Legislature(2013 - 2014)BUTROVICH 205
04/09/2014 08:00 AM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB192 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 192 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
April 9, 2014
7:59 a.m.
MEMBERS PRESENT
Senator Cathy Giessel, Chair
Senator Fred Dyson, Vice Chair
Senator Peter Micciche
Senator Click Bishop
Senator Lesil McGuire
Senator Anna Fairclough
Senator Hollis French
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 192
"An Act relating to the minimum production tax on oil and gas;
and relating to the tax credit applicable to each barrel of
certain oil produced north of 68 degrees North latitude."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 192
SHORT TITLE: OIL & GAS PRODUCTION TAX RATE/CREDIT
SPONSOR(s): SENATOR(s) STEDMAN
02/21/14 (S) READ THE FIRST TIME - REFERRALS
02/21/14 (S) RES, FIN
04/09/14 (S) RES AT 8:00 AM BUTROVICH 205
WITNESS REGISTER
SENATOR BERT STEDMAN
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Sponsor of SB 192.
JANAK MAYER, co-founder
Enalytica
POSITION STATEMENT: Delivered a presentation evaluating SB 192.
ACTION NARRATIVE
7:59:23 AM
CHAIR CATHY GIESSEL called the Senate Resources Standing
Committee meeting to order at 7:59 a.m. Present at the call to
order were Senators Bishop, Fairclough, Dyson, and Chair
Giessel.
SB 192-OIL & GAS PRODUCTION TAX RATE/CREDIT
7:59:44 AM
CHAIR GIESSEL announced the consideration of SB 192. She noted
that Enalytica would offer input during the second half of the
meeting.
8:00:11 AM
SENATOR BERT STEDMAN, sponsor of SB 192, Alaska State
Legislature, Juneau, Alaska, stated that he would first give a
broad history of Alaska's tax structure. The theme of the
presentation is to make Alaska competitive and repeal the going-
out-of-business sale. He emphasized that Alaska is not going out
of the oil business so there is no reason to give that
impression when the state sells its hydrocarbons.
8:02:05 AM
SENATOR FRENCH joined the committee.
SENATOR STEDMAN recounted that in 1977 the sovereign of Alaska
adopted the Economic Limit Factor (ELF) in an effort to reduce
severance taxes. In 2006 the ELF was repealed and replaced with
the Petroleum Production Tax (PPT), which was a major shift from
a tax and royalty system to a concession contract. He noted that
the concession system is common worldwide, whereas tax and
royalty is more a North America system. Alaska's Clear and
Equitable Share (ACES) replaced PPT in 2007 and was in place
until 2014 when it was replaced by Senate Bill 21. SB 192
proposes some minor changes to that legislation.
8:03:16 AM
SENATOR STEDMAN outlined how the ELF was applied to reduce the
severance tax. The base severance tax was 15 percent and then a
multiplier between 0 and 1 percent was calculated on the average
of all productivity in a given field. For example, if the factor
was .5 percent, the severance tax would be 7.5 percent. However,
because the ELF was calculated on volume rather than dollars,
the result was that virtually no tax was applied on 15 operating
fields. This put the state's fiscal system completely out of
balance.
SENATOR STEDMAN said that to address this fiscal imbalance, the
state switched to a concession contract in 2006. Under PPT, the
base tax rate was 22.5 percent of net value, and a progressivity
mechanism was added when the net value was greater than $40 per
barrel (bbl). He noted that he and several other legislators
attended classes in London on fiscal systems and how sovereigns
deal with gas lines and gas contracts. Those classes reinforced
the notion that it's necessary to have a progressive tax system
to protect the sovereign. With high oil or gas prices and profit
sharing or concession contracts, the sovereign gets a little
larger percentage of the pie.
8:05:29 AM
SENATOR MICCICHE joined the committee.
SENATOR STEDMAN illustrated the progressivity factor under PPT
using the example of $100/bbl oil with a net value of about
$70/bbl. Progressivity is ($70 - $40) X .0025 = 7.5 percent. The
total tax rate is 22.5 percent + 7.5 percent = 30 percent. The
tax is 30 percent X $70 = $21/bbl. He explained that the
problems with PPT were that the deductible costs were higher
than anticipated, revenues were less than expected, and the
entire process was tainted by the VECO corruption scandal.
