SB 145-OIL/GAS PRODUCTION TAX CREDITS: NENANA  4:00:37 PM CO-CHAIR WAGONER announced consideration of SB 145 [Version D was before the committee]. He said there was a request for modeling at the last meeting, but it involved too much speculation and too many hypotheticals to consider, so he withdrew the request. 4:01:53 PM SENATOR WIELECHOWSKI said his staff ran some modeling on SB 145 assuming 10,000 barrels a day at $110 to get a rough estimate of a production tax value of $60 ($10 transportation costs, $20 OPEX and $20 CAPEX), and they came up with a production tax value of about $190 million, which under ACES (backing out tax credits and deductions) would generate a revenue of $38 million to the state. The 4 percent gross tax under SB 145 appears to generate a negative cash flow of $14 million to the company from the state. CO-CHAIR WAGONER said he appreciated that, but would feel more comfortable with Legislative Research modeling or modeling from Senator Stedman's consultants. CO-CHAIR PASKVAN commented that he didn't want the committee to get too bound up by the potential negative cash flow concept to the state of Alaska, because Cook Inlet has had an annual negative cash flow of $80 million for many years. The whole concept of opening up the Nenana Basin is that the state puts something into it in terms of reductions in costs and incentives - as long as there are tight parameters on time. 4:05:57 PM SENATOR WIELECHOWSKI moved Amendment 1. 27-LS1078\D.3 Nauman AMENDMENT 1 OFFERED IN THE SENATE BY SENATORS WIELECHOWSKI AND FRENCH TO: CSSB 145( ), Draft Version "D" Page 1, line 3, following "basins;": Insert "relating to certain nontransferable oil  and gas production tax credits;" Page 2, following line 8: Insert a new bill section to read:  "* Sec. 3. AS 43.55.024(b) is amended to read: (b) A producer may not take a tax credit under (a) of this section for any calendar year after the later of (1) 2021 [2016]; or (2) the ninth calendar year after the calendar year during which the producer first has commercial oil or gas production before May 1, 2021 [2016], from at least one lease or property in the state outside the Cook Inlet sedimentary basin, no part of which is north of 68 degrees North latitude, if the producer did not have commercial oil or gas production from a lease or property in the state outside the Cook Inlet sedimentary basin, no part of which is north of 68 degrees North latitude, before April 1, 2006." Renumber the following bill sections accordingly. SENATOR WIELECHOWSKI explained applies statewide and expands the small producer tax in AS 43.55.024(b) credit until 2021, because some small producers were concerned that it may expire. SENATOR FRENCH said the Revenue Sources Book said the net fiscal effect of this credit was $38 million last year and that it makes sense for people to be able to plan on it. CO-CHAIR WAGONER, finding no objections, announced that Amendment 1 was adopted. 4:08:12 PM SENATOR WIELECHOWSKI moved Amendment 2. 27-LS1078\D.4 Nauman AMENDMENT 2 OFFERED IN THE SENATE BY SENATORS WIELECHOWSKI AND FRENCH TO: CSSB 145( ), Draft Version "D" Page 1, line 3: Delete "and" Insert "relating to information concerning oil  and gas taxes, including information that must be  provided in order to claim an oil and gas production  tax credit for those expenditures, and to the  disclosure of that information;" Page 1, line 4, following "latitude": Insert "; and providing for an effective date" Page 7, following line 2: Insert new bill sections to read:  "* Sec. 6. AS 43.55.030(a) is amended to read: (a) A producer that produces oil or gas from a lease or property in the state during a calendar year, whether or not any tax payment is due under AS 43.55.020(a) for that oil or gas, shall file with the department on March 31 of the following year a statement, under oath, in a form prescribed by the department, giving, with other information required by  the department under a regulation adopted by the  department, the following: (1) a description of each lease or property from which oil or gas was produced, by name, legal description, lease number, or accounting codes assigned by the department; (2) the names of the producer and, if different, the person paying the tax, if any; (3) the gross amount of oil and the gross amount of gas produced from each lease or property, and the percentage of the gross amount of oil and gas owned by the producer; (4) the gross value at the point of production of the oil and of the gas produced from each lease or property owned by the producer and the costs of transportation of the oil and gas; (5) the name of the first purchaser and the price received for the oil and for the gas, unless relieved from this requirement in whole or in part by the department; (6) the producer's qualified capital expenditures, as defined in AS 43.55.023, other lease expenditures under AS 43.55.165, and adjustments or other payments or credits under AS 43.55.170; (7) the production tax values of the oil and gas under AS 43.55.160; (8) any claims for tax credits to be applied; [AND] (9) calculations showing the amounts, if any, that were or are due under AS 43.55.020(a) and interest on any underpayment or overpayment; and  (10) for each expenditure that is the basis  for a credit claimed under AS 43.55.023 or 43.55.025,  a description of the expenditure, a detailed  description of the purpose of the expenditure, and a  description of the lease or property for which the  expenditure was incurred; notwithstanding  AS 40.25.100(a) and AS 43.05.230(a), information  submitted under this paragraph may be disclosed to the  public and shall be disclosed to the legislature in a  report submitted within 10 days after the convening of  the next regular legislative session following the  date a statement is filed under this subsection.  * Sec. 7. AS 43.55.030(e) is amended to read: (e) An explorer or producer that incurs a lease expenditure under AS 43.55.165 or receives a payment or credit under AS 43.55.170 during a calendar year but does not produce oil or gas from a lease or property in the state during the calendar year shall file with the department on March 31 of the following year a statement, under oath, in a form prescribed by the department, giving, with other information required by the department under a regulation adopted  by the department, the following: (1) the producer's qualified capital expenditures, as defined in AS 43.55.023, other lease expenditures under AS 43.55.165, and adjustments or other payments or credits under AS 43.55.170; [AND] (2) if the explorer or producer receives a payment or credit under AS 43.55.170, calculations showing whether the explorer or producer is liable for a tax under AS 43.55.160(d) or 43.55.170(b) and, if so, the amount; and  (3) for each expenditure that is the basis  for a credit claimed under AS 43.55.023 or 43.55.025,  a description of the expenditure, a detailed  description of the purpose of the expenditure, and a  description of the lease or property for which the  expenditure was incurred; notwithstanding  AS 40.25.100(a) and AS 43.05.230(a), information  submitted under this paragraph may be disclosed to the  public and shall be disclosed to the legislature in a  report submitted within 10 days after the convening of  the next regular legislative session following the  date a statement is filed under this subsection. * Sec. 8. Sections 6 and 7 of this Act take effect July 1, 2012." SENATOR WIELECHOWSKI explained that the amendment requires the disclosure of three items: a description of the expenditure, a detailed description of the purpose of the expenditure and a description of the lease or property for which the expenditure was incurred. That information will be made public. The philosophy behind this is that the state is paying close to $1 billion each year in tax credits and they have no idea where it is going. This will help find out what those credits are being used for and it helps in managing the resource. 4:10:01 PM JOHANNA BALES, Deputy Director, Tax Division, Department of Revenue (DOR), Anchorage, AK, said she had a couple of concerns with Amendment 2. The first primarily dealt with the language and the way the amendment is constructed. It says: "Notwithstanding, AS 40.25.100 and AS 43.05.230(a)" and the department didn't believe that language allowed them to completely not adhere to those statutes. Exception language needs to be put in those statutes if they are going to open up taxpayer information to public disclosure. The other concern she explained was right now when they look at tax credits specifically for audit purposes, they receive millions of lines of data information just like they do for tax returns, and when they conduct audits they look at categories of credits. This amendment would require the department to look at each expenditure and she assumed categorize it for disclosure. But there is no language giving them any idea of how the sponsor wanted those expenditures to be categorized. MS. BALES said the second part of the amendment talks about a detailed description of the purpose of the expenditure and they were not entirely sure what the intention was. Another concern Ms. Bales said they had was although this amendment didn't require identifying the taxpayer, they could have instances where a lease or property has only one of two owners and by simply providing that information, they would have disclosed the taxpayer. She didn't know if that was the sponsor's intent either. 4:13:18 PM MS. BALES said another issue would be the cost of being subject to public records requests. The minute this information is made public and subject to disclosures they would be required to disclose this information for any individual that requested it and that would be disincentive to companies to get these credits if they are concerned that their proprietary information might be disclosed. SENATOR FRENCH asked if language on page 2, lines 17-24 (number 10 on a list of 9 other items), on types of information is sent to the department by the producers. MS. BALES answered yes; that was correct. SENATOR FRENCH asked if the other nine items in that list were disclosed to the public, too. MS. BALES replied generally no, unless it has been aggregated, and they aggregate at a high level. SENATOR FRENCH