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Vol. 22, No. 12 Week of March 19, 2017
Providing coverage of Alaska and northern Canada's oil and gas industry

HB 111 moves

On 5-4 party-line vote, Resources passes tax, credit bill to Finance


Petroleum News

A bill to make changes in the state’s oil taxes and credits has moved out of its first committee in the House.

On a March 14 party-line vote of 5-4, the House Resources Committee moved House Bill 111, a committee substitute introduced March 10 by committee co-chairs Geran Tarr and Andy Josephson, both Anchorage Democrats.

The bill has been contentious since it was introduced, with Republican members of the committee objecting when HB 111 was introduced as a committee bill, saying they had not seen it prior to its introduction.

They continued to object as the bill moved through the committee process.

Tarr has described the bill as representing finishing up work from last year, items that weren’t included in the final version of HB 247; she also said the bill reflects ideas from legislative consultant Rick Ruggiero of Castle Gap Advisors, but does not reflect elements from HB 133, introduced by Rep. Les Gara, D-Anchorage, and heard by Resources March 6.

Republican members of the committee, all of whom voted against moving the bill, had a number of concerns, with the primary focus a belief that the existing system has resulted in increased production and needs an opportunity to work before being changed.

Other concerns included that of Rep. George Rauscher of Palmer about the legality of making confidential data available and a belief that the people included were too broad a group. He was also concerned about moving the bill without complete fiscal notes, a concern shared by Rep. Chris Birch of Anchorage. Birch objected to regulations which the Department of Natural Resources wouldn’t write until after the bill went into effect, and to unknown costs - DNR’s fiscal note said the fiscal impact of proposed changes was unknown.

More revenue

In a fiscal note on the original bill the Department of Revenue said that under the proposed changes “the state would expect to collect substantially more revenue from oil and gas production given current production estimates,” but cautioned that the estimate did “not include any changes in company behavior as a result of this proposal.”

Revenue’s estimate of the total fiscal impact for the original bill was $70 million for fiscal year 2018, rising to $195 million for fiscal year 2019 and topping out at $305 million in fiscal year 2027, the last year shown.

In similar data for the committee substitute Revenue showed $45 million in total fiscal impact for FY 2018, $140 million for FY 2019, topping out at $265 million in FY 2026 and dropping to $260 million in FY 2027.

NOL changes

Both the original bill and the committee substitute make changes in how North Slope net operating losses are handled.

The original bill changed the North Slope carry-forward annual loss, the net operating loss, credit rate from 35 percent to 15 percent.

The committee substitute eliminates net operating loss credits for the North Slope.

Net operating losses would continue to be applicable against taxes, with the addition of uplift in the committee substitute. A carry-forward lease expenditure provision in the committee substitute would allow a company to carry forward 50 percent of lease expenditures approved by DNR and not deducted against tax, with the carry-forward amount earning interest for up to 7 years. DNR would develop regulations to establish a review process for pre-approval of those lease expenditures which would generate a carry-forward annual loss.

The committee substitute establishes a dry hole credit of up to 15 percent for exploration expenditures from a dry hole if all service contracts are paid, the lease is returned to the state and the explorer has no oil or gas production.

Other changes

Among other changes in the committee substitute is a provision that certain confidential taxpayer information could be disclosed to legislators, staff and consultants in executive session after required confidentiality agreements are signed; and establishment of a working group on the Cook Inlet fiscal regime.

In the original bill the minimum tax was not less than 5 percent when the average Alaska North Slope price was $25 per barrel or more for production after Jan. 1, 2018; in the committee substitute the minimum is set at 5 percent when the average ANS price is $50 or more and 4 percent when the average ANS price is less than $50.

The committee substitute requires DNR to write regulations and in a fiscal note DNR said that because regulations have not yet been written, the amount of analysis required is not clear, so the fiscal impact on the department could range from minimal to significant.

The dry hole data and applications would be managed by DNR and the department said it has no idea how many dry hole credit applications there might be, but said additional staff time would be required.

The other change which would impact DNR would be intent language establishing a Cook Inlet Working Group, which would require an unknown amount of staff time.

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