He described ACES, which is also a concession contract, as
similar to PPT but with different bells and whistles. The base
tax rate was changed to 25 percent of net value and the .004
percent progressivity element was added when the net value per
barrel was greater than $30. He displayed the example of
$100/bbl oil with a net value of about $70/bbl. Progressivity is
($70 - $30) X .004 = 16 percent. The total tax rate is 25
percent + 16 percent = 41 percent. The production tax is 41
percent X $70 = $28.70/bbl. He noted that the additive on top of
the base tax increases the percent share to the sovereign as the
price moves up.
SENATOR STEDMAN highlighted that this was on net profits, and
the concern was that the .004 slope, or sharing relationship at
high oil prices, was heavily tilted to the state. It took a
substantial majority of the upside on price shocks from the
industry's ability to participate and gave it to the sovereign.
The result was a swelling of the state's savings accounts. There
was some discussion of this during ACES but his recollection is
that while the price shocks may have spiked to $110 or $120,
they didn't stay in that arena. He noted that the original
calculations were done monthly to grab those short-term spikes,
which ended up to be much longer term as is seen today.
SENATOR STEDMAN offered his perspective of the problems with
ACES, noting that probably not everyone on the committee would
agree. First, the progressivity rate was too high. This resulted
in an unfair split between the state and industry when oil
prices were high, which removed some industry incentive. Second,
the credits were excessive. Industry got 20 percent of capital
costs deducted against their taxes. The credits were heavily
exposed to maintenance, which came as a surprise to some
legislators. There was some talk of what it would take to bring
back the old basin but "we missed it by a mile," he said. The
concern was that too much capital cost was going into
maintenance in the old field, resulting in excessive credits,
which distorted economic behavior. A number of legislators felt
that the credits were so attractive that it would lead to
adverse decision making. Rather than having more oil wells
drilled and reworks done, there was a lot of surface maintenance
and other things done. Another problem with ACES was that it was
too complex. There were too many moving parts and it was too
hard for the industry to accurately model investment decisions.
The State of Alaska was in a position of competitive
disadvantage compared to other basins around the world when it
had to match predictability of the cash flows and the modeling
used to try to attract more capital expenditures.
SENATOR STEDMAN reviewed a list of the credits under ACES. The
capital credit was 20 percent. The well lease expenditure
credit, excluding the North Slope, was 40 percent. The
exploration credit was 20 percent to 40 percent, depending on
location. The small producer credit was $12 million if there was
sufficient offsetting income. The loss carry-forward credit was
25 percent of the annual loss.
8:12:00 AM
SENATOR STEDMAN highlighted the provisions of SB 21. The base
tax is 35 percent of the net value. The per barrel tax credit
ranges from $1 to $8, based on the Alaska North Slope (ANS)
wellhead value. He noted that the wellhead value is basically
the gross stock less royalties and less transportation down TAPS
to market. For the outlying areas, the gross revenue exclusion
for new production is 20 percent to 30 percent. He noted that SB
192 does not address those issues. He opined that the
monetization of net operating losses is fairly standard. It is
45 percent through 2015 and 35 percent thereafter. The minimum
tax stays the same at 4 percent of gross value at the point of
production. There is also a $12 million small producer tax
credit that SB 192 does not address. He noted his personal
feeling is that this credit is not a problem.
SENATOR STEDMAN outlined his perception of the problems with SB
21. First, the per barrel tax credits are too high and not
contingent on any performance measure such as capital
expenditures. In FY15, the per barrel tax credits will cost the
state almost one billion dollars. He explained that he is using
calculations for next year because FY14 is half ACES and half SB
21. A second problem with the current tax system is that the 4
percent minimum tax is too low. Under ACES, the state took a
higher percentage at high oil prices to offset the exposure the
state has at low prices. To help the industry carry the burden
at low prices and economic downturns, the state was going to
take a higher percentage of price spikes to try to balance
things out. He highlighted that there isn't that ability in
current statutes, but the state's risk exposure still increases
as oil prices drop. Without the per barrel tax credit, the tax
structure would be regressive. That means that the percent to
the sovereign decreases as the price increases. He said the
bottom line is that Alaska's share of the hydrocarbon value from
the legacy fields is too low and it has too much downside
exposure.
SENATOR STEDMAN turned to SB 192, explaining that it makes
several basic changes to Alaska's petroleum production tax. It
cuts the per barrel credits in half, and raises the minimum tax
from 4 percent to 15 percent of the gross value at the point of
production. He described that range as a place holder, because
he didn't have the data to accurately set the trigger for the
minimum tax. Acknowledging that 15 percent is on the high side,
he said it will be decreased to a point that the state is
protected and there's balance within the system. He stressed
that physical stability in the tax policy is critical in order
for the industry to make long-term decisions. It works both
ways; if either the state or industry has too heavy a share,
there is imbalance.
