Legislature(2015 - 2016)BILL RAY CENTER 208

05/11/2016 09:00 AM RULES

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09:08:19 AM Start
09:08:43 AM HB247
06:05:20 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to 9:30 am 5/12/16 --
Heard & Held
-- Public/Invited Testimony --
9:00 a.m. - Testimony by Invitation
- Administration
- Industry
4:00 - 6:00 p.m. - Public Testimony
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end of allotted time or testimony will be closed.
            HB 247-TAX;CREDITS;INTEREST;REFUNDS;O & G                                                                       
9:08:43 AM                                                                                                                    
CHAIR JOHNSON announced  that the only order of  business would be                                                              
HOUSE BILL NO.  247, "An Act relating to  confidential information                                                              
status and public  record status of information  in the possession                                                              
of the Department  of Revenue; relating to interest  applicable to                                                              
delinquent tax;  relating to disclosure of oil  and gas production                                                              
tax credit  information; relating to  refunds for the  gas storage                                                              
facility tax  credit, the liquefied  natural gas  storage facility                                                              
tax   credit,   and   the   qualified    in-state   oil   refinery                                                              
infrastructure  expenditures tax credit;  relating to  the minimum                                                              
tax for  certain oil and gas  production; relating to  the minimum                                                              
tax  calculation for  monthly  installment  payments of  estimated                                                              
tax;  relating  to interest  on  monthly installment  payments  of                                                              
estimated  tax; relating  to  limitations for  the application  of                                                              
tax credits;  relating to oil  and gas production tax  credits for                                                              
certain  losses  and  expenditures; relating  to  limitations  for                                                              
nontransferable  oil and gas production  tax credits based  on oil                                                              
production  and  the  alternative  tax  credit  for  oil  and  gas                                                              
exploration;  relating  to  purchase of  tax  credit  certificates                                                              
from the  oil and gas tax credit  fund; relating to a  minimum for                                                              
gross  value  at  the  point  of  production;  relating  to  lease                                                              
expenditures  and tax  credits  for municipal  entities; adding  a                                                              
definition   for  "qualified   capital   expenditure";  adding   a                                                              
definition  for "outstanding  liability to  the state";  repealing                                                              
oil  and   gas  exploration   incentive  credits;   repealing  the                                                              
limitation  on the application  of credits  against tax  liability                                                              
for   lease  expenditures   incurred  before   January  1,   2011;                                                              
repealing provisions  related to the monthly  installment payments                                                              
for  estimated tax  for oil  and  gas produced  before January  1,                                                              
2014;  repealing  the  oil  and  gas  production  tax  credit  for                                                              
qualified  capital  expenditures  and certain  well  expenditures;                                                              
repealing   the  calculation   for   certain  lease   expenditures                                                              
applicable before  January 1, 2011; making  conforming amendments;                                                              
and providing for an effective date."                                                                                           
9:08:50 AM                                                                                                                    
CHAIR JOHNSON  reminded the committee that pending  from the prior                                                              
day's meeting  was a motion by  Representative Olson to  adopt the                                                              
committee  substitute  (CS)   for  HB  247,  Version  29-GH2609\D,                                                              
Nauman/Shutts,  5/6/16,  as  a working  document,  with  objection                                                              
made by Chair Johnson.  Chair Johnson removed his objection.                                                                    
9:09:00 AM                                                                                                                    
REPRESENTATIVE TUCK  objected, then removed his objection.   There                                                              
being  no further objection,  Version D  was before the  committee                                                              
as a working document.                                                                                                          
9:10:20 AM                                                                                                                    
The committee took a brief at-ease at 9:10 a.m.                                                                                 
9:10:31 AM                                                                                                                    
CHAIR  JOHNSON announced that  the committee  would hear  from the                                                              
Department of Revenue.                                                                                                          
9:11:01 AM                                                                                                                    
RANDALL  HOFFBECK,  Commissioner,  Department  of  Revenue  (DOR),                                                              
stated  that much  had  been  learned over  the  last four  months                                                              
about  Governor Bill  Walker's proposal  [the original version  of                                                              
HB  247], especially  regarding prolonged  oil prices, the  impact                                                              
of  carrying  over losses,  and  the  long-term viability  of  the                                                              
current tax  structure.   He opined that  HB 247 proposes  a great                                                              
deal  to rectify many  of those  long-term issues associated  with                                                              
the "carry  forward" of net  operating losses.   Regarding concern                                                              
over  revenue forecast,  particularly as  it relates to  operating                                                              
costs  and capital  expenditures  associated with  cuts and  costs                                                              
made by  the industry  in a low-price  environment, he  noted that                                                              
the  department   had  provided   a  document  to   the  committee                                                              
comparing  forecasted  expenditures to  actual  expenditures.   He                                                              
said  it shows  the forecast  was in line  with expectations;  the                                                              
forecast  was  for  a  reduction   in  costs,  and  the  operating                                                              
expenditures  match the  forecast, at least  through March,  while                                                              
the  capital   expenses  are  a   little  higher  than   what  was                                                              
forecasted.    He  said  DOR  knows  there  would  be  substantial                                                              
changes  made in  the next few  months, and  the department  would                                                              
need to continue to update the legislature on those.                                                                            
COMMISSIONER HOFFBECK  said the price  per barrel of oil  (bbl) is                                                              
higher  than  forecasted.    The forecasted  price  for  2016  was                                                              
$40/bbl, but  right now prices are  in the $44-$45/bbl  range.  He                                                              
said there would  be a price higher than $40 for  fiscal year 2016                                                              
(FY 16)  short something  catastrophic happening  in the  next two                                                              
months.    He stated,  "That  is  not insignificant,  because  ...                                                              
around that $45  price point is where we start  seeing where there                                                              
are actually  losses to  carry forward or  not, and so  we're kind                                                              
of teetering back  and forth on that price point."   He reiterated                                                              
that the forecast and the reality are relatively consistent.                                                                    
9:14:12 AM                                                                                                                    
COMMISSIONER  HOFFBECK stated  another topic  of concern  that has                                                              
been brought  up is how  to deal with  carry forwards  in relation                                                              
to  a  net  tax.    He  said   he  heard  discussions  about  what                                                              
Australia, Norway,  and the United  Kingdom (U.K.) do in  terms of                                                              
"allowing  these to be  carried forward  in their tax  structure,"                                                              
but he warned  that isolating one component of a  tax structure is                                                              
"fraught with  peril."  He  recommended looking at  information in                                                              
a report generated  last January by the Oil  & Gas Competitiveness                                                              
Review   Board,  beginning   on  page   73,  which  compares   and                                                              
highlights the  complexity of tax regimes of  the U.S., Australia,                                                              
Norway, and the U.K.                                                                                                            
COMMISSIONER  HOFFBECK, regarding  the carry  forward, stated  the                                                              
     This is  not an income tax;  it is a severance  tax; and                                                                   
     by  definition   severance  taxes  are   different  than                                                                   
     income  taxes.     We  have  chosen  to   calibrate  our                                                                   
     severance  tax  using that  income,  but that  does  not                                                                   
     turn  it into  an income  tax, and therefore  we do  not                                                                   
     have  to follow [Internal  Revenue Service] (IRS)  rules                                                                   
     or  state rules  as far  as how we  treat the  severance                                                                   
     tax.   We do have  a corporate income  tax in  the state                                                                   
     of  Alaska; we  do have  a separate oil  and gas  income                                                                   
     tax.  Those  losses are available to be  carried forward                                                                   
     under  the income tax  regime, but  this is a  severance                                                                   
     tax,  and  a severance  tax  is  a  tax imposed  on  the                                                                   
     removal  of  a  nonrenewable resource  from  the  taxing                                                                   
     jurisdiction.     And  ...  it's  the  opinion   of  the                                                                   
     administration  that  that  ...  simply  should  not  go                                                                   
     below  zero;  that  we  should  not  be  able  to  carry                                                                   
     forward losses  on the severance tax portion  of our tax                                                                   
9:16:30 AM                                                                                                                    
KEN ALPER,  Director, Tax Division,  Department of  Revenue (DOR),                                                              
stated  that  as not  all  members  of  the House  Rules  Standing                                                              
Committee had heard  the bill previously, the first  few slides in                                                              
the  presentation  reflect basic  facts  and figures.    Following                                                              
those, he  indicated, would be  the specific provisions  under and                                                              
pros  and  cons  of  Version   D,  along  with  Governor  Walker's                                                              
concerns with  that version.   He stated his concurrence  with the                                                              
idea that  "this is a severance  tax and we  do not want it  to go                                                              
below zero."                                                                                                                    
MR.  ALPER  directed attention  to  slide  2, titled  "Major  Bill                                                              
Concepts in  Governor's Proposal."  He said  the governor supports                                                              
the sunset  of exploration credits,  which for the most  part were                                                              
already  scheduled  to  sunset,  and  a  transition  into  a  post                                                              
exploration  support  environment.   The governor  also  supports:                                                              
phasing out of  the Cook Inlet drilling credits; putting  a cap on                                                              
the  amount of  repurchase  to "limit  the  open-endedness of  the                                                              
current  system";  the removal  of  exception and  loopholes  that                                                              
lead  to unintended  consequences in  existing law;  strengthening                                                              
of  the minimum tax  to ensure  that the  small revenue  the state                                                              
got at  low prices is protected;  the increase of the  minimum tax                                                              
rate   to   5   percent;   other   technical   language   cleanup;                                                              
transparency;  interest  rate  reform;  and "lots  of  other  doo-                                                              
dads."   He  said  the  governor's bill  is  a complex  bill,  and                                                              
Version D remains complex, as well.                                                                                             
9:18:38 AM                                                                                                                    
REPRESENTATIVE  MILLETT recalled that  Governor Walker  had talked                                                              
about not changing  Senate Bill 21.  She said it  would be helpful                                                              
if Mr.  Alper would point  out any changes  that had been  made to                                                              
that previous piece of legislation.                                                                                             
MR. ALPER responded  that HB 247 was constructed  to "dance around                                                              
the edges"  of Senate Bill  21, but not  to "get into the  meat of                                                              
it."   He stated that for the  most part, the tax  system predated                                                              
Senate  Bill 21;  it  was part  of  Alaska's  Clear and  Equitable                                                              
Share  (ACES).   The  core provisions  of  the tax  system put  in                                                              
place in  2013 - the 35  percent flat tax, the  per-barrel credit,                                                              
and the  new oil provision for  the gross value reduction  (GVR) -                                                              
were  not touched  in the governor's  proposed  bill.  He  stated,                                                              
"The  bill  has   evolved  in  that  now  the   ...  [gross  value                                                              
reduction]  we're talking about  sunsetting or graduating  new oil                                                              
into  old -  that is  probably the  most overt  imposition on  the                                                              
core provisions  of Senate  Bill 21 you'll  see anywhere,  in this                                                              
bill or any other version of the bill."                                                                                         
9:20:12 AM                                                                                                                    
MR. ALPER  continued to slide 4,  titled "FY 2007 thru  2015, $7.4                                                              
Billion in  Credits."  He  stated that from  FY 07, which  saw the                                                              
passage of  production profits tax  (PPT) and the transition  to a                                                              
net profit-based  tax system, through the end of  FY 15, the State                                                              
of Alaska  put $7.4 billion in  tax credits.  Mr. Alper  said that                                                              
is  a little  misleading, because  more than  half, $3.3  billion,                                                              
are  North  Slope  credits  against   tax  liability.    He  said,                                                              
"Strictly speaking,  those are subtractions  from the tax  that we                                                              
never  see,  and  in most  cases  those  are  baked into  the  tax                                                              
system."  He  said ACES had a high tax, with  a 20 percent capital                                                              
credit,  which adds  up to  about $4.3  billion.   He said  Senate                                                              
Bill 21  has a high  base rate of  35 percent with  the per-barrel                                                              
credit.   He  added, "That  per-barrel credit  is in  there."   He                                                              
stated that  DOR believes that  if those credits had  not existed,                                                              
"the  underlying  tax  probably  would  have  been  lower  in  the                                                              
legislative  consensus of  that time,"  so, "we  kind of set  that                                                              
$4.3  billion aside  and  talked  about the  other  $3 billion  in                                                              
credits  - ... the  refunded credits:  $2.1 [billion]  refunded on                                                              
the  North   Slope  for  the  new  producers   and  the  explorers                                                              
developing   new  fields;   $900  million   in  non-North   Slope,                                                              
primarily Cook  Inlet; and another  $100 million ...  credits used                                                              
against tax liability ... in Cook Inlet ...."                                                                                   
MR.  ALPER said  under statute  there are  tax caps  in place  for                                                              
Cook  Inlet.   The  $100 million  in credits,  shown  on slide  4,                                                              
reflects  the  small  producer  credit used  against  small  gross                                                              
taxes  that exist  in Cook Inlet.   Further,  there are  $500-$800                                                              
million in  taxes that were not  received.  He said,  "We've tried                                                              
to calculate a  value to those tax caps that were  put in place in                                                              
Cook Inlet."                                                                                                                    
9:22:08 AM                                                                                                                    
REPRESENTATIVE  CHENAULT  asked  what was  paid  out of  the  $4.3                                                              
billion under ACES versus under Senate Bill 21.                                                                                 
MR.  ALPER said he  could get  that information.   He  said almost                                                              
all of it is  under ACES, because 2014 and 2015  are the years for                                                              
Senate  Bill 21.   He said there  were about  $600 million  in the                                                              
per-barrel  credit in FY  14 and  much less than  that for  FY 15,                                                              
because  the numbers were  already declining.   He concluded  that                                                              
fewer than  $1 billion of the  $4.3 billion was paid  under Senate                                                              
Bill 21.                                                                                                                        
9:22:58 AM                                                                                                                    
REPRESENTATIVE  TUCK asked,  "Was  that due  primarily because  of                                                              
prices or because of structure?"                                                                                                
MR.  ALPER answered  that the  structure of  Senate Bill  21 is  a                                                              
sliding scale  credit that tends to  increase as the price  of oil                                                              
decreases until  about $80, and  then it tends to  decrease again,                                                              
"because  the  minimum  tax gets  in  the  way  and cuts  off  the                                                              
ability of  companies to use the  per-barrel credit."   He said in                                                              
FY 14,  based on the  approximate $100 price  of oil at  the time,                                                              
there  were about  $600  million of  per-barrel  credits used,  at                                                              
roughly $4-$5  per-barrel credit; by  FY 15, prices  were dropping                                                              
to  where companies  might be  earning $8  but were  only able  to                                                              
claim $2  or less, depending on  what point in the fiscal  year it                                                              
was.  He concluded, "So, it's a little bit of both, I guess."                                                                   
9:24:06 AM                                                                                                                    
MR. ALPER directed  attention to slide 5, titled  "Total Petroleum                                                              
Revenue  FY  2007  thru  2015."   He  stated  that  the  petroleum                                                              
revenue  that came  in while  the state  spent the  aforementioned                                                              
$7.4 billion  is over $61  billion.   The largest feature  of that                                                              
amount, he  said, was the [$32.8  billion] production tax  for the                                                              
North  Slope.   Also  from  the North  Slope,  the  state got  $15                                                              
billion in unrestricted  royalties; $4.7 billion  in other general                                                              
fund  (GF) revenue,  which is  corporate income  tax and  property                                                              
tax from  oil; and $8.7 billion  in restricted revenue,  the great                                                              
majority  of which  is 25  percent or  more of  royalties that  go                                                              
into  the Alaska  permanent fund  principal.   For the Cook  Inlet                                                              
[and Middle  Earth], the  amount was $1  billion [and was  made up                                                              
of <$0.1 billion  in production tax, $0.5 billion  in unrestricted                                                              
royalties, $0.3  billion in other GF revenue, and  $0.2 billion in                                                              
restricted revenue.]                                                                                                            
MR. ALPER moved  on to slide 6, titled "Statewide  Tax Credits and                                                              
Unrestricted  Petroleum Revenue."   He drew  attention to  the red                                                              
box, which  highlights unrestricted  petroleum revenue for  FY 15,                                                              
FY 16,  and FY  17.   He said the  bar on  the left indicates  the                                                              
revenue  before any  credits  used against  liability; the  middle                                                              
bar indicates  the actual revenue  that shows in the  reports; and                                                              
the  dark  red  bar  on the  right  indicates  the  revenue  after                                                              
subtracting  the refundable tax  credits paid  to the oil  and gas                                                              
industry.   The latter number has  shrunk and, in FY 17,  has gone                                                              
below zero.   He confirmed that in FY 17 the  state was paying out                                                              
more in tax credits than its total unrestricted gas revenue.                                                                    
MR.  ALPER emphasized  the importance of  broadening "the  context                                                              
in time" to  understand "why this all exists."   He pointed to the                                                              
left of  the bar chart  that shows that  in FY 07 the  tax credits                                                              
were a  much smaller offset of  a much larger revenue  system.  He                                                              
said  when the  state  was receiving  between  $4  billion and  $9                                                              
billion a  year in oil and gas  revenue, it was logical  to invest                                                              
a  few  hundred  million  dollars  in  its  future  to  "encourage                                                              
tomorrow's oil  today."  What  has happened, though, is  that "the                                                              
cost  of this has  stayed the  same or  even increased,  while our                                                              
revenue  has decreased, and  it's gotten to  become a  much larger                                                              
part of the  pie as the credits themselves."  Mr.  Alper said more                                                              
troubling is the  chart at FY 18 and beyond,  where DOR's forecast                                                              
shows an  oil and gas  revenue of less  than $2 billion  per year,                                                              
with  the credits  maintaining  so  that there  is  not that  much                                                              
revenue to offset.                                                                                                              
MR. ALPER  noted that the blue  line on the chart shows  the carry                                                              
forward  net  operating loss  (NOL)  credits, which  is  something                                                              
that came to  be with the spring forecast.  He  explained that DOR                                                              
started  to  see  for  the  first   time  major  producers  having                                                              
operating  losses  that  are  not  cashable  because  of  the  way                                                              
Alaska's  current law  is written:    if a  company produces  more                                                              
than  50,000 barrels a  day, it  can't get  cash for its  credits.                                                              
He  said, "So,  we  have to  track those  separately.   Those  are                                                              
built  up over  the next  couple  years and  then used  up in  the                                                              
years after  that offsetting companies' taxes as  the price starts                                                              
to recover."                                                                                                                    
9:27:08 AM                                                                                                                    
MR.  ALPER directed  attention to  slide 7,  which shows that  the                                                              
governor,  through his  line item  veto, capped  the FY 16  fiscal                                                              
appropriation  to $500 million.   Of that,  $473 million  has been                                                              
paid out to  date; about $200 million to the North  Slope and $273                                                              
million  to  non-North  Slope,  primarily Cook  Inlet  and  Middle                                                              
Earth.   There are $27 million  left in the fund, with  $4 million                                                              
in-process claims,  which means by  the time all those  go through                                                              
there will  be about $23 million  left.  Meanwhile,  he continued,                                                              
there  are $675  million in  applications  at DOR,  which will  be                                                              
reviewed  by the  Tax Division  and issued  over the  summer.   He                                                              
said the $675  comprises [$10 million] in older  NOL credits; [$22                                                              
million]  in  older explorations  credits;  $552  million in  2015                                                              
spending  credits  - operating  loss  credits  on both  the  North                                                              
Slope   and  Cook   Inlet,  and   the  capital   and  well   lease                                                              
expenditure  credits,  which  are  Cook  Inlet  and  Middle  Earth                                                              
credits  that will be  issued in  July.   He named the  remainder:                                                              
$60 million  in 2015 exploration credits and  $31 million expected                                                              
[via  amended returns].   He  said DOR forecasts  $775 million  in                                                              
actual  spending  for  FY  17.    He  said  based  on  preliminary                                                              
information  from  producers, $120  million  is needed  and  would                                                              
come from  some of the first  and second quarter capital  and low-                                                              
lease  expenditure  credits in  Cook  Inlet, but  the  bulk of  it                                                              
would  be   exploration  credits.     He  said  there   are  large                                                              
exploration  projects, the exploration  credit system  will sunset                                                              
on  July 1,  2016, and  "we're  seeing a  couple of  circumstances                                                              
where  companies are  spending  a bunch  of  money on  exploration                                                              
projects that might  be a little premature for  their own business                                                              
need, but because  we're paying, in some cases, 85  percent of the                                                              
cost,  it's in their  interest to  get that  work done  now before                                                              
... those credits sunset."                                                                                                      
9:29:41 AM                                                                                                                    
REPRESENTATIVE  MILLETT  asked  Mr. Alper  to  clarify  if he  was                                                              
saying that  companies are out spending money  because the credits                                                              
are going away or that they are making poor business decisions.                                                                 
MR. ALPER responded  that he was not saying  businesses are making                                                              
poor  business   decisions,  but  rather  that   they  are  making                                                              
business decisions in their own best interest.  He continued:                                                                   
     From  the point  of view  of the company,  on the  North                                                                   
     Slope,  say, the  operating  loss  credit's 35  percent.                                                                   
     In 2015, it  was 45 percent.  There's also  a 40 percent                                                                   
     exploration   credit  for   expenses   that  meet   that                                                                   
     definition.   That is a  limited duration credit  that's                                                                   
     scheduled to  sunset in 2016.   So, if a company  sees a                                                                   
     possibility  - if they  own an asset  that they  want to                                                                   
     drill  some exploration  wells - it  might not fit  into                                                                   
     their production  plans for a decade or more.   We don't                                                                   
     know.    But  you  might  be  seeing  people  doing  the                                                                   
     exploration  drilling now  simply because  they can  get                                                                   
     an 85 percent  credit on it, whereas if  they waited one                                                                   
     year  longer,  they'd  only  be  getting  a  35  percent                                                                   
     credit on it.                                                                                                              
MR.  ALPER said,  for  example, that  Caelus  Energy Alaska,  LLC,                                                              
("Caelus") has  its Smith Bay asset  60 miles west of  Alpine, far                                                              
out into  the National  Petroleum Reserve  - Alaska (NPR-A),  with                                                              
no infrastructure  or possibility in the short term  of building a                                                              
pipeline  that  would bring  oil  back to  pump  station one,  but                                                              
Caelus embarked  upon a drilling exercise last year  at an expense                                                              
of approximately  $100 million.  He  said that is not  oil that is                                                              
likely to  be seen for a decade  or more, but the money  was spent                                                              
in 2015 because of the 85 percent credit.                                                                                       
REPRESENTATIVE MILLETT  offered her understanding  that during the                                                              
time  of ACES and  Senate Bill  21, the  whole idea behind  having                                                              
credits  was to  encourage exploration  and  get more  oil in  the                                                              
pipeline.  She  continued, "And so, now, we're  blasting folks for                                                              
going  out  and doing  exactly  the  behavior  that we  wanted  to                                                              
invest in  and wanted to  encourage so  we could take  [the Trans-                                                              
Alaska Pipeline System] (TAPS) and have ... a longer lifespan."                                                                 
9:32:24 AM                                                                                                                    
COMMISSIONER   HOFFBECK  responded   that   "we're  not   blasting                                                              
anybody"  for   making  good  business  decisions   based  on  the                                                              
available  tax  regime  that was  in  place.   He  explained  that                                                              
increased  activity around  the  expiring of  a credit  is a  good                                                              
business  decision   and  was  mentioned   just  as  a   point  of                                                              
9:33:12 AM                                                                                                                    
REPRESENTATIVE KREISS-TOMKINS  asked for an historical  context of                                                              
credits over  the last  three or four  years compared to  what DOR                                                              
is observing now that the sunset date is approaching.                                                                           
9:33:49 AM                                                                                                                    
MR.  ALPER said table  8-4, in  the spring  update of  the Revenue                                                              
Sources  Book, shows  the history  of the  different sub-types  of                                                              
credits each year.   He recollected that DOR has  paid out $25-$50                                                              
million  a year in  exploration credits, which  have been  a small                                                              
but  steady  component of  the  "overall  credit spend"  over  the                                                              
years.   He said DOR  anticipates an expense  in FY 17  that could                                                              
approach  $100  million  because of  the  last-minute  exploration                                                              
9:34:22 AM                                                                                                                    
CHAIR   JOHNSON   asked   if   there  are   companies   that   are                                                              
"accelerating" with the visible result of more production.                                                                      
COMMISSIONER HOFFBECK answered yes.                                                                                             
CHAIR  JOHNSON suggested  that  the situation  is  like a  double-                                                              
edged  sword.   He surmised  that in  order to  get production  on                                                              
line sooner, "we  have to sort of pay for it, but  we get that oil                                                              
in the pipeline to get royalties or wherever it's coming from."                                                                 
COMMISSIONER HOFFBECK responded, "That's correct."                                                                              
MR. ALPER  added, "Implicit  in all  of this was  ... a  desire to                                                              
bring new  companies to  Alaska and diversify  the players  on the                                                              
North Slope, and  that has been somewhat successful  - ... in some                                                              
ways  too successful,  and now  we  can't afford  it anymore,  and                                                              
that's why we're here."                                                                                                         
9:35:19 AM                                                                                                                    
REPRESENTATIVE  TUCK  asked  for confirmation  that  the  expiring                                                              
credits  being  referred to  are  ones that  were  already set  to                                                              
expire  - that there  is nothing  in Version  D that would  change                                                              
COMMISSIONER HOFFBECK answered that's correct.                                                                                  
