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House Resources hearing oil tax credits Committee has heard HB 247 three times so far, plans to return to bill the week of Feb. 22, with numerous hearings on schedule KRISTEN NELSON Petroleum News
House Resources heard House Bill 247, the governor’s bill making changes in oil tax credits, three times Feb. 3-12 and so far has plowed through the overview by Commissioner of Revenue Randall Hoffbeck and Division of Tax Director Ken Alper.
After Resources, the bill moves to Finance. The companion bill, Senate Bill 130, has referrals to Resources and Finance; that bill has not yet had a hearing.
House Resources has additional hearings scheduled for the bill, Feb. 22-27.
Hoffbeck said the administration met with industry and thanked companies for their openness in meetings and for helping to identify pinch points.
Alper said the alternative credit for exploration was passed in 2003 and several credits were added in 2006 with passage of the Petroleum Production Tax and the switch to net profits-based taxation, including Cook Inlet tax caps and the first provisions for state repurchase of credits. The 2007 passage of Alaska’s Clear and Equitable Share saw credits substantially modified, he said, and state repurchase made more open ended.
Cook Inlet credits were added with the Cook Inlet Recovery Act in 2010; Frontier basin credits were added in 2012 and North Slope credits were dramatically changed with passage of Senate Bill 21 in 2013.
Cook Inlet questions Questions were raised on a number of issues, among them Cook Inlet credits and bankruptcies.
Rep. Mike Hawker, R-Anchorage, said he was concerned that changes in Cook Inlet credits could throw Southcentral back into the situation it was in prior to the credits, where there was a foreseeable shortage of natural gas and communities were practicing blackout drills.
Hoffbeck said the situation in Cook Inlet is different than it was 5-6 years ago when the market was looking for gas. The incentives worked, he said: There is now gas behind the pipe and fields that lack a market.
Rep. Paul Seaton, R-Homer, said he would like to see something on the impact of the natural gas price in Cook Inlet and how that coincided with increased production. Previously, he noted, Cook Inlet had such a low natural gas price that if you produced gas you lost money. That was based on policies the Regulatory Commission of Alaska used in approving contracts, a policy which has since changed.
Cook Inlet now has the most expensive gas in the U.S., Seaton said, asking to see the coincident timing on not just the credits but when the price went up, urging that Cook Inlet credits be investigated as a subsidy.
Background to changes Hawker asked to see analysis of potential impacts of tax credit changes and Seaton asked to see analysis of net present value to the state over the life of fields to show what the state gets back for what it invests.
Alper said the Tax Division is trying to replicate lifecycle modeling done by consultants over the past few years and would like to bring some of that before the committee.
Rep. Bob Herron, D-Bethel, asked about the administration discussion that led up to the bill and Hoffbeck said various people were involved over time, but that the policy leading up to the bill was that the size of the pie was not large enough to support everything the state needs to do and that some things needed to be pulled back.
Credits are not a core government service, he said, and had to be balanced against needs such as education.
Asked to name names, Hoffbeck said it was largely Revenue staff, Alper, himself, the governor and the chief of staff, with those four individuals having the most input.
But, he said, decisions in the bill were based on extensive meetings with industry.
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