HB 414-SEPARATE OIL & GAS PRODUCTION TAX  1:08:51 PM CO-CHAIR NEUMAN announced that the first order of business is HOUSE BILL NO. 414, "An Act relating to the tax on oil and gas production; and providing for an effective date." CO-CHAIR NEUMAN requested members to hold questions until the next hearing because today is only an introduction of the bill. 1:09:34 PM REX SHATTUCK, Staff, Representative Mark Neuman, Alaska State Legislature, noted that the sectional analysis included in the committee packet is for SB 305, Version A, which is essentially the same bill as HB 414. He spoke from the following sponsor statement [original punctuation provided]: Currently there are companies doing business in Alaska that have both oil sales (from the North Slope) and gas sales (from Cook Inlet or elsewhere). The gas produced receives the same progressivity surcharge as the oil. [HB] 414 by the House Resources Committee separates oil and natural gas for purposes of calculating the progressivity portion of the production tax under AS 43.55. Under this bill, the progressivity surcharge is calculated on oil only instead of on oil and gas combined. The progressivity surcharge remains unchanged at 0.4% per $1 of production tax value over $30 per barrel, then 0.1% per $1 of production tax value over $92.50. Under [HB] 414, natural gas will be taxed at 25% of production tax value with no progressivity surcharge. 1:11:20 PM MR. SHATTUCK reviewed the sectional analysis. He said Section 1 of HB 414 addresses AS 43.55.011(e)(2) and would add language that specifically identifies the production of oil for progressivity rate purposes. Section 2 addresses AS 43.55.011(g) and would remove the language referring to gas and its per British Thermal Unit (BTU) equivalent to isolate the progressive rate tax calculation for oil. In AS 43.55.011(g)(1), the language referring to gas and its per BTU equivalent would be removed to apply the progressive rate calculation only to oil with a progressive rate of an additional 0.4 percent for each dollar per barrel above $30 up to $92.50 per barrel. The same changes would be made in AS 43.55.011(g)(2) as in AS 43.55.011(g)(1), eliminating references to gas and per BTU equivalent to calculate the progressive rate for net production values greater than $92.50 at the rate of an additional 0.1 percent. Section 3 applies to AS 43.55.011(j) and would provide that in comparing the lower tax of subsection (e) and economic limit factor (ELF) tax for Cook Inlet production, progressivity would not apply for gas. Section 4 applies to AS 43.011(o) and would be the same as Section 3 for non-Cook Inlet gas used in-state. Section 5 applies to AS 43.55.020(a)(1) and would provide that the monthly installment payment for gas does not include a progressivity component. Section 6 applies to AS 43.55.160(a)(2) and would provide that the monthly production tax values for deriving progressivity apply only to oil. Subparagraph (A) would apply only to North Slope oil and subparagraph (B) would apply only to outside Cook Inlet and not North Slope oil. Section 7 applies to AS 43.55.160(c) and would provide that calculation of the monthly share of a producer's transportation costs for the calendar year for deriving production tax value for progressivity is for oil only. Section 8 would provide for an immediate effective date. CO-CHAIR NEUMAN urged committee members to bring any questions to the co-chairs or Senator Stedman. 1:14:57 PM CO-CHAIR JOHNSON said HB 414 is being introduced now so that if the issue becomes urgent the bill can be brought up quickly under bills previously heard. He added that the co-chairs intend to be up front and want to be able to take the Senate version and move it into the House Finance Committee, if that is deemed important. CO-CHAIR NEUMAN added that making HB 414 available to the public is another reason for bringing the bill before the committee now. He explained that TransCanada's open season under the Alaska Gasline Inducement Act (AGIA) is coming and one of the inducements for that is a lock-in in taxes for up to 10 years; it is pertinent that the people of Alaska and the legislature know the effects of that. The differential between oil and gas right now is close to 20:1. 1:16:41 PM REPRESENTATIVE EDGMON inquired if there will be a definitive answer as to whether HB 414 will be needed. CO-CHAIR NEUMAN responded the co-chairs are currently working with the Department of Law and the Department of Revenue to get that answer. CO-CHAIR JOHNSON said he hopes there is a definitive answer because he does not want to spend a lot of time on something that does not need to be done. However, if something does need to be done, it will need to be done quickly. He said he is unconvinced at this point that the bill is actually needed. CO-CHAIR NEUMAN commented that it is also the legislature's authority to decide whether the bill is needed. 1:17:32 PM REPRESENTATIVE SEATON asked whether the provision under Section 2 for AS 43.55.011(g)(1) would keep the current tax the way it is or would incorporate the progressivity change that was previously brought before the committee. CO-CHAIR NEUMAN replied that this is a mobile document and things are changing fast, so when that information is received it will be given to committee members. CO-CHAIR JOHNSON added that to his knowledge no one on this committee has had any input into this bill because it was drafted in the other body. He reiterated that HB 414 is being introduced as a placeholder. CO-CHAIR NEUMAN said he and his staff are working to understand the bill and to get further information. He held over HB 414.