MR.   ALPER,   in   response   to  a   follow-up   question   from                                                              
Representative   Tuck,   stated   that  the   exploration   credit                                                              
structure predates  PPT and ACES; it  goes back to 2003.   He said                                                              
it was  a percentage of expenditures  that were "layered  in there                                                              
on top  of [the economic limit  factor] (ELF), in 2003,"  and have                                                              
been  extended  from its  original  five-year  sunset.   The  most                                                              
recent extension  moved the sunset  to July 1,  2016.  He  said if                                                              
Alaska's  fiscal   system  was   in  a  different   position,  the                                                              
legislature  might be considering  another extension, but  DOR has                                                              
not  seen disagreement  over the  plan to let  the credits  sunset                                                              
this year.                                                                                                                      
9:36:23 AM                                                                                                                    
REPRESENTATIVE   KREISS-TOMKINS  asked   for  clarification   that                                                              
sometimes  the  credits  result  in 85  percent  reimbursement  in                                                              
capital expenditure.                                                                                                            
MR. ALPER responded:                                                                                                            
       Only in 2014 and 2015.  The exploration credit has                                                                       
        always peaked out at 40 percent.  ... They are so-                                                                      
     called,  "stackable,"   meaning  you  could   earn  that                                                                   
     credit and  also earn a net operating loss  credit.  The                                                                   
     operating  loss credit  on  the North  Slope during  the                                                                   
     ACES arrow  is 25 percent.   During the first  two years                                                                   
     of  Senate Bill 21,  that was bumped  up to 45  percent.                                                                   
     So,  there's  this  unique  two-year  historical  moment                                                                   
     where   there  was  actually   85  percent  support   of                                                                   
     exploration on the North Slope.                                                                                            
9:37:12 AM                                                                                                                    
REPRESENTATIVE   TUCK  said   the   exploration  credits   brought                                                              
exploration   as  intended,   but   did   not  necessarily   bring                                                              
development.     Now   Alaska  gives  deductions   not  only   for                                                              
exploration,  but also  for  capital and  operating  expenditures.                                                              
He  said he  thinks  the state  has  already done  a  lot in  this                                                              
arena.   He said the big  question regarding operating  credits is                                                              
whether it  is necessary  to give them  when "that might  be stuff                                                              
that they  might be doing anyway."   He surmised that  that is why                                                              
it is  difficult to make  decisions without accurate  information.                                                              
He  stated another  big question  is what the  return on  Alaska's                                                              
investments is.                                                                                                                 
9:38:46 AM                                                                                                                    
REPRESENTATIVE  KREISS-TOMKINS   said  he  approaches  this  issue                                                              
"from a vantage  of economic agnosticism."  He said  the state has                                                              
a  finite number  of dollars  and is  trying to  create jobs,  tax                                                              
revenue, and  royalty revenue,  while getting the  greatest return                                                              
for those  dollars.  He said  the state has put $100  million into                                                              
exploration  credits and $700-$900  million into  oil and  gas tax                                                              
credits in sum.   He questioned how that return  could be compared                                                              
with other  uses of the money,  for example, if someone  was given                                                              
an  85  percent   capital  subsidy  to  "prospect   a  heli-skiing                                                              
operation"  or if  the Alaska  Mental Health  Trust was given  the                                                              
same to  "explore the Icy  Cape prospect."   He opined that  an 85                                                              
percent  reimbursement  of  capital  is  a huge  subsidy  for  any                                                              
economic sector,  and he said he wants to know what  the return on                                                              
that investment is.                                                                                                             
9:40:57 AM                                                                                                                    
COMMISSIONER HOFFBECK  said he thinks there were  several policies                                                              
in play.   First, the  high rate of  incentives was driven  by the                                                              
fact that the  oil and gas industry was Alaska's  bread and butter                                                              
- it  was paying 90  percent of the  state's bills.   He indicated                                                              
that  the  economics  do  not compare  to  running  a  heli-skiing                                                              
operation.   He said the state  wanted people looking for  oil and                                                              
gas,  because that was  the state's  revenue stream.   He  said he                                                              
thinks anyone looking  back would not choose to put  an 85 percent                                                              
credit in place,  but it was one that developed  over multiple tax                                                              
regimes,  and some  were  slated to  expire.   He  said he  thinks                                                              
having multiple  tax regimes over a short period  of time "created                                                              
a ... circumstance that maybe wasn't fully anticipated."                                                                        
9:42:21 AM                                                                                                                    
CHAIR  JOHNSON said that  pertains to  the past  and he  thinks an                                                              
effort is being  made to introduce legislation to  fix the problem                                                              
in the future.   He asked that the focus be  on "where we're going                                                              
from here" rather than "how we messed up."                                                                                      
9:42:46 AM                                                                                                                    
REPRESENTATIVE  TUCK asked  how much credit  savings would  result                                                              
from  focusing only  on exploration  and well  work, without  "the                                                              
operating loss and everything else."                                                                                            
9:43:12 AM                                                                                                                    
MR.  ALPER  answered that  it  depends  on  "how Cook  Inlet  gets                                                              
measured out  in what you're  describing there."   He said  on the                                                              
North Slope  90 percent of credit spending traditionally  has been                                                              
on  operating  loss, while  10  percent  has been  on  exploration                                                              
credits.   For Cook Inlet, the  split is closer to  50/50, because                                                              
it's an  ACES-based regime  where the state  is paying  credits on                                                              
well drilling  and qualified capital  expenditures.  He  said, "If                                                              
we  kept that and  got rid  of the  operating loss, we'd  probably                                                              
take out about half."  To Chair Johnson, he said:                                                                               
     You're  absolutely right,  and we're  looking at a  high                                                                   
     point.      Historically,   the   $775   million   we're                                                                   
     anticipating  paying that would  be paid given  the full                                                                   
     appropriation  in the FY 17  budget - that is  ... based                                                                   
     on  expenditures that  have already  occurred.  This  is                                                                   
     from  2015, which was  the peak year  of the 45  percent                                                                   
     NOL credit,  which had the last year of  the exploration                                                                   
     credit,  which also  has some credits  that rolled  from                                                                   
     the prior  vetoes.  There's a little bit  of the perfect                                                                   
     storm before  you on this slide here, and  we openly and                                                                   
     freely admit to that.                                                                                                      
MR. ALPER said  DOR expects to see this year the  first claims for                                                              
the refinery  credit that  was enacted  under legislation  in 2014                                                              
that  gave capital credits  to instate  refineries, who  apply for                                                              
the credits when  they pay their corporate income  taxes.  He said                                                              
the first  corporate income tax  filings after the  effective date                                                              
will be in October 2016.                                                                                                        
9:44:58 AM                                                                                                                    
MR.  ALPER moved  on to  slide 8, which  parses  out where the  $3                                                              
billion in state-refunded  credits went through the  end of FY 15:                                                              
$1.45  billion   to  six  North  Slope  projects   that  now  have                                                              
production;  [$650] million  to 13  North Slope  projects that  do                                                              
not  have any production,  some of  which are  in process  or have                                                              
been  abandoned; and  half of  the remaining  $900 million  to six                                                              
projects  in Cook  Inlet  that have  production,  while the  other                                                              
half  went to  eight non-North  Slope  projects that  do not  have                                                              
production.   He  reported that  of the $1.45  billion toward  the                                                              
six  projects on  the North  Slope, DOR  is able  to discern  38.5                                                              
million  barrels of  production through  the end  of FY 18,  which                                                              
equals a  cost of $37.30 per  barrel.  He explained that  that sum                                                              
is a  little inflated, because  the money has already  been spent,                                                              
the  oil is  producing, and  the  fields are  operating, so  every                                                              
additional  barrel will  dilute or reduce  the per-barrel  subsidy                                                              
over  time.   He said  those projects  had $4.9  billion in  total                                                              
costs in  lease expenditures, meaning  that "our $1.45  billion in                                                              
credit refund  refunded them  for 29 percent  of their cost."   He                                                              
added,  "That's about  our portion  of a  ... typical,  functional                                                              
development project on the North Slope over the last ten years."                                                                
REPRESENTATIVE  TUCK  asked Mr.  Alper  to  confirm that  the  six                                                              
[North  Slope] projects were  not producing  prior to  the credits                                                              
being given.                                                                                                                    
MR. ALPER answered yes.  He added, "This is new oil."                                                                           
MR.  ALPER directed  attention  to slide  10,  titled "Cook  Inlet                                                              
Refundable  Credits."   He stated  that of the  $450 million  that                                                              
were  spent  on six  projects,  DOR was  able  to  discern a  55.9                                                              
million  barrel of  oil equivalent  (BOE).   He said  most of  the                                                              
production in Cook  Inlet is gas; therefore, BOEs  must be used to                                                              
calculate a definable  number.  He said, "If you  turn all that to                                                              
oil,  it's $7.80  per barrel;  if  you look  at it  at gas,  where                                                              
there's  roughly 6,000  cubic feet  of natural  gas per barrel  of                                                              
oil,  that's about  $1.30 per  [thousand cubic  feet] (Mcf)  - the                                                              
state's  share  through  the credit  system  towards  underwriting                                                              
that new  production.   And, of course,  like with the  other, the                                                              
state's  share  will  decrease  over time  as  ongoing  production                                                              
dilutes  our prior  investment."   He said  lease expenditures  on                                                              
that  production were  a little  less  than $1.1  billion, so  the                                                              
state is into  these projects for about 40 percent  compared to 29                                                              
percent  on the  North Slope.   He  said, "...  That does  roughly                                                              
parallel  the  nature of  our  tax  system.   We  do have  a  more                                                              
aggressive  tax credit support  or subsidy  system in  Cook Inlet,                                                              
primarily driven  by the higher credits  put in place by  the 2010                                                              
Cook Inlet Recovery Act."                                                                                                       
MR. ALPER directed  attention to slide 11, titled  "Cook Inlet Tax                                                              
Caps."  He  stated that the tax rate in Cook  Inlet is effectively                                                              
zero; the  tax rate  on gas is  17 cents per  Mcf.  He  said, "Had                                                              
that gas  and oil been  paying taxes  at the underlying  tax rate,                                                              
they would  have paid between $550  and $850 million over  the ...                                                              
seven years  between 2007 and  2013, so roughly $700  million over                                                              
a seven-year period  are the taxes forgone due  to those statutory                                                              
tax  caps, which  are another  advantage - another  subsidy."   He                                                              
said  the approximate  volume of  oil and gas  produced over  that                                                              
time period was  about 132 million BOE, which  means about another                                                              
$5.30 per  barrel or another 88  cents per Mcf of  support through                                                              
the tax caps in Cook Inlet.                                                                                                     
9:49:31 AM                                                                                                                    
CHAIR  JOHNSON said  that  because the  [overall  subject of  this                                                              
part  of the  presentation] is  about  credit cost,  he wanted  to                                                              
clarify that "the  cap is not a credit."  He  then asked, "Doesn't                                                              
this expire in  ... '22 and then the working group  is supposed to                                                              
work on that?"                                                                                                                  
MR. ALPER  answered yes.   He  said the Cook  Inlet tax  caps were                                                              
put  in place  under  the PPT  bill during  a  special session  in                                                              
2006.   He said  it is  a 15-year tax  cap -  a benefit  that will                                                              
expire  on January  1, 2022,  regardless of  what the  legislature                                                              
does.   He said the bill  before the committee, and  many previous                                                              
versions of it,  introduced the idea of a working  group that will                                                              
come up  with a new tax system  for Cook Inlet and  other areas of                                                              
the state  outside of the  North Slope to  replace that.   He said                                                              
currently  there is no  good tax system  ready to "step  in place"                                                              
in 2022.  Refocusing  on slide 11, he said the  sum of the credits                                                              
and  tax caps  put the  state "into  Cook Inlet  gas" for  roughly                                                              
$2.18 per Mcf.                                                                                                                  
CHAIR JOHNSON  asked, "What other  benefits did that have  in Cook                                                              
MR. ALPER  answered that additional  gas was discovered,  creating                                                              
supply certainty  for utilities in  Southcentral Alaska.   He said                                                              
there had been  significant concern about shortages  and brownouts                                                              
a few  years ago.   He said  another benefit  might be  in keeping                                                              
down the price of gas for consumers in Southcentral Alaska.                                                                     
CHAIR JOHNSON began, "In terms of jobs and the economy..."                                                                      
MR.  ALPER proffered,  "Without  question.   I've  been out  North                                                              
Kenai Road; ...  it was quite booming a couple  years ago compared                                                              
to a few years before that."                                                                                                    
CHAIR JOHNSON  said he  just wanted to  point out that  "sometimes                                                              
these investments  don't always pay  off back to dollars  into the                                                              
MR. ALPER responded that's correct.                                                                                             
9:51:31 AM                                                                                                                    
MR. ALPER  stated that the next  slide, titled "Response  to Rules                                                              
Committee  Substitute,"  begins  discussion  of Version  D,  first                                                              
with   an  introduction,   followed  by   positive  features   and                                                              
concerns, and ending  with a summary regarding fiscal  impact.  As                                                              
shown  on slide  13, he stated  that Version  D makes  significant                                                              
progress in  meeting several goals of the administration,  such as                                                              
reducing  future   spending  by  rolling  back   credit  programs,                                                              
providing  some  strengthening  of  the  minimum  tax  floor,  and                                                              
moving   toward  transparency,   with   greater  availability   of                                                              
information to  the public.   Highlighting points on slide  14, he                                                              
noted  that  Version  D maintains  several  features  of  previous                                                              
versions  of  HB 247,  including:  the  inability to  increase  an                                                              
operating  loss  using the  GVR;  substantial  ramp down  of  Cook                                                              
Inlet  credits,   which  currently  pay   up  to  65   percent  of                                                              
development  costs; restoration  of compound  interest, with  rate                                                              
increase,   for   delinquent   taxes;  municipal   utility   lease                                                              
expenditure   pro-rationing;   the  repeal   of  certain   dormant                                                              
programs  and  obsolete sections  in  statute; surety  bonding  to                                                              
offer  some   protection  to  local   vendors  in  the   event  of                                                              
bankruptcy,  which has been  a problem -  especially in  the Homer                                                              
area;   and  local   hire  repurchase   priority,  wherein   those                                                              
companies that  get the state's limited dollars are  the ones with                                                              
the most aggressive Alaska hire programs.                                                                                       
9:54:01 AM                                                                                                                    
REPRESENTATIVE  TUCK, regarding  local hire,  asked how DOR  would                                                              
assign  preference if  the State  of  Alaska did  not have  enough                                                              
money for  repurchasing some of the  tax credits and there  may be                                                              
companies "a little bit over the map on their local hire."                                                                      
MR.  ALPER  responded  that  Version  D  would  amend  statute  to                                                              
require  [DOR] to  write regulations  to determine  what to  do if                                                              
there  is not enough  money.   He called  it a  "first in -  first                                                              
out" regulation,  wherein "the oldest applications  get paid first                                                              
once the  new money comes in, say  in the next year."   He further                                                              
explained that  DOR is now adding  a new requirement,  which would                                                              
give priority  to companies that  have at least 80  percent Alaska                                                              
hire  - they  would be  paid  first.   He indicated  that DOR  had                                                              
discussed  variations on that  regulation idea,  such as  having a                                                              
more  complete  rank ordering  related  to local  hire.   He  said                                                              
there is also  an open question as to whether  that language could                                                              
be extended to include contractors and subcontractors.                                                                          
MR.  ALPER,  in  response  to a  request  for  clarification  from                                                              
Representative  Tuck,  restated  that the  first  in -  first  out                                                              
regulation  was  created  by   DOR  several  years  ago,  and  the                                                              
aforementioned  level of 80 percent  Alaska hire is in  Version D.                                                              
He offered further detail about the process.                                                                                    
REPRESENTATIVE  TUCK encouraged  the  department to  "put as  much                                                              
weight as possible in those percentages going forward."                                                                         
9:56:28 AM                                                                                                                    
MR.  ALPER moved  on  to slide  15, which  lists  major and  minor                                                              
concerns  with  the  structure  of  Version  D,  including:    the                                                              
maintaining  of  large future  liability  through  carried-forward                                                              
lease  expenditures,  because that  has a  similar  net result  in                                                              
terms  of reduction  of future  taxes for  the state;  a shift  in                                                              
favor  of incumbent producers;  an ongoing  liability without  any                                                              
state pre-approval  or other filter; a delay  in GVR "graduation,"                                                              
when new  oil becomes old oil,  because the time is  being changed                                                              
from  5 years to  10; an inadvertent  capital expenditure  (CAPEX)                                                              
tax  cut, although  that is  going  to be  amended; and  technical                                                              
language changes that could have unintended consequences.                                                                       
9:58:13 AM                                                                                                                    
REPRESENTATIVE  HERRON,  regarding the  delay  in GVR  graduation,                                                              
asked  what  number  DOR  would  prefer  and why  it  would  be  a                                                              
positive choice for the state.                                                                                                  
COMMISSIONER  HOFFBECK answered that  the administration  favors a                                                              
five-year graduation,  because it would  allow a field to  ramp up                                                              
adequately and  be under production while still under  the new oil                                                              
provisions, without  extending into "the more robust  time frame."                                                              
He said most  of the small fields will peak in  less than 10 years                                                              
and be  on the  decline.  He  added, "And  quite frankly  we think                                                              
that 10 year[s]  is too long of a time frame."  He  said even a 5-                                                              
year new oil  provision is substantially longer than  what is seen                                                              
in other tax regimes  in the Lower 48.  He said  this issue is not                                                              
one  that  was  in  the  original  version  of  HB  247,  but  was                                                              
something  that was discussed  and flagged as  a major  issue, and                                                              
the  provision that  was  brought forward  by  the legislature  is                                                              
seen [by the administration] as critical.                                                                                       
REPRESENTATIVE HERRON  remarked that there has been  debate in the                                                              
legislature as to  whether there should be a period  of time where                                                              
new oil  graduates to  mature oil.   He said [the  administration]                                                              
did  not support  that  idea at  first, but  now  is supporting  a                                                              
five-year  period.   He  questioned, "Is  that  something that  is                                                              
good for the state and the industry?"                                                                                           
COMMISSIONER  HOFFBECK responded  that  any time  the state  pulls                                                              
back its support,  the industry will view that as  bad, because it                                                              
would like  new oil  to stay new  oil forever, as  would he  if he                                                              
were in  the same position.   He opined  that the number  needs to                                                              
be balanced  in terms of  what also benefits  the state  and works                                                              
within  its balance  sheet and  brings  the expected  amount in  a                                                              
severance tax  when a nonrenewable  resource is severed.   He said                                                              
internal  discussions   included  consideration  of   a  five-year                                                              
sunset.    He  said  he  is  unsure  whether  the  discussion  the                                                              
legislature had  regarding the five-year  time frame was  a result                                                              
of  [the administration's]  consideration  of  it  or was  totally                                                              
independent  of  it, but  "we  saw five  years  as something  that                                                              
allowed  us to get  through the  startup period  but not  take all                                                              
the  way through  the ...  highest producing  years of  oil."   He                                                              
reiterated  that [the  administration]  thinks [five  years] is  a                                                              
good balance.                                                                                                                   
10:01:35 AM                                                                                                                   
REPRESENTATIVE  TUCK commented that  the testifiers had  said that                                                              
"these  are some  of  the highest  production  years."   Regarding                                                              
five  years versus ten,  he said  he would like  to know  what the                                                              
state will  lose by not capturing  those severance taxes  from day                                                              
10:02:09 AM                                                                                                                   
MR. ALPER  noted that further  slides may expound on  the concerns                                                              
listed  [on  slide  15].    He  noted  that  in  his  presentation                                                              
yesterday,  Janak  Mayer  of enalytica,  Inc.,  presented  slides,                                                              
which showed  high impacts under  certain price scenarios,  and to                                                              
whatever  extent the state  is harming  the industry,  it is  - in                                                              
the reverse -  benefiting itself.  Therefore, there  needs to be a                                                              
balance.  He  said the companies currently receiving  the GVR have                                                              
been getting it  for about 2.5 years, because Senate  Bill 21 took                                                              
effect on January  1, 2014.  He said if the term  of five years is                                                              
chosen,  that is five  years from  the effective date;  therefore,                                                              
those  companies  would  be  getting  that GVR  for  eight  years,                                                              
because  they  would have  already  received  it for  three  years                                                              
before the new  legislation would take effect.   He concluded, "To                                                              
the extent we're  impacting long-ago investment decisions,  it's a                                                              
much  smaller  impact  on those  fields  currently  receiving  the                                                              
REPRESENTATIVE  TUCK  surmised  that he  would  have to  invert  a                                                              
chart that  had been shown  by Mr. Mayer  the day before  in order                                                              
to see the impact to the state.                                                                                                 
MR. ALPER replied that is a reasonable statement.                                                                               
10:03:49 AM                                                                                                                   
CHAIR JOHNSON  asked if  the five years  would give a  company the                                                              
opportunity  to  plan  and  spur   development  and  increase  oil                                                              
MR.  ALPER answered  that the  GVR  certainly is  an incentive  to                                                              
make  an investment,  especially  with smaller  fields.   He  said                                                              
part of the  benefit is the ability to pay back  the capital costs                                                              
by making  a higher profit  in the early  years.  Apparent  on all                                                              
of the charts  is the crossover point whereupon the  company is in                                                              
positive  cash flow.   He  said,  "Once they're  in positive  cash                                                              
flow, it's  just a question of  the split, and what  we're looking                                                              
to do is increase  the state's share of that cash  flow in ... the                                                              
later years, once ... they've crossed back over the zero line."                                                                 
CHAIR JOHNSON  asked for confirmation that the  governor's version                                                              
of HB 247 had no limit on the GVR.                                                                                              
MR.  ALPER  answered  that  current  law had  no  limit  on  GVRs.                                                              
[Having a limit]  was discussed in the development  of HB 247, but                                                              
the governor  did not want  to "get too  close to Senate  Bill 21"                                                              
and  "that  was  perceived as  being  that."    He said  once  the                                                              
legislature  "opened the door,"  the governor frankly  admitted he                                                              
wanted  to [have a  GVR limit] but  had not wanted  to put  one in                                                              
the first version of the bill.                                                                                                  
10:05:18 AM                                                                                                                   
REPRESENTATIVE  TUCK said  currently the  state is giving  credits                                                              
toward all qualifying  capital and operating expenses,  which is a                                                              
lot  of money being  given up  front.   He questioned  when Alaska                                                              
would see  a return on those  investments.  He indicated  he would                                                              
understand  giving a GVR  if the state  was not investing  so much                                                              
up  front, "so  a  company has  some  look forward."    He said  a                                                              
balance  is needed  so that  if  the state  is giving  so much  up                                                              
front, it  gets a little more  on the back end as  companies start                                                              
producing.   He stated, "If  we're not going  to give a  whole lot                                                              
up front,  then maybe we  should give some  sort of credit  ... to                                                              
get them to recover a little bit."                                                                                              
10:06:10 AM                                                                                                                   
MR.  ALPER  directed  attention  to  slide  16,  titled  "Positive                                                              
Features."   He  stated  that Version  D has  a  $75 million  per-                                                              
company,  per-year  cap  for  transition years  limited  to  small                                                              
producers or developers.   He said the idea is that  there will be                                                              
no repurchases  after 2020, Cook Inlet credits  will be eliminated                                                              
in 2019,  and - at full implementation  in FY 21 -  there would be                                                              
about $300  million in  savings to the  state.  He  said, "Between                                                              
additional  revenue  through   the  hardened  floor,  as  well  as                                                              
savings  through  reduced  spending  on  tax credits,  this  is  a                                                              
substantial  piece   of  legislation."    He  said   the  extended                                                              
transition  period could  lead  to large  credit liabilities,  but                                                              
that would be somewhat limited by the per-company, per-year cap.                                                                
10:07:37 AM                                                                                                                   
REPRESENTATIVE  KREISS-TOMKINS,  referring  to  the  prior  slide,                                                              
said  currently  the  state   is  operating  a  $700-$900  million                                                              
subsidy   or  incentive   program,   which   everyone  agrees   is                                                              
unsustainable in  Alaska's current fiscal  environment; therefore,                                                              
the  question is:   "With  a baseline  of zero  dollars, how  much                                                              
does  this bill ...  create in  terms of  fiscal exposure  for the                                                              
State  of Alaska?   What would  the subsidy  or incentive  program                                                              
... cost  the State of Alaska  per year in full  implementation in                                                              
