                                              
     o Plus bonuses, rents, and interest                                                                                        
          o Paid to Owner of the land: State, Federal, or                                                                       
          Private                                                                                                               
          o Usually 12.5% or 16.67% in Alaska, but rates                                                                        
          vary                                                                                                                  
     • Corporate Income Tax  based on net income                                                                                
          o Paid to State (9.4% top rate)                                                                                       
          o Paid to Federal (21% top rate)                                                                                      
          o Only C-Corporations* pay this tax                                                                                   
     • Property Tax  based on value of oil & gas property                                                                       
          o Paid to State (2% of assessed value or "20                                                                          
          mills")                                                                                                               
          o Paid to Municipalities  credit offsets state                                                                        
          tax paid                                                                                                              
     • Production Tax  based on "production tax value"                                                                          
          o Paid to State  calculation to follow                                                                                
                                                                                                                                
     *  C-Corporation is  a business  term that  is used  to                                                                    
     distinguish  the type  of business  entity, as  defined                                                                    
     under  subchapter C  of  the  federal Internal  Revenue                                                                    
     Code.                                                                                                                      
                                                                                                                                
Mr. Stickel noted that corporate  income tax was complicated                                                                    
to  estimate due  to being  based on  world-wide net  income                                                                    
portioned to Alaska with the  company's share of production,                                                                    
sales, and property.                                                                                                            
                                                                                                                                
Mr.  Stickel considered  slide  6,  "Fiscal System:  Overall                                                                    
Order of Operations":                                                                                                           
                                                                                                                                
     Royalties (State, Federal, or Private)                                                                                     
     Property Tax                                                                                                               
     Production Tax                                                                                                             
     State Corporate Income Tax                                                                                                 
     Federal Corporate Income Tax                                                                                               
                                                                                                                                
Mr.  Stickel  explained  that the  worldwide  income  for  a                                                                    
company  was  after  deducting  royalties,  production,  and                                                                    
property tax.  The federal corporate income  tax allowed the                                                                    
state corporate income tax as a deduction.                                                                                      
                                                                                                                                
Mr.  Stickel displayed  slide 7,  "Production Tax  "Order of                                                                    
Operations":  FY  2024,"  which   showed  a  table  with  an                                                                    
illustration of the production  tax calculation in aggregate                                                                    
for North Slope oil. He noted  that the slide was similar to                                                                    
what was included in Appendix  B of the Revenue Sources Book                                                                    
(RSB). The slide  had been updated with  the spring forecast                                                                    
that had  been released earlier in  the week. He used  FY 24                                                                    
as  an   example  and  considered  the   $73/bbl  oil  price                                                                    
forecast, the daily production estimate  of 496,000 bpd, and                                                                    
the $36 million  in oil that was being produced  each day on                                                                    
the North Slope.  The quantity equated to  about $13 billion                                                                    
over the course of the  year, and the table contemplated how                                                                    
the amount  was taxed and  split between the  different cost                                                                    
and profit centers.                                                                                                             
                                                                                                                                
Mr. Stickel  highlighted slide 8, "Production  Tax "Order of                                                                    
Operations":  FY 2024,"  which showed  a table  with royalty                                                                    
and  taxable  barrels highlighted.  The  first  step in  the                                                                    
calculation  was  subtracting  royalty   to  arrive  at  the                                                                    
taxable barrels  amount. For FY  24, DOR estimated  a little                                                                    
under  24,000  bpd  of  royalty barrels  that  went  to  the                                                                    
various  owners of  the resource,  which  was primarily  the                                                                    
state but included federal and  private ownership. There was                                                                    
about  158  million barrels  of  taxable  production in  the                                                                    
year, with a value of about $11.5 billion.                                                                                      
                                                                                                                                
9:24:57 AM                                                                                                                    
                                                                                                                                
Mr. Stickel  looked at  slide 9,  "Production Tax  "Order of                                                                    
Operations":  FY  2024," which  showed  a  table with  Gross                                                                    
Value  at  Point of  Production  (GVPP).  He described  that                                                                    
companies   subtracted   transportation   costs   (including                                                                    
tankers, pipelines)  from the taxable value  for a deduction                                                                    
of a  little under $10/bbl  for a GVPP of  about $63.39/bbl,                                                                    
which equated to about a  $10 billion gross value slope-wide                                                                    
for FY 24.                                                                                                                      
                                                                                                                                
Mr. Stickel  addressed slide 10,  "Production Tax  "Order of                                                                    
Operations":  FY  2024," which  showed  a  table with  North                                                                    
Slope  lease expenditures  highlighted.  He  noted that  the                                                                    
production tax  was essentially a modified  net profits tax.                                                                    
He  described the  deduction  of  lease expenditures,  which                                                                    
were  subtracted  in  the tax  calculation.  A  company  was                                                                    
allowed to  deduct operating and capital  expenditures, with                                                                    
a 100 percent deduction of  capital expenditures in the year                                                                    
incurred. He  described allowable lease  expenditures, which                                                                    
were  any costs  directly associated  with producing  oil in                                                                    
the unit. Deductible lease  expenditures described the share                                                                    
of  allowable  lease  expenditures  that  could  be  applied                                                                    
against gross  value in  the year  incurred. In  the example                                                                    
provided,  there  was  $4.6   billion  of  deductible  lease                                                                    
expenditures,  and  an  additional  $913  million  in  lease                                                                    
expenditures  that  were  not able  to  be  deducted,  which                                                                    
represented investments  by companies that were  involved in                                                                    
exploration   and  development   of  new   fields  and   not                                                                    
production.                                                                                                                     
                                                                                                                                
Mr. Stickel advanced to slide  11, "Production Tax "Order of                                                                    
Operations": FY 2024," which showed  a table with production                                                                    
tax value (PTV)  highlighted. He described that  the PTV was                                                                    
essentially the  net profits  of the slope  and was  the tax                                                                    
base  for   the  tax  calculation.  After   subtracting  the                                                                    
deductible lease  expenditures, there  was a  production tax                                                                    
value estimate of $5.4 billion in FY 24.                                                                                        
                                                                                                                              
Mr. Stickel looked at  slide 12,  "Production Tax  "Order of                                                                    
Operations": FY 2024,"  which showed a table  with the gross                                                                    
minimum  tax  floor highlighted  in  yellow.  He noted  that                                                                    
there were two tax calculations  that happened side by side,                                                                    
including  the net  profits tax  and the  gross minimum  tax                                                                    
floor. The gross  minimum tax floor was not a  true tax levy                                                                    
but  functioned like  one. The  minimum tax  floor when  oil                                                                    
prices averaged more  than $24/bbl in a calendar  year was 4                                                                    
percent of  gross value. For  FY 24, there was  an estimated                                                                    
$10 billion of GVPP, 4  percent minimum tax floor, which got                                                                    
to an  approximately $400 million  tax floor for  the fiscal                                                                    
year.                                                                                                                           
                                                                                                                                
9:28:53 AM                                                                                                                    
                                                                                                                                
Mr.  Stickel  showed slide  13,  "Production  Tax "Order  of                                                                    
Operations":  FY  2024,"  which  showed  a  table  with  net                                                                    
profits tax  and GVR highlighted  in yellow.  He highlighted                                                                    
the net profits  tax, which started with  the production tax                                                                    
value. Companies were also able  to subtract the gross value                                                                    
reduction   (GVR),   which   was  an   incentive   for   new                                                                    
developments that  allowed a company to  subtract 20 percent                                                                    
or  30  percent  of  the  gross  value  of  production  from                                                                    
qualifying new fields from production  tax when applying the                                                                    
tax rate.   The  deduction was  for 20 percent  for up  to 7                                                                    
years for  any qualifying  new field. If  the field  were to                                                                    
consist  entirely of  state-issued  leases  of greater  than                                                                    
12.5  percent royalty,  a  field could  qualify  for the  30                                                                    
percent GVR.  With regard to  the Willow field,  since there                                                                    
were  federally issued  leases, the  potential qualification                                                                    
would be for a 20 percent GVR.                                                                                                  
                                                                                                                                
Mr. Stickel continued that the  GVR was allowed as an offset                                                                    
to the production  tax value before applying  the 35 percent                                                                    
statutory tax  rate, which  gave a  net profits  tax (before                                                                    
credits) estimated at $1.9 billion for FY 24.                                                                                   
                                                                                                                                