He pointed out that as the price of oil goes down and credits go
up, the state's share of its resource wealth from legacy fields
is adversely affected. He displayed a chart of the per barrel
credits for SB 21 versus SB 192 at various ANS wellhead prices
to show what happens.
ANS wellhead value SB 21 SB 192
$140-$150 $1 $.50
$110-$120 $4 $2
$90-$100 $6 $3
Less than $80 $8 $4
Next year the price estimate is about $95, so at $6/bbl that
amounts to roughly $950 million. He noted that one concern with
ACES was that there were too many credits; they were in the
neighborhood of $1 billion so there's the same concern with SB
21. He suggested that a possible solution is to set the base tax
at $45 and raise or lower the per barrel allowance.
8:17:46 AM
SENATOR MCGUIRE joined the committee.
SENATOR STEDMAN reminded the committee that in 2012, Dr. Pedro
van Meurs advised that, in his opinion, legacy fields should
have a government take of 70 percent to 75 percent. Under SB 21
the government take is too low in the legacy fields, and that
impacts the budget and stability of this fiscal system.
SENATOR STEDMAN emphasized the importance of counting the cash
rather than focusing on dollars per barrel. Prudhoe Bay is a
massive old basin with a lot of in-place infrastructure that is
fully depreciated so the margins are very handsome. He displayed
a chart (slide 16) showing the cash in the FY15 forecast. He
noted that he worked with the Department of Revenue and that the
numbers are a little different than in DOR's Revenue Sources
Book. The expectation is that 489,400 barrels per day at $105.06
yields a gross value of $19 billion. Subtracting the net royalty
value of $2.4 billion and transportation costs of $1.6 billion
yields the ANS wellhead value of $15 billion. This is also
called the gross value at the point of production. From $15
billion subtract $2.5 billion in operating costs (opex) and $4.4
billion in capital costs (capex) and $315 million in property
tax, which leaves $7.8 billion. The discussion had been about
how to split that up. It can be profit sharing, concession
contracts, ACES or PPT, but in the end it all comes down to net
cash, he said.
SENATOR STEDMAN continued to say that the 35 percent base tax
rate (effective tax rate 34.2 percent) would be $2.6 billion and
the per barrel tax credit is $950 million. The net base tax
would be about $1.7 billion, and then there's a $222 million
loss carry forward credit. This is for the legacy fields only.
He cautioned that if oil prices drop to the high $70s, the
credits could be $1.250 billion. "And that's going to be a tough
one to explain in this building I would think." This is a
dangerous ratchet from the sovereign side, he said.
8:24:39 AM
SENATOR STEDMAN reviewed the data from North Dakota for
comparison purposes. The gross tax is 11.5 percent and the
private royalty owner take is plus or minus 20 percent for a
31.5 percent gross tax rate. He noted that in North Dakota, the
most common royalty for the private landowner is 25 percent and
that's where the work is taking place because North Dakota
doesn't own its subsurface. Alaska is the only state in the
union that owns its subsurface.
He displayed a chart that compares the FY15 forecast for Alaska
versus North Dakota, applying the same $19 billion gross value.
Alaska royalties are roughly 12.5 percent and North Dakota is 20
percent. The base tax for Alaska is 35 percent on net ($2.3
billion) and North Dakota is 11 percent on gross ($3.8 billion).
Alaska has a per barrel credit of $953 million, other credits of
$222 million, property tax of $315 million, and income tax of
$447 million. The total for Alaska is $4.5 billion whereas the
total for North Dakota is $6 billion. That is a $1.5 billion
difference. If North Dakota is the benchmark, then Alaska isn't
competitive. He said he would argue it's a going-out-of-business
sale. "We should be a lot closer to North Dakota," he asserted.
SENATOR STEDMAN directed attention to a chart titled "Alaska
(ACES) vs. North Dakota and explained that he applied the same
analysis using FY13 historic data. It shows the Alaska total is
about $763 million higher than North Dakota. He noted that this
difference is what generated the discussion that Alaska was not
competitive under ACES; progressivity and credits were a
problem. Alaska passed SB 21 "and North Dakota is eating our
lunch" because North Dakota is having an oil expansion. Under
ACES Alaska was about $.5 billion high, and under SB 21 it is
more than $1 billion low. "That's too big of a spread; we don't
have to be that aggressive to be competitive."