... [FY 21]?"                                                                                                                   
MR.  ALPER  reiterated  that "the  $775"  is  "an aberration  -  a                                                              
historical  high point  -  in our  tax credit  system."   He  said                                                              
[DOR's] forecasts  tend to decline  in the out years,  because "we                                                              
don't  know what companies  are going  to be  doing; we  only know                                                              
what they tell  us."  He said the forecasted  numbers by 2021-2023                                                              
are  approximately  $250 million  in  total  credit support.    He                                                              
said, "Based on  that and based on the fiscal notes  of this bill,                                                              
the  state will  be paying  out a number  fairly  close to zero  -                                                              
certainly less than  $50 million a year in tax credits  in the out                                                              
REPRESENTATIVE  KREISS-TOMKINS  clarified he  wants  to know  what                                                              
the fiscal  impact would  be of  carrying out lease  expenditures,                                                              
which  he said  he understands  are substantially  similar to  the                                                              
concept of net operating loss tax credits.                                                                                      
MR. ALPER  said they are.   He gave an  example of a  company that                                                              
loses  $100 million  developing  a project  in  Alaska.   At a  35                                                              
percent  NOL credit,  there  would be  a  $35 million  credit.   A                                                              
large  company  would  have  to  carry that  forward  and  use  it                                                              
against  future  taxes;  a  small  company  would  apply  for  and                                                              
eventually  receive a  check  [from the  state]  for $35  million.                                                              
Under [Version D],  the 35 percent credit goes away,  but the $100                                                              
million  lease expenditure carries  forward.   So, in  some future                                                              
year,  when  the price  of  oil goes  up  and there  is  a lot  of                                                              
revenue,  that revenue  can be  offset by that  $100 million  that                                                              
was  carried forward  from  the last  year.   The  net result,  he                                                              
said, would  be the same:   a savings on  $35 million on  the tax,                                                              
because  there is $100  million less  in income  that will  not be                                                              
subject  to the  35  percent tax.    Mr. Alper  said  in terms  of                                                              
actual numbers,  and as shown  in the fiscal  note, at the  end of                                                              
2025, there  will be $716  million of  future taxes that  would be                                                              
offset  through the  carry forward  lease expenditures.   He  said                                                              
that number  is elastic  because of the  price of oil  and company                                                              
spending.   He said  roughly every  dollar shift  in the  price of                                                              
oil impacts  company profitability by  about $180 million.   Given                                                              
that there are  about 180 million barrels produced  in a year with                                                              
a  35 percent  NOL  credit,  there is  about  $60  million in  NOL                                                              
credit equivalent  per dollar  in the price of  oil per year.   He                                                              
concluded,  "So,  we're talking  about  a nine-year  forecast  and                                                              
widely  varying price of  oil.   It's very hard  to pin  down that                                                              
number, but based  on our baseline forecast - based  on the spring                                                              
projection - there  will be $700 million-worth of  these so called                                                              
accrued offsets for future years at the end of 2025."                                                                           
10:11:46 AM                                                                                                                   
CHAIR JOHNSON  asked committee  members to here-on-out  save their                                                              
questions to the end of Mr. Alper's presentation.                                                                               
10:11:56 AM                                                                                                                   
MR.   ALPER   turned   to  slide   17,   regarding   the   limited                                                              
strengthening  of the  minimum tax  floor.   He said the  original                                                              
version of  HB 247 called  for a full  strengthening of  the floor                                                              
and would  have been a retroactive  change, so that the  5 percent                                                              
floor  would be  applicable back  to January  2016.   He said  the                                                              
main  concern with legacy  oil was  regarding the carried  forward                                                              
NOLs.   For example, he said if  a company lost money  in 2015, it                                                              
could  use its NOL  credit in  2016 to go  below the minimum  tax.                                                              
He  stated, "Because  there isn't  going to  be a credit  anymore,                                                              
... they will  be paying the minimum tax, and four  of those major                                                              
producers  will be getting  the 4 percent  payment."  He  said the                                                              
$0-$8  per-barrel  credit,  which  is  currently  limited  by  the                                                              
floor,  would,  [under  Version   D],  become  a  hardened  limit,                                                              
because  the NOLs  cannot  go below  that.   Mr.  Alper offered  a                                                              
     Before the  effective date of  the bill, they  expect to                                                                   
     see  a  moderate  amount   of  NOL  credits  from  those                                                                   
     companies  that had losses in  the past - 2015  and then                                                                   
     in the current  year, 2016 - presuming the  price of oil                                                                   
     stays  about the  same.   It  will take  ... three  full                                                                   
     years  for  those NOL  credits  to be  used  up, so  the                                                                   
     floor  payments for  FY  17, 18,  and 19  will be  zero,                                                                   
     because of old  NOLs that will be able to be  used to go                                                                   
     below them,  and we won't  actually see a  fiscal impact                                                                   
     from that specific change until FY 20.                                                                                     
MR. ALPER  said one  other issue is  that the governor's  original                                                              
bill had sought  to further harden the floor for  new oil, meaning                                                              
that the  $5 per-barrel credit for  GVR eligible oil could  not go                                                              
below  that  amount.   He  said  there  is nothing  comparable  in                                                              
Version D.   He said the  small producer and  exploration credits,                                                              
until  they sunset,  could be  used  to go  below the  floor.   He                                                              
explained that  even though the small producer  credit has expired                                                              
- it had  to be claimed by May  1, 2016 - once claimed,  a company                                                              
can get the  credit for nine consecutive years.   Therefore, those                                                              
companies  that  waited  until   the  last  possible  moment  will                                                              
continue  to enjoy the  up to  $12 million a  year credit  for the                                                              
next nine years.                                                                                                                
10:14:15 AM                                                                                                                   
COMMISSIONER HOFFBECK interjected:                                                                                              
     We  think  as a  severance  tax,  there shouldn't  be  a                                                                   
     carry forward.   But if  there is a carry  forward, this                                                                   
     does have  a significant benefit over the  net operating                                                                   
     loss, in that  the net operating loss would  allow a tax                                                                   
     to  go ...  from 4  percent  to zero.   If  you use  ...                                                                   
     these  excess operating costs'  carry forward,  ... they                                                                   
     would  have no  real value  to the  companies until  oil                                                                   
     exceeded  the minimum tax,  so you'd be  in a  $75 price                                                                   
     point  or higher.   So, this would  allow them  to drive                                                                   
     their  tax to  the  minimum ...  at  higher prices  'til                                                                   
     they  use it  up,  but there  would  be no  circumstance                                                                   
     where they could  drive the price to zero.   So, that is                                                                   
     a significant  benefit from  switching to the  ... carry                                                                   
10:15:03 AM                                                                                                                   
MR. ALPER  next directed  attention to  slide 18, which  addressed                                                              
"Transparency."   He said Version D would allow the  state to make                                                              
public  the name  of each  person  or company  that receives  cash                                                              
credit  each year  and the total  amount repurchased,  which  is a                                                              
component  of  what  was originally  proposed  in  the  governor's                                                              
version  of the  bill back  in January  2016.  He  said there  are                                                              
some  other pieces missing  that [the  administration] would  like                                                              
to  see.   For example,  Version  D does  not require  information                                                              
about the purpose  for which the credits were used;  it is written                                                              
to exclude  the so-called  corporate income  tax credits,  with no                                                              
transparency  related to who  is getting the  gas and  LNG storage                                                              
credits;  and  because credit  repurchases  are  going  to end  in                                                              
three  years, "this transparency  section  is of limited  duration                                                              
and  somewhat  limited value,  because  we're  only going  to  get                                                              
information  for  a  couple  years";  and  although  it  would  be                                                              
"outside  the box," [the  administration]  would like a  mechanism                                                              
in  place  to  enable  the reporting  of  the  amount  of  carried                                                              
forward  lease expenditures  that  companies take  with them  from                                                              
one year  into the next, as  a comparable feature of  the credits,                                                              
which are going to end.                                                                                                         
10:16:14 AM                                                                                                                   
MR.   ALPER   addressed   [slides    19-24],   which   list   [the                                                              
administration's]  concerns   with  Version  D.     As  stated  by                                                              
Commissioner Hoffbeck,  Mr. Alper relayed that although  the issue                                                              
was not  in the  original bill,  because [the administration]  was                                                              
not aware  last fall of  the extent to  which the  major producers                                                              
might have losses,  there is increasing concern with  the size and                                                              
duration  of  operating  losses   and  concurrent  operating  loss                                                              
credits  from  the  major  producers -  hundreds  of  millions  of                                                              
dollars  in credits  that  would be  carried  forward into  future                                                              
years   to  offset  future-year   taxes.     He  said   there  was                                                              
substantial  discussion on  how to  reduce or  even eliminate  the                                                              
NOL credit  from the 35  percent level.   He noted there  had been                                                              
an amendment  made on the  House floor to  HB 247 that  would have                                                              
reduced the  amount to 25 percent,  but the amendment failed  by a                                                              
single vote.   He said the  issue has been sidestepped  by Version                                                              
D,  because eliminating  the  NOL credit  and turning  it into  an                                                              
offset  against future  revenue secures  the 35  percent value  of                                                              
those  losses  through the  lease  expenditure process  and  moves                                                              
away  from  any  discussion  about reducing  the  number  in  some                                                              
manner.   Mr.  Alper, adjusting  his previous  estimate [given  in                                                              
response  to Representative  Kreiss-Tomkins], said  at the  end of                                                              
FY 26,  producers will hold losses  that will offset  $715 million                                                              
in future taxes.   He added, "In other words, if  the price of oil                                                              
rebounds  in 2026  to where we  would be  expecting $715  million-                                                              
worth of  production taxes  above the minimum  tax, we  would only                                                              
be getting the  minimum tax; all of that could be  offset by those                                                              
carried forward lease expenditures."                                                                                            
MR. ALPER stated  that a second concern is regarding  the shift in                                                              
favor   of  incumbent   producers  and   away  from  support   for                                                              
independents.    He said  this  is  because the  independents  are                                                              
currently able  to get cash for  their credits.   Eliminating that                                                              
support after  2019 would mean they  would be in a  position where                                                              
they  are carrying  forward their  lease  expenditures until  they                                                              
have  production,  which is  different  economically  for the  new                                                              
company versus  the older company.   He explained that  "the older                                                              
company's  only really  holding  it until  the price  of oil  goes                                                              
up."  A major  producer, thus, may have a loss,  but the following                                                              
year if the  price of oil goes back to $80-$100,  would be able to                                                              
capture that  value and offset  its taxes.  Conversely,  companies                                                              
building  major new oil  field projects on  the North  Slope might                                                              
be  forced to hold  that operating  loss for  five to  eight years                                                              
until  the  fields  come into  production,  which  diminishes  the                                                              
companies'  economics  and could  create  incentives  for them  to                                                              
sell  off their assets  to the  major producers.   Mr.  Alper said                                                              
[the administration's]  modeling showed that its  initial proposal                                                              
of $25 million  per company, per year cap was  a manageable number                                                              
for  the smaller  projects, but  probably inadequate  for a  large                                                              
project,   because  that   cap  would   dramatically  impact   the                                                              
economics of  a company that  is spending hundreds of  millions of                                                              
dollars  a  year.   The  administration  was  looking at  ways  to                                                              
address that issue  for large projects.  He said  [Version D] goes                                                              
in the opposite  direction by reducing cash support  to zero for a                                                              
large project,  and he said he  is curious to hear  the industry's                                                              
upcoming  testimony.   He clarified  that the  difference is  that                                                              
incumbent  producers  will be  able to  monetize  their losses  as                                                              
soon  as  prices  recover,  whereas  independents  must  wait  for                                                              
10:20:08 AM                                                                                                                   
MR.  ALPER stated  that  there  is no  limit  [on potential  state                                                              
liability].    He said  although  the  state  is an  investor  and                                                              
partner  in these projects,  it has  no decision-making  power and                                                              
cannot  determine  "who  goes ahead."    He  said, "To  a  certain                                                              
extent,  this is fixed  by the plan  of development  filter that's                                                              
been added  for the transition  period.   We are looking  and have                                                              
put  together  some language  towards  a pre-approval  process  or                                                              
state loan mechanism  where the state could step in  and say, 'No,                                                              
we are  not' or  'Yes, we are  going to  support this  project; we                                                              
believe it's  in the state's  best interest.'"   He said  the plan                                                              
of  development  language  in  [Version  D]  is  broad  enough  to                                                              
include plans  of exploration, which might  actually unnecessarily                                                              
broaden ... the  list of potential applicants.  He  said, "We'd be                                                              
a little more  comfortable if it were just developers  rather than                                                              
explorers."   He used the example  of Smith Bay, which  was a $100                                                              
million exploration  project in a  remote location that  the state                                                              
may not be  in the best economic position to be  supporting at the                                                              
present time.                                                                                                                   
MR. ALPER  talked about a problem  with a conforming  amendment in                                                              
the bill that deleted AS 43.55.165(e)(18).  He continued:                                                                       
     This  is what's known  in the trade  as "the hair  cut."                                                                   
     The  first  30 cents  of  capital expenditures  are  not                                                                   
     deductible.   This is supposed to be proxy  for the cost                                                                   
     of  routine maintenance  - keeping  the pipes clean  and                                                                   
     not rusty  - and that ... the legislature  determined 10                                                                   
     years  ago should not  be deductible lease  expenditure.                                                                   
     Because  we're   eliminating  the  capital   expenditure                                                                   
     credit  - all  references to  capital expenditures  were                                                                   
     also  repealed  - we  need  to put  in  a definition  of                                                                   
     capital   expenditures   for  a   couple  of   technical                                                                   
     reasons,   including   this   one.      Otherwise,   ...                                                                   
     eliminating  that  30  cent restriction  will  cost  the                                                                   
     state $15-$20  million a year  in a sort of  phantom tax                                                                   
     cut  once the price  of oil  recovers, and I  understand                                                                   
     it's not  the committee's intent to do that,  but that's                                                                   
     the way the CS is currently written.                                                                                       
MR.  ALPER,  regarding  GVR graduation,  talked  about  the  prior                                                              
debate during  discussion of Senate  Bill 21 in 2013 being  in the                                                              
five-  to seven-year  range; the  ten-year concept  is new  to the                                                              
bill and  would greatly reduce  the benefit to  the state.   As he                                                              
recollected  Representative Tuck  had remarked,  he said,  "Fields                                                              
are already  declining and  we're going to  be capturing  a higher                                                              
share of  a declining resource  at that point,  and it is  in many                                                              
ways  the  inverse  of  enalytica's  analysis:    the  longer-term                                                              
benefit  has   a  minimal  impact   on  the  producers   [and]  by                                                              
extension, it's  also of minimal benefit  to the state."   He said                                                              
[the administration]  thinks five years is an  appropriate number;                                                              
seven   would    not   [elicit   a   big   objection    from   the                                                              
administration]; but ten "seems unnecessarily generous."                                                                        
MR.  ALPER addressed  new  and  technical language  changes  under                                                              
Version D.   He said there is  language broad enough in  Version D                                                              
such that  it would allow credits  to be earned in  the three-year                                                              
transition period  by any company, including major  producers.  He                                                              
stated  his  belief that  the  intent  was  to include  only  non-                                                              
producers.    He  explained  the danger  of  including  the  major                                                              
producers is that  it would wipe out the benefit  of hardening the                                                              
floor.    Mr.  Alper  next  remarked  that the  use  of  the  term                                                              
"regular  production" for the  time clock to  graduate the  GVR is                                                              
unusual   and  comes   from  Alaska  Oil   and  Gas   Conservation                                                              
Commission  (AOGCC) statutes.   He suggested  the term  "sustained                                                              
production"   or    "commercial   production"   might    be   more                                                              
appropriate.  He  added, "There is some concern that  you can game                                                              
the  clock a  little  bit by  calling  something  pre-regular -  a                                                              
pilot production  for a  couple of years  - and the  clock doesn't                                                              
stop until you  meet some ... fairly arbitrary  trigger of regular                                                              
production.   We have  some suggested  language that could  change                                                              
the  definition and  change ...  the reference  point as to  where                                                              
the clock should start."                                                                                                        
MR.  ALPER, regarding  carry forward  lease expenditures,  relayed                                                              
that currently  taxes are  paid by segment:   first,  North Slope;                                                              
second,  Cook Inlet  oil; third,  Cook Inlet  gas; fourth,  Middle                                                              
Earth;  and fifth, gas  used in  state.  Version  D would  have no                                                              
language  to characterize  carried forward  lease expenditures  by                                                              
segment, and he  said he was assured by committee  staff that "the                                                              
way the  bill was  written, only lease  expenditures from  ... the                                                              
North Slope will  be able to be carried forward  anyway."  He said                                                              
if that  is the case,  "this is less  of a concern";  however, the                                                              
idea is  to ensure  that those lease  expenditures are  limited to                                                              
be able  to offset only North Slope  taxes, and he is  not sure if                                                              
that is adequately handled in the language of Version D.                                                                        
MR. ALPER  stated that the  carry forward expenditure  language in                                                              
43.55.160(a)  is a section  that is in  effect only  through 2022.                                                              
He said  this is a provision  that dates back to Senate  Bill 138,                                                              
the AKLNG bill  of 2014, which brought a 13 percent  gross gas tax                                                              
separate from  the net profit tax  on oil, and it  rejiggered some                                                              
of  the  conforming  language  about how  lease  expenditures  are                                                              
treated.   He said,  "We simply  need to  duplicate this  language                                                              
for carry  forward lease  expenditures in  the post 2022  section,                                                              
so that  should it remain  in effect in  2022, ... the  ability to                                                              
carry forward  lease expenditures would remain functional  the way                                                              
it's intended."                                                                                                                 
10:26:20 AM                                                                                                                   
MR. ALPER  directed attention to  slide 25, which gives  a summary                                                              
of fiscal  impact in a side-by-side  comparison, for the  years FY                                                              
17 through  FY 20, of the  governor's original version  of HB 247,                                                              
the version  that passed  out of the  House Finance  Committee and                                                              
was amended  on the  House floor, and  Version D currently  before                                                              
the House Rules  Standing Committee.  He said  the governor's bill                                                              
is  aggressive  in the  immediate  term,  largely because  of  the                                                              
retroactivity  of the hardening  and increase  of the  minimum tax                                                              
to January  1, 2016; there is  no comparable feature in  any other                                                              
version.    He  said,  "In  the   absence  of  that,  it's  nearly                                                              
impossible to  have a large impact  on 2017 spending."   He called                                                              
2017  spending "water  under the  bridge," because  it is tied  to                                                              
company  activity  in  2015,   thus  involves  credits  that  have                                                              
already been earned and the state must pay one way or the other.                                                                
MR. ALPER  remarked that  the slide shows  strong parallels  in FY                                                              
17, FY  18, and FY 19, between  the bill out of the  House Finance                                                              
Committee  and Version  D, but  a major  diversion in  FY 20.   He                                                              
explained  what happens  in  FY 20  is that  many  of the  delayed                                                              
features  of Version  D would  kick in:   the  elimination of  the                                                              
refunded  credits  and the  hardening  of  the floor  through  the                                                              
running through of  old NOLs against the floor.   The impact in FY                                                              
20  is $310  million versus  a much  smaller impact  in the  prior                                                              
years.   He said the  last line in the  analysis is the  NOL carry                                                              
forward  value, and it  is apparent  that the governor's  original                                                              
version  of HB 247  had the  highest number,  and that  is because                                                              
"while keeping  the 35 percent  NOL, we were hardening  the floor,                                                              
and all  those credits going back  to 2017 - all of  those credits                                                              
that  were not  being used  to  go below  the floor  - were  being                                                              
added to  the stack."   He said that was  part of the  reason [the                                                              
administration] realized  it needed to reduce the NOL  credit.  He                                                              
said  Version D  falls somewhere  between what  the House  Finance                                                              
Committee  did and  what the  governor did.   He  stated that  the                                                              
fiscal  note is  complicated,  and slide  25  provides the  fiscal                                                              
information  in a  more simplified  manner.   Mr. Alper  announced                                                              
that  he  had completed  his  presentation  and was  available  to                                                              
answer questions.                                                                                                               
10:28:55 AM                                                                                                                   
COMMISSIONER HOFFBECK  recollected that a concern  had been raised                                                              
as  to why  the  restricted monies  deposited  into the  permanent                                                              
fund  were not  included on  slide 5.   He stated  the reason  was                                                              
that  "we don't  have those  to pay  the credits."   He  explained                                                              
that the  slide shows only "where  we had cash in hand  to pay the                                                              
10:29:32 AM                                                                                                                   
REPRESENTATIVE  MILLETT said that had  been her question,  and she                                                              
said  she  still  would  like  to  receive  information  from  the                                                              
department regarding  [the permanent fund  money] from FY 07  - FY                                                              
MR.  ALPER told  Representative Millett  that the  figure of  $8.7                                                              
billion,  labeled  "Restricted  Revenue,"  is the  permanent  fund                                                              
share  of  royalties.    He   said,  "You  could  take  that  $8.7                                                              
[billion] and the  $0.2 [billion] on the non-North  Slope - that's                                                              
$8.9 [billion]  - subtract that $9 billion from  the [$62 billion]                                                              
and we  have about $53  million in unrestricted  petroleum revenue                                                              
over that time period."                                                                                                         
10:30:17 AM                                                                                                                   
REPRESENTATIVE  TUCK  directed attention  to  slide 17,  regarding                                                              
the  minimum tax  floor,  and offered  his  understanding that  by                                                              
[eliminating]  the  net operating  loss  credits,  "they won't  be                                                              
able  to go below  ... production  taxes -  the severance  taxes -                                                              
...  and offset  any revenue  that the  state may  give if you  go                                                              
below zero."   He asked for clarification regarding  the floor and                                                              
whether the forecasted  year would be 2020, "based  on how much we                                                              
may expect  to see the existing  net operating losses  continue to                                                              
go on."                                                                                                                         
MR.  ALPER prefaced  his answer  by stating  that during ACES  and                                                              
PPT, when  the floor was  put in place,  the tax was 4  percent of                                                              
the gross, but  credits could go below that.  Back  then there was                                                              
a  big,  20  percent  capital   credit  on  the  North  Slope,  so                                                              
effectively  there  was  no floor,  because  everyone  had  enough                                                              
spending to  "off" the  minimum tax.   He added, "The  price never                                                              
got low enough  during that era where the floor  kicked in."  With                                                              
the elimination  of the capital  credit under Senate Bill  21, "we                                                              
thought the  floor was hardened."   The per-barrel credit  is what                                                              
is limited  by the  floor; "they  have to pay  the 4 percent  from                                                              
legacy  production on  the North  Slope -  from old  fields."   He                                                              
     What we learned  was credits can still go  below it, but                                                                   
     we  didn't  think  the   majors  would  be  earning  any                                                                   
     credits.   The credit ... they could still  earn is this                                                                   
     operating  loss credit.    If they  have a  loss in  one                                                                   
     year,  they  could  use  that  credit  to  offset  their                                                                   
     minimum tax  from the next year.  So, we  started seeing                                                                   
     - beginning  in 2016 and through FY 21 -  very, very low                                                                   
     production taxes  under status quo because  of operating                                                                   
     loss credits going below the floor.                                                                                        
     So, what this  bill does is, it says, "You're  not going                                                                   
     to earn  any more operating  loss credits.   By carrying                                                                   
     forward  your  lease expenditures,  you're  not  turning                                                                   
     them into  a credit, and therefore, you  can't turn them                                                                   
     into something  that you can  go below the  floor with."                                                                   
     But  before  the effective  date,  which is  January  1,                                                                   
     2017,  you  have any  operating  loss credits  that  you                                                                   
     might  have already had  by that point.   Now,  based on                                                                   
     our  estimates,   that  number  is  $500-$600   million,                                                                   
     something  like that.  So,  that $500-$600  million will                                                                   
     be  enough  to  use  up  three  years'  worth  of  floor                                                                   
     payments,  and that's how you  get ... [to] 18,  19, and                                                                   
     into FY 20 before they use them up.                                                                                        
     So,  based  on  the  forecast,  yes,  it's  2020.    The                                                                   
     reality is  that comes down  to what's the price  of oil                                                                   
     for the rest  of 2016.  And if the companies  don't have                                                                   
     losses this  year - actually make a couple  of dollars -                                                                   
     then  that number's  going to  be much  smaller and,  in                                                                   