Mr. Stickel  referenced slide 14, "Production  Tax "Order of                                                                    
Operations":  FY  2024,"  which  showed  a  table  with  tax                                                                    
credits   against  liability   highlighted  in   yellow.  He                                                                    
described the next step as taking  the higher of the net tax                                                                    
before  credits and  gross minimum  tax  floor, which  would                                                                    
become the tax  before credits. In FY 24, the  net tax would                                                                    
be the  higher of the  two, and  the $1.85 billion  would be                                                                    
the  starting point  before the  company  would offset  per-                                                                    
taxable-barrel  credits. There  was a  $5 per-taxable-barrel                                                                    
credit for any  oil that qualified for the  GVR, which could                                                                    
be used  to reduce the  tax liability below the  minimum tax                                                                    
if the  company did  not avail itself  of any  sliding scale                                                                    
per-taxable barrel credits, which applied to all other oil.                                                                     
                                                                                                                                
Mr. Stickel continued that currently  most of the production                                                                    
on  the slope  for  the  older fields  had  a sliding  scale                                                                    
between  zero  and  $8 per-taxable-barrel  of  oil.  The  $8                                                                    
credit was  available when  the gross  value per  barrel was                                                                    
less  than $80/bbl.  In FY  24,  since the  gross value  per                                                                    
barrel  was  estimated at  $63/bbl,  there  would be  an  $8                                                                    
credit  on  the sliding  scale.  The  sliding scale  credits                                                                    
could not reduce  below the minimum tax. In FY  24 there was                                                                    
a  total impact  of about  $19  million for  the GVR  $5/bbl                                                                    
credits  and  about  $1.1  billion  for  the  sliding  scale                                                                    
credits.  A small  amount of  other credits  applied against                                                                    
liability, which were primarily  small producer credits. The                                                                    
tax after credits was a little over $700 million.                                                                               
                                                                                                                                
9:33:01 AM                                                                                                                    
                                                                                                                                
Mr. Stickel  turned to slide  15, "Production Tax  "Order of                                                                    
Operations":   FY  2024,"   which   showed   a  table   with                                                                    
adjustments  and total  tax paid  highlighted in  yellow. He                                                                    
mentioned the  forecast for production  tax included  in the                                                                    
RSB. He  explained that adjustments  included any  prior tax                                                                    
payments  from the  previous year,  a small  tax on  private                                                                    
landowner  royalty,  tax  on North  Slope  gas,  Cook  Inlet                                                                    
taxes,  and the  nickel per  barrel conservation  surcharge.                                                                    
The adjustments added up to about  $29 million to get to the                                                                    
$741.8  million,   which  represented  the   production  tax                                                                    
forecast in the RSB.                                                                                                            
                                                                                                                                
Mr.  Stickel considered  slide  16,  "Example: Company  with                                                                    
200,000 Barrels  Per Day  Taxable Production,"  which showed                                                                    
the  same format  as previous  slides  using a  hypothetical                                                                    
producer  to  illustrate  how  increased  investments  would                                                                    
impact  the  tax calculation.  There  was  an assumption  of                                                                    
200,000  bpd  of  taxable production,  which  was  the  same                                                                    
assumption  used in  the upcoming  Willow Project  analysis.                                                                    
The   assumption   included   average  North   Slope   lease                                                                    
expenditures. In  the example,  the company would  have $4.6                                                                    
billion of gross value, $2.1  billion in lease expenditures,                                                                    
and  a production  tax value  of $2.5  billion. The  company                                                                    
would be  able to apply  the full  value of the  per taxable                                                                    
barrel credits  in the year  incurred and would  realize the                                                                    
full $5 for the GVR credits  and the full $8 for the sliding                                                                    
scale  credits.  After  applying the  credits,  the  company                                                                    
would have a tax liability of $287 million.                                                                                     
                                                                                                                                
Mr.  Stickel continued  to say  that since  the company  was                                                                    
able  to  apply  all  the lease  expenditures  in  the  year                                                                    
incurred, there would be no carry-forwards earned.                                                                              
                                                                                                                                
9:35:56 AM                                                                                                                    
                                                                                                                                
Mr.  Stickel  displayed  slide 17,  "Example:  $200  million                                                                    
additional Capital  Expenditure," which addressed  the chart                                                                    
from the previous slide with  the consideration of a nominal                                                                    
increase  in expenditures.  For  the example,  there was  an                                                                    
extra $200  million in  expenditures including  some capital                                                                    
improvements in  an existing field or  some exploration. The                                                                    
company now had  $2.3 billion in lease  expenditures and had                                                                    
production tax  value that  went down  from $2.5  billion to                                                                    
$2.3 billion. The  company was still able to  apply the full                                                                    
value  of  the  per-taxable-barrel  credits  to  reduce  tax                                                                    
liability,  and would  get  a 35  percent  benefit from  the                                                                    
additional  capital  expenditures.  He quantified  that  the                                                                    
$200  million in  extra expenditures  reduced the  company's                                                                    
tax liability  in the year  it was incurred by  $70 million,                                                                    
which  was a  35 percent  benefit and  was the  marginal tax                                                                    
rate.                                                                                                                           
                                                                                                                                
Mr.  Stickel  highlighted  slide 18,  "Example:  $1  billion                                                                    
additional  Capital  Expenditure,"   which  showed  a  table                                                                    
depicting a company that made  a more substantial investment                                                                    
and  spent an  additional $1  billion. In  the example,  the                                                                    
company  would  have  $3.1 billion  in  lease  expenditures,                                                                    
would reduce the  production tax value from  $2.5 billion to                                                                    
$1.5 billion.  The tax  before credits on  the net  side was                                                                    
only $500  million, and  the minimum  tax floor  would limit                                                                    
the company's  ability to apply for  taxable barrel credits.                                                                    
The gross minimum tax floor  would be the tax liab8ility for                                                                    
the year.                                                                                                                       
                                                                                                                                
Mr.  Stickel  continued that  in  the  example, the  company                                                                    
would no longer  be able to benefit from the  $5 per taxable                                                                    
barrel for  a GVR production, and  it would only be  able to                                                                    
use $4.73/bbl of  the $8 sliding scale credit  to reduce tax                                                                    
liability.  Once  the company  hit  the  minimum tax  floor,                                                                    
there was no additional  benefit for lease expenditures. The                                                                    
extra  $1   billion  in  spending  ended   up  reducing  the                                                                    
company's  taxes  by  $101  million, which  was  only  a  10                                                                    
percent  benefit  for  the  additional  investment.  Once  a                                                                    
company was paying  under the minimum tax floor,  as long as                                                                    
there was a  positive production tax value  a producer could                                                                    
not  earn a  carry-forward  for the  lease expenditures  and                                                                    
additional   expenditures   were   of  no   value   in   tax                                                                    
calculation.                                                                                                                    
                                                                                                                                
9:39:00 AM                                                                                                                    
                                                                                                                                
Mr.  Stickel  looked  at  slide  19,  "Example:  $2  billion                                                                    
additional Capital Expenditure." He  commented that the peak                                                                    
spending year  in the Willow  analysis was a little  over $2                                                                    
billion. He  described that the  company in the  example had                                                                    
$4.1  billion of  lease expenditures  and  a production  tax                                                                    
value of only  $516 million for the year.  The company would                                                                    
be at  the minimum tax  floor before application of  any tax                                                                    
credits and would not use  any sliding scale tax credits. In                                                                    
the example,  since sliding scale  tax credits could  not be                                                                    
used, it was possible to use  the $5/bbl tax credits for the                                                                    
GVR-eligible production  to go below the  minimum tax floor.                                                                    
He noted that the $26 million  in credits came back into the                                                                    
calculation for a  total tax after credits  of $160 million,                                                                    
which was  slightly below  the minimum  tax floor.  He noted                                                                    
that  the  additional  $2  billion  in  additional  spending                                                                    
reduced taxes  by a total  of $127  million for a  6 percent                                                                    
benefit.                                                                                                                        
                                                                                                                                
Co-Chair Stedman asked about the benefit percent.                                                                               
                                                                                                                                
Mr. Stickel  answered that  there was  a 6  percent benefit,                                                                    
which was very different than  the 35 percent benefit from a                                                                    
smaller capital investment.                                                                                                     
                                                                                                                                