He highlighted the importance of Alaska receiving fair
compensation for its hydrocarbons, and reminded the committee
that Alaska's tax structure is nothing more than setting a sale
price for its hydrocarbon. "We could retitle it and take the tax
name out of it. What we're trying to do is come up with a fair
sale price."
SENATOR STEDMAN said he didn't believe it was necessary to
reduce the tax in the legacy fields to the level that's been
done in Prudhoe Bay and Kuparuk. He hasn't seen any analysis
showing that a change of this magnitude is warranted. The net
present value and internal rate of return surpass the industry
hurdle rate and are extremely profitable. According to a 2011
superior court ruling, there are approximately 7 billion barrels
of proven reserves that are technically, economically and
legally deliverable in the legacy fields with a value of
approximately $800 billion at current oil prices. The value of
the remaining reservoir is higher than the cumulative value of
all the North Slope oil produced to date.
He concluded that he looks forward to engaging with the
committee on suggested amendments and shutting down the going
out of business sale, because that isn't going to happen.
8:31:58 AM
SENATOR FAIRCLOUGH clarified that the TAPS Committee heard a
presentation by Cathy Foerster yesterday and she reported that
there had been a bend on Prudhoe Bay and that the historic 6
percent decline had been bent up to 2 percent this year. Kuparuk
had been bent up from a 6 percent decline to a 4 percent
decline.
SENATOR FAIRCLOUGH asked for further explanation of the credit
differences between the comparison on FY13 under ACES and FY15
under SB 21.
SENATOR STEDMAN replied the only credits are the $220 million;
there are no capital credits.
SENATOR STEDMAN addressed the first comment with the explanation
that marginal production is increasing in the basin, but not
year-on-year. He said he's been told the state should expect a
future decline curve for Prudhoe Bay of 1 percent to 2 percent.
"We were talking about that decline curve 3 years ago so it's
nothing new, although it's nice to see the shallowing of the
decline curve and flattening of the tail."
8:35:13 AM
SENATOR DYSON expressed interest in having a discussion on three
topics: 1) if the net tax leaves room for opex to go way up
without providing an incentive for the producers to find
cheaper, more efficient ways of lifting oil and getting it in
the pipe; 2) if there is a depletion allowance; and 3) if the
major producers are going after production in the legacy fields
because there is no incentive for heavy oil development.
He asked the sponsor to provide his perspective.
8:37:45 AM
SENATOR STEDMAN replied he wasn't prepared to speak on heavy
oil, but he recalled conversations that the industry was not
ready for incentives for heavy oil. The legislature was told to
wait until the incentives could be targeted, "so we're just not
throwing credits on the table and causing more adverse
behavior." He noted that those conversations took place under
ACES and he hasn't had further conversations with the industry
in the last couple of years.
SENATOR MICCICHE said he had a number of questions, but he'd
hold them until there was more time.
CHAIR GIESSEL thanked Senator Stedman and invited Janak Mayer to
present his evaluation of SB 192.
8:39:43 AM
JANAK MAYER, co-founder, Enalytica, opened his presentation with
a discussion of the importance of judging a fiscal system by its
performance over the life cycle of an asset versus a single-year
snapshot. He explained that judging a fiscal system with a
single-year snapshot can give an incomplete or distorted picture
because it does not show what a prospective investment looks
like under different circumstances.
He displayed a chart (slide 4) of the typical cash flows over
the life cycle of a project. This illustration shows heavy
upfront capital spending as facilities are built and wells are
drilled. Once the project comes on line, the capital spending
generally declines and operating costs start as revenues come in
and the project goes into operation. When one looks at project
economics and the attractiveness of a fiscal system over its
life cycle, the focus is on this cycle of spending and the
different components of costs that appear at different times. If
one is looking at single-year snapshots, it is easy to conclude
that costs are going up and that it takes more capex to get a
barrel of oil now than it did a couple of years ago. However,
the general explanation for capex is that there is additional
development spending going on for several projects. It is
capital spending for future production that is being expensed on
current barrels. He emphasized the importance of keeping that
point in mind.
8:43:27 AM
MR. MAYER displayed a table (slide 5) to show how the production
tax calculation compares under SB 21, under ACES and under an
11.5 percent gross tax like in North Dakota. The calculations
are from the Department of Revenue's [Fall 2013] Revenue Sources
Book forecast for 2015, but on a dollar per barrel basis rather
than the total cash basis that Senator Stedman showed. He
explained that he did not adjust for the high royalty in North
Dakota because royalties vary widely. In part, this is due to
the great disparity in well productivity in almost all
conventional plays.