     effect,  will have  a hard  floor in  2017.   But if  we                                                                   
     have  a  few  hundred million  dollars  in  losses  this                                                                   
     year,  then that'll  delay  the hard  floor for  another                                                                   
     one, two, or three years.                                                                                                  
10:33:46 AM                                                                                                                   
REPRESENTATIVE  TUCK   asked  Mr.  Alper  to  describe   the  main                                                              
differences  between the governor's  hard floor  at 5  percent and                                                              
that  in Version  D, and  how the price  of oil  may affect  those                                                              
MR. ALPER answered  that the governor's hard  floor maintained the                                                              
existence  of  35  percent  NOL credits,  so  companies  that  had                                                              
losses would  earn the  credit, but could  not use that  credit to                                                              
go below the  floor, but instead must carry it  forward and "build                                                              
up a  taller stack of credits."   Under the governor's  plan there                                                              
is an increase  in the carry forward numbers over  the status quo,                                                              
because  the companies are  not "using up  their NOLs  going below                                                              
the floor."  He continued:                                                                                                      
     So,  that's  the one  difference  is  that the  ...  NOL                                                                   
     credit  had to  be  carried forward  and  used into  the                                                                   
     future,  and that  was immediate.    Whereas, using  the                                                                   
     lease  expenditure  model,  there's the  delay,  because                                                                   
     all  the old NOL  credits could go  below the  floor for                                                                   
     so long as they can.                                                                                                       
MR. ALPER  said another major  change [in the  governor's original                                                              
version]  was the hardening  of the  floor against other  credits.                                                              
He explained  he was talking about  the $5 per-barrel for  new oil                                                              
-  the GVR  oil -  that under  current  law can  go to  zero.   He                                                              
added, "And  there's no change in  this bill; that could  still go                                                              
to zero."   He said  there is a small  producer flat credit  of up                                                              
to  $12 million  per  producer,  which could  go  below the  floor                                                              
under current  law.  He said,  "There's no change to that  in this                                                              
bill."   He explained, "So, the  governor was hardening  the floor                                                              
against some of  these secondary credits, as well  as the NOL, and                                                              
it was immediate."  He continued:                                                                                               
     The  committee substitute is  just against what  amounts                                                                   
     to the  NOL, but it does  so by ... eliminating  the NOL                                                                   
     and ... moving  it into the future.  ...  It retains the                                                                   
     ability of  using existing NOLs against the  floor.  The                                                                   
     issue   there  is   there's  only   so  many  of   them;                                                                   
     eventually  they're going  to get used  up, and at  that                                                                   
     point the floor kicks in.                                                                                                  
REPRESENTATIVE  TUCK  surmised  that the  NOL  was "just  kind  of                                                              
halfway discovered"  and the impacts  were not [anticipated].   He                                                              
asked, "When  did the administration discover this,  and ... would                                                              
the  governor  have  done something  differently  with  his  first                                                              
proposal on HB 247?"                                                                                                            
MR. ALPER answered  that the concept of operating  losses has been                                                              
in  existence since  PPT, since  the  day the  state first  talked                                                              
about switching to a net profits tax.  He continued:                                                                            
     In  general those were  used by  companies that were  in                                                                   
     development  -  that didn't  have  production  yet.   We                                                                   
     never  really  contemplated  people  actively  producing                                                                   
     oil all  year and losing money  at the act of  doing so.                                                                   
     ...  That is  a relatively  new concept,  given the  low                                                                   
     prices we're  in right now and, frankly,  ... the higher                                                                   
     costs  that companies are  experiencing because  of cost                                                                   
     inflation  over   the  last  few  years   and  declining                                                                   
     So,   we  didn't  see   substantial  numbers   of  major                                                                   
     producers  having losses  until ...  we started  working                                                                   
     on  the spring forecast  in February  and March of  this                                                                   
     year  - well  into  the legislative  session.   At  that                                                                   
     point,  we started  seeing the  preliminary numbers  and                                                                   
     kind  of had  a "holy heck  moment," like  this is  much                                                                   
     different  than  anything   you've  seen  before.    ...                                                                   
     Suddenly  the  universe  of  NOLs  has  increased  by  a                                                                   
     factor  of  10.    It's  not  just  about  new  guys  in                                                                   
     development;  it's  about  our  major  legacy  producers                                                                   
     that  produce all  of our  oil and all  of our  revenue.                                                                   
     If they're  suddenly having  quite possibly billions  of                                                                   
     dollars  in   losses  turning  into  many   hundreds  of                                                                   
     millions  of  dollars  of operating  loss  credits,  how                                                                   
     does  that build  up and  how does that  affect our  ...                                                                   
     future  revenues?    And   that's  why,  in  March,  you                                                                   
     started  seeing the  commissioner and  the governor  and                                                                   
     others talking  about the need  to change the  nature of                                                                   
     the NOL credit itself.                                                                                                     
MR.  ALPER concluded  that if  the fall forecast  had looked  like                                                              
the  spring forecast,  he would  have expected  the original  bill                                                              
version to  look different; [the  administration] would  have been                                                              
seeking to modify the NOL credit initially.                                                                                     
10:38:10 AM                                                                                                                   
REPRESENTATIVE  TUCK directed  attention to  the comparison  chart                                                              
on  slide  25 and  remarked,  "It  doesn't  sound like  ...  doing                                                              
anything with  the NOLs really is  a Senate Bill 21  change, since                                                              
that was something that we've always had under PPT."                                                                            
MR. ALPER  responded that  NOLs have been  around since PPT.   The                                                              
NOL credit  usually has  been tied  to the base  rate of  tax, but                                                              
not universally.   He said under the PPT, the base  rate was 22.5,                                                              
with  progressivity on  top  of that.   The  NOL  was actually  20                                                              
[percent],  and ACES  base  rate and  NOL  was 25  percent.   When                                                              
Governor  Sean Parnell  introduced  Senate Bill  21, it  was a  25                                                              
percent  flat  tax,  with  a   25  percent  NOL  -  there  was  no                                                              
progressivity.  He continued:                                                                                                   
     The  decision was  made in  committee to  go to that  35                                                                   
     percent tax,  with a per-barrel credit.  ...  That was a                                                                   
     revenue  neutral decision.   At the expected  prices, we                                                                   
     were  going to  get the  same  amount of  money from  35                                                                   
     minus  5   as  we  were  from  the  25   percent.    The                                                                   
     difference  was a little  bit of progressivity,  meaning                                                                   
     a  little bit  more revenue  at the high  end, a  little                                                                   
     bit  less  revenue at  the  low end,  and  that was  the                                                                   
     desired decision.   But there  was no real need  at that                                                                   
     moment  to bump up  the NOL credit  rate to 35  percent.                                                                   
     That just  sort of was carried  along for the  ride with                                                                   
     the  change  to 35/5.    In that  there  was no  revenue                                                                   
     benefit  to  the  change in  tax,  why  did we  need  to                                                                   
     change  the credit?   That was  the realization we  had,                                                                   
     and  that's  why  it was  fairly  easy  for us  to  come                                                                   
     around  and say, "Well  at [the]  very least, we  should                                                                   
     reduce the NOL rate down to 25 percent."                                                                                   
     ...  Since  then the  conversation's  gone  ... in  more                                                                   
     aggressive  directions,  talking  about  a  ...  sliding                                                                   
     scale  or  an elimination  of  carry forwards  and  that                                                                   
     kind of thing.                                                                                                             
REPRESENTATIVE  TUCK,  referring to  the  chart with  the  summary                                                              
analysis  of the bill  versions, asked  how much  of a  factor the                                                              
elimination  of  the  NOLs  would  have  been  to  the  governor's                                                              
numbers for FY 17-20.                                                                                                           
MR.  ALPER answered  that the  change would  have been minimal  to                                                              
"the  dollar value  of the  bill."   Where the  change would  have                                                              
made  an impact  would  be the  bottom line  -  the carry  forward                                                              
number,  which represents  an off-set against  future taxes;  once                                                              
the prices go up, that number would decrease dramatically.                                                                      
10:41:15 AM                                                                                                                   
REPRESENTATIVE KREISS-TOMKINS  offered his understanding  that Mr.                                                              
Alper had  said that with  [Version D],  there is a  potential for                                                              
major  producers  to accumulate  a  small  fortune in  NOL  credit                                                              
subsidies,  which would  effectively wipe  out any production  tax                                                              
liability  through approximately  2020.  He  asked what  the price                                                              
forecasting  was  when [the  administration]  came  up with  "that                                                              
$500-  to $600-million  figure."  He  said he  also would  like to                                                              
know  the relationship  between  the quantity  of  NOL tax  credit                                                              
subsidies  and  projected  production tax  liability  "over  those                                                              
three years."   He emphasized his conviction in  ensuring that the                                                              
state  does not lose  money on  its oil  resource through  any tax                                                              
credit mechanism  but, in this case, specifically  through the NOL                                                              
tax credits.                                                                                                                    
MR.  ALPER responded  that the  spring forecast  for oil price  is                                                              
about  $39 from now  through the  end of  FY 17.   He offered  his                                                              
recollection that  the FY 18 amount  is $43, while the  number for                                                              
FY 19  is about $48, and there  is a big difference  between those                                                              
numbers,  because   the  break-even  price  is  about   $46.    He                                                              
explained  that is the  moment where  companies stop  accumulating                                                              
losses.    He said  there  is  another  slide,  which he  had  not                                                              
included, which  tracks carry  forward losses and  credits through                                                              
multiple  years   and  addresses  the  statutory   minimum  credit                                                              
repurchase.   The take-away from that  slide, he said,  is that in                                                              
FY 19, 20,  and 21, the price of oil is well  above the break-even                                                              
price,  such that  companies  would have  a tax  liability in  the                                                              
hundreds   of  millions   of  dollars.     However,  the   state's                                                              
production tax  revenue during those years was de  minimis at $10-                                                              
$15  million.   He  said the  reason  was that  all  of the  carry                                                              
forward  losses  from  FY 16-18  were  offsetting  the  forecasted                                                              
taxes that were due in FY 19-21.                                                                                                
10:44:25 AM                                                                                                                   
COMMISSIONER HOFFBECK  added, "We are really at  that ... breaking                                                              
point on  whether the carry  forwards will  occur or not  based on                                                              
oil  price."     He  mentioned  an  article   in  Bloomberg  about                                                            
producers, at  a $50 price point,  being able to get  their prices                                                              
down  and  worldwide  "stop   bleeding  red"  and  "start  turning                                                              
production back on."   He said if that is the  case, "we are going                                                              
to be  hovering around  this territory for  quite some time."   He                                                              
continued,  "Regardless  of whether  we're going  to  be above  or                                                              
below that  threshold in that coming  year, I think we  still need                                                              
to ... the  dynamics of what happens when we fall  below it and so                                                              
I think  we need to correct the  issue, whether we have  the carry                                                              
forward issue  or not; in the coming  year ... I think  we need to                                                              
put something  in statute so  it lets everybody know  what happens                                                              
if we fall back below that line again."                                                                                         
10:45:29 AM                                                                                                                   
REPRESENTATIVE   KREISS-TOMKINS,    regarding   the   subject   of                                                              
preapproval  and   incentive  applications,  mentioned   the  $100                                                              
million  in  exploration credits  coming  in  under the  wire  and                                                              
other credits  for speculative investment.   He said the  state is                                                              
subsidizing   the  industry  and  wants   a  return  on   such  an                                                              
investment,  and  he  opined  that  a clear  return  needs  to  be                                                              
demonstrated  when using  public dollars.   He expressed  interest                                                              
in what  DOR's thinking has been  in terms of "how  that filtering                                                              
or approval  process might work."   He said farmers  and fishermen                                                              
in  Alaska don't get  automatically approved  for financing;  they                                                              
get denied  if they are  not credit-worthy.   He asked  what DOR's                                                              
conversations  have been  in  terms of  creating a  return to  the                                                              
State of  Alaska and "the  people who are financing,  subsidizing,                                                              
or incenting this development."                                                                                                 
COMMISSIONER   HOFFBECK  answered  that   that  was   exactly  the                                                              
conversation   held  when   considering  whether   to  include   a                                                              
preapproval  process in the  original legislation.   He  said, "We                                                              
left the  NOLs in as kind of  a playing field leveler  between the                                                              
independents  and  the  producers  -  again  because  of  kind  of                                                              
teetering  on ... [Senate  Bill] 21  - and went  maybe a  step too                                                              
far."    The  discussion  included  consideration  of  whether  to                                                              
replace  the other credits  with some  kind of preapproved  credit                                                              
process "where  we could be much  more surgical in where  we would                                                              
spend our  money" and look  at the long-term  benefits of  a Smith                                                              
Bay  project, for example.   He  said, "There  may be some  reason                                                              
that  we  would  want to  be  involved  in  a project  like  that,                                                              
because it may  be pushing the horizons out to some  place that we                                                              
think they  should be."  He said  another view is to  consider the                                                              
net  present value  of the  return to  the state  and whether  "X"                                                              
amount  of  dollars  invested  into  a  project  would  ultimately                                                              
result  in a return  in a certain  period of time.   He  said, "We                                                              
really wanted  to ... make it  more of a business decision  on the                                                              
credit structure  than what we have  now.  I think there  is still                                                              
a  place  for  the  state  to   be  involved  in  exploration  and                                                              
development,  but  I  think   we  need  to  do  it  very  project-                                                              
specifically  with a  much more  surgical  form in  place ...  for                                                              
approval."   He  mentioned a  film tax  credit that  was cut  last                                                              
year,  which had  a very  specific approval  process, including  a                                                              
committee  that reviewed  the  proposal and  approved a  "specific                                                              
amount of credit  for a specific project for a  specific period of                                                              
time,"  and he said  he thinks  that is [a  method] that  could be                                                              
duplicated for  the oil and gas  tax credits so that  Alaska could                                                              
participate  without   such  an  open-ended  system   as  it  does                                                              
10:49:13 AM                                                                                                                   
The committee took an at-ease from 10:49 a.m. to 11:02 a.m.                                                                     
11:02:00 AM                                                                                                                   
CHAIR JOHNSON announced that the committee would next hear a                                                                    
presentation from the Alaska Oil and Gas Association related to                                                                 
HB 247.                                                                                                                         
11:02:20 AM                                                                                                                   
KARA  MORIARTY,  President/CEO,  Alaska  Oil and  Gas  Association                                                              
(AOGA),   noted  that   her   ensuing  testimony   was   supported                                                              
unanimously by  AOGA members.   She paraphrased the  first segment                                                              
of  her  written  testimony,   which  read  as  follows  [original                                                              
punctuation provided]:                                                                                                          
     We recognize  that many of  you are looking for  ways to                                                                   
     fill  the state's  budget gap and  see increasing  taxes                                                                   
     on the  oil industry as  part of the solution.  However,                                                                   
     to  be  completely  candid,  the  CS  in  question  will                                                                   
     result  in  disastrous long-term  economic  consequences                                                                   
     to our  state that will  far outweigh the  temporary and                                                                   
     modest short term gains.                                                                                                   
     Before I get  into more detail about how  this bill will                                                                   
     unquestionably  have a  negative impact  on Alaska,  let                                                                   
     me  first  lay  the foundation  for  those  comments.  I                                                                   
     begin by  asking you, our state lawmakers,  what is your                                                                   
     vision  for Alaska?  With  that in  mind,  how can  this                                                                   
     proposed  legislation  serve  your  ultimate  endeavors?                                                                   
     What will  the bill do to production and  how will state                                                                   
     revenues  be impacted  by this  bill next  year or  even                                                                   
     five  years from  now? What will  Alaska's economy  look                                                                   
     like following the adoption of this bill?                                                                                  
     More  to the  point, is  the  CS likely  to increase  or                                                                   
     even  provide  stable  throughput  in  the  Trans-Alaska                                                                   
     Pipeline  System,   "TAPS"?  Will  the   CS  incentivize                                                                   
     workovers  and production  from more  mature fields,  or                                                                   
     encourage  new companies  to  invest here?  Will the  CS                                                                   
     increase  the   diversity  of  companies   operating  in                                                                   
     Alaska?  Perhaps  your  vision  is  a  stampede  of  new                                                                   
     activity  on the  North Slope,  where companies  compete                                                                   
     fiercely for  acreage and resources as they  forge ahead                                                                   
     with   multi-million  and   even  multi-billion   dollar                                                                   
     projects? Or  perhaps you are focused on  Cook Inlet and                                                                   
     your  CS  is designed  to  provide energy  security  for                                                                   
     South   Central   Alaska    by   encouraging   increased                                                                   
     investment and  production in Alaska's first  oil basin?                                                                   
     I  would   imagine  that  increased  production   and  a                                                                   
     healthy  economy are  the foundation  of your  long-term                                                                   
     vision for  Alaska, which is why it is  paramount that I                                                                   
     advise  you  that  the  CS  will  drastically  undermine                                                                   
     those goals and jeopardize Alaska's future.                                                                                
     As we  read through this  latest CS, it is  unfortunate,                                                                   
     but very  clear that the  CS does create  new principles                                                                   
     for   Alaska.  Those   principles  include   eliminating                                                                   
     refundable  tax  credits, which  were  the catalyst  for                                                                   
     several  companies investing  in  Alaska. Those  credits                                                                   
     have  provided,  and  continue   to  provide,  a  strong                                                                   
     return  for  the state's  investment.  Another  newfound                                                                   
     principle  appears to be to  raise taxes on  an industry                                                                   
     that is  already losing  money in the state,  regardless                                                                   
     of the  consequences to not only that industry  but also                                                                   
     the Alaskan  economy. This CS  is a flagrant  money grab                                                                   
     that   will,  without   question,  lead   to  less   oil                                                               
     production,  less  investment, fewer  Alaskans  working,                                                                   
     and  ultimately, and somewhat  ironically, less  revenue                                                                   
     for the State.                                                                                                             
     We understand  the politics  associated with this  issue                                                                   
     are  challenging.  We get  it.  And  yet, to  my  member                                                                   
     companies,  the politics are  largely irrelevant  to the                                                                   
     core  of  what  drives   decision-making,  and  that  is                                                                   
     economics.   My  member   companies   will  not   pursue                                                                   
     projects  that  don't pencil  out.  They will  not  keep                                                                   
     more Alaskans  on the payroll when the State  decides to                                                                   
     take  an  even  bigger  bite out  of  the  bottom  line,                                                                   
     which, at  the moment, for  some companies, is  awash in                                                                   
     red  ink. The industry,  recognized  in the state's  own                                                                   
     data,  does not have  the current  revenue to pay  their                                                                   
     daily  bills, and it  will be  forced to constrict  even                                                                   
     more if  a bill like  this becomes law. This  inevitable                                                                   
     result  will not be  based on  emotions or politics.  It                                                                   
     is  simply a mathematical  calculation. Numbers  dictate                                                                   
     investment,  and  a bill  like  this makes  the  numbers                                                                   
     worse. End of story.                                                                                                       
     Ironically,   with  this  CS,  the  State   actually  is                                                                   
     setting  the stage  for  an inevitable  loss of  revenue                                                                   
     regardless  of  what  credits  it removes  or  taxes  it                                                                   
     raises.  Getting back to  the economics, the  barrels of                                                                   
     oil  that remain  in  legacy and  new  fields, which  we                                                                   
     know are  there for the taking, but  require significant                                                                   
     capital  investment to  recover, would  lead to  greater                                                                   
     revenue  to the  State. And  yet, instead  of trying  to                                                                   
     facilitate the  recovery of those volumes, this  CS will                                                                   
     raise  the production  tax,  thus  making those  barrels                                                                   
     less likely  to be produced  when oil prices  inevitably                                                                   
     come back up.                                                                                                              
     Again, here's  the irony: Under this CS,  the State will                                                                   
     see  lower  oil  and gas  production,  which  will  then                                                                   
     drain State finances.                                                                                                      
11:08:28 AM                                                                                                                   
MS. MORRIARTY  drew attention  to a  couple PowerPoint  slides she                                                              
had provided.  The first slide  shows projected production decline                                                              
curves.   She said  the numbers  shown were  sourced from  recent,                                                              
publicly available data.  She continued  to paraphrase her written                                                              
testimony, which read as follows [original punctuation provided]:                                                               
     For  example, the  owners  of Prudhoe  Bay just  updated                                                                   
     their  plan  of  development  and  have  estimated  that                                                                   
     production  will  decline 20,000  -  60,000 barrels  per                                                                   
     day  due  to the  shut-down  of  3  rigs and  less  well                                                                   
     workovers   being  completed  due   to  the  low   price                                                                   
     environment. This  lost drilling time could  result in a                                                                   
     10-30% decline  in Prudhoe Bay  alone, which is  in line                                                                   
     with  what  industry has  often  said that  the  natural                                                                   
     decline  is about 10-15%  without increased  investment.                                                                   
     The  tax increase  proposed  by this  CS  will not  help                                                                   
     turn this around.                                                                                                          
MS. MORIARTY referred again to the  slide and stated that by using                                                              
both DOR's  production and price  forecast, AOGA  charted declines                                                              
of 7, 10,  15, and 20 percent  [shown alongside 4  percent], which                                                              
she  explained  is  the current  forecast,  even  with  hoped  for                                                              
investment.    All  these  percentages   are  calculated  to  show                                                              
production  decline from  2016 to  2021.   She said  a 10  percent                                                              
decline results  in about 300,000  barrels per day in  five years.                                                              
She stated,  "If you look at  the cumulative reduction  in royalty                                                              
values under those same percentages,  you will see that this chart                                                              
highlights  the   possible  ramification  of   ...  [exacerbating]                                                              
production decline.   So, a 10 percent decline every  year for the                                                              
next five  years would result in  just under $800 million  less in                                                              
royalties  alone, and  a  20 percent  decline  in production  will                                                              
result  in  a very  dramatic  and  terrifying  loss of  almost  $2                                                              
billion in royalties alone."                                                                                                    
MS. MORIARTY returned focus to production decline curves and                                                                    
continued to paraphrase her written testimony, which read as                                                                    
     Adding   insult  to   injury  in   this  scenario,   the                                                                   
     technical  aspects  of  operating  TAPS  are  made  more                                                                   
     challenging  because  of those  lost  barrels, and  thus                                                                   
     more  expensive. Alyeska  as  stated that  TAPS faces  a                                                                   
     significant  operational   obstacle  at  throughputs  at                                                                   
     around  300,000 barrels  per  day. Despite  some of  the                                                                   
     best  and   most  innovative  people  in   the  industry                                                                   
     focused  on this scenario,  an operational solution  has                                                                   
     not  yet been identified  to sustain  TAPS operation  at                                                                   
     this level.                                                                                                                
     The  other  unfortunate  irony is  that  this  resulting                                                                   
     loss  of  production would  come  on  the heels  of  the                                                                   
     first  year-over-year increase  in oil production  we've                                                                   
     seen  in 15 years.  Under this  ... [CS], Alaska  throws                                                                   
     out that progress with the bathwater.                                                                                      
     So  again, I ask  all of  you, what  is your policy?  In                                                                   
     years past,  focus was placed on several  key components                                                                   
     of  a balanced  oil  and  gas tax  structure,  including                                                                   
     production,      predictability,     certainty,      and                                                                   
     competitiveness.  From  our  view,  this  CS  negatively                                                               
     impacts every  company in Alaska and violates  every one                                                               
     of  those  tenets.  In  addition,  it  has  the  dubious                                                               
     distinction   of  making  a   bad  situation   worse  by                                                                   
     bringing in even less long-term revenues to the state.                                                                     
     Alaska  has been  focused  on increasing  production  on                                                                   
     the  North Slope  and Cook  Inlet and  for good  reason,                                                                   
     because  the  state  needs  its economic  engine  to  be                                                                   
     successful.   More  production   means  more  jobs   and                                                                   
     revenue for the state.                                                                                                     