Mr.  Stickel  addressed  slide   20,  "Example:  $3  billion                                                                    
additional Capital  Expenditure," which considered  the same                                                                    
scenario as  previously slides with additional  spending. He                                                                    
noted that a similar concept  would apply if oil prices were                                                                    
to come  in a little bit  lower. The PTV was  being lowered,                                                                    
either  by  a  decrease  in price  versus  forecast,  or  an                                                                    
increase  in expenditure.  In the  example, the  company had                                                                    
$5.1 billion  of lease expenditures, which  would completely                                                                    
offset  the gross  value of  oil  produced in  the year  and                                                                    
would  reduce the  PTV to  zero with  $484 million  of lease                                                                    
expenditures  remaining. The  $484  million  would become  a                                                                    
carry-forward,  which could  be used  to offset  taxes in  a                                                                    
future year. The $484 million  would be ring-fenced by lease                                                                    
or  property, and  could not  be  used unless  the lease  or                                                                    
property was into production in the future.                                                                                     
                                                                                                                                
Mr.  Stickel continued  that the  minimum tax  floor in  the                                                                    
example did apply,  so the company would not be  able to use                                                                    
any sliding scale  tax credits but would be able  to use the                                                                    
$5/bbl  tax credits  for GVR-eligible  production to  offset                                                                    
the  minimum  tax.  The  company would  pay  the  same  $160                                                                    
million  tax after  credits  in the  prior  example. The  $3                                                                    
billion in  additional expenditures  would reduce  the taxes                                                                    
by  $127 million  for a  4 percent  reduction in  taxes paid                                                                    
from the  $3 billion in  investment. The company  would also                                                                    
earn a carry-forward for the  $484 million loss, which could                                                                    
potentially  add  up  to  a   10  percent  benefit  for  the                                                                    
additional spending.                                                                                                            
                                                                                                                                
9:43:06 AM                                                                                                                    
                                                                                                                                
Senator Kiehl  asked about Mr. Stickel's  assertion that the                                                                    
carry-forward  would be  ring-fenced. He  thought the  fence                                                                    
might be bigger.                                                                                                                
                                                                                                                                
Mr. Stickel explained  that when looking at  the North Slope                                                                    
for tax  calculation purposes, there  was a  slope-wide ring                                                                    
fence.  A  company would  calculate  its  North Slope  taxes                                                                    
based on  all its  production and spending  on the  slope. A                                                                    
smaller ring fence  on the North Slope was when  there was a                                                                    
carry-forward annual  loss. The  losses were  ring-fenced by                                                                    
lease or  property. The  carry forward  was tracked  by each                                                                    
individual lease  or property  and could  not be  used until                                                                    
the lease or property was in production.                                                                                        
                                                                                                                                
Senator Kiehl asked  if what was being described  was or was                                                                    
not a carry-forward annual loss.                                                                                                
                                                                                                                                
Mr. Stickel explained that the  example was that the company                                                                    
spent  $3  billion of  additional  capital  beyond what  was                                                                    
planned.  The capital  expenditures  were incorporated  into                                                                    
lease  expenditure deductions  in calculating  PTV until  it                                                                    
hit zero.  Once a company  had applied  as much as  it could                                                                    
deduct,  if  there  were additional  lease  expenditures  it                                                                    
would become a carry-forward.                                                                                                   
                                                                                                                                
Senator Kiehl asked  if the ring-fencing in  the example was                                                                    
for the unit or for the slope.                                                                                                  
                                                                                                                                
Mr. Stickel  explained that if  a carry-forward  was earned,                                                                    
it  was   ring-fenced  by  lease  or   property,  which  was                                                                    
essentially by unit.                                                                                                            
                                                                                                                                
Co-Chair  Stedman asked  the ring-fence  would apply  to the                                                                    
project if the example happened  to be Willow or another new                                                                    
prospect,   and  there   was   $3   billion  in   additional                                                                    
expenditures.                                                                                                                   
                                                                                                                                
Mr. Stickel answered affirmatively.  He qualified that there                                                                    
would  be  no  ring-fencing  as  long as  a  company  had  a                                                                    
positive  production  tax  value.  He continued  that  if  a                                                                    
company   had  a   zero  PTV   and   had  additional   lease                                                                    
expenditures or oil  prices turned down for  a net operating                                                                    
loss  (NOL), the  additional lease  expenditures beyond  PTV                                                                    
would be ring-fenced by lease or property.                                                                                      
                                                                                                                                
9:46:14 AM                                                                                                                    
                                                                                                                                
Co-Chair Stedman  asked about aggregated values  in the RSB.                                                                    
He  assumed that  DOR  had  to look  at  each  field and  do                                                                    
multiple analyses to provide a  comingled data set. He asked                                                                    
how  the  legislature would  know  if  the state  was  going                                                                    
forward  or backwards  and wondered  how  to determine  what                                                                    
situations  were  taking  place.  He pondered  how  to  make                                                                    
accurate policy conclusions with aggregated data.                                                                               
                                                                                                                                
Mr. Stickel  relayed that speaking  to the  revenue forecast                                                                    
qualitatively,   there  were   some  NOLs   that  had   been                                                                    
generated, in particular  in 2020 when there  were some very                                                                    
low  oil  prices.  He  considered  the  carry-forwards  that                                                                    
currently  existed,  which  were   almost  entirely  due  to                                                                    
companies making investments in  new production and were not                                                                    
current  taxpayers. He  explained  that  the department  was                                                                    
tracking  the data  by company  and by  project and  assumed                                                                    
that  companies  would  apply  the  carry-forwards  when  it                                                                    
benefit them to  do so. The fiscal  impact of carry-forwards                                                                    
was baked into  the forecast and much of it  was towards the                                                                    
end of the 10-year forecast period and beyond.                                                                                  
                                                                                                                                
Mr.  Stickel  advanced  to  slide  21,  "Lease  Expenditures                                                                    
Example: Takeaways":                                                                                                            
                                                                                                                                
      •  If  company  is  above minimum  tax  floor,  modest                                                                    
     increases  in investment  benefit at  35% marginal  tax                                                                    
     rate.                                                                                                                      
     • Once  company reaches minimum tax  floor, the benefit                                                                    
     of increased investment is much lower.                                                                                     
     •  Once  company reaches  a  net  operating loss,  some                                                                    
     benefit of  increased investment  returns, in  the form                                                                    
     of a carried-forward loss.                                                                                                 
     •  Benefit of  spending  will also  vary  based on  oil                                                                    
     prices.                                                                                                                    
          • A low oil price scenario is very similar to a                                                                       
          high investment scenario.                                                                                             
     • The changing benefits are  a source of uncertainty to                                                                    
     company  making  investment  decisions,  and  to  state                                                                    
     revenue forecasting.                                                                                                       
     • This  analysis is relevant  to discussions  of Willow                                                                    
     because  the  field  would require  massive  additional                                                                    
     investment.                                                                                                                
                                                                                                                              
Mr. Stickel  described that  there was  a situation  that he                                                                    
termed a  "donut hole," in  which a company  benefitted from                                                                    
spending  above the  minimum floor,  and  it benefited  from                                                                    
being  in  a   NOL  situation  but  did   not  benefit  from                                                                    
incremental  spending  while  paying  the  minimum  tax.  He                                                                    
commented that  the difference in  how spending  was treated                                                                    
for tax  purposes made  it difficult  to model  and forecast                                                                    
for  projects like  Willow.  It also  made  it difficult  to                                                                    
assess  the  impact  to  the  state  treasury,  and  created                                                                    
uncertainty for  a company in understanding  the benefits of                                                                    
the investments it was making.                                                                                                  
                                                                                                                                
9:49:53 AM                                                                                                                    
                                                                                                                                
Mr. Stickel looked at slide 22, "Gross Value Reduction":                                                                        
                                                                                                                                
     • Gross  Value Reduction (GVR) is  an incentive program                                                                    
     for new fields.                                                                                                            
     •  Available for  the first  seven years  of production                                                                    
     and  ends early  if  ANS prices  average  over $70  per                                                                    
     barrel for any three years.                                                                                                
     • Allows companies  to exclude 20% or 30%  of the gross                                                                    
     value from the net production tax calculation.                                                                             
     • In  lieu of sliding scale  Non-GVR Per-Taxable Barrel                                                                    
     Credit, qualifying  production receives  a flat  $5 GVR                                                                    
     Per-Taxable-Barrel Credit.                                                                                                 
     • The  $5 GVR Per-Taxable-Barrel Credit  can be applied                                                                    
     to reduce  tax liability  below the minimum  tax floor,                                                                    
     assuming that  the producer does not  apply any sliding                                                                    
     scale Non-GVR Per-Taxable Barrel Credits.                                                                                  
     • GVR is relevant to  discussions of Willow because the                                                                    
     field would  likely qualify for  this benefit  in early                                                                    
     years of production.                                                                                                       
                                                                                                                                