The ANS West Coast forecast price of $105.06 less $10.03 in
transportation costs leaves $95.03 in gross value at the point
of production, in all three cases. The Revenue Sources Book
forecasts about $46 a barrel in deductible expenditures, with
the capital expenditures close to double the operating
expenditures. This was not typical in the past, but is a sign of
substantial new capital spending to create future production
that is expensed over current barrels. That is a basic reason
why revenue to the state from the tax system over the next
couple of years is lower than one might otherwise have hoped.
This is not the fundamental characteristic of SB 21 versus ACES,
but of profit-based taxation in general. When spending is high,
revenues to the state are reduced because costs are deductible
against revenues to tax the cash flow.
The production tax value under SB 21 is $48.64 and under ACES
it's $49.04. It's a little less under SB 21 because of the $0.40
per barrel gross value reduction for that system. The amount is
small because the Department of Revenue estimates it only
applies to a small portion of the total production. The
production tax before credits is $17.02 under SB 21, $16 under
ACES and $10.93 under the 11.5 percent gross tax. The amount is
slightly higher in the SB 21 case because of the higher base
rate that applies. In the ACES case there is a low base rate
with progressivity, but when there is almost $50 per barrel in
costs, there is almost no progressivity trigger.
8:48:45 AM
MR. MAYER explained that in each system the credits (in the case
of ACES applied on capital spending and in the case of SB 21
applied by some production) primarily exist to take what would
otherwise be a slightly regressive taxation system and either
make it flatter or more progressive. Capital credits under ACES
emphasize the cost-progressive nature of the system so that when
costs are very high, taxes are very low. In this case, credits
and production go hand in hand; you don't have the situation
where high spending on the low current production can yield a
particularly low tax revenue to the state.
MR. MAYER advised that looking at the bottom line in a single-
year snapshot shows very little difference between any of the
three systems. They each yield about the same level of revenue.
SB 21 yields $10.97, ACES yields $10.38, and the 11.5 percent
gross tax yields $10.93. He noted that it is somewhat surprising
that ACES yields the lowest revenue, considering all that's been
said.
8:50:06 AM
MR. MAYER displayed a reproduction of the previous table, but
with a $15/bbl assumption for capital spending instead of
$28.08/bbl to illustrate the impact this can have. This shows
ACES as a very high-yielding tax regime, giving $20.51 per
barrel of production in tax revenue. SB 21 has a tax burden of
$15.55 and the 11.5 percent gross tax remains at $10.93 because
it doesn't change with costs. He said this gives a sense of the
impact of the high capital spending that's going on right now.
It is fundamentally investment in future production, but it is
bringing down tax in terms of the revenue the state currently
receives. He again stressed that unless one thinks about those
lifecycle impacts when one looks at the snapshot, one doesn't
get a full picture of what's going on and the nature of the
taxation system.
MR. MAYER displayed a graph (slide 7) that compares the
government take on base production for ACES, SB 21, SB 192 and
SB 21 with the 15 percent gross minimum proposed in SB 192. He
explained that there are basically two elements to SB 192: the
15 percent gross minimum tax, and the reduction in the
production-based credit. The idea is to desegregate those two
things and understand the effect of the change in the credit and
the effect of the tax.
He discussed the fundamental changes between ACES and SB 21.
There is the flat 35 percent tax rate, but there are prices
above the $65 range that give a progressive shape to the overall
curve of the tax. He said it's important to understand that when
one talks about the effect of spending on taxation. He noted
that Senator Stedman did a good job of highlighting some of the
problems in ACES and in particular some of the problems for the
state in times of low oil prices or high spending. There are
many ways (beyond the question of high take and its impact on
competitiveness) to look at potential stress cases for the state
under ACES and be quite concerned because of the very high
levels of support for government spending.
That is particularly the case because ACES, unlike SB 21 or most
profit base taxes, didn't simply say costs are deductible and
the base is reduced when you spend more. It said that the tax
rate is reduced when you spend more. The sensitivity to costs
and spending, particularly capital spending, is high under ACES
because you are reducing the tax base, changing the tax rate,
and introducing the 20 percent capital credit all at once.
MR. MAYER explained that SB 21 did some key things to reduce the
very high degree of sensitivity of the tax system to spending.