11:13:08 AM                                                                                                                   
     This  CS is a  dramatic shift in  Alaska's policy  as it                                                                   
     essentially eliminates  key tax credits within  the next                                                                   
     2-3  years  and  adversely   changes  some  of  the  key                                                                   
     elements  of the existing  production tax system.  After                                                                   
     weeks  and  weeks  of  analysis  and  examination,  this                                                                   
     committee  substitute  makes   yet  again  more  drastic                                                                   
     alterations.  The rapid  tax credit  sunset will  surely                                                                   
     have major  adverse impacts to projects  currently under                                                                   
     development,  and discourage others from  ever seriously                                                                   
     considering  investment  in Alaska  in  the future.  The                                                                   
     change  in  the  application  of  future  potential  net                                                                   
     operating  losses represents  an immediate tax  increase                                                                   
     and  devaluation  of this  essential  element  of a  net                                                                   
     based tax system.                                                                                                          
     Alaska  is  the only  state  in the  nation  considering                                                                   
     increasing  taxes  or  eliminating  incentives  at  this                                                                   
     time of low  price. This CS will require  an even higher                                                                   
     oil   price  for   companies   to   invest  in   Alaska,                                                                   
     especially  for companies  that are  looking to  explore                                                                   
     in Alaska's very high cost environment.                                                                                    
     If  Alaska  wants  to  retain  the  strong  benefits  it                                                                   
     receives from  the industry that develops  its resources                                                                   
     and  provides over  80% of the  state's revenues,  there                                                                   
     needs   to  be  confidence   that  the  underlying   tax                                                                   
     structure is  stable and predictable. This  CS certainly                                                                   
     does  not  promote  the stability  that  will  encourage                                                                   
     industry  to continue investing  in Alaska. In  fact, it                                                                   
     sends  a  strong signal  to  the  world that  Alaska  is                                                                   
     constantly  changing  tax  policies, regardless  of  oil                                                                   
     price, and  regardless of the economic condition  of the                                                                   
     As  an example  of  instability, the  CS  creates a  new                                                                   
     policy  regarding  Alaska   resident  hire.  Let  me  be                                                                   
     clear,  the industry  strongly supports  hiring as  many                                                                   
     Alaskans  as we  can. It  makes economic  sense for  the                                                                   
     industry  to  do  so.  The   current  language  of  this                                                                   
     provision   is  unclear   [and]  creates  questions   of                                                                   
     retroactivity  and questions  of implementation,  all of                                                                   
     which creates additional uncertainty for industry.                                                                         
     In  closing,  the  industry  is  not asking  for  a  tax                                                                   
     decrease  or   for  tax  or  royalty  relief   while  we                                                                   
     struggle  though  extraordinarily  low  prices,  and  we                                                                   
     have asked  that you proceed with caution  when changing                                                                   
     tax policy.                                                                                                                
     It is my job to let you, our elected officials, know what                                                                  
     impacts your decisions will have.                                                                                          
        • The CS will not increase production from the Slope or                                                                 
          Cook Inlet.                                                                                                           
       • It will not encourage new companies to invest in                                                                       
        • It will not lead to more long-term revenues for the                                                                   
        • It will not increase the number of companies operating                                                                
          in Alaska, and will likely drive some companies out of                                                                
          the state.                                                                                                            
        • It will not lead to a stampede of new activity.                                                                       
        • It will not provide long-term energy security.                                                                        
        All this CS will do is provide a small amount of                                                                        
      short-term revenue for the state, while significantly                                                                     
     jeopardizing Alaska's long-term future.                                                                                    
11:16:46 AM                                                                                                                   
MS. MORIARTY offered to answer questions from the committee.                                                                    
11:17:01 AM                                                                                                                   
REPRESENTATIVE  HERRON asked if  Ms. Moriarty could  name anything                                                              
good about Version D.                                                                                                           
MS.  MORIARTY  answered that  unfortunately  none  of the  changes                                                              
proposed  in  any  iteration  of HB  247  would  provide  anything                                                              
positive  to  the  industry,  and ultimately  that  would  not  be                                                              
positive for Alaska.                                                                                                            
11:17:51 AM                                                                                                                   
REPRESENTATIVE  KREISS-TOMKINS   said  that  as  he  read  through                                                              
written  testimony, "the  language of money  grabs" seems  strong.                                                              
He  asked  whose   money  is  being  grabbed.     He  offered  his                                                              
understanding  that currently Alaska  is subsidizing  the industry                                                              
with $775 million,  which Mr. Alper said is a  temporary rise that                                                              
will  drop to  about  $500 million  in  future  years "if  nothing                                                              
changes."    He  observed  that  it  is  the  state's  money,  yet                                                              
"there's  an assumption that  it's your money  that we,  the State                                                              
of Alaska, are grabbing."  He asked Ms. Moriarty to comment.                                                                    
11:19:15 AM                                                                                                                   
MS.  MORIARTY responded  that from AOGA's  perspective, the  state                                                              
is collecting more  revenue from the industry as a  whole than the                                                              
industry  receives in  credits, whether  refundable or  not.   For                                                              
example, over  the past eight  years, the state has  generated $61                                                              
billion  from  the  industry  while paying  out  approximately  $8                                                              
billion.   She said that  is a policy  that the state  created and                                                              
to which  the industry responded.   She explained that  the reason                                                              
for  characterizing this  as a  money grab  is that  the state  is                                                              
looking  for  additional  money -  whether  in  the form  of  less                                                              
credits   given,  which   will  affect   investments,  jobs,   and                                                              
production, or  through increased taxes - for an  industry that is                                                              
losing  money  today.    If  prices stay  at  $40,  the  state  is                                                              
forecasting  that the industry  is going to  lose over  $1 billion                                                              
this year,  yet the state is  looking to generate more  money from                                                              
the industry  "in that scenario."   She concluded, "That's  why we                                                              
think it's money grabbing."                                                                                                     
REPRESENTATIVE  KREISS-TOMKINS  questioned who  the  owner of  the                                                              
resource  is.  He  pointed out  that while  oil prices  were high,                                                              
there was  a "sharing of  that huge windfall  that occurred."   He                                                              
said,  "You noted  it's simply  a  mathematical calculation  where                                                              
companies invest  their dollars, and  similarly, to me,  it should                                                              
be a mathematical  calculation how the State of  Alaska incents or                                                              
subsidizes  certain industries  to  get a  maximum  return on  its                                                              
dollars."    He  asked  Ms.  Moriarty  if  she  had  any  thoughts                                                              
regarding Mr.  Alper's or Commissioner Hoffbeck's  suggestion that                                                              
the  state  should  use  a filtering  or  preapproval  process  to                                                              
determine a  demonstrated return on investment when  it incents or                                                              
subsidizes  the industry  and whether she  sees that  mathematical                                                              
calculation working in both directions.                                                                                         
MS.  MORIARTY  responded  that she  is  hesitant  to remark  on  a                                                              
preapproval  process  before  seeing  what  it  would  look  like;                                                              
however, AOGA  has always suggested  it is dangerous  to establish                                                              
a policy  in which winners and  losers are chosen.  She  said AOGA                                                              
believes the  tax policy should  work regardless of  company, size                                                              
of  project,  or  whether  that  project  is  for  exploration  or                                                              
development.   Further,  she  said AOGA  has  long-felt that  even                                                              
though its  members did not agree  with every component  of Senate                                                              
Bill 21, the  current structure is a solid tax  policy that allows                                                              
for any  company to know what  the rules are and to  be successful                                                              
in Alaska.   Regarding whether the mathematical  equation is fair,                                                              
she emphasized  that it is up  to the state whether to  change its                                                              
policy  to  get more  money  from  the  industry or  provide  less                                                              
credit to  the industry, but doing  so will result in  a change in                                                              
the  industry's behavior  leading  to less  activity, fewer  jobs,                                                              
and a decline in production.                                                                                                    
REPRESENTATIVE   KREISS-TOMKINS,  regarding  winners   or  losers,                                                              
indicated  that   deferring  exploration  and  capital   costs  is                                                              
essentially  an  upfront  grant  for development.    He  mentioned                                                              
again  other industries,  such as agriculture  and fishing,  which                                                              
deal with revolving  loans, for which they either  are approved or                                                              
rejected.   Those other industries  must prove they are  worthy of                                                              
receiving  the money from  the State  of Alaska.   He said,  "In a                                                              
certain  sense, it's  picking winners  or losers.   I  think in  a                                                              
more  accurate  sense, it's  vetting  ... [which]  operations  are                                                              
economic  and going to  provide a  safe and reasonable  investment                                                              
and which  operations are not."   He said  if the State  of Alaska                                                              
approved every  revolving loan fund application,  which he offered                                                              
his  understanding would  be  similar to  the  tax credit  system,                                                              
then there  would be a lot more  jobs and more investment,  but it                                                              
would  be a "paper  industry" that  cannot sustain itself  because                                                              
it relies on subsidies to exist.                                                                                                
MS.  MORIARTY responded,  "These are  not grants  up front."   She                                                              
said the  companies do not apply  for the credit, get  the credit,                                                              
and then  go spend the money.   The companies spend the  money and                                                              
create the  jobs first,  then apply for  the credit, which  may or                                                              
may not be  redeemed, and then get reimbursed  18-24 months later.                                                              
She emphasized  that this  is not  the same concept  as a  loan or                                                              
grant program.   The credit that is applied for  after the expense                                                              
is incurred is,  when received, put right back  into the business.                                                              
She  suggested  that the  upcoming  testifiers from  the  industry                                                              
could  offer   further  information  regarding  the   use  of  the                                                              
credits.   She  said  changing from  a credit  program  to a  loan                                                              
program  completely shifts  the economics  and feasibility  of the                                                              
11:27:41 AM                                                                                                                   
REPRESENTATIVE  TUCK stated his belief  that there are  few places                                                              
where the  industry "has it any  better" than in Alaska.   He said                                                              
he  finds the  idea  of Alaska  as  a money  grabber  problematic,                                                              
because the  state has been reimbursing  the industry and  doing a                                                              
good  job in partnering  with it.   He said  during ACES  and when                                                              
the price of  oil was high, not only was Alaska  able to put money                                                              
in savings,  but the industry made  record profits.  He  said "we"                                                              
have been  preparing for a rainy  day, and he speculated  that the                                                              
industry  has  done  the same.    He  said  Version D  suggests  a                                                              
reduction in  some of the  cash payments.   He said [the  State of                                                              
Alaska] jump  started the industry  in Cook Inlet.  He  noted that                                                              
Mr.  Mayer  had  testified  that   Cook  Inlet  is  profitable  at                                                              
anywhere between  $5 and $7  per Mcf.   The state knows  that what                                                              
it  did to  give incentives  and  get fields  into production  and                                                              
have  sustainable  gas  was successful.    Now  the state  is  not                                                              
collecting  anything in  terms of corporate  or production  taxes.                                                              
He spoke  of the promise  of Senate Bill  21, the  announcement by                                                              
BP of a 40,000  barrel a day reduction, and the  layoffs that have                                                              
been  taking place  in  spite  of everything  the  state has  been                                                              
giving to  the industry.   He questioned  how much more  money the                                                              
industry needs  from the State of Alaska to  prevent those layoffs                                                              
and the 40,000 barrels per day reduction.                                                                                       
MS.  MORIARTY replied  that the  industry  is not  asking for  any                                                              
more  money  from the  State  of  Alaska,  royalty relief,  a  tax                                                              
deduction,  or a tax deferral.   She  said those changes  that are                                                              
happening  on the  [North] Slope  are a condition  of a  low-price                                                              
environment.   She said AGOA  is saying that in  that environment,                                                              
increasing taxes  or the removal  of incentives will  increase the                                                              
time it  takes to bring  the rigs back  on line.   She recollected                                                              
the  news had reported  that Prudhoe  Bay may  not see  those rigs                                                              
come back on  line until 2018.  Adding additional  cost, she said,                                                              
will  increase  that timeline.    She further  noted  that at  the                                                              
current  price environment,  the government  is currently  at "100                                                              
percent  government take."   She  questioned how  much higher  the                                                              
government  should  go, in  terms  of that  take,  in the  current                                                              
price environment.   Finally,  she said she  does not  believe the                                                              
million  barrels  a  day  was  ever  a  promise  by  the  previous                                                              
administration;  she  recollected   that  it  was  a  goal,  which                                                              
included  not only production  from state  land, but also  federal                                                              
outer  continental  shelf (OCS),  "which  we see  now  will be  at                                                              
least another generation before we see that come on line."                                                                      
11:32:12 AM                                                                                                                   
REPRESENTATIVE  KREISS-TOMKINS stated that  he thinks [HB  247] is                                                              
a modest  proposal; therefore, he  is incredulous about  and finds                                                              
troubling Ms.  Moriarty's reaction to  it.  He recounted  that Ms.                                                              
Moriarty  had said  she  is not  asking for  more  money from  the                                                              
State of  Alaska, but he  said it sounds  like she would  like the                                                              
same amount  of money to continue  to be given.  He  discussed the                                                              
changes  in  focus and  price  environment  over  the years.    He                                                              
asked, "Is  the only acceptable  scenario, to you, the  status quo                                                              
- that we don't change anything?"                                                                                               
MS.  MORIARTY answered  that  production has  increased from  last                                                              
calendar  year to  this  calendar year;  the  production has  been                                                              
stemmed and is  holding steady; and the decline rate  for the next                                                              
five  years is  a  reflection of  an improved  environment  before                                                              
Senate  Bill 21.   Referring to  the projected production  decline                                                              
curves  slide  again,  she  highlighted  that back  in  2013,  the                                                              
forecast for 2020  was about 400,000 barrels a day.   She said the                                                              
blue  line at  the top  of the  chart,  at 2020,  shows more  than                                                              
about 50,000 barrels  per day, more than the forecast  was back in                                                              
2013,  before Senate Bill  21 was  passed.   She pointed  out that                                                              
that  forecast had  about  a $50  higher oil  price  than is  seen                                                              
today.   She  said,  "So, Senate  Bill  21 is  giving  you a  more                                                              
competitive environment  than you saw  previously - even  at lower                                                              
MS.  MORIARTY  confirmed  that   AOGA  supports  the  status  quo,                                                              
because it  is important  to have a stable  tax environment.   She                                                              
reiterated her  warning that tax  increases or the  elimination of                                                              
incentives or  credits would have  a negative impact  on activity,                                                              
jobs,  production,  and royalties.    She  indicated she  had  not                                                              
intended to be  a source of incredulity, but was  just stating, as                                                              
the responsible  head of the  trade association for  the industry,                                                              
"how the industry  will be impacted by the policy  change proposal                                                              
in front of you."                                                                                                               
CHAIR  JOHNSON  asked  that   the  discussion  maintain  focus  on                                                              
Version D  of HB 247 rather than  wandering back to the  PPT, ELF,                                                              
or Senate Bill 21.                                                                                                              
11:36:57 AM                                                                                                                   
CHAIR JOHNSON  announced that the  committee would hear  next from                                                              
Dan Seckers of the ExxonMobil Corporation.                                                                                      
11:37:31 AM                                                                                                                   
DAN  SECKERS, Tax  Counsel,  ExxonMobil  Corporation, stated  that                                                              
ExxonMobil  Corporation  supports  Ms. Moriarty's  testimony  that                                                              
while  Version D is  an improvement  over the governor's  original                                                              
bill,  it  still is  troubling  legislation.   He  explained  that                                                              
Version  D would  make  changes to  existing  production tax  that                                                              
would  raise  the   tax  in  the  future,  and   for  that  reason                                                              
ExxonMobil Corporation  opposes Version  D.  He stated  that every                                                              
time  the  State of  Alaska  responds  to market  fluctuations  or                                                              
needs  money,  it  targets  the industry  to  raise  taxes,  which                                                              
creates  further instability  in Alaska's  investment climate  and                                                              
undermines  the economics  of  investments made  in  the past  and                                                              
those being considered  for the future.  Further,  he said Version                                                              
D  would  devalue  a number  of  the  key  components of  the  tax                                                              
MR. SECKERS  said the structure the  state has had since  PPT is a                                                              
net-based tax,  not a gross tax.   One of the key components  of a                                                              
net-based  system  is  the balancing  of  revenues  and  expenses.                                                              
Version  D would  take the  critical NOL  tax credit  and turn  it                                                              
into an NOL loss.  He continued:                                                                                                
     Now,  while this  concept is consistent  with most  net-                                                                   
     based  tax  systems,  this   change  would  represent  a                                                                   
     significant  and  substantive   change  to  the  current                                                                   
     Alaska  system,  because it  would  disallow or  prevent                                                                   
     those  losses  from going  into  credits to  be  carried                                                                   
     forward  and used against the  minimum tax.   This would                                                                   
     represent  an immediate  and  significant tax  increase.                                                                   
     By   preventing  companies   from  realizing  the   true                                                                   
     economics  of their investments,  by disallowing  ... or                                                                   
     deferring  their  ability  to recover  operating  losses                                                                   
     against   future   tax  liabilities,   penalizes   those                                                                   
     companies  that  made prior  year  investments when  the                                                                   
     companies  were losing money,  and would penalize  those                                                                   
     companies   that  are  considering  making   investments                                                                   
     today, tomorrow, and into the future.                                                                                      
     Such a  provision and such a change  would significantly                                                                   
     and  negatively impact Alaska's  investment climate  and                                                                   
     the  perception of  Alaska's investment  climate to  any                                                                   
     investor  by  announcing to  the  world that  Alaska  is                                                                   
     willing  to adversely affect  the economics of  past and                                                                   
     essential  future  investment   solely  for  short  term                                                                   
     revenue needs.                                                                                                             
11:40:41 AM                                                                                                                   
MR.  SECKERS  stated  that  another   problem  with  the  proposed                                                              
legislation  is  the increase  in  the  interest  rate.   He  said                                                              
ExxonMobil  Corporation  believes  that  increasing  the  interest                                                              
rate by  going to 5 percent  over the federal discount  rate, with                                                              
added compounding,  will address the  symptom, but will  not solve                                                              
the  problem.   He indicated  that  ExxonMobil Corporation  thinks                                                              
the  problem is  the length  of time  it takes  the Department  of                                                              
Revenue  to audit  production tax  returns.   He illustrated  that                                                              
point  by emphasizing  that  ExxonMobil  Corporation received  its                                                              
2009 production  tax assessment six years to the  day after filing                                                              
it, with "interest  tolled that entire time."  He  added that that                                                              
interest is not abatable under Alaska law.                                                                                      
MR. SECKERS stated  that Version D would increase  taxes at a time                                                              
when  industry is  losing money,  and it would  increase taxes  on                                                              
the  very activity  on which  the industry  is losing  money.   He                                                              
questioned  the soundness  of such  a tax  policy.   He asked  the                                                              
committee,  "Is it your  belief as  policy makers that  increasing                                                              
taxes on an  industry that's losing money making  investments that                                                              
we all  need ... [will] lead  to more production, more  jobs, more                                                              
investment, more  long-term, sustainable revenues?"   He concluded                                                              
that in ExxonMobil Corporation's view, it will not.                                                                             
11:42:51 AM                                                                                                                   
CHAIR JOHNSON  announced that the  committee would next  hear from                                                              
Pat Foley, of Caelus Energy Alaska, LLC.                                                                                        
11:43:02 AM                                                                                                                   
PAT  FOLEY,  Senior Vice  President,  Caelus Energy  Alaska,  LLC,                                                              
acknowledged  the  daunting   task  of  the  legislature  to  find                                                              
solutions  for Alaska's  fiscal crisis  and reconsider changes  to                                                              
the tax  policy.   He said Caelus  Energy Alaska, LLC,  ("Caelus")                                                              
operates exclusively  on the North Slope.  He said  he would speak                                                              
to three items  in Version D:  cashable credits,  the GVR, and the                                                              
tax reporting and disclosure requirements in Section 9.                                                                         
MR. FOLEY  said it seems like  the conversation is focused  on the                                                              
cashable net  operating loss credits,  while not being  focused on                                                              
"the avoided  tax liability that  other companies have."   He said                                                              
it  troubles him  that  people refer  to a  cashable  credit as  a                                                              
subsidy, because  that is not what it is.  He  said an exploration                                                              
incentive   credit  could  be   characterized  that  way,   but  a                                                              
refundable  NOL is not  a subsidy or  incentive, but  was designed                                                              
solely  to level  the playing  field  between a  new investor  and                                                              
current  legacy producers, by  allowing the  new investor  to make                                                              
lease  expenditures that  would result  in a  loss, and the  state                                                              
would pay  that investor at  35 percent to  that loss in  the form                                                              
of a  refundable tax credit.   He clarified that he is  not saying                                                              
that "you should  tax them and not tax me," but  rather that "some                                                              
elements of  this bill are very negatively  discriminatory against                                                              
new, small companies trying to incubate their business up here."                                                                
MR.  FOLEY said  he  heard someone  say  that  the legislature  is                                                              
doing its best  to protect new buyers and projects,  but he opined                                                              
that  in reality the  state has  not accomplished  that goal.   He                                                              
said, "If  there's a  window with a  $75 million cashable  credit,                                                              
and  it's  phased out  after  three years,  it  is  helpful for  a                                                              
project  like Oooguruk  or (indisc.)  activity -  it allows  us to                                                              
kind  of safely  unwind that  business -  but it  does nothing  to                                                              
safeguard  a   project  like  Nuna   or  Smith  Bay  or   a  large                                                              
exploration  block off to  the east."   He reminded  the committee                                                              
that  Alaska North  Slope projects  have  a long  cycle time  from                                                              
exploration drilling  to first oil, typically between  5-10 years.                                                              
He said when  Caelus made the commitment to explore  Smith Bay and                                                              
to  buy leases east  of Prudhoe  Bay and  shoot a high  resolution                                                              
three-dimensional  (3D), Caelus  did  so with  the expectation  of                                                              
fiscal tax stability  for the life of the project  - not for three                                                              
11:47:40 AM                                                                                                                   
MR. FOLEY  stated that a small  company, such as Caelus,  needs to                                                              
"go Outside"  for capital from large lending  institutions, and to                                                              
obtain that  capital, it must  have good prospects, a  great track                                                              
record,   good   relationships   with  regulatory   agencies   and                                                              
contractors, and  - most importantly - fiscal stability.   He said                                                              
he has  heard people  say that Alaska  cannot afford  the credits,                                                              
but  he maintained  that the  state cannot  afford to  discontinue                                                              
North Slope cashable  credits.  He said he thinks  North Slope oil                                                              
operations have  been the lifeblood  of Alaska's economy  for over                                                              
40 years, and  he hopes that it continues to be  for many years to                                                              
come.   He reiterated the role  of cash credits to  new operators.                                                              
He  stated,  "A  high  volume  producer  takes  those  same  lease                                                              
expenditures,  and   that  results  in  immediate   tax  liability                                                              
MR. FOLEY opined  that through its tax policy of  the last several                                                              
years,  the state  got exactly  what it  hoped for,  which was  to                                                              
attract independent  companies committed to explore,  develop, and                                                              
produce.   He relayed that  Caelus developed its  Oooguruk leases.                                                              
He  stated that  Nuna  is a  project  that is  just  waiting on  a                                                              
little  oil price  recovery; it  should have  first oil two  years                                                              
from price recovery.   He said two exploration  wells were drilled                                                              
this  year at Smith  Bay, and  Caelus made  $120 million-worth  of                                                              
expenditures.   In the  east, Caelus has  a large block  of leases                                                              
that were shot  at 3D, at a cost of $40 million.   All of that was                                                              
with  an expectation that  Caelus would  continue to earn  credits                                                              
throughout the life of development.  He continued:                                                                              
     If  you look  to our neighbors  just to  the west,  with                                                                   
     Armstrong  and Pikka, they,  too, were exactly  the kind                                                                   
     of company  that I believe the State of  Alaska intended                                                                   
     its  tax policy  to attract.   My  fear is  that if  you                                                                   
     change  that tax  policy,  you're going  to destroy  all                                                                   
     the value  that was created  by the past tax  policy and                                                                   
     you're  going to chase  the new investors  away.   So, I                                                                   
     believe  if you eliminate  the North Slope  tax credits,                                                                   