Mr. Stickel relayed  that he had been asked  to provide some                                                                    
information about  how GVR  worked, and  the slide  had been                                                                    
presented in the past. He cited  that the GVR was part of SB
21 tax reform that was passed in 2014.                                                                                          
                                                                                                                                
Mr. Stickel spoke to slide 23, "Why Allow Lease Expenditure                                                                     
Deductions?":                                                                                                                   
                                                                                                                                
     •  Oil and  gas exploration  and development  are high-                                                                    
     risk,  capital   intensive  activities.  There   is  no                                                                    
     guarantee of success.                                                                                                      
     •  Cost recovery  is  critical  for company  investment                                                                    
     decisions.                                                                                                                 
     •  Deductions that  allow  companies  to continue  work                                                                    
     even   when   unsuccessful,    make   exploration   and                                                                    
     development much less risky.                                                                                               
     •  Alaska's net  tax system  balances lower  state take                                                                    
     early in  field life, with  higher state take  later in                                                                    
     field life.                                                                                                                
     •  Cost recovery  is  an  integral part  of  a net  tax                                                                    
     system.                                                                                                                    
     •  Slope-wide "ring  fence" encourages  reinvestment of                                                                    
     profits in Alaska.                                                                                                         
     • Lease expenditure deductions and GVR were designed                                                                       
     to help companies recover costs quickly, improving                                                                         
     project economics.                                                                                                         
     • Gross minimum tax floor ensures a minimum level of                                                                       
     state revenue regardless of investments or oil price.                                                                      
                                                                                                                                
Mr. Stickel  relayed that he  had been asked to  address why                                                                    
lease  expenditures  were  allowed   to  be  deductible.  He                                                                    
explained  that  Alaska's  current tax  system  had  several                                                                    
pieces that actively supported cost recovery.                                                                                   
                                                                                                                                
Mr.   Stephens   referenced   slide  24,   "Willow   Project                                                                    
Analysis                                                                                                                        
                                                                                                                                
     • Analysis Updates                                                                                                         
     • Description and Assumptions                                                                                              
     • Revenue Analysis                                                                                                         
     • Uncertainty                                                                                                              
       Spring Forecast Comparison                                                                                               
     • Conclusions                                                                                                              
     • Appendix:                                                                                                                
     1. Sensitivity Analyses                                                                                                    
     2. Local Cash Flows                                                                                                        
                                                                                                                                
9:54:20 AM                                                                                                                    
                                                                                                                                
Mr.  Stephens  turned  to  slide   25,  "Typical  Oil  Field                                                                    
Development," which showed a flow  chart. He emphasized that                                                                    
finding  and developing  an oil  and gas  field was  heavily                                                                    
capital  intensive, with  very  large  upfront costs  before                                                                    
receiving  any revenue.  He noted  that reaching  production                                                                    
could  take  decades. He  noted  that  the monetary  amounts                                                                    
reflected  how  much  could  be spent  to  explore  for  and                                                                    
develop an oil field  to production for something comparable                                                                    
to  the  Willow  Project.  He  identified  progress  on  the                                                                    
project with  the first leases  in 1999,  exploration around                                                                    
2016, and potentially reaching  major startup development in                                                                    
2023. He considered  a most likely first  production date of                                                                    
2029, which was estimated from public information.                                                                              
                                                                                                                                
Mr. Stephens considered slide 26, "Analysis Description                                                                         
                                                                                                                                
     Goal is to demonstrate fiscal impact of Willow Field                                                                       
     development.                                                                                                               
     • Department of Revenue (DOR) Lifecycle Model allows                                                                       
     detailed   financial   analysis   of   a   single   oil                                                                    
     development project.                                                                                                       
          •  Forecasts   revenue  to   state,  municipality,                                                                    
          impacted  communities,   federal  government,  and                                                                    
          producer                                                                                                              
          • Results in nominal dollars                                                                                          
          •   Deterministic  analysis,   not  probabilistic,                                                                    
          using a single set of assumptions                                                                                     
     • Uses publicly available data only, no taxpayer                                                                           
     confidential data.                                                                                                         
          •   Willow   federal  Supplemental   Environmental                                                                    
          Impact Statement (SEIS) (February 2023)                                                                               
          • Spring 2023 Forecast by DOR (March 2023)                                                                            
          •  Use  of   confidential  data  could  materially                                                                    
          change analysis results                                                                                               
                                                                                                                                
Mr. Stephens displayed slide 27, "Analysis Updates":                                                                            
                                                                                                                                
    Four component updates from February 2023 analysis:                                                                         
     1. Spring 2023 forecast for oil prices and                                                                                 
     transportation costs                                                                                                       
          • Previously used Fall 2022 forecast                                                                                  
     2. Producer receives benefit of lease expenditure                                                                          
     deductions only as far as minimum tax floor                                                                                
          •  Previously  producer  received benefit  of  all                                                                    
          lease expenditure deductions                                                                                          
     3. Zero impact on State Corporate Income Tax prior to                                                                      
     production                                                                                                                 
          •  Previously included  negative  impact on  state                                                                    
          corporate income                                                                                                      
     4. North Slope-wide state benefit from pipeline tariff                                                                     
     now also includes feeder pipelines (Alpine and                                                                             
     Kuparuk)                                                                                                                   
          • Previously  only included  Trans-Alaska Pipeline                                                                    
          (TAPS)                                                                                                                
                                                                                                                                
9:58:05 AM                                                                                                                    
                                                                                                                                
Co-Chair Stedman asked Mr. Stephens to repeat the                                                                               
information regarding the Alpine and Kuparuk pipelines.                                                                         
                                                                                                                                
Mr.  Stephens relayed  he would  address the  topic in  more                                                                    
detail  later   in  the  presentation  and   explained  that                                                                    
initially  the Department  of  Natural  Resources (DNR)  had                                                                    
modelled  decreased costs  to producers  including only  the                                                                    
Trans-Alaska  Pipeline  System   (TAPS).  The  new  analysis                                                                    
included the Alpine and Kuparuk feeder pipelines.                                                                               
                                                                                                                                
Mr. Stephens highlighted slide 28, "Oil Production":                                                                            
                                                                                                                                
     •  Unrisked  oil  production profile  for  3-drill  pad                                                                    
     development                                                                                                                
          • Profile supplied by ConocoPhillips for SEIS                                                                         
          • As approved by Record of Decision from US                                                                           
          Department of Interior, Mar 2023                                                                                      
          • Assume first oil FY 2029                                                                                            
          • 613 million barrels total production to FY                                                                          
          2053                                                                                                                  
          • Peak production 183,000 barrels per day in                                                                          
          FY 2030                                                                                                               
    • Represents a normal oil field production profile                                                                          
          • High early production, with gradual decline as                                                                      
          reservoir   pressure    decreases   and/or   water                                                                    
          production rate increases                                                                                             
          • Further drilling during production could reduce                                                                     
          decline, but general shape would remain                                                                               
                                                                                                                                
Mr. Stephens noted that all years being discussed would be                                                                      
in fiscal years. He used the example that FY 24 would                                                                           
extend from July 1, 2023 to the end of June in 2024.                                                                            
                                                                                                                                
Mr. Stephens looked at slide 29, "Lease Expenditures":                                                                          
                                                                                                                                
     •  Composed  of   capital  expenditures  and  operating                                                                    
     expenditures                                                                                                               
     •  Capital Expenditures  estimated from  ConocoPhillips                                                                    
     public statements                                                                                                          
     •  $10.3  billion  total,  timing  fitted  to  expected                                                                    
     employment                                                                                                                 
     •  Operating   Expenditures  from  SEIS   estimate  (by                                                                    
     Northern Economics)                                                                                                        
     • $6.1 billion total                                                                                                       
                                                                                                                                
Mr. Stephens observed the graph showed peak production in                                                                       
2028.                                                                                                                           
                                                                                                                                
Mr. Stephens addressed slide 30, "Oil Prices                                                                                    
                                                                                                                                
     • Department of Revenue Spring 2023 Oil Price Forecast                                                                     
     •  Derived from  oil  futures  market, increasing  with                                                                    
     inflation for years where futures unavailable                                                                              
     •  Update from  February 2023  white paper,  which used                                                                    
     Fall 2022 forecast                                                                                                         
     • Spring  2023 price forecast  lower than Fall  2022 by                                                                    
     $5 to $8 per barrel                                                                                                        
                                                                                                                                