asked if her concern was with language actually in subsection (10) that says it may be disclosed to the public because it's treated differently than the other nine items. MS. BALES replied yes. Also, the language on line 17 says "for each expenditure" and in their mind an expenditure is every single line item of expense. SENATOR FRENCH said that the language was modified to say "for each expenditure that is the basis for a credit claimed under .023 or .025." MS. BALES replied that each expense item is the basis for a credit. If they have to categorize and identify each and every expense and identify the purpose of that expense, a little more clarification would be needed on whether they wanted every single expense item or categories of expenditures. SENATOR FRENCH said if he were in her shoes, he would be saying it's the producers' job to do the categorizations. But she was saying it would be the department's job and he didn't want to make her do that. He asked if there was language causing her confusion about whose job it is. MS. BALES replied that the producer would have to provide the information, but she was confused as to what information and what level of detail and assumed that the producers and explorers would share that same confusion. SENATOR FRENCH said they were big boys and could stick up for themselves and he wanted the department's perspective on whether this amendment would require them to detail things and to categorize them. MS. BALES answered that the department would have to do a certain amount of detail and categorization, because if an explorer or producer sent them information at the expense level and provided the purpose of each expenditure, they would still need to compile that data into a report. SENATOR FRENCH said he thought they would be pulling information out of one spreadsheet and inserting it into another until they aggregated. MS. BALES responded that would be true, and as simple as that might sound, they get data in all sorts of different formats. They don't have an automated system right now, so they would have to look at how this information was provided and it would be helpful to have a little bit more guidance about whether the producers and explorers were providing them a report that the department was providing to the legislature and the public as requested. SENATOR FRENCH said that was his intent, but he could see where she would need a little more guidance. 4:19:18 PM CO-CHAIR WAGONER said he wasn't that comfortable with this either, for a little bit different reason. Let's say I'm a charter business taking high end charters out and am forced by APOC to disclose each one of those charters, because it's over the maximum allowable. In doing that, he has just opened up his entire list of business associates to his competitors. That is why he couldn't support the amendment. SENATOR WIELECHOWSKI withdrew Amendment 2 and said he would work with Senator Wagoner, the Finance Committee and the department to provide clear guidance and not have any unintended consequences. 4:21:15 PM SENATOR FRENCH moved Amendment 3. 27-LS1078\D.5 Nauman AMENDMENT 3 OFFERED IN THE SENATE TO: CSSB 145( ), Draft Version "D" Page 2, line 3: Delete "seven" Insert "four" CO-CHAIR WAGONER objected for discussion purposes. SENATOR FRENCH explained that this was part of a conversation he had with the Nana folks to put some sidebar limit to the extremely low tax provisions the state is offering under this bill. They had talked about using a barrel a day limit, but the drafter said it was too much. So he simply limited it down to four years. He was comfortable with four years, but he would be open to five. His idea was to limit the length of time under which these extremely low tax provisions are offered; they might need to look at Cook Inlet the same way. SENATOR FRENCH moved to amend his amendment to insert "five" instead of "four" on line 3. CO-CHAIR PASKVAN asked if Doyon had been contacted about five versus seven years. CO-CHAIR WAGONER said he talked to them in the past a couple or three times about it and didn't think they would object to going to five. 4:23:47 PM JAMES MERY, Vice President, Lands and Natural Resources, Doyon, Limited, Fairbanks, AK, said it depends on the price of oil and the size of the find, but the number "five" would work for them in the larger context of trying to attract capital to these projects. It's still a good period of protection during a critical period of capital recovery. SENATOR WIELECHOWSKI remarked that they were sort of shooting in the dark without modeling and he would support the amendment, but hoped it would get a thorough look in the Finance Committee. CO-CHAIR WAGONER removed his objection and the amendment to Amendment 3 was adopted. Finding no further objections, he announced that Amendment 3 as amended was adopted. CO-CHAIR WAGONER removed his objection to the CS. CO-CHAIR PASKVAN moved to report CSSB 145( ), version\D, as amended by Amendments 1 and 3, to the next committee of referral with individual recommendations and attached fiscal note(s). There were no objections and CSSB 145(RES) moved from the Senate Resources Standing Committee.