HB 276-OIL/GAS PROD. TAX CREDITS/RATES/VALUE  2:47:57 PM CO-CHAIR SEATON announced that the final order of business would be HOUSE BILL NO. 276, "An Act providing for a credit against the oil and gas production tax for costs incurred in drilling certain oil or natural gas exploration wells in the Nenana Basin." [Before the committee was the proposed committee substitute, Version D, labeled 27-LS1193\D, Nauman/Bullock, 3/2/12, adopted as the working document and amended by Conceptual Amendment 1 on 3/12/12.] 2:48:21 PM JANE PIERSON, Staff, Representative Steve Thompson, Alaska State Legislature, on behalf of Representative Thompson, joint prime sponsor, explained that Conceptual Amendment 1, adopted on 3/12/12, would delete subsection "(c)" from line 17 of page 2. CO-CHAIR SEATON added that Conceptual Amendment 1 would also take out "(7)" from line 17 of page 2. He asked whether Ms. Pierson wished to offer any other amendments to the bill. MS. PIERSON replied she has no further amendments to offer, but reported that the Department of Revenue (DOR) is working through some non-substantive changes to provide a bit of clarity. Otherwise, she added, DOR is in agreement with the wording. 2:49:20 PM CO-CHAIR SEATON invited the Department of Revenue to provide testimony. JOHN LARSEN, Audit Master, Tax Division-Production Audit Group, Department of Revenue (DOR), noted that in some of the proposed basin areas there are existing exploration licenses that could be converted to a lease without a competitive bid; therefore, the department would like to point out that HB 276 could be perceived as special purpose legislation. Also, he pointed out, HB 276 was modeled after the Cook Inlet jack-up rig credit which had a 50 percent repayment provision, and while that was in the original version of HB 276 it is not in this current version. REPRESENTATIVE HERRON requested an explanation of special interest. MR. LARSEN replied the word he used was special "purpose". He said the concern is that in some of the basin areas there are existing exploration licenses issued by the Department of Natural Resources (DNR) and an exploration license can be converted to a lease without having to go through the competitive bid process. 2:51:51 PM CO-CHAIR FEIGE inquired which basins are being talked about besides the Nenana Basin. MR. LARSEN responded there are as many as four exploration licenses in the Nenana Basin. CO-CHAIR SEATON clarified that HB 276 would not eliminate people from applying for exploration licenses which can then get converted to leases without a competitive bid process. The bill would not change exploration license provisions or eliminate future exploration licenses from being applied for. CO-CHAIR FEIGE asked whether there are any active exploration licenses in basins designated by HB 276, other than the Nenana. MR. LARSEN said he will check with DNR and get back to the committee. 2:53:48 PM REPRESENTATIVE KAWASAKI inquired whether the tax credits proposed by HB 276 can be stacked with credits for research and development (R&D), corporate income tax credits, and credits under AS 43.55.023. MATTHEW FONDER, Director, Anchorage Office, Tax Division, Department of Revenue (DOR), replied that should HB 118 pass, page 2, subsection (d), of the that bill specifies that if a credit is taken for R&D the person would be ineligible for any other credit under Title 43, which would include any oil and gas tax credits or any other tax credits. 2:55:30 PM CO-CHAIR SEATON [opened public testimony]. ELIZABETH SAADULIK HENSLEY, Corporate and Public Policy Liaison, NANA Regional Corporation, offered NANA's support for HB 276 and expressed the corporation's appreciation for the collaboration involved in creating the bill. CO-CHAIR SEATON closed public testimony after ascertaining that no one else wished to testify. 2:57:00 PM REPRESENTATIVE KAWASAKI drew attention to page 4, lines 14-16, and page 5, lines [21]-22, and inquired about use of the word "shall". CO-CHAIR SEATON read aloud from page 5, lines 21-23: "Before approving a seismic exploration project, the commissioner shall make an affirmative finding that the seismic exploration project is in the best interest of the state". He understood this language to mean that the commissioner must make this affirmative finding before a seismic exploration project can be approved. MS. PIERSON interjected that the language says this credit shall be approved before the credit will be available. CO-CHAIR FEIGE added that the intent and reason for "shall" is that the applicant is being asked to apply to DNR and the department will approve the proposal in order for the applicant to get a credit, as opposed to someone conducting seismic anywhere around the state that he or she wants to. If the state is going to spend the money to grant the credit then the state must make sure that it is in the best interest of the state and that it is in a reasonable location. 2:59:46 PM REPRESENTATIVE KAWASAKI pointed out that on page 5 the word "shall" is used and on page 4 the word "must" is used, which he said is confusing if the language is basically the same for the best interest findings for both exploration wells and for exploration drills. CO-CHAIR SEATON agreed and asked whether the sponsor had a reason for this difference. CO-CHAIR FEIGE said he thinks it means the same. CO-CHAIR SEATON concurred. MS. PIERSON confirmed it means the same. She said she has been working with two different drafters and it is just use of the English language. CO-CHAIR SEATON noted this is a work draft and that a committee substitute (CS) will be coming out in which the language can be made parallel. He asked Representative Kawasaki whether this would be sufficient. REPRESENTATIVE KAWASAKI responded that it would. 3:01:14 PM REPRESENTATIVE KAWASAKI drew attention to the language regarding experience and safety records on page 4, line 19, and on page 5, line [26]. He asked how that would be applied and whether that is language used in other lease terms. MS. PIERSON answered that this language is also used in AS 43.55.025. She explained DNR wants to ensure that the people out there are actually qualified and have background in doing this. 3:02:51 PM CO-CHAIR FEIGE moved to report HB 276, version 27-LS1193\D, Nauman/Bullock, 3/2/12, as amended, out of committee with individual recommendations and the accompanying two fiscal notes. There being no objection, CSHB 276(RES) was reported from the House Resources Standing Committee.