     you  will discriminate against  the new players,  you'll                                                                   
     advantage  the  current,  large high  volume  producers,                                                                   
     and   will   discourage   new  companies   from   making                                                                   
     investments.   And my biggest fear is it's  going to re-                                                                   
     concentrate  North  Slope operations  to  the big  three                                                                   
     legacy producers.                                                                                                          
11:50:46 AM                                                                                                                   
MR.  FOLEY  next  addressed  the  issue  of  the  GVR.    He  said                                                              
currently  a project  like  Oooguruk qualifies  for  a 20  percent                                                              
GVR,  and there  is conversation  about limiting  the duration  of                                                              
that GVR.  He continued:                                                                                                        
     To me, I  think it is simply a re-trade of  all the past                                                                   
     fiscal  policies;   it  does  nothing  to   address  the                                                                   
     current  tax  problem.    And I  think  the  ...  fiscal                                                                   
     problem is a  result of low oil price.  So,  as you seek                                                                   
     solutions,  find solutions  that  fix the  problem in  a                                                                   
     $30,  $40, $50 oil  world, but  don't make changes  that                                                                   
     destroy  the   attractiveness  of  the  state   to  make                                                                   
     investments at higher prices.                                                                                              
MR.  FOLEY noted that  Section 9  of Version  D would require  any                                                              
company  that receives a  tax credit  certificate to make  certain                                                              
disclosures regarding its operations.                                                                                           
     So, right  now I think  ... under  the bill it  would be                                                                   
     limited  to companies  like  Caelus, Armstrong,  Repsol,                                                                   
     perhaps   [the   Arctic  Slope   Regional   Corporation]                                                                   
     (ASRC),  perhaps  Servant.   And honestly,  I'm  totally                                                                   
     fine with  the transparency  of this, but the  provision                                                                   
     does  nothing  to shed  light  on other  companies  that                                                                   
     take lease  expenditures and  transfer those into  a tax                                                                   
MR.  FOLEY, in  closing, encouraged  committee members  to take  a                                                              
long,  long  view and  to  not worry  so  much about  today's  oil                                                              
price,  but instead  to  find a  way to  not  destroy the  healthy                                                              
North Slope environment  when prices recover.  A  new company like                                                              
Caelus has  limited capital and is  able to take the  credits that                                                              
it  earns and  make more  swift  investments, faster  development,                                                              
and faster production,  and eliminating the cashable  credits will                                                              
result  in  reduced  investments,  jobs,  productions,  and  state                                                              
revenue.   He urged the committee  to support the  continuation of                                                              
North Slope  cashable credit  program in order  to be in  the best                                                              
position to "take advantage of price recovery once it happens."                                                                 
11:52:57 AM                                                                                                                   
REPRESENTATIVE  TUCK  asked how  the  length  of the  GVR  affects                                                              
royalty reductions.                                                                                                             
MR. FOLEY  answered that Caelus  has two royalty reductions:   one                                                              
is at  Oooguruk and the  other is at Nuna.   He said, "The  one at                                                              
Nuna  will be  expiring by  its own  terms, because  we will  have                                                              
failed to have  started production as required  under that royalty                                                              
REPRESENTATIVE  TUCK asked  about the  definition of  new and  old                                                              
oil and whether that has any effect on royalty reductions.                                                                      
MR. FOLEY  answered yes,  adding that "Oooguruk  in its  total, so                                                              
Oooguruk (indisc.)  production, and Nuna would qualify  as new oil                                                              
and they both qualify as GVR."                                                                                                  
REPRESENTATIVE  TUCK asked, "So, that  will have an effect  on you                                                              
one way or another?"                                                                                                            
MR. FOLEY answered yes.                                                                                                         
11:55:04 AM                                                                                                                   
The committee took a brief at-ease at 11:55 a.m.                                                                                
11:55:55 AM                                                                                                                   
CHAIR JOHNSON  announced that the  committee would next  hear from                                                              
Scott Jepson of ConocoPhillips Alaska, Inc.                                                                                     
11:56:04 AM                                                                                                                   
SCOTT  JEPSEN, Vice  President,  External Affairs,  ConocoPhillips                                                              
Alaska,  Inc., directed  attention  to a  PowerPoint  presentation                                                              
and listed  positive things  that had  happened since  the passage                                                              
of Senate Bill  21, as shown on slide 3, including:   the addition                                                              
of  two rigs  to the  Kuparuk  River Unit  ("Kuparuk") fleet;  two                                                              
new-build  rigs ordered  for 2016; the  approval and  construction                                                              
of the first  new drill site in Kuparuk in the  last 13 years; the                                                              
expansion  of viscous  oil  operations in  Kuparuk  at drill  site                                                              
(DS) 1H;  approval of  new development of  Greater Mooses  Tooth 1                                                              
(GMT1),  in  the  National Petroleum  Reserve  -  Alaska  (NPR-A);                                                              
permitting  underway for  Greater Mooses  Tooth 2  (GMT2); and  an                                                              
active  exploration program,  with two wells  drilled in  2014 and                                                              
the acquisition  of GMT1 seismic in 2015.  Mr.  Jepsen stated that                                                              
none of  the new production  brought on by ConocoPhillips  Alaska,                                                              
Inc., qualifies for  the GVR.  He clarified that  some of it could                                                              
have  qualified, but based  on cost,  a decision  was made  not to                                                              
pursue it for those particular operations.                                                                                      
11:58:02 AM                                                                                                                   
MR.  JEPSEN indicated  that ConocoPhillips  Alaska, Inc.,  has had                                                              
as  many as  six  rigs running  between  Kuparuk  and Alpine,  but                                                              
currently has  four, with two  rigs running in  the Lower 48.   He                                                              
said that  what drives investments  include a positive  investment                                                              
climate, and  it takes more time  to ramp up production  in Alaska                                                              
than  it does to  ramp it  down.  He  said ConocoPhillips  Alaska,                                                              
Inc.,  is investing  in  the future  and hopes  for  a stable  tax                                                              
climate in  Alaska, but he said  if that changes, the  company can                                                              
"ramp stuff  down at a fairly  rapid basis," although it  hopes it                                                              
will not have to do so.                                                                                                         
MR.  JEPSEN next  offered information  regarding  "how much  we're                                                              
investing  in Alaska  compared to  our corporation."   He said  in                                                              
2014  his company's corporate  capital spend  peaked at  about $17                                                              
billion;   currently   the   latest  estimate   for   the   entire                                                              
corporation   is  about   $5.7   billion.     He  estimated   that                                                              
ConocoPhillips Alaska,  Inc., would spend about a  billion dollars                                                              
in  2016  and  would  "maintain that  course,"  unless  there  are                                                              
negative changes made relating to taxes.                                                                                        
MR.  JEPSEN  said one  thing  to consider  is  that  the State  of                                                              
Alaska  "always has  positive revenue."   He  said, "The State  of                                                              
Alaska  collects  royalties,   severance  taxes,  property  taxes,                                                              
[and]  income  taxes, and  some  of that  -  like  royalties -  is                                                              
completely price independent."  He continued as follows:                                                                        
     Even  down to  $30 a barrel,  using data  from the  2016                                                                   
     Revenue  Sources Book [(RSB)]  for fiscal year  2017, we                                                                   
     estimate   the  State  of   Alaska  taking  about   $1.2                                                                   
     billion.   Investors  on the  North Slope  ..., at  that                                                                   
     price,  using the ... 2016  RSB assumptions,  would lose                                                                   
     about  $2  billion.   As  prices  go  up, the  state  is                                                                   
     always in a better position than the investors.                                                                            
MR. JEPSEN said  investors are losing money,  and increasing costs                                                              
will  have  a  negative impact  on  investment  opportunities  and                                                              
12:01:00 PM                                                                                                                   
MR. JEPSEN  directed attention to  the slide titled,  "Tax Credits                                                              
and  Applicability  to  COP."     He  said  the  slide  highlights                                                              
activity  pertaining  to tax  credits, because  it  is not  always                                                              
clear where  the benefits  go.  He said  large producers,  such as                                                              
ConocoPhillips  Alaska,  Inc., receive  very  little  of "the  tax                                                              
credits that  have been so much  a part of the conversation."   He                                                              
directed  attention  to  the  column marked,  "Tax  Credit  Type,"                                                              
which lists:   [net operating  loss, exploration,  small producer,                                                              
per-barrel  production credit, and  Cook Inlet and  Middle Earth].                                                              
He  said column  [2]  summarizes all  the  FY 17  tax credits,  as                                                              
estimated  by DOR  to be  approximately $908  million.   Following                                                              
that  is [column  3],  titled, "total  reimbursable,"  the sum  of                                                              
which is  $772 million.  Of  that, he said, large  producers, like                                                              
ConocoPhillips Alaska,  Inc., are eligible for zero,  [as shown in                                                              
column  4].  He  said column  5 describes  the total used  against                                                              
severance tax liability.   He said the first item  [82] relates to                                                              
the  NOL, which  he  acknowledged  had been  the  subject of  much                                                              
discourse previously in the hearing.                                                                                            
MR.  JEPSEN said that  to-date, ConocoPhillips  Alaska, Inc.,  has                                                              
not  incurred  a  net  operating  loss credit.    He  said,  "It's                                                              
possible for  2016, because they've  seen some very low  prices in                                                              
the ...  first part of the year.   Whether or not we  incur one is                                                              
going  to be  dependent upon  price and  how well  we control  our                                                              
costs."  He continued:                                                                                                          
     The  other  thing about  net  operating losses  is  that                                                                   
     they  are self-correcting.   We're  not in the  business                                                                   
     of  operating at  a  loss; we  don't  try to  accumulate                                                                   
     losses  so that  we can  apply them  against future  tax                                                                   
     liability.   So, that [if] we end up with  a long period                                                                   
     of  time - a  long period to  me is two  years or  so of                                                                   
     low oil prices  - we ... invariably will  take action to                                                                   
     make sure we  get back the cash flow and  make sure that                                                                   
     we're cash flow positive.                                                                                                  
MR.  JEPSEN  offered  his  understanding   that  the  number  used                                                              
against severance  tax liability for exploration  is zero, because                                                              
those tax  credits expire at the  end of June; however,  [as shown                                                              
in  column  6], he  said  it  is possible  ConocoPhillips  Alaska,                                                              
Inc., may  take some tax credits  on new wells it drills  in 2016.                                                              
ConocoPhillips  Alaska,  Inc.,  is  not  eligible  for  the  small                                                              
producer credit.   The per-barrel  production credit  is dependent                                                              
upon  price  and  costs,  he  said,  but  "if  any  part  of  that                                                              
materializes,  we're  going to  be  a pretty  small  part of  it."                                                              
Regarding  the Cook  Inlet and  Middle  Earth credit,  he said  if                                                              
ConocoPhillips  Alaska,  Inc.,  is  successful  in  divesting  its                                                              
remaining  assets  there,  then  it will  not  qualify  for  those                                                              
credits.   He  reiterated  that  the number  of  tax credits  that                                                              
pertain to ConocoPhillips  Alaska, Inc., is minimus.   He said the                                                              
point  he   would  like  to   make  is  that  producers   such  as                                                              
ConocoPhillips Alaska,  Inc., are really not part  of the problem;                                                              
they have  continued to pay taxes,  as he indicated  was predicted                                                              
to happen at the passage of Senate Bill 21.                                                                                     
MR. JEPSEN  directed attention to  the bottom of the  slide, which                                                              
summarizes  the  obligations   ConocoPhillips  Alaska,  Inc.,  has                                                              
incurred  to the  State of  Alaska  in 2015:   Approximately  $660                                                              
million in  obligations for  royalties, property taxes,  severance                                                              
taxes, and income  taxes, and with a negative cash  flow in excess                                                              
of $100  million.   In the first  quarter of 2016,  ConocoPhillips                                                              
Alaska, Inc.,  incurred obligations of approximately  $77 million,                                                              
and  - because  of extraordinarily  low prices  - a negative  cash                                                              
flow of  about $100 million.   He stated  that negative  cash flow                                                              
numbers  are  not   the  same  as  net  operating   losses:    not                                                              
everything  spent  to  support the  operations  of  ConocoPhillips                                                              
Alaska, Inc. is eligible for deduction for NOL purposes.                                                                        
MR.   JEPSEN  said   the  point   he   wants  to   make  is   that                                                              
ConocoPhillips  Alaska, Inc., is still  a severance tax  payer, is                                                              
still continuing  to invest, and  - if significant changes  in the                                                              
tax framework  are made  - will  have to take  action to  get back                                                              
into a  positive cash flow  position, which means  less investment                                                              
and production on the North Slope.                                                                                              
12:05:37 PM                                                                                                                   
PAUL  RUSCH,  Vice  President,   Finance,  ConocoPhillips  Alaska,                                                              
Inc.,  said  his  comments  would cover  both  the  original  bill                                                              
version of  HB 247 and  Version D and  the adverse impacts  on the                                                              
corporation's  investments  in  Alaska.    He  said  his  comments                                                              
pertain   primarily  to  slides   7  and   8  of  the   PowerPoint                                                              
presentation  begun by Mr.  Jepsen.  He  stated that  the increase                                                              
in the  minimum tax from  4 percent to  5 percent proposed  in the                                                              
original  bill version  represents a  25 percent  increase in  the                                                              
minimum tax  during periods of  low prices, while the  industry is                                                              
in a  negative cash flow  position.   He said that  increase would                                                              
have a  chilling effect on the  industry and future  investment in                                                              
Alaska.     He   said  hardening   of  the   minimum  tax   floor,                                                              
particularly  by taking away the  ability to recover  losses, also                                                              
effectively serves  as a tax increase, with the  potential to lead                                                              
to reduced expenditures  on drilling and other  similar activities                                                              
in producing fields  during periods of low prices,  and this could                                                              
negatively impact future production, he warned.                                                                                 
MR. RUSCH  said Version D improves  this by allowing  the recovery                                                              
of   any  losses   that  may   be  incurred   in  2016;   however,                                                              
ConocoPhillips  Alaska, Inc., would like  to see this  extended to                                                              
2019 "for consistency  with the treatment of NOLs  for the smaller                                                              
producers."    He  said  ConocoPhillips  Alaska,  Inc.,  does  not                                                              
expect  to be  in a  long-term loss  position, but  would like  to                                                              
ensure it  has the time  necessary to  react to price  changes and                                                              
adjust its spending accordingly.                                                                                                
MR. RUSCH  referred to  slide 19,  from DOR's presentation,  which                                                              
showed that  in FY 26,  producers will  be holding losses  at $715                                                              
million  in future taxes.   He offered  his understanding  that in                                                              
the  matter  of gross  total,  the  industry would  experience  $2                                                              
billion in  losses over the next  10 years.  He said  the industry                                                              
would  not likely  operate at  such a  loss for  that many  years;                                                              
therefore,  "that number  is  likely exaggerated."   He  suggested                                                              
that if  the committee  believes that number,  then this  would be                                                              
the time to question an increase in taxes.                                                                                      
MR. RUSCH said  ConocoPhillips Alaska, Inc., shares  the same view                                                              
as expressed  by ExxonMobil  Corporation regarding  interest rates                                                              
being  increased while  DOR takes  such  a long  time to  complete                                                              
audits,  which are often  followed by  a lengthy appeals  process.                                                              
He said  this process can take 9  to 10 years, and  because of the                                                              
long time period,  the interest component of  the assessment often                                                              
can exceed  the underlying  principal amount.   He stated  that in                                                              
previous testimony,  ConocoPhillips Alaska, Inc.,  had recommended                                                              
improvements  in  the  audit   process  prior  to  increasing  the                                                              
interest  rates,  and  he  noted  that this  issue  has  not  been                                                              
addressed  in  Version D.    He said  the  10-year  limit for  DVR                                                              
incentives  included   in  Version  D  would  make   any  new  oil                                                              
developments  less competitive.   He  said as  was highlighted  in                                                              
the  testimony  by  enalytica  yesterday, this  could  reduce  the                                                              
project net  present value  (NPV) by up  to 20 percent,  which Mr.                                                              
Rusch  said could  be significant  enough to  drive investment  to                                                              
other regions.                                                                                                                  
MR. RUSCH  stated that two  final concerns ConocoPhillips  Alaska,                                                              
Inc.,  had regarding  the  original bill  have  been addressed  in                                                              
Version D;  however, he said  he would bring  them up in  order to                                                              
ensure  they would  not  return.   First,  he said  ConocoPhillips                                                              
Alaska,  Inc., does  not agree  with DOR's  previous portrayal  of                                                              
"migrating  tax credits across  months."   He said production  tax                                                              
is  an  annual  tax  with  monthly   payments  that  represent  an                                                              
estimate  of  the  annual  obligation.    Second,  the  disclosure                                                              
requirement  in the  original bill  had the  potential to  violate                                                              
Securities  Exchange  Commission (SEC),  IRS,  and other  taxpayer                                                              
confidentiality  regulations.   He  said Version  D resolves  this                                                              
concern by limiting  disclosure to reimbursable tax  credits only,                                                              
including the company and the amount.                                                                                           
12:10:21 PM                                                                                                                   
MR.  JEPSEN  stated  that  overall  ConocoPhillips  Alaska,  Inc.,                                                              
thinks Version  D is a  significant improvement over  the original                                                              
bill  version introduced  by  the administration.    He said  what                                                              
concerns him  and could jeopardize future investment  in Alaska is                                                              
"that we continue  having this conversation."  He  said there have                                                              
been  numerous tax changes  over the  last 11  years; it  has only                                                              
been  20 months  since voters  ratified  Senate Bill  21; and  the                                                              
conversation  continues  today.   He said  ConocoPhillips  Alaska,                                                              
Inc.,  will make  changes  to its  investment  plans according  to                                                              
significant and  impactful changes made to the tax  framework.  He                                                              
expressed  his hope that  the corporation  could instead  maintain                                                              
its momentum in Alaska.                                                                                                         
12:11:12 PM                                                                                                                   
REPRESENTATIVE  HERRON   noted  that  Mr.  Rusch's   testimony  is                                                              
consistent  with that of  others regarding  the six-year  wait for                                                              
the audits with  which DOR is involved.  He asked  how long a wait                                                              
ConocoPhillips Alaska, Inc., would find acceptable.                                                                             
12:11:43 PM                                                                                                                   
MR. RUSCH answered  that three years would be  reasonable and give                                                              
DOR the time it needs to review the information.                                                                                
12:12:01 PM                                                                                                                   
REPRESENTATIVE   KREISS-TOMKINS  asked   Mr.  Jepsen  if   he  had                                                              
experienced  the  same  length  of turnaround  time  as  had  been                                                              
mentioned by the representative from ExxonMobil Corporation.                                                                    
12:12:21 PM                                                                                                                   
MR. JEPSEN deferred to Mr. Rusch.                                                                                               
MR. RUSCH said  yes:  a turnaround of six years  and three months,                                                              
based on tax filing.                                                                                                            
MR. JEPSEN offered his understanding it was 2006.                                                                               
MR. RUSCH  confirmed that  "2006 is the  last year that  we closed                                                              
out completely."                                                                                                                
MR. JEPSEN said  it took about 10 years for the  2006 tax audit to                                                              
be closed out.   He said once the findings are  received from DOR,                                                              
the company  goes through "a series of negotiations  and protests"                                                              
before arriving  at the final amount that may be  owed in addition                                                              
to what was already paid.                                                                                                       
REPRESENTATIVE   KREISS-TOMKINS  expressed  his   appreciation  of                                                              
slide  7, which showed  how ConocoPhillips  Alaska, Inc.,  related                                                              
to the  tax credit program.   He referred  to the slide  with "net                                                              
operating  loss tax credits"  in "the  top line," and  recollected                                                              
that Mr.  Jepsen had testified  that ConocoPhillips  Alaska, Inc.,                                                              
"is a  big goose  egg, a zero,  not eligible."   He then  directed                                                              
attention to  the slide that  stated a $100 million  negative cash                                                              
flow  in 2015  and  the first  quarter  of 2016.    He stated  his                                                              
understanding   that  ConocoPhillips   Alaska,   Inc.,  would   be                                                              
eligible to  claim net operating loss  or negative cash  flow.  He                                                              
asked,  "How did  those two ...  statistics  jive with each  other                                                              
and,  I guess  more pointedly,  has  ConocoPhillips Alaska,  Inc.,                                                              
claimed any net operating loss tax credits thus far, to date?"                                                                  
MR.  JEPSEN  answered that  having  negative  cash flow  does  not                                                              
equate to  net operating  loss.  He explained  the reason  is that                                                              
there  are significant  costs  that ConocoPhillips  Alaska,  Inc.,                                                              
incurs  in the  running of  its business  in Alaska  that are  not                                                              
deductible  from  the severance  tax  calculation.   He  estimated                                                              
there  was an excess  of $115  million that  were not  deductible,                                                              
"if those still  go toward the negative cash  flow calculation for                                                              
us."   He said his  time and the  money the corporation  spends on                                                              
AKLNG are  examples of  that which is  not deductible,  and "there                                                              
are  a number of  other statutory  areas that  are not  deductible                                                              
from a severance  tax calculation."  He said, "So,  that's why you                                                              
can  end up with  a net  cash flow  that's negative, that's  still                                                              
not   incurring  net   operating   loss."     He   said  to   date                                                              
ConocoPhillips  Alaska, Inc., has not  taken advantage of  any NOL                                                              
credits,  and whether  or it  does in  2016 will  depend upon  how                                                              
well the corporation  can control its costs and what  the price of                                                              
oil is.                                                                                                                         
12:16:28 PM                                                                                                                   
REPRESENTATIVE  OLSON noted that  several months ago  the director                                                              
of  the Tax  Division indicated  that  the interest  for the  2006                                                              
close out was about $100 million.  He asked if that was correct.                                                                
MR.  JEPSEN answered  that he  would have  to take  a look at  the                                                              
context  of [the director's]  comment.   Notwithstanding  that, he                                                              
surmised  that that  number had  to relate  to the  industry as  a                                                              
12:17:23 PM                                                                                                                   
CHAIR JOHNSON  offered his understanding that the  director of the                                                              
Tax Division,  who was  present in the  room, had nodded  his head                                                              
to affirm that that number pertained to the industry as a whole.                                                                
12:17:33 PM                                                                                                                   
REPRESENTATIVE  HERRON remarked  that the House  is trying  to get                                                              
[HB 247]  passed out of  its body, but the  issue of the GVR  is a                                                              
sticking  point.     He  asked  if  10  years  is   doable  or  if                                                              
ConocoPhillips Alaska, Inc., is opposed to it.                                                                                  
MR.  JEPSEN  answered that  any  time there  is  a  change in  tax                                                              
framework  that reduces various  economic metrics considered  when                                                              
making investment  decisions, the  competitiveness of  the project                                                              
is  reduced.   He said  at 10 years  probably 100  percent of  the                                                              
benefit of  the GVR is preserved;  however, at 5 years  there is a                                                              
significant hit on the competitiveness of a project.                                                                            
12:19:13 PM                                                                                                                   
REPRESENTATIVE KREISS-TOMKINS,  regarding net operating  losses or                                                              
the carrying  forward of lease expenditures, said,  "It seems like                                                              
a  tradeoff."    He said  the  point  has  been made  by  industry                                                              
members that  "this is a really  tough time" and cash  flow is not                                                              
always positive.   He said he can empathize with  that.  He stated                                                              
that  currently  the  state  is  subsidizing  those  losses  to  a                                                              
certain extent.   He said  the question  may be more  palatable if                                                              
"on the  upside we're also sharing  ... in windfall profits."   He                                                              
said with  the conversion - Senate  Bill 21 - "we  ... effectively                                                              
eliminated  that provision."   He  stated that  he struggles  with                                                              
the notion  that the State  of Alaska needs  to take a hit  on the                                                              
losses, as  well, "if we don't  have that upside."   He concluded,                                                              
"And,  to me,  that's  the balance  or  the  partnership that  ...                                                              
we've got."                                                                                                                     
12:20:40 PM                                                                                                                   
REPRESENTATIVE  TUCK  asked   where  the  largest  investments  of                                                              
ConocoPhillips Alaska, Inc., are currently going.                                                                               
MR. JEPSEN  said he would  have to obtain  the latest  report, but                                                              
looking  at the  total cap  of  expenditure for  2016, the  Alaska                                                              
operation represents  about 18 percent of the  corporation's total                                                              
capital   expenditures.      He   said   that   certainly   is   a                                                              
disproportionate   size   when  considering   the   rest  of   the                                                              
corporation's worldwide operations.                                                                                             
12:21:50 PM                                                                                                                   
CHAIR JOHNSON  announced that the  committee would hear  next from                                                              
Mr. Armstrong of Armstrong Oil and Gas.                                                                                         
12:22:17 PM                                                                                                                   
BILL ARMSTRONG,  President, Armstrong  Oil and Gas,  expressed his                                                              
love  for Alaska, in  which he  has been working  for the  last 15                                                              
years,  and  said his  company  and  the  state have  worked  well                                                              
together.  He  stated his and his shop in Denver's  involvement in                                                              
the inception  of Oooguruk Field,  which he said became  the sixth                                                              
largest operating  field on the North  Slope.  He said  the second                                                              
ever  independently   operated  field   on  the  North   Slope  is                                                              