10:02:12 AM                                                                                                                   
                                                                                                                                
Mr.   Stephens  advanced   to   slide  31,   "Transportation                                                                    
(Netback) Costs                                                                                                                 
                                                                                                                              
     • Increased flow through Trans-Alaska Pipeline (TAPS)                                                                      
     and feeder pipelines (Alpine and Kuparuk) expected to                                                                      
     reduce pipeline tariffs                                                                                                    
     • Reduced pipeline tariff would benefit all North                                                                          
     Slope fields                                                                                                               
          • Analysis includes resulting increase in state                                                                       
          production tax and state royalty                                                                                      
          • Does not include secondary benefit of lower                                                                         
          costs increasing investment elsewhere on North                                                                        
          Slope                                                                                                                 
                                                                                                                                
Mr.  Stephens  noted  that  DNR had  used  the  spring  2023                                                                    
forecast  for the  net-back costs,  which was  shown by  the                                                                    
green line  on the chart.  The blue line removed  the impact                                                                    
of  the  Willow Project,  and  the  red  line was  what  was                                                                    
expected to come out of  using the Willow Project production                                                                    
profile in the  analysis. He noted that the  cost to operate                                                                    
a pipeline  was passed on  to producers through  tariffs, so                                                                    
the  more oil  that flowed  through the  pipeline, the  less                                                                    
that was  paid per-barrel. The revised  transportation costs                                                                    
were included in the Willow Project analysis.                                                                                   
                                                                                                                                
Co-Chair Stedman  asked about  the difficulty  of estimating                                                                    
production  numbers  in  the  later  years  with  such  high                                                                    
transportation costs and lower production volume.                                                                               
                                                                                                                                
Mr. Stephens referred to the production profile.                                                                                
                                                                                                                                
Mr. Stickel  noted that DOR considered  a 20-year production                                                                    
outlook that was  provided by DNR. Beyond  the outlook there                                                                    
was  an   extrapolation  of  existing  decline   curves.  In                                                                    
addition to  seeing the  inflation on  transportation costs,                                                                    
the underlying assumption included inflation on oil prices.                                                                     
                                                                                                                                
Mr. Stephens looked at slide 32, "Fiscal Assumptions":                                                                          
                                                                                                                                
     • Current state and federal tax laws (March 2023)                                                                          
     • Gross Value Reduction (GVR) at 20%, with no                                                                              
     producing area qualifying separately for GVR later in                                                                      
     field life                                                                                                                 
     • State Corporate Income Tax rate 4.25% (typical North                                                                     
     Slope producer)                                                                                                            
          • Impact only after start of production                                                                               
     • Producer  able to deduct lease  expenditures incurred                                                                    
     at Willow against production  elsewhere on North Slope,                                                                    
     but  benefit of  those expenditures  is limited  by the                                                                    
     minimum tax floor, until entering a net operating loss                                                                     
          • Assume producer's North Slope production of                                                                         
          228,000 barrels per day (200,000 barrels per day                                                                      
          after royalty) and at constant level in future                                                                        
          • Assume  lease expenditures of $24.50  per barrel                                                                    
          (real)  for  producer's   other  fields  on  North                                                                    
          Slope,  based on  value  for  typical North  Slope                                                                    
          producer                                                                                                              
          • Use of taxpayer confidential data could                                                                             
          materially change analysis results                                                                                    
                                                                                                                                
10:06:27 AM                                                                                                                   
                                                                                                                                
Senator Kiehl asked  Mr. Stephens to address why  he was not                                                                    
modeling corporate income tax until production started.                                                                         
                                                                                                                                
Mr. Stephens deferred the question to Mr. Stickel.                                                                              
                                                                                                                                
Mr. Stickel  spoke to the  assumption of a  corporate income                                                                    
tax  rate during  construction. He  explained that  the 4.25                                                                    
percent assumption  was based on  an average  effective rate                                                                    
for companies  that paid corporate income  tax, which looked                                                                    
at   producing   companies   and  what   was   paid   during                                                                    
construction.  He   noted  that  during   construction,  any                                                                    
spending would  be able to offset  worldwide taxable income,                                                                    
and there would be  an applicable depreciation schedule. The                                                                    
expenditures would not offset  the worldwide income entirely                                                                    
in the year earned, and there  would also be some impacts on                                                                    
the  statewide  apportionment   factor.  He  mentioned  some                                                                    
scenarios and identified that the  amount would be closer to                                                                    
zero  than  4.25  percent,  so   it  was  removed  from  the                                                                    
analysis. He summarized  that the amount had  a fairly small                                                                    
overall impact.                                                                                                                 
                                                                                                                                
Mr. Stephens spoke to slide 33, "Revenue Categories":                                                                           
                                                                                                                                
     • State Revenue                                                                                                            
          • Production Tax                                                                                                      
          • State Corporate Income Tax                                                                                          
          • State Share of Property Tax                                                                                         
          • Pipeline benefit to State                                                                                           
     • Impacted Community Revenue                                                                                               
          • Royalty share to Impacted Communities (50%)                                                                         
     • North Slope Borough (NSB) Revenue                                                                                        
          • NSB Share of Property Tax                                                                                           
     • Federal Revenue                                                                                                          
          • Federal Share of Royalty (50%)                                                                                      
          • Federal Corporate Income Tax                                                                                        
     • Producer Revenue                                                                                                         
          • Company Profit                                                                                                      
                                                                                                                                
Mr.  Stephens  reminded  that royalties  were  shared  50-50                                                                    
between  impacted communities  and  the federal  government,                                                                    
and property tax was shared  between the North Slope Borough                                                                    
and  the state,  with  just  over 10  percent  going to  the                                                                    
state.                                                                                                                          
                                                                                                                                
Co-Chair  Stedman asked  about the  50-50 split  for royalty                                                                    
share. He  thought impacted communities  had the  first call                                                                    
on royalties.                                                                                                                   
                                                                                                                                
Mr. Stephens relayed that royalty  was initially paid to the                                                                    
federal  government  and  was  returned  to  the  state  for                                                                    
distribution to  impacted communities.  Impacted communities                                                                    
could  request  grants,  which   were  administered  by  the                                                                    
Department of Commerce, Community and Economic Development.                                                                     
                                                                                                                                
Co-Chair Stedman  relayed that the  legislature appropriated                                                                    
the  funds in  the capital  budget after  requests from  the                                                                    
communities. He  noted that  some years  there was  just one                                                                    
line  item in  the budget,  and  some years  the amount  was                                                                    
listed by community.  He recalled any of  the grant requests                                                                    
came in January or February.                                                                                                    
                                                                                                                                
10:10:37 AM                                                                                                                   
                                                                                                                                
Mr.  Stephens  referenced  slide   34,  "Annual  Revenue  by                                                                    
Category,"  which  showed a  graph  of  annual revenues.  He                                                                    
focused  on  the  production  stage  of  FY  29  onward.  He                                                                    
highlighted that  revenue of all types  remained strong from                                                                    
production  startup  to  the end  of  the  30-year  analysis                                                                    
period, in  particular royalty and production  tax. Revenues                                                                    
gradually declined  as production declined.  The interaction                                                                    
between lease expenditures, GVR,  and tax credit caused some                                                                    
big variation  in production tax  in the state  benefit from                                                                    
pipeline  tariffs,   much  in  the  which   was  incremental                                                                    
increases in production tax.                                                                                                    
                                                                                                                                
Co-Chair  Stedman  asked  why  the graph  was  not  flat  or                                                                    
another shape.                                                                                                                  
                                                                                                                                
Mr. Stephens  explained that the  shape of the  graph showed                                                                    
that  upfront there  were observable  high capital  costs of                                                                    
pre-production,   which  was   impacting  the   decrease  in                                                                    
revenue.  He  noted  that  early  on  in  production,  state                                                                    
revenue was  reduced to  some extent  by deduction  of lease                                                                    
expenditures.   State  revenue   increased   as  the   lease                                                                    
deductions were  decreased. There was a  gradual decline due                                                                    
to the decline  in production towards the end  of field life                                                                    
as  modelled  to  2053.  He   noted  it  was  possible  that                                                                    
production could extend beyond the point of the model.                                                                          
                                                                                                                                