It eliminated progressivity and the capital credit and it made
the 4 percent gross minimum tax a hard floor for base
production. A difference between SB 21 and ACES is that at the
lowest price levels ($60 and below range), SB 21 is actually a
tax increase over ACES, primarily because of that binding 4
percent floor.
MR. MAYER said the majority of the impact of SB 192 comes from
raising the gross minimum tax from 4 percent to 15 percent.
"What it really does is it takes that hockey stick of whether
the regressive nature of the royalty and the fixed minimum
combined kick in to really increase government take at the
lowest prices or the highest costs and shifts that substantially
to the right." Instead of a point where taxes are higher than
they would have been under ACES at $60, the range is more like
$75.
The next slide shows the effect of assuming higher capital
spending. This is looking at a low capital spending scenario
that's just sufficient to maintain the historical decline of
close to 6 percent. But even in this case there is a substantial
shift to the right that's a result of that high 15 percent
floor. The basic impact of having the capital credit is to take
the progressive shape of the sliding scale credit and flatten it
out to something more neutral.
MR MAYER reminded the committee that when it considered SB 21,
it was looking at putting in a flat $5 per barrel credit to
create a fairly neutral overall system. The other body said it
would like to take a little more on the upside and was willing
to give a little more on the downside to make this even more
competitive, particularly in the $70-$100 price range. He noted
that this is where oil companies did the majority of their
analysis of the economics, wanting to make it particularly
competitive at those prices and therefore take slightly more at
higher prices. That's a policy judgment that individuals can
easily agree to differ on, but that's the fundamental impact of
having the credit placed similarly to take that progressive
system and making it flatter and more neutral. However, the
bigger impact is that 15 percent gross minimum; it fundamentally
changes the economics.
He displayed the same graph comparing government take on base
production in a high reinvestment scenario, essentially doubling
the minimum capital spending of the first series of assumptions,
everything shifts to the right. You see the crossover point
where SB 21 is a tax increase over ACES, substantially shifted
to being more like $95 per barrel than $60 per barrel or below
that we saw in the pure minimal reinvestment. That rises even
further to over $100 per barrel in the case of SB 192, mostly as
a result of that 15 percent gross minimum tax.
9:00:16 AM
MR. MEYERS advised that it is most important to consider the
difference between progressive and regressive fiscal systems.
Fundamentally, whether it's a regressive fixed percentage gross
tax or a progressive profit-based tax, each is very workable and
each entails a distinct risk-reward tradeoff. He continued:
I can have a fixed royalty take the steady portion of
the barrel and do a great job of protecting the state
in the downside, because in any system like that
government take is very high. As prices decrease and
costs increase, the state is always protected. But I
do that by striking a deal that essentially says I
want this protection on the downside so I'm willing to
give up a lot of the upside.
Conversely, one can do what typical profit-based tax systems do
around the world which is to drive the opposite bargain. That is
to take more of the upside and in order to do that to take more
of the risk on the downside. From an investor's perspective,
both of those can be appealing investment scenarios because they
entail sound risk-reward tradeoffs.
The profit-based tax in Alaska under ACES, and to some extent
under SB 21, has been a hybrid of those two. It says the state
wants at least some of the upside that comes from a profit-based
system, but also some of the protection on the downside of both
the royalty and the hard binding 4 percent minimum floor. It
provides protection in the tax system as well as the protection
that the gross royalty gives. But to go from 4 percent to 15
percent changes that risk-reward tradeoff. It tries to get more
of the downside economics of a fixed gross tax while still
trying to take a lot of the upper end for profit-based taxation.
He concluded that it's difficult to have both and still have an
attractive investment environment.
CHAIR GIESSEL thanked the sponsor and Mr. Mayer.
9:03:29 AM
There being no further business to come before the committee,
Chair Giessel adjourned the Senate Resources Standing Committee
meeting at 9:03 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 192 vs A.pdf |
SRES 4/9/2014 8:00:00 AM |
SB 192 |
| SB 192 Sponsor Statement.pdf |
SRES 4/9/2014 8:00:00 AM |
SB 192 |
| SB 192 enalytica Analysis 201403.pdf |
SRES 4/9/2014 8:00:00 AM |
SB 192 |
| SB 192 Fiscal Note DOR.pdf |
SRES 4/9/2014 8:00:00 AM |
SB 192 |
| SB 192 SRES Presentation-Senator Stedman 20140409.pdf |
SRES 4/9/2014 8:00:00 AM |
SB 192 |
| SB 192 SRES enalytica 20140409.pdf |
SRES 4/9/2014 8:00:00 AM |
SB 192 |