Nikaitchuq  Field - also  started by his  company.   Mr. Armstrong                                                              
indicated his  partner company is a Spanish company  called Repsol                                                              
and  together they  made "a spectacular  new  discovery up  on the                                                              
North Slope,"  and the  former head of  the Department  of Natural                                                              
Resources,  Mark  Myers,  was  the  only  person  outside  of  his                                                              
company  and  Repsol   that  knew  about  it.     He  offered  his                                                              
understanding  that  Mr. Myers  had  said  publicly that  the  new                                                              
discovery may  be the second  biggest find ever discovered  on the                                                              
North Slope, second only to Prudhoe Bay.                                                                                        
MR. ARMSTRONG  emphasized the great potential [for  oil discovery]                                                              
still left in  Alaska.  He recognized the constant  bombardment of                                                              
negativity  related  to  Alaska's  best  days being  in  the  past                                                              
because  the state's  industry is  waning, but  stated that  he is                                                              
"the  living, breathing,  hardworking testimonial  that that  view                                                              
is absolutely,  100 percent  false."  He  opined that  the state's                                                              
best days  are to come.   He further emphasized the  importance of                                                              
making  Alaska an appealing  place in  which to  do business.   He                                                              
estimated that in  the 15 years in which he has  worked in Alaska,                                                              
he has  experienced and  had to  adjust to five  or six  tax laws.                                                              
He opined  that Senate Bill  21 was arguably  one of the  best tax                                                              
laws in  the world, because it  "hit the perfect  balance" between                                                              
the oil  companies, which he  described as "the risk  takers," and                                                              
the State  of Alaska, which  he called  "the landlords."   He said                                                              
both  parties had a  winning hand  under Senate  Bill 21,  and the                                                              
tax regime was  working, as evidenced, he maintained,  by what has                                                              
been  happening with  ConocoPhillips and  Caelus, and his  company                                                              
with Repsol.   He said  he knows the debate  is now about  HB 247,                                                              
and he  reminded the committee  that during a previous  hearing on                                                              
the  bill, he  had  shared that  his  company's  nickname for  the                                                              
proposed  legislation is:   "Hell-bent  24/7 on kicking  everybody                                                              
off the  North Slope."  He said  based on Version D,  he would now                                                              
change the  nickname to:  "Hell-bent  24/7 on kicking all  the new                                                              
players  off the North  Slope."   He explained  that Version  D is                                                              
"heavily stacked"  to benefit  the three existing  large producers                                                              
on the  North Slope.  He concluded  that if the goal  of the state                                                              
is  to have a  monopoly or  oligopoly, then  Version D  will serve                                                              
that purpose.                                                                                                                   
12:27:23 PM                                                                                                                   
REPRESENTATIVE  TUCK expressed  appreciation  for Mr.  Armstrong's                                                              
description of  the effects of  Version D on independents  and new                                                              
competition  on  the  North   Slope,  and  he  remarked  that  Mr.                                                              
Armstrong  was  not  the  first  person  to  have  expressed  that                                                              
12:27:45 PM                                                                                                                   
CHAIR JOHNSON  invited Mr.  Seckers back to  the witness  table to                                                              
answer a question.                                                                                                              
12:28:16 PM                                                                                                                   
REPRESENTATIVE  KREISS-TOMKINS said  the testimony  he heard  from                                                              
ConocoPhillips  Alaska,  Inc.,   prompted  him  to  query  whether                                                              
ExxonMobil  Corporation   has,  to  date,  claimed   any  NOL  tax                                                              
12:28:52 PM                                                                                                                   
MR.  SECKERS answered  that  although that  is  a valid  question,                                                              
ExxonMobil  Corporation  is not  authorized  to  disclose its  tax                                                              
return information  or what credits it can or cannot  claim or has                                                              
claimed.   He underscored that  DOR's information is  correct that                                                              
companies  are   losing  money  and   that  it  is   possible  for                                                              
ExxonMobil  Corporation to have  an NOL  this year depending  upon                                                              
how prices  proceed.  He indicated  concern that it  is understood                                                              
what  an NOL  is.  He  explained that  it easy  to "throw  around"                                                              
that topic  and to suggest getting  rid of them.  He  said that as                                                              
ConocoPhillips Alaska,  Inc., mentioned, nobody wants  to be "in a                                                              
loss."   He stated that "this  is not a credit that  is ordinarily                                                              
given  to ... a  net operating  system," but rather  is a  loss to                                                              
report,  and that is  not a source  of pride.   He opined  that to                                                              
suggest  getting  rid  of  [NOL  credits]  because  "the  industry                                                              
doesn't  need them" would  result in "a  tremendous change  in the                                                              
substance of the law."                                                                                                          
MR.  SECKERS  indicated that  every  time  the state  makes  these                                                              
changes -  whether reducing a  credit or taking away  a deduction,                                                              
for  example - it  is migrating  its system  to a  gross tax.   He                                                              
said  that may  sound reasonable,  but he asked  the committee  to                                                              
consider  that  the current  tax  rate in  Alaska  is 35  percent,                                                              
which  is  almost  three  times the  next  highest  severance  tax                                                              
production rate,  which he said  he understood to be  12.5 percent                                                              
in  Louisiana.    Therefore,  he said  every  time  Alaska  limits                                                              
deductions and  takes away credits,  it raises the  industry's tax                                                              
hugely  relative  to  Alaska's   competitors.    He  continued  as                                                              
     Subsidies  and  credits  are  two  distinctly  different                                                                   
     things.  So,  again, it's your policy.  If  you want to,                                                                   
     you  know, address some  of that, we  get that,  and, as                                                                   
     Ms.  Moriarty indicated,  you  know,  the industry  will                                                                   
     take  whatever actions  needed.   But you're ...  taking                                                                   
     away what  is a cornerstone  of a net-based  system, and                                                                   
     that is  the ability to recognize revenues  and expenses                                                                   
     by  limiting the  revenues; you're  in effect  migrating                                                                   
     away  from  the core  tax  that  you currently  have  in                                                                   
12:31:18 PM                                                                                                                   
REPRESENTATIVE  TUCK  noted Pat  Foley  of Caelus  Energy  Alaska,                                                              
Inc., had  talked about  credits versus subsidies.   He  asked Mr.                                                              
Seckers  to describe  the main difference  between the  operations                                                              
of the two.                                                                                                                     
MR. SECKERS  prefaced his answer by suggesting  the question would                                                              
be better  asked of the  state's consultant.   He then  stated his                                                              
view from  a tax perspective.   He said  a subsidy generally  is a                                                              
redistribution  of money from  a government  to individuals.   Tax                                                              
credits, he  said, are just a way  to calculate a tax:   "They are                                                              
a reduction of  the tax liability a company or  person provides to                                                              
the   tax  authority   that  then  redistributes   by  virtue   of                                                              
subsidies."   He  said hearing  the  two terms  used together  "as                                                              
equals"  makes  him cringe.    He  said  social security  and  the                                                              
permanent fund dividend arguably are subsidies.                                                                                 
REPRESENTATIVE TUCK  asked, "Is it  safe to say that both  of them                                                              
have something to do with changing behavior - activity?"                                                                        
MR. SECKERS  answered, "Absolutely,  without question."   He said,                                                              
as  Ms. Moriarty  had  alluded,  there is  the  question of  which                                                              
comes  first.   He  said  a subsidy  is  usually  given before  an                                                              
activity  is undertaken  or for  no activity  at all,  "just as  a                                                              
benevolent action  of a taxing authority,  so to speak."   He said                                                              
a  credit usually requires  qualification,  with the exception  of                                                              
an  NOL  credit,  for  which,  he  maintained,  no  one  wants  to                                                              
qualify.   He said, "To me, it's  just a question of  which is the                                                              
intent  behind  the  action  being  taken."   He  said  there  are                                                              
numerous  ways to structure  a tax regime.   He compared  Alaska's                                                              
production tax  rate to that of  a federal income tax  rate - both                                                              
being extraordinarily high.                                                                                                     
12:33:41 PM                                                                                                                   
CHAIR  JOHNSON   recessed  the  House  Rules   Standing  Committee                                                              
meeting to  a call of  the chair, which  he estimated would  be 30                                                              
minutes after the end of the House floor session.                                                                               
2:43:38 PM                                                                                                                    
CHAIR JOHNSON  called the House  Rules Standing Committee  back to                                                              
order  at 2:43  p.m.   Present  at  the call  back  to order  were                                                              
Representatives  Olson,  Chenault,   Herron,  Kreiss-Tomkins,  and                                                              
Johnson.    Representative Tuck  arrived  as  the meeting  was  in                                                              
2:43:59 PM                                                                                                                    
BENJAMIN   JOHNSON,   President/CEO,   BlueCrest   Energy,   Inc.,                                                              
prefaced his  testimony by stating  BlueCrest Energy's  support of                                                              
the testimony  given previously by  AOGA.  He said he  would speak                                                              
to issues particular  to the Cosmopolitan Unit.   He recalled that                                                              
during previous  testimony, the committee  had heard that  what is                                                              
bad for  the oil companies is  good for the state.   He emphasized                                                              
that  with  regard to  what  BlueCrest  Energy  is doing  in  Cook                                                              
Inlet,  the tax  credit program  is an  extremely good  investment                                                              
for the state.   He called it "a win-win situation  for Alaskans."                                                              
He  explained   that  the  state's  investment   in  Cosmopolitan,                                                              
through  the  credit  program, will  provide  significant  future,                                                              
positive value to the state, even at low oil prices.                                                                            
MR.  JOHNSON directed  attention to  his PowerPoint  presentation,                                                              
to slide 2,  titled "Cosmopolitan Project Area."   He relayed that                                                              
the Cosmopolitan  Unit is located  about three miles off  shore in                                                              
Cook Inlet, just  a few miles north of Anchor Point.   He said all                                                              
the productive  area in the unit  is on state leases.   Turning to                                                              
slide  3, titled  "Cosmopolitan  Unit  Development,"  he said  the                                                              
unit consists  of two separate  development projects:   productive                                                              
gas zones  directly above underlying  oil zones.  He said  the gas                                                              
reservoirs  are not  connected  to the  oil reservoirs.   He  said                                                              
BlueCrest Energy  has not yet  begun development of  the off-shore                                                              
gas  zones;  that development  is  currently  on hold  because  of                                                              
uncertainty  surrounding long-term  stable demand  and future  tax                                                              
credits.   He said  the development of  the deeper  oil reservoirs                                                              
is  more  straightforward,  and  two years  ago  BlueCrest  Energy                                                              
committed to development of the oil reserves.                                                                                   
MR. JOHNSON  directed attention  to slide 4, titled  "Cosmopolitan                                                              
Progress as of  05/10/2016."  He said the company  essentially has                                                              
completed  the  construction  process  and is  continuing  to  run                                                              
final operational  tests.  He said BlueCrest Energy  will have the                                                              
most powerful drilling  rig in Alaska ready to  begin drilling the                                                              
new  wells by July  2016.   Turning to  slide 5, titled  "Tangible                                                              
Results," he  stated that just last month BlueCrest  Energy "began                                                              
the very  first sales  of oil from  a new Cook  Inlet field  in 15                                                              
years."   He  said  the company  is  currently  producing from  an                                                              
existing  exploratory  well, but  the  main production  will  come                                                              
when  it brings  on  the  new wells  and  begins  drilling in  the                                                              
second half of 2016.                                                                                                            
2:46:49 PM                                                                                                                    
MR.  JOHNSON  turned to  slide  6,  titled "Continuation  of  Cook                                                              
Inlet  Credits,"  and he  spoke  of the  value  that Alaska  could                                                              
receive  from the  Cook Inlet  tax credits.   He first  emphasized                                                              
that  the  value resulting  from  new  Cook Inlet  oil  production                                                              
should  not be  discounted.    He explained  that  because of  the                                                              
lower infrastructure  costs and the  fact that all Cook  Inlet oil                                                              
is used  within the  state, it offers  higher royalty  values than                                                              
most North  Slope production.  He  said the importance  of the tax                                                              
credits  here is that  they allow  [BlueCrest Energy]  to continue                                                              
to drill at  lower oil prices.  Continuation of  the existing well                                                              
lease expenditure  (WLE) credit would mean that  the company could                                                              
keep  bringing  its  new  wells  "at  $10  lower  oil  price  than                                                              
without."   He said  if oil prices  stay low  and the  credits are                                                              
substantially  reduced next year,  BlueCrest Energy  will probably                                                              
be forced to  suspend drilling, which would result  in the loss of                                                              
roughly  300 Alaskan  jobs.   He asked  the committee  to keep  in                                                              
mind that  starting a drilling  program is expensive  and requires                                                              
even higher oil prices to justify the wells.                                                                                    
MR.  JOHNSON  stated  that  the  bottom line  is  that  the  state                                                              
receives tremendous  investment returns if [BlueCrest  Energy] can                                                              
keep on drilling.   He said the wells represent  low risk and high                                                              
reward  for the  state.   He  drew attention  to  slide 7,  titled                                                              
"State's  Investment  Return   through  Royalties  from  Each  New                                                              
Cosmopolitan  Well,"  which  he  said  shows  the  calculation  of                                                              
expected return  to the state  for each new  well, as a  result of                                                              
retaining  the WLE credit  into the future.   He said,  assuming a                                                              
$40 million  well cost,  a 40 percent  WLE credit would  amount to                                                              
about $15  million per well.   He asked  the committee to  keep in                                                              
mind that the  state can receive the benefits from  this well only                                                              
if the  company can  drill it.   He said the  slide shows  that at                                                              
any oil  price above  $24, the  state makes a  profit off  the tax                                                              
credits,  and the state's  royalties -  not even including  future                                                              
production taxes  that may occur in  Cook Inlet and at  a lifetime                                                              
oil  price average  of  about  $60 -  would  be approximately  $38                                                              
million.   He said that  is a return  of about 250  percent, which                                                              
he opined is "not bad economics."                                                                                               
2:48:42 PM                                                                                                                    
MR.  JOHNSON turned  to slide  8, titled  "Per-Company Limits  for                                                              
Cash  Payments."  Regarding  tax credit  purchases, he  emphasized                                                              
how  important  it  is  to BlueCrest  Energy's  survival  that  it                                                              
receive  the money  - at  least for  investments to  which it  has                                                              
already  committed  based  on  existing  law.    He  said  if  the                                                              
repurchase  limits  apply to  the  company's spending  for  future                                                              
time periods, it  will have to adjust; but it  has already entered                                                              
into contracts and commitments through at least the end of 2016.                                                                
MR.  JOHNSON moved on  to slide  9, titled  "Effective Date."   He                                                              
said  most important  to BlueCrest  Energy  is the  timing of  the                                                              
implementation  of any changes, whatever  they may be.   He stated                                                              
that  this  project  was  a  large  one  for  the  company,  which                                                              
carefully   mapped  out  a   plan  for  how   it  would   pay  for                                                              
development.   He  said  BlueCrest Energy  figured  that it  would                                                              
take  approximately $525  million  to reach  that  point of  self-                                                              
sufficiency, thus,  it made certain that it would,  under the laws                                                              
current at that  time, have enough funds to  complete construction                                                              
of the drill  site and reduction facilities, to bring  in the most                                                              
powerful drill  in Alaska, and to  use that rig to drill  at least                                                              
the first two  new oil wells.  He said that  drilling cannot start                                                              
until  the second  half of 2016.   He  said the  table on slide  9                                                              
shows  how the  company  planned the  complete  funding before  it                                                              
ever  started.  Further,  he said  it shows  that the tax  credits                                                              
are a critical  component, "making up just under  30 percent."  He                                                              
said  it is  now May,  and the  proposed changes  in the  original                                                              
version of  the proposed  HB 247 were  supposed to take  effect on                                                              
July  1, 2016.   He noted that  [Version D]  would move  that date                                                              
back,  which he said  helps, but  may not solve  the problem.   He                                                              
said BlueCrest  Energy spent  a lot of money  to get to  the point                                                              
of  drilling, and  an abrupt  termination of  the tax credits,  on                                                              
which the  company based its  entire financial planning,  would be                                                              
devastating.   He said any failure  to receive those  payments for                                                              
the  credits for  the company's  spending to  at least early  2017                                                              
could trigger  the end of the  benefits that Alaska  would receive                                                              
"from Cosmopolitan's future."                                                                                                   
MR. JOHNSON  reiterated that  his company has  done a lot  of work                                                              
and  spent  considerable money  and  is  relying on  the  existing                                                              
credits  based on  the laws  that were  in place  when it  entered                                                              
into its  financial commitment.   In conclusion, Mr.  Johnson drew                                                              
attention  to slide  10,  and he  reemphasized  the importance  of                                                              
phasing  into any  changes  over  a reasonable  time  period.   He                                                              
said, "We'll deal  with whatever changes may come  in the future."                                                              
However,  he also  urged the  committee  not to  ignore the  large                                                              
future benefits  the state would receive from future  credits.  He                                                              
opined  that most  importantly,  the state  should  not "kill  the                                                              
projects that  are underway now" and risk "greater  long-term loss                                                              
to the state."                                                                                                                  
2:51:45 PM                                                                                                                    
REPRESENTATIVE  KREISS-TOMKINS referred  to slide 7  and expressed                                                              
keen interest  in the benefit  to cost ratio.   He said if  a well                                                              
costs $40  million and  the State of  Alaska chips in  $15 million                                                              
in  credits,  it  would get  $38  million  over  the life  of  the                                                              
project.   He said that seems  like "a pretty favorable  return on                                                              
investment."   He asked  Mr. Johnson, "Could  you get  [the Alaska                                                              
Industrial  Development and  Export  Authority] (AIDEA)  financing                                                              
to ...  finance a well like this,  given 5 million barrels  at $40                                                              
well cost?"  He said those numbers seem "pretty positive."                                                                      
MR.  JOHNSON answered,  "Not now."   He stated  that AIDEA  is not                                                              
loaning  money  for  oil  development,  for  drilling.    He  said                                                              
BlueCrest Energy  has secured about $150 million in  loans for the                                                              
facilities  and the  drilling  of the  first few  wells, but  that                                                              
loan  amount was  difficult to  obtain.  He  explained that  until                                                              
wells are producing,  it is difficult to get a  loan for drilling.                                                              
He said since  BlueCrest Energy has already secured  the loans, it                                                              
would  be very difficult  to go  back and ask  for more  money for                                                              
each  well, because  the entire  loan program  was based upon  the                                                              
assumption of the tax credits in place.                                                                                         
REPRESENTATIVE   KREISS-TOMKINS  offered   a  scenario   in  which                                                              
BlueCrest needed  $15 million in  capital and, instead  of getting                                                              
it in  credits, received  it as  a revolving loan  fund.   He said                                                              
the state  would get back $38  million in royalties.   He said his                                                              
calculations  show that  the  company would  be getting  a lot  of                                                              
money  over the lifetime  of the  well.  He  asked if  the company                                                              
would have the  ability to repay the loan with  interest through a                                                              
revolving  loan  fund.    He clarified,  "Is  there  potential  to                                                              
convert a  tax credit system  to something that's  more sustaining                                                              
and offers ... loan-based financing?"                                                                                           
MR.  JOHNSON answered  that at  some point  in the  future a  loan                                                              
program or "some  type of reasonable investment  fund" could work;                                                              
however, BlueCrest  Energy has  already committed to  drilling the                                                              
first  few wells,  so "it  practically couldn't  happen in  time."                                                              
He  asked Representative  Kreiss-Tomkins to  remember that  anyone                                                              
from whom  the company  borrows money has  to have the  first lien                                                              
on  all the  reserves; therefore,  it does  not work  to have  two                                                              
different  vendors -  one with  the first  lien and  one with  the                                                              
second.   He  said,  "We would  have  to be  able  to finance  the                                                              
entire program through that, and ... that's a large amount."                                                                    
2:55:35 PM                                                                                                                    
REPRESENTATIVE  CHENAULT congratulated  Mr. Johnson  on the  event                                                              
of  the first  production  from the  Cosmopolitan  Unit, which  he                                                              
noted went to the Tesoro refinery.  He asked about the output.                                                                  
MR.   JOHNSON  answered   that   the  company's   first  well   is                                                              
exploratory  and "choked back."   It  is being produced  gradually                                                              
in  order to  test all  the equipment.   He  added, "It's  several                                                              
hundred barrels a day right now."                                                                                               
REPRESENTATIVE  CHENAULT, regarding  the  initiation of  financing                                                              
for exploration wells, asked, "Are all of them productive?"                                                                     
MR.  JOHNSON told  Representative  Chenault that  that  is a  good                                                              
question.     He  stated  there  is  a  huge   difference  between                                                              
exploratory  wells and development  wells.  The  development wells                                                              
are "a  very high chance factor";  they are "pretty  much proven,"                                                              
and the money has  to be spent to complete the wells.   He said 90                                                              
percent  of exploratory wells,  on average,  are "dry holes."   He                                                              
added  that  in  North  Dakota,  that  percentage  of  success  is                                                              
higher, because "it's a different type of program."                                                                             
2:57:42 PM                                                                                                                    
CHAIR JOHNSON  announced that the  committee would next  hear from                                                              
Joe Reese of BP.                                                                                                                
2:57:54 PM                                                                                                                    
JOE REESE,  Senior Managing Tax  Counsel, BP Exploration  (Alaska)                                                              
Inc.,  provided BP  Alaska's  views on  tax policy  related to  HB
247,  "in particular,  the  committee substitute,  draft  M."   He                                                              
said BP  operates the Prudhoe Bay  Unit, is a member of  AOGA, and                                                              
supports the  testimony given previously  today by AOGA.   He said                                                              
the  success of Alaska's  oil and  gas policy  is critical  to BP.                                                              
He  mentioned the  AKLNG project  and said  many Alaskans  benefit                                                              
directly   and  indirectly   from   the  successful   exploration,                                                              
development,  and  production  of the  state's  gas.   He  said  a                                                              
durable,  predictable, and  administrable oil  and gas tax  policy                                                              
must be in place to unlock those benefits.                                                                                      
MR. REESE  said BP  interprets durable  as meaning something  that                                                              
will be  the same tomorrow  as it is  today.  He  said predictable                                                              
means  that BP can  accurately model  the tax  policy and  make an                                                              
investment decision  based on that.  He stated  that administrable                                                              
means that BP can file its tax returns when they are due.                                                                       
MR.  REESE  said  BP  is  committed  to  maintaining  a  safe  and                                                              
compliant  business in  Alaska that  is sustainable.   He said  in                                                              
2015 BP paid  $263 million in royalties and  taxes, which resulted                                                              
in  a financial  loss  of $194  million.   He  said under  current                                                              
market  conditions,  BP  Alaska  is spending  more  cash  than  it                                                              
brings in, which  is not sustainable.  As a result,  BP Alaska has                                                              
undertaken an  approximate 17 percent reduction in  its workforce,                                                              
and  the  Prudhoe  Bay  working   interest  centers  have  reduced                                                              
activity levels.                                                                                                                
3:00:08 PM                                                                                                                    
MR.  REESE indicated  that Prudhoe  Bay economics  are at a  point                                                              
where  further tax increases  in the  cost structure would  result                                                              
in  even lower  activity levels  and  would be  detrimental to  BP                                                              
Alaska's  business  in  the  state.    For  example,  he  said  an                                                              
increase  of 1 percentage  point to  the minimum  tax is  equal to                                                              
about six  months of Prudhoe Bay  rig work.  He said  operating on                                                              
a predictable,  durable, and administrable oil and  gas tax policy                                                              
is  essential to  maintaining the  activity level  at Prudhoe  Bay                                                              
and the long-term  viability of an AKLNG project.   He stated that                                                              
BP  Alaska  is committed  to  complying with  the  tax  laws in  a                                                              
responsible    manner   and    having   open   and    constructive                                                              
relationships with the tax policy makers.                                                                                       
MR. REESE  relayed that  one of the major  costs to  BP's business                                                              
in Alaska  is oil production  tax.  He  said while the  company is                                                              
currently "cash  flow negative," its oil production  taxes are not                                                              
zero  or  negative,  because  certain  cash  costs,  such  as  the                                                              
investment  AKLNG project and  other specific excluded  costs, are                                                              
not  deductible  for  production  tax  purposes.    He  said,  "At                                                              
current  prices,  Prudhoe  Bay  production does  not  attract  oil                                                              
production tax credits."                                                                                                        
MR. REESE  said just as  the industry  is struggling to  make ends                                                              
meet,  the state  is also  facing  severe budget  shortfalls.   He                                                              
opined that  although reasonable people  have worked to  suggest a                                                              
new  tax policy,  now  is  not the  time  to make  those  changes,                                                              
because [those  changes] would increase taxes and  further inhibit                                                              
BP  Alaska's ability  to maintain  the activity  level at  Prudhoe                                                              
3:01:04 PM                                                                                                                    
MR.  REESE  next  made  comparisons   between  the  original  bill                                                              
version  proposed by  the governor  and Version  D.   He said  the                                                              
original  bill version proposes  an increase  in the minimum  tax,                                                              
which for BP  of Alaska would mean an increase of  25 percent, and                                                              
the  increase would  come at  a time  when the  company needs  its                                                              
cash  to maintain  its activity  level.   He  reiterated that  the                                                              
increase  would equal  about  six months  of rig  work at  Prudhoe                                                              
Bay.  He said  Version D would leave the rate  unchanged, which he                                                              
said  would  be  helpful.     Next,  he  said  the  administration                                                              
proposed  a material  increase to  the interest  rate on tax  over                                                              
payments  and under  payments.   He  said  that as  ConocoPhillips                                                              
Alaska, Inc.,  testified, BP Alaska also experienced  the six-year                                                              
lag in  receiving the  assessment from DOR  on its  oil production                                                              
tax  payments.   He said increasing  that rate  of interest  would                                                              
only serve to  benefit DOR's delay in providing  the industry with                                                              
those assessments.                                                                                                              
MR.   REESE   stated   that  the   administration   has   proposed                                                              
limitations on  the use of the NOL  credit.  He said  BP Alaska is                                                              
in favor  of the tax  policy that was  provided under  Senate Bill                                                              
21  and does  not  recommend any  changes  to it.    He said,  "We                                                              
believe  that the net  operating loss  credit provides  a matching                                                              
of ... expenses  to revenue and that that should  be allowed to be                                                              
taken  in the future  when ...  they're available."   He  said the                                                              
administration    also   proposed   "an   erosion    of   taxpayer                                                              
confidentiality."   He mentioned "the basic principles  of a self-                                                              
reporting  tax, like the  production tax," and  he said  BP Alaska                                                              
does not  support any erosion  of the confidentiality  of taxpayer                                                              
MR.  REESE  said  the  administration   has  proposed  retroactive                                                              
changes, which  BP Alaska does  not support because it  is neither                                                              
predictable  nor administrable  to make  changes after  investment                                                              
decisions  have already been  made and  dollars have already  been                                                              
MR. REESE concluded  by stating that HB 247  would increase taxes,                                                              
and increased taxes mean less money available for investment.                                                                   
3:04:06 PM                                                                                                                    
REPRESENTATIVE KREISS-TOMKINS  asked Mr. Reese to  confirm that he                                                              
had  said  that even  though  BP  Alaska  currently is  cash  flow                                                              
negative, because  some expenses  are nondeductible, at  this time                                                              
BP has not claimed any NOL tax credits.                                                                                         
MR.   REESE   answered   that   there  are   actually   a   couple                                                              
calculations.   The  first, he  said,  is a  financial book  loss,                                                              
which  for BP  Alaska is  currently  $190 million.   He  explained                                                              
that is not  production tax.  From a cash flow  perspective, which                                                              
pertains  to  "the  dollars  we  take in  versus  the  dollars  we                                                              
spend,"  BP Alaska is  also negative, which  means the  company is                                                              
spending more money than it makes.  He continued:                                                                               
     However, from  a production tax perspective,  we are not                                                                   
     in  a net  operating loss,  and the reason  for that  is                                                                   
     certain of  our expenditures that ... drive  us negative                                                                   
     (indisc.  --  coughing)   purposes  and  for  cash  flow                                                                   
     purposes   are  not   deductible   for  production   tax                                                                   
     purposes.     And  therefore,  we  are  not   in  a  net                                                                   
     operating loss.                                                                                                            
3:05:41 PM                                                                                                                    
CHAIR JOHNSON  announced that the committee would  hear from David                                                              
Wilkins of Hilcorp Energy.                                                                                                      
3:05:58 PM                                                                                                                    
DAVID  WILKINS, Senior  Vice  President, Hilcorp  Energy, said  he                                                              
had  testified numerous  times  over the  past few  months on  the                                                              
governor's  oil and  gas industry  tax bills.   He stated  Hilcorp                                                              
Energy's  strong  support of  the  testimony  given today  by  Ms.                                                              
Moriarty  of AOGA and  its message  to protect  the future  of the                                                              
oil  and gas  industry  and Alaska.   He  said  in Alaska  Hilcorp                                                              
Energy  operates   in  both  Cook  Inlet  and   the  North  Slope;                                                              
therefore,  the company is  "in the unique  situation of  being on                                                              
both  sides of  the  debate on  credits and  tax  increases."   He                                                              
related  that just over  500 full-time  employees support  Hilcorp                                                              
Energy's  operations in Alaska,  and he  expressed his  pride that                                                              
nearly  90 percent of  those are  Alaska residents.   He  said the                                                              
company  operates approximately  53,000 gross  barrels of  oil per                                                              
day  and sells 150  Mcf of  gross gas  per day from  approximately                                                              
500 producing  wells, for a total net production  of approximately                                                              
57,000 barrels  of oil  equivalent per day.   He stated  that from                                                              
Hilcorp  Energy's  perspective, the  credits  in  question -  both                                                              
refundable  and  those  credits   against  tax  liability  -  have                                                              
resulted in  more investments and more production  in Alaska, both                                                              
on the North Slope and Cook Inlet basins.                                                                                       
MR. WILKINS,  regarding Cook  Inlet, stated  that it is  no secret                                                              
that  Hilcorp  Energy  has been  a  big  part of  reviving  energy                                                              
security in Southcentral  Alaska.  He said since  the company came                                                              
to Alaska  in 2012, it  has invested  over $1 billion  in projects                                                              
and  has drilled  over  50 wells  in  the Cook  Inlet  area.   The                                                              
result for  Alaska has been threefold,  he said.  First,  there is                                                              
more oil  refined and used in  Alaska at the Tesoro refinery.   He                                                              
said  Hilcorp Energy  has doubled  oil production  in four  years,                                                              
through  hundreds  of  drill   wells  through  its  smaller  scale                                                              
projects, and  this has resulted  in more near-term  and long-term                                                              
oil royalty going  to the state.  He said some  estimates indicate                                                              
that 20  to 30 million more barrels  of oil will be  produced over                                                              
the  next few  decades -  oil that  would have  been "plugged  and                                                              
abandoned forever"  if Hilcorp Energy  did not do  these projects.                                                              
He said  100 percent  of Cook  Inlet oil is  refined by  Tesoro in                                                              
3:08:59 PM                                                                                                                    
MR. WILKINS  said the second benefit  for Alaska is more  jobs for                                                              
Alaskans.    He said  the  company's  activity  in the  state  has                                                              
supported thousands  of jobs for those in Alaska.   In 2015 alone,                                                              
the  company's operation  supported  nearly 3  million man  hours,                                                              
which in total equates to more than 1,400 full-time positions.                                                                  
MR. WILKINS stated  that the third benefit is  energy security for                                                              
Alaska's  largest population  hub.   Because  of Hilcorp  Energy's                                                              
success over  the past four  years in the  Cook Inlet area,  it is                                                              
now  making  gas  supply commitments  with  local  utilities  into                                                              
2023,  "at  lower prices  to  our  customers  than when  we  first                                                              
entered into  Alaska."  He said  the company made a  commitment to                                                              
Alaskans' energy  needs first, and  it stands by  that commitment.                                                              
He said  his team works  hard every day  to ensure a  reliable and                                                              
affordable energy source for this largest population hub.                                                                       
MR.  WILKINS emphasized  that developing  oil and  natural gas  in                                                              
the  Cook Inlet  Basin  requires  a high  cost  of production  and                                                              
investment,  coupled with decline  rates that  vary from 15  to 50                                                              
percent  annually, depending  on the  field.   He said, "We  can't                                                              
declare victory  in the Cook Inlet; we need to  continue to invest                                                              
in projects to  offset these high declines.  In  fact, I would say                                                              
we need  to work on  increasing the supply  and the  demand market                                                              
and benefit more Alaskans going into the future."                                                                               
MR.  WILKINS warned  that North  Slope oil production  is also  at                                                              
risk without  continued investment.  Hilcorp Energy  has increased                                                              
production  from its North  Slope asset  since it  came on  to the                                                              
slope in  2014.  Without significant  spending in the  fields that                                                              
it  operates  on  the  North  Slope,  he  explained,  the  company                                                              
anticipates  an  average decline  of  13 percent.    On the  North                                                              
Slope  alone that  would mean  nearly 2 million  barrels less  per                                                              
year,  which would mean  less oil  to tax,  upon which  to collect                                                              
royalty,  and  to go  into  TAPS.   He  said,  "It's not  a  small                                                              
number,  although it's  a small  fraction  of the  total loss  the                                                              
state is  likely to see  overall, as  a result of  less investment                                                              
from the  other producers.  The  simple fact is that if  we're not                                                              
spending  money  on projects  that  bring  on new  production,  we                                                              
cannot bring  on new production,  we cannot curb  these declines."                                                              
He stated  it is the belief of  Hilcorp Energy that it  is in both                                                              
its  own and  the  state's best  interests  to  continue to  spend                                                              
dollars in  the effort to produce  more oil and gas.   He said the                                                              
only way  to do that is to have  a system in place  that is stable                                                              
and predictable,  and one  that incentivizes  - not jeopardizes  -                                                              
continued investments.                                                                                                          
MR.  WILKINS acknowledged  that  Hilcorp Energy  is  not alone  in                                                              
facing  difficult decisions  and realities  during this  difficult                                                              
time.   He  further recognized  that  members of  the House  Rules                                                              
Standing  Committee  and the  legislature  have  much to  consider                                                              
regarding  what  is  best  for  Alaska's future.    He  asked  the                                                              
committee to  consider the uncertainty  that is created  by change                                                              
and the effect  that uncertainty has as a deterrent  on investment                                                              
and  jobs.   He  opined  investment,  whether for  exploration  or                                                              
development,  is   the  only  way  to  increase   production,  and                                                              
"increased production  is the only way we can help  you to get out                                                              
of  this situation."   He posited  that the  proposed bill  before                                                              
the committee  will not help  "achieve any of this."   Conversely,                                                              
Hilcorp Energy  estimates that  the proposed legislation  will add                                                              
tens  of millions  of dollars  to the industry's  tax burden  over                                                              
the next five years.                                                                                                            
3:13:00 PM                                                                                                                    
MR. WILKINS  described what  Hilcorp Energy  would do as  a result                                                              
of  HB 247.   First,  he said  the  company would  cut its  Alaska                                                              
investments.   He said  the company would  spend what  is required                                                              
to  meet its  commitments  to local  utilities  and maintain  safe                                                              
operations;  however, investment  beyond that is  likely to  see a                                                              
significant  cut.  He said  Hilcorp Energy  will be forced  to cut                                                              
costs,  which will  mean less  contract labor  and fewer jobs  for                                                              
Alaskans.   He said Hilcorp Energy  will produce less oil  and gas                                                              
compared to what  its production would be under a  stable and fair                                                              
tax  regime.   He  said  that the  company  would  look for  other                                                              
places  to invest  many of  its  dollars that  might otherwise  be                                                              
invested  in Alaska.   He  asked the  committee to  trust that  he                                                              
wants to keep  Alaskans working and to increase  production in the                                                              
state,  and  he wants  Hilcorp  Energy  to be  Alaska's  long-term                                                              
partner.  He  said the company simply is not going  to continue to                                                              
invest hundreds  of millions of  dollars in the state  every year,                                                              
especially   if  the  price   environment  and  fiscal   structure                                                              
continues to change and "aims to kick while we're down."                                                                        
3:14:22 PM                                                                                                                    
REPRESENTATIVE  KREISS-TOMKINS,  regarding lease  expenditures  in                                                              
Cook  Inlet, stated that  the turnaround  that Hilcorp  Energy had                                                              
effected  there  is  "pretty  impressive," as  are  the  company's                                                              
operations  throughout the state.   He  asked what the  cumulative                                                              
rate of tax credits are from those lease expenditures.                                                                          
MR. WILKINS  responded that Hilcorp Energy has  invested a billion                                                              
dollars,  doubled  the oil  production,  and added  a  lot of  gas                                                              
production going  into the Southcentral  market.  In terms  of the                                                              
return to  the state on  that investment,  he said, "In  our view,                                                              
we've  done  exactly   what  the  state  intended   to  do."    He                                                              
reiterated  that solely from  the oil  increases, the  company has                                                              
added 20  to 30 million barrels  of recoverable reserves  over the                                                              
next few  decades, which will well  exceed any of the  tax credits                                                              
that  were put in  place to spur  activity.   He said  the company                                                              
views that Alaska has benefited much and seen positive results.                                                                 
REPRESENTATIVE   KREISS-TOMKINS   questioned   of   that   billion                                                              
dollars, "how many tax credits are in there?"                                                                                   
MR. WILKINS  said he  did not  have that number  in front  of him,                                                              
but he does  know that the royalties and property  taxes the state                                                              
has  collected from  the activity,  plus the  jobs that have  been                                                              
created,   equal  multiple  returns   on  the  state's   incentive                                                              
program.   He added  that before  Hilcorp Energy  came to  Alaska,                                                              
contracts  in  the Anchorage  market  were short-term  and  short-                                                              
lived,  and people were  buying generators  because of  the threat                                                              
of brownouts.   He  said, "So,  the longevity of  the oil  and gas                                                              
situation  in the  Cook  Inlet  was ...  very  much in  question."                                                              
Now, he  said, Hilcorp Energy  is signing contracts  for long-term                                                              
gas commitments in Southcentral Alaska.                                                                                         
3:18:17 PM                                                                                                                    
CHAIR  JOHNSON announced  that  the committee  had  heard all  the                                                              
invited  testimony for  the day,  and  he asked  Ms. Delbridge  to                                                              
3:18:33 PM                                                                                                                    
RENA DELBRIDGE,  Staff, Representative  Mike Hawker,  Alaska State                                                              
Legislature, placed  on the record a document,  titled "Answers to                                                              
questions  on Rules CS,"  which was prepared  by enalytica  and is                                                              
included  in  the  committee  packet.    She  said  enalytica  was                                                              
forwarded  questions   related  to  comparing   and  understanding                                                              
different  net  profit  systems  around  the  world,  and  in  the                                                              
handout articulates  some of  the differences between  various net                                                              
profit  systems, including  the differences  between income  taxes                                                              
or  specific petroleum  taxes.   She  recollected  there had  been                                                              
some discussion  earlier in today's meeting about that.   She said                                                              
enalytica  points out the  one example of  a net profit  system it                                                              
is aware  of that "for  one small component  does not  allow carry                                                              
forward  of expenses."   Further,  enalytica  articulates that  in                                                              
the  petroleum profits  tax, it  finds few,  if any, instances  in                                                              
which  carry forward  losses  might be  limited.   In  particular,                                                              
enalytica  cites   systems  similar  to  Alaska's,   in  which  an                                                              
escalator  is provided  on the  carry forward  or some  additional                                                              
benefit is added to it.                                                                                                         
MS. DELBRIDGE next  explained why Version D proposes  a shift to a                                                              
system  of  lease  expenditure  deductions  as a  means  to  carry                                                              
forward losses.   She said that  started with a  policy discussion                                                              
related to  eliminating NOL credits.   She reviewed that  a credit                                                              
essentially  implies  "an  immediate  obligation  to  the  state,"                                                              
while  "still years away  from actual  production that  the credit                                                              
is  designed to  incentivize ...."   She said  in eliminating  the                                                              
credit,  there  was  still  a  desire  to  find  a  way  to  allow                                                              
companies  to recover  losses, as in  any net  profit system  - in                                                              
particular a  net profit petroleum  system - therefore,  Version D                                                              
would  allow  that  those lease  expenditures  that  are  eligible                                                              
expenses  exceeding revenue  can  be carried  forward and  applied                                                              
against future revenue.                                                                                                         
MS. DELBRIDGE continued, as follows:                                                                                            
     The   policy  intent   was  largely   to  provide   that                                                                   
     relatively  stable playing  field for  ... an  incumbent                                                                   
     or a new  developer.  The state has had  the ability and                                                                   
     has  chosen  to use  the  policy  of providing  cash  up                                                                   
     front  for  that  new  developer,   and  certainly  than                                                                   
     there's  been  this  discussion  going  on  through  the                                                                   
     session as  to whether the  state can afford to  do that                                                                   
     and  in what context.   Everyone,  whether you're  a new                                                                   
     developer   or  incumbent   producer,  would  have   the                                                                   
     ability  to carry  forward your  lease expenditures  for                                                                   
     use against your future liability.                                                                                         
     Part  of the  policy decision  that went  into this  was                                                                   
     ...   in  a  sense   making  sure   that  the   system's                                                                   
     beneficial  to any  company - allows  every company  the                                                                   
     same  opportunity,  but also  starts  ... to  fence  off                                                                   
     some of the  risk that the state has in  ... putting out                                                                   
     an upfront  credit, absent ... the actual  behavior that                                                                   
     has  been  incentivized.     Once  that  behavior,  that                                                                   
     production,  occurs,  then this  company  can fully  use                                                                   
     that  ... lease  carry  forward against  its  production                                                                   
     tax revenue.                                                                                                               
3:22:20 PM                                                                                                                    
CHAIR  JOHNSON  recessed the  House  Rules Standing  Committee  to                                                              
4:00 p.m.                                                                                                                       
4:02:20 PM                                                                                                                    
CHAIR JOHNSON  called the House  Rules Standing Committee  back to                                                              
order  at 4:02  p.m.   Present  at  the call  back  to order  were                                                              
Representatives   Olson,  Herron,  Kreiss-Tomkins,   and  Johnson.                                                              
Representatives  Chenault and Tuck arrived  as the meeting  was in                                                              
CHAIR JOHNSON opened public testimony on HB 247.                                                                                
4:02:50 PM                                                                                                                    
ALLISON  BARNWELL testified that  she is a  young person  who grew                                                              
up in  Alaska and remained  in the state.   She expressed  concern                                                              
over  Alaska's fiscal  crisis and the  state's continued  practice                                                              
of  giving  more  to  oil  companies  than  it  does  to  its  own                                                              
Department  of  Public  Safety  and University  of  Alaska  system                                                              
combined.    She acknowledged  that  Alaska's  infrastructure  was                                                              
built with  revenue from  the oil and  gas industry, and  she said                                                              
she  is grateful for  that; however,  she advised  the need  to be                                                              
realistic about  the negative effects  [the continued use  of] oil                                                              
and  gas has on  climate change  and to  recognize the  tremendous                                                              
potential in renewable  energy and the boost that  can be given to                                                              
local economies  by investing in  those renewable resources.   She                                                              
encouraged  the  state  to  put  its  focus  on  renewable  energy                                                              
instead of paying  more to oil companies, which may  never be able                                                              
to pay  back the money  they owe the  state.  Ms.  Barnwell opined                                                              
that  the state  cannot afford  to pay  out over  $700 million  to                                                              
companies.    She emphasized  her  desire  for  Alaska to  have  a                                                              
sustainable  future.   She urged  the  committee to  "take up  the                                                              
original bill  that the governor  introduced" and  reject [Version                                                              
4:04:46 PM                                                                                                                    
NORMAN  VAN VACTOR said  he has  "a deep  sense of optimism  about                                                              
the future of  the state."  He urged the committee  to support the                                                              
original version  of HB 247.   He opined that everyone  should pay                                                              
his/her  fair share;  the  state  cannot hand  out  checks to  any                                                              
industry while  slashing the basic  services to its citizens.   He                                                              
opined  that when  considering  all the  options, a  comprehensive                                                              
(indisc.)  solution  has  to  be  put  in  place.    He  indicated                                                              
solutions may  include initiating a state income  tax, and dealing                                                              
on some  level with the permanent  fund dividend (PFD),  but first                                                              
the  discussion must be  about what  the state  is giving  away to                                                              
"the  industries."   He  expressed frustration  that  the date  is                                                              
already May 11  and "we" still have not addressed  a comprehensive                                                              
budget solution.                                                                                                                
4:06:27 PM                                                                                                                    
WILLIAM JOHNSON  began his testimony by mentioning  the passage of                                                              
Senate  Bill  21.   He  then stated  that  Alaska  is paying  $775                                                              
million  in credits  to  the richest  corporations  in the  world,                                                              
which  have been  on  an 8-  to  10-year run  of  the highest  oil                                                              
prices in  the world.  He said  even under ACES, with  the highest                                                              
oil  taxes, the  oil companies  were  still making  more money  in                                                              
Alaska than  anywhere else in  the world - especially  compared to                                                              
what  they  made in  the  Lower  48.   He  opined that  for  those                                                              
reasons,  the state should  discontinue  paying the companies  tax                                                              
credits, because  it cannot  afford to do  so.  He  further opined                                                              
that the  oil companies are gouging  the citizens and do  not need                                                              
$775  million, which he  called "chump  change."   He said  if the                                                              
state is serious  about raising revenue, it needs  to do away with                                                              
its tax  policy that allows the  oil companies to write  off their                                                              
losses  in other parts  of the world  against their  operations in                                                              
Prudhoe  Bay.   He  recommended  going  back  to a  (indisc.)  and                                                              
getting away from a net [operating] loss system.                                                                                
MR. JOHNSON  related that he was  born in the Territory  of Alaska                                                              
and  helped build  the  Haul Road  and  the Trans-Alaska  Pipeline                                                              
System,  which  he  said  was  supposed  to last  30  years.    He                                                              
indicated that  was 38 years ago.   He said three-quarters  of the                                                              
oil has  been taken, and at one  point 2.1 million barrels  of oil                                                              
a  day was  being extracted.   He said  that would  never be  seen                                                              
again  unless  the  Arctic  National  Wildlife  Refuge  (ANWR)  is                                                              
opened.    He reiterated  that  the  state  should not  be  paying                                                              
credits to the richest corporations in the world.                                                                               
4:09:36 PM                                                                                                                    
ANN  RAPPOPORT  testified that  she  has lived  in  Alaska for  37                                                              
years  and has two  grown children  in their 20s,  who are  out of                                                              
state for  school, and whom she  wishes will have  the opportunity                                                              
to  return.    She  expressed  concern that  the  actions  of  the                                                              
legislature  will  affect  the   state,  because  she  thinks  the                                                              
legislature  has  cut  essential  services -  such  as  education,                                                              
senior support,  health care, public safety, and  local government                                                              
- too deeply.   She opined it is time to focus  on raising revenue                                                              
to offset  Alaska's budget  crisis, and  that includes  looking at                                                              
oil tax credits.                                                                                                                
MS.  RAPPOPORT  expressed  disappointment   in  the  legislature's                                                              
recent  amending of  the proposed  HB  247, because  she said  she                                                              
thinks  the  proposal  in  the   governor's  original  version  to                                                              
eliminate   approximately   $800  million   in   tax  credits   is                                                              
reasonable  and  responsible.    She said,  "I  think  everybody's                                                              
going to  have to start paying  now."  She said Alaska  has become                                                              
an entitlement  state, wherein everyone  thinks that oil  will pay                                                              
for  everything,  but  she  opined that  that  is  not  realistic,                                                              
because  oil is  not  a renewable  resource  and  there are  other                                                              
types  of  energy  sources  that   could  better  address  climate                                                              
MS.  RAPPOPORT suggested  the  state may  need an  income tax,  so                                                              
that  those who  make more  would pay  more.   She further  stated                                                              
that  Alaska may need  to have  a sales  tax, which she  suggested                                                              
could  be higher  in the  summer when  there are  visitors to  the                                                              
state,  because "we all  pay taxes  when we go  visit them."   She                                                              
asked the  legislature to revisit  HB 247 first and  eliminate the                                                              
oil  tax  credits  and  then  consider adding  taxes  on  some  of                                                              
Alaska's  other  industries  so  that  "everybody  pays  a  little                                                              
something to help us through this crisis."                                                                                      
4:11:30 PM                                                                                                                    
DIANNE  MACRAE testified  that she thinks  consideration  needs to                                                              
be made that  oil companies' focus is on making  money.  She said,                                                              
"The  fact that  they need  to be so  subsidized  is a concern  to                                                              
me."  She said  she feels oil companies are profitable.   She said                                                              
"they  made out like  a bandit"  when the  Exxon Valdez  oil spill                                                              
occurred,  while other people  "had to suck  it up, deal  with it;                                                              
some committed suicide."  She continued:                                                                                        
     This is  not the end  of the world  for them not  to get                                                                   
     all  that  money.    They  can  pay  their  fair  share;                                                                   
     they're making  money hand over fist ...  throughout the                                                                   
     nation and  throughout ... the  world.  I think  that it                                                                   
     ...  almost seems  like  nepotism, sort  of -  cronyism.                                                                   
     Why are we  so afraid that they're going to  bolt up and                                                                   
     leave?    They're  not  going  to.    The  oil's  there;                                                                   
     they'll  get it;  they'll  make money;  they just  won't                                                                   
     make as much money.                                                                                                        
MS. MACRAE  recommended that the  committee abandon Version  D and                                                              
return  to  the  original  version  of HB  247  presented  by  the                                                              
4:12:59 PM                                                                                                                    
DAVE HANSON  testified that he  is a fiscal conservative,  who has                                                              
been a  resident of Alaska  for 40 years.   He opined  that Alaska                                                              