Co-Chair   Stedman  noted   that  annual   revenue  followed                                                                    
production,  and  asked  why  the  annual  revenue  was  not                                                                    
horizontal instead of having big hump in the graph.                                                                             
                                                                                                                                
Mr.   Stephens  explained   that  generally   speaking,  oil                                                                    
production was high early on and then declined.                                                                                 
                                                                                                                                
Co-Chair Stedman asked "why?                                                                                                    
                                                                                                                                
Mr. Stephens explained that there  was a gradual decrease in                                                                    
reservoir pressure,  or a gradual  increase of  water influx                                                                    
into the wells so each well  would produce less on a year by                                                                    
year basis.                                                                                                                     
                                                                                                                                
Co-Chair  Stedman asked  if the  change had  anything to  do                                                                    
with the time-value of money.                                                                                                   
                                                                                                                                
Mr.  Stephens thought  that generally  speaking, the  answer                                                                    
was "no."                                                                                                                       
                                                                                                                                
Co-Chair  Stedman  asserted  that  generally  speaking,  the                                                                    
answer  was  "yes,"  since  the   time-value  of  money  was                                                                    
critical,  and   one  wanted  as  much   production  in  the                                                                    
beginning before the economics  changed. He mentioned moving                                                                    
money to  make marginal  projects positive if  possible, and                                                                    
taking care  not to incentivize  projects that  were already                                                                    
profitable. He  noted that many  people in the  building had                                                                    
not seen the  information, and that a gas  curve looked more                                                                    
horizontal  relative   to  the   graph  on  the   slide.  He                                                                    
emphasized the importance of the time value of money.                                                                           
                                                                                                                                
Mr.  Stephens  discussed  the  drilling  of  the  field  and                                                                    
getting oil as soon as possible.                                                                                                
                                                                                                                                
Co-Chair   Stedman   stressed   the  need   for   explaining                                                                    
information  in  a basic  way.  He  thought there  would  be                                                                    
questions pertaining to why there  was so much production in                                                                    
the beginning  versus the end of  an oil field, and  why gas                                                                    
was not taken off in the beginning.                                                                                             
                                                                                                                                
10:15:37 AM                                                                                                                   
                                                                                                                                
Mr. Stephens turned to slide  35, "State Revenue   First Ten                                                                    
Years," which  showed a graph  of state revenues  before and                                                                    
just  after production  started.  The  columns showed  state                                                                    
revenue from the analysis, and  the dashed line showed state                                                                    
revenue if  the producer  were to  remain above  the minimum                                                                    
tax floor. He noted that the  chart indicated that FY 24 was                                                                    
the pre-production  year where  lease expenditures  were low                                                                    
enough to stay above minimum  tax floor. As the forecast oil                                                                    
price decreased,  there was a  point in  FY 28 in  which the                                                                    
producer  was  already at  the  minimum  tax floor  with  no                                                                    
benefit  from lease  deductions. Total  preproduction impact                                                                    
on state revenue  was $360 million, less  than one-fifth the                                                                    
amount of if the minimum tax floor was a consideration.                                                                         
                                                                                                                                
Co-Chair  Stedman   thought  the  graph   was  substantially                                                                    
different  than  the  initial  report.  He  noted  that  Mr.                                                                    
Stephens had  mentioned that there  had been updates  to the                                                                    
report.                                                                                                                         
                                                                                                                                
Mr. Stephens agreed. He noted  that the previous report from                                                                    
last month  had contained a simplifying  assumption that the                                                                    
producer would  see the benefit  of all  lease expenditures,                                                                    
which would  affect state revenue  and was reflected  in the                                                                    
dashed line. He  explained that the average  of $380 million                                                                    
per year  in pre-production  was a  larger number  and would                                                                    
have a  significant impact in  state revenue. The  change in                                                                    
the oil  price forecast  also affected  how much  impact was                                                                    
seen from lease expenditure deductions.                                                                                         
                                                                                                                                
Co-Chair Stedman  appreciated the refinement. He  noted that                                                                    
in FY 24,  there was a negative $141 million  in total state                                                                    
revenue.  He thought  Mr. Stickel  had  factored the  change                                                                    
into the spring forecast.                                                                                                       
                                                                                                                                
Mr. Stickel explained that the  spring forecast included the                                                                    
Willow Project  on a  risked basis, and  the impacts  on the                                                                    
spring forecast  would be a  little lower than shown  on the                                                                    
slide.                                                                                                                          
                                                                                                                                
Co-Chair Stedman  asked if the presenters  would discuss the                                                                    
risking  methodology.   He  thought  the   committee  should                                                                    
discuss the topic.                                                                                                              
                                                                                                                                
Mr.  Stephens  affirmed that  he  would  discuss risking  in                                                                    
later slides.                                                                                                                   
                                                                                                                                
10:19:54 AM                                                                                                                   
                                                                                                                                
Senator Kiehl thought the price  of oil was so volatile that                                                                    
it would be good to see  how the numbers changed with higher                                                                    
and lower oil prices than were represented on the slide.                                                                        
                                                                                                                                
Mr. Stephens  relayed that he would  address Senator Kiehl's                                                                    
question at a later slide.                                                                                                      
                                                                                                                                
Co-Chair Olson  asked to discuss the  difference between the                                                                    
$72 million and the $380  million on the prior analysis from                                                                    
February. He  asked what  would happen to  the chart  if the                                                                    
price  of oil  spiked and  the numbers  moved away  from the                                                                    
minimum tax floor.                                                                                                              
                                                                                                                                
Mr.  Stephens explained  that he  would  address the  second                                                                    
part  of Co-Chair  Olson's question  when there  were slides                                                                    
pertaining  to oil  price. He  explained that  when spending                                                                    
increased, eventually  there was a stage  where the producer                                                                    
could not use the expenses to deduct against taxes.                                                                             
                                                                                                                                
10:21:44 AM                                                                                                                   
                                                                                                                                
Mr.  Stephens considered  slide 36,  "Annual and  Cumulative                                                                    
Cash  Flow," which  showed  a  graph entitled  'Undiscounted                                                                    
Cash  Flows,'  which  combined   and  grouped  some  of  the                                                                    
revenues  by recipient,  with the  addition of  a cumulative                                                                    
line  for each  recipient.  He spoke  to  state revenue  and                                                                    
noted that  the state  hit "break even"  in 2030,  and under                                                                    
the current assumptions had a  cumulative 30-year revenue of                                                                    
$6.3  billion. There  was also  expectation  of billions  in                                                                    
cumulative  revenue  for  local  communities  on  the  North                                                                    
Slope, the federal government, and the producer.                                                                                
                                                                                                                                
Co-Chair Stedman asked when the  state would break even with                                                                    
cash flow,  not counting the  royalties that did not  get to                                                                    
the treasury.                                                                                                                   
                                                                                                                                
Mr. Stephens  noted that the 2030  number excluded royalties                                                                    
and  only  included  production  tax,  property  tax,  state                                                                    
corporate  income  tax,  and  the  state's  tariff  pipeline                                                                    
benefits.                                                                                                                       
                                                                                                                                
Senator Bishop asked if Co-Chair  Stedman had indicated 2030                                                                    
was the "break even" period.                                                                                                    
                                                                                                                                
Mr. Stephens affirmed that 2030 was the break-even point.                                                                       
                                                                                                                                
Co-Chair Stedman  thought the previous report  had indicated                                                                    
2040,  and  commented  on  the  substantial  change  in  the                                                                    
estimated period in  which the state would  start to receive                                                                    
net positive cash flow.                                                                                                         
                                                                                                                                
Mr. Stephens displayed slide 37, "Net Present Value":                                                                           
                                                                                                                                
       Net Present Value includes the time value of money                                                                       
     • State revenue 30-year net present value over $1                                                                          
     billion, going NPV positive in FY 2031                                                                                     
                                                                                                                                
Mr. Stephens  explained that  net present  value represented                                                                    
total  revenue but  included  the time  value  of money.  He                                                                    
noted  that  the NPV  number  gave  more importance  to  the                                                                    
negative numbers.                                                                                                               
                                                                                                                                
Co-Chair  Stedman   asked  if  Mr.  Stephens   was  counting                                                                    
negative  cash flow  when  looking at  the  state's NPV.  He                                                                    
asked what discount he used for the state.                                                                                      
                                                                                                                                
Mr. Stephens  affirmed that DNR  used the  negative cashflow                                                                    
as part of  the calculation. In order to  be consistent, all                                                                    
of the discount rates were at 10 percent.                                                                                       
                                                                                                                                
Co-Chair  Stedman thought  normally  the state  used a  rate                                                                    
substantially lower than 10 percent.                                                                                            
                                                                                                                                
Co-Chair  Stedman   asked  if  Mr.  Stephens   had  run  any                                                                    
sensitivity tests. He thought  it was obviously positive for                                                                    
the producer or it would not do the project.                                                                                    
                                                                                                                                
Mr. Stephens affirmed that DNR  could run different discount                                                                    
rates as requested.                                                                                                             
                                                                                                                                
10:26:23 AM                                                                                                                   
                                                                                                                                
Mr. Stephens highlighted slide 38, "Uncertainty":                                                                               
                                                                                                                                
     • Significant uncertainty in assumptions, elevated                                                                         
     above typical levels:                                                                                                      
          • Project  risk and timing    environmental groups                                                                    
          currently suing to prevent field development                                                                          
          • Oil  and gas industry costs    inflation, supply                                                                    
          chain    disruption,    labor   disruption,    and                                                                    
         increasing industry development activity                                                                               
          •  Oil  price    higher  volatility  from  Russian                                                                    
          invasion   of  Ukraine   and  Covid-19   pandemic,                                                                    
          greater impact  on production tax from  oil prices                                                                    
          near to $70  (threshold for 3 years or  7 years of                                                                    
         Gross Value Reduction (GVR) eligibility)                                                                               
          •  Oil  production  rates   and  reserves     more                                                                    
          uncertain prior to development                                                                                        
     •  Available benefit  of  lease expenditure  deductions                                                                    
     depends  on oil  prices,  and on  production rates  and                                                                    
     producer's  lease expenditures  elsewhere on  the North                                                                    
     Slope                                                                                                                      
          • Additional  project uncertainty  from producer's                                                                    
          other fields                                                                                                          
                                                                                                                                
Co-Chair  Stedman  understood  that the  financial  industry                                                                    
wanted  to  see  projects  positive at  a  break-even  price                                                                    
around $60/bbl. He asked about  the break-even price for the                                                                    
Willow Project.                                                                                                                 
                                                                                                                                
Mr. Stephens noted that there would be a couple of slides                                                                       
addressing oil price sensitivities.                                                                                             
                                                                                                                                
Co-Chair  Stedman asked  Mr. Stephens  to address  the shut-                                                                    
down price. He referenced the  Federal Reserve Board Bank in                                                                    
Dallas, Texas;  and mentioned presentations  with break-even                                                                    
and shut-down prices for different basins.                                                                                      
                                                                                                                                
Mr. Stephens looked at slide 39, "Conclusions":                                                                                 
                                                                                                                                
     • Willow project development as modeled would lead to                                                                      
     billions of dollars of revenue to:                                                                                         
          • State of Alaska                                                                                                     
          • Impacted Communities                                                                                                
          • North Slope Borough                                                                                                 
          • Federal Government                                                                                                  
          • Producer                                                                                                            
     • Benefit to state of increased employment not modeled                                                                     
     but also expected to be significant and material                                                                           
                                                                                                                                
Co-Chair  Stedman thought  it would  be advantageous  to see                                                                    
dollar amounts  associated with the different  revenue areas                                                                    
listed on the slide.                                                                                                            
                                                                                                                                
Mr. Stephens believed that the  numbers were not included in                                                                    
the  presentation   but  offered  to  provide   the  numbers                                                                    
quickly.                                                                                                                        
                                                                                                                                
Co-Chair Stedman thought it would  be good for the public to                                                                    
be aware  of the  revenue amounts, which  he thought  was in                                                                    
the billions.                                                                                                                   
                                                                                                                                
Mr. Stephens agreed.                                                                                                            
                                                                                                                                
10:31:06 AM                                                                                                                   
                                                                                                                                
Mr.   Stephens  looked   at  slide   42,  "Spring   Forecast                                                                    
Comparison":                                                                                                                    
                                                                                                                                
     Spring Production Forecast with Three Cases:                                                                               
     1. Willow (Risked)  current Spring 2023 forecast                                                                           
          •  Risks chance  of occurrence,  reducing forecast                                                                    
          production                                                                                                            
          •   Risks   project  timing,   delaying   forecast                                                                    
          production                                                                                                            
          •  Peak  production  lower,  and  outside  10-year                                                                    
          forecast window                                                                                                       
                                                                                                                                
     2. Willow (Unrisked)                                                                                                       
          • Single  deterministic case, assuming  project as                                                                    
          presented in this analysis                                                                                            
          • Peak  production of 183,000  barrels per  day in                                                                    
          FY 2030                                                                                                               
                                                                                                                                
     3. No Willow                                                                                                               
     • Base Production Data from State Forecast                                                                                 
          • 2023 to 2032 Official  forecast, provided by DNR                                                                    
          •  2033 to  2042  Continued for  an additional  10                                                                    
          years by DNR                                                                                                          
          • 2043 to 2053  Long-term forecast   extrapolation                                                                    
          by DOR, for illustrative purposes only                                                                                
                                                                                                                                
Senator  Kiehl  asked  if Mr.  Stephens  could  discuss  the                                                                    
aggregate  reduction  in  barrels  produced  in  the  risked                                                                    
scenario.                                                                                                                       
                                                                                                                                
Mr. Stephens  relayed that to  some extent the  slide showed                                                                    
the information,  but he  did not have  a precise  figure to                                                                    
offer.                                                                                                                          
                                                                                                                                
Co-Chair  Stedman asked  Mr.  Stephens to  get  back to  the                                                                    
committee  with the  information. He  discussed the  process                                                                    
for following up with information with the committee.                                                                           
                                                                                                                                
Mr. Stephens relayed  that he had been asked  to discuss the                                                                    
revenue  impacts  of  the  Willow  Project,  which  was  not                                                                    
possible in  quantitative numbers. He explained  that in the                                                                    
main Willow analysis,  one could see less  than $400 million                                                                    
pre-production  negative  impact  to the  state,  and  post-                                                                    
production  a $1.3  billion positive  state impact  over the                                                                    
ten-year  period.  He noted  that  the  graph on  the  slide                                                                    
showed that  risking reduced and  delayed the impact  of the                                                                    
Willow  Project on  the production  forecast. The  impact on                                                                    
the  revenue  forecast  was  similar.  There  was  still  an                                                                    
expectation of modest  revenue reduction during construction                                                                    
and a  significant positive after,  but peak  production was                                                                    
pushed beyond the ten-year window.                                                                                              
                                                                                                                                
10:35:56 AM                                                                                                                   
                                                                                                                                
Mr.  Stephens showed  slide 43,  "Oil Price  Sensitivities,"                                                                    
which   showed  two   charts   addressing  four   additional                                                                    
scenarios  beyond  the  spring   forecast,  and  the  spring                                                                    
forecast  was  also  shown  on   the  slide.  The  scenarios                                                                    
included $60, $70, $80, and  $90 per barrel starting in 2024                                                                    
and increasing with inflation at  2.5 percent. He noted that                                                                    
the  minimum  tax  floor materially  impacted  the  analysis                                                                    
during the construction period.                                                                                                 
                                                                                                                                
Mr.  Stephens pointed  out that  the left-hand  chart showed                                                                    
all  state revenues  combined for  the Willow  analysis. The                                                                    
minimum  tax floor  partly shielded  state revenue  from the                                                                    
impact  of  low  oil  prices or  higher  levels  of  company                                                                    
investment.  The  minimum  tax   floor  reduced  benefit  to                                                                    
companies  making  investments,   especially  at  lower  oil                                                                    
prices. Also  on the  chart it was  possible to  deduce that                                                                    
the producer gained more benefit  from lease deductions with                                                                    
higher oil  prices. He thought  that while it was  true, the                                                                    
deduction could be misleading.                                                                                                  
                                                                                                                                
Mr. Stephens addressed  the chart on the  right-hand side of                                                                    
slide 43, which  focused on production tax  but extended the                                                                    
analysis to  a typical  producer on the  whole of  the North                                                                    
Slope. The main takeaway from  the chart was that higher oil                                                                    
prices were  still providing more state  revenue despite the                                                                    
increased lease deductions.                                                                                                     
                                                                                                                                
10:39:59 AM                                                                                                                   
                                                                                                                                
Co-Chair  Stedman  referenced the  chart  on  the left,  and                                                                    
thought it  looked like the  $90/bbl line looked  similar to                                                                    
the   original  presentation.   He   asked  if   it  was   a                                                                    
coincidence.                                                                                                                    
                                                                                                                                
Mr. Stephens noted  that the $90/oil price  was reflected in                                                                    
the  top  line  on  the  graph. He  explained  that  when  a                                                                    
producer was  at or near  the minimum tax in  the production                                                                    
period, you would expect there  to be slight differences. In                                                                    
the 2027  to 2028 period,  the spring forecast and  the $60,                                                                    
$70, and $80/bbl lines were very close to each other.                                                                           
                                                                                                                                
Co-Chair  Stedman clarified  that  he was  referring to  the                                                                    
chart on the left, which showed Willow only.                                                                                    
                                                                                                                                
Mr. Stephens affirmed  that having a raised  oil price would                                                                    
allow a producer to see  the benefit of deducting more lease                                                                    
expenditures than  otherwise. Equally, the right  hand chart                                                                    
showed  that the  overall benefit  from oil  price was  such                                                                    
that there  was still  more oil revenue  at $90/bbl  in 2028                                                                    
than one would at a lower price.                                                                                                
                                                                                                                                
Co-Chair  Stedman  expressed  understanding. He  thought  it                                                                    
looked like the chart on the  left was fairly similar to Mr.                                                                    
Stephens other report, considering the negative impacts.                                                                        
                                                                                                                                
Mr.  Stephens thought  Co-Chair Stedman's  comment was  fair                                                                    
and noted  that the  dashed line on  the previous  slide was                                                                    
even more negative than at the $90/bbl price.                                                                                   
                                                                                                                                
Mr. Stickel added  that in the February  analysis, there had                                                                    
been  a simplifying  assumption that  the minimum  tax would                                                                    
not limit the  ability to deduct lease  expenditures. He had                                                                    
shown  in  introductory  slides that  the  $90/bbl  scenario                                                                    
assumed that  the company was  far enough above  the minimum                                                                    
tax  in order  to apply  most of  the lease  expenditures in                                                                    
reducing  the tax  liability. Under  the spring  forecast in                                                                    
2028, the company  was already assumed to be  at the minimum                                                                    
tax,  so  in  the  new analysis,  the  company  received  no                                                                    
benefit for  the $2.1 billion  in spending made in  2020. It                                                                    
was also  the case for  the $60/bbl scenario. In  the higher                                                                    
priced  oil scenarios,  the companies  were higher  than the                                                                    
minimum tax  and were  able to  apply progressively  more of                                                                    
the lease expenditures and getting  down to the minimum tax.                                                                    
He  added that  in the  report released  in February  (which                                                                    
would  be  updated  with  new   assumptions)  there  was  an                                                                    
assumption   that   companies    could   apply   all   lease                                                                    
expenditures without bumping up against the minimum tax.                                                                        
                                                                                                                                
Co-Chair Stedman thought it would  be a good idea to reprint                                                                    
the  report and  update it,  as documents  circulated around                                                                    
the building  for years.  He thought the  report was  a good                                                                    
exercise but thought an updated version would be helpful.                                                                       
                                                                                                                                
10:43:05 AM                                                                                                                   
                                                                                                                                
Senator Kiehl  thought the chart  on the right  included all                                                                    
the assumptions from the chart on the left.                                                                                     
                                                                                                                                
Mr. Stephens answered "yes" and  asked Senator Kiehl to bear                                                                    
in mind that  the chart on the left was  all state revenues,                                                                    
and the chart on the right was only production tax.                                                                             
                                                                                                                                
Senator  Kiehl considered  risks  and  benefits and  thought                                                                    
that  the  optimal  situation for  the  state  treasury  was                                                                    
moderate oil  prices now and  higher oil prices  after 2028.                                                                    
He thought  that the  reverse would  make the  analysis look                                                                    
very different.                                                                                                                 
                                                                                                                                
Mr. Stephens agreed and offered  to model the scenario if it                                                                    
was of interest.                                                                                                                
                                                                                                                                
Mr.    Stephens   referenced    slide    44,   "Oil    Price                                                                    
Sensitivities":                                                                                                                 
                                                                                                                                
      • Production Tax and State Corporate Income Tax vary                                                                      
     strongly with oil price                                                                                                    
     • Property tax and pipeline tariff benefit show less                                                                       
     variation                                                                                                                  
     • Total undiscounted state revenue and Net Present                                                                         
     Value to State remain material at all modeled oil                                                                          
     prices                                                                                                                     
                                                                                                                                
Mr. Stephens observed that the  chart on the right-hand side                                                                    
of  the  slide showed  the  production  tax as  the  biggest                                                                    
contributor  to state  revenues at  all modeled  oil prices.                                                                    
The other revenue  sources were smaller and  less varied. He                                                                    
noted that the  table at the bottom of the  slide showed how                                                                    
NPV  to  the state  remained  material  at all  modeled  oil                                                                    
prices  ranging from  $1.8  billion at  $60/bbl  up to  $3.2                                                                    
billion at $90/bbl.                                                                                                             
                                                                                                                                
Co-Chair  Stedman  referenced  the  price of  oil  being  at                                                                    
$40/bbl, and  thought it  was good  to remind  the committee                                                                    
that things change over time.                                                                                                   
                                                                                                                                
Mr. Stephens relayed that DNR  could address any alternative                                                                    
oil price model.                                                                                                                
                                                                                                                                
10:45:56 AM                                                                                                                   
                                                                                                                                
Mr. Stephens showed slide 45, "Appendix: Local Cash Flows."                                                                     
                                                                                                                                
Mr.  Stephens considered  slide 46,  "Annual and  Cumulative                                                                    
Cash Flow    Local Only," which looked at  royalty share for                                                                    
impacted communities,  and the property tax  received by the                                                                    
North Slope Borough.  Over $3 billion was expected  to go to                                                                    
impacted communities,  and over  $1 billion to  NSB property                                                                    
taxes, with no negative impact expected.                                                                                        
                                                                                                                                
Mr.  Stephens   displayed  slide   47,  "Local   Annual  and                                                                    
Cumulative  Cash Flow    First  Ten Years,"  which showed  a                                                                    
table.  He made  note of  positive financial  impact in  the                                                                    
first five  years from rents  for the  impacted communities,                                                                    
as well as property tax for the borough.                                                                                        
                                                                                                                                
Co-Chair  Stedman  thanked  the testifiers  and  staff  that                                                                    
assisted   in    assembling   the   information    for   the                                                                    
presentation.  He  was  glad that  the  initial  report  was                                                                    
simplified, and looked forward to  an update. He thought Mr.                                                                    
Stickel could  differentiate the impact of  expansion in new                                                                    
areas  when  reviewing  new   year's  revenue  forecast.  He                                                                    
reiterated his  question about the break-even  and shut-down                                                                    
price for the Willow Project.                                                                                                   
                                                                                                                                
Mr. Stickel  agreed to  get back to  the committee  with the                                                                    
information.                                                                                                                    
                                                                                                                                
Co-Chair Stedman  referenced the  Federal Reserve  Board and                                                                    
cited  information  on the  Permian  Basin.  He thought  the                                                                    
information on Alaska should be available.                                                                                      
                                                                                                                                
Co-Chair Stedman expressed appreciation for the presenters.                                                                     
                                                                                                                                
Co-Chair  Stedman discussed  the  agenda  for the  following                                                                    
day, which  would include a  fiscal summary update  from the                                                                    
Legislative Finance  Division. The report would  include the                                                                    
current budget,  other amendments, and expenditures  such as                                                                    
capital budget  items. The  presentation would  also include                                                                    
discussion of the Permanent Fund Dividend.                                                                                      
                                                                                                                                
ADJOURNMENT                                                                                                                   
10:51:12 AM                                                                                                                   
                                                                                                                                
The meeting was adjourned at 10:51 a.m.                                                                                         
                                                                                                                                
                                                                                                                                

Document Name Date/Time Subjects
032323 SFIN Willow Fiscal Analysis.pdf SFIN 3/23/2023 9:00:00 AM
032323 SFIN DNR Willow Update.pdf SFIN 3/23/2023 9:00:00 AM
032323 Willow Project Fiscal Analysis 2023.04.10 Update.pdf SFIN 3/23/2023 9:00:00 AM
032323 DOR Response to SFIN Willow Analysis 03.23.23.pdf SFIN 3/23/2023 9:00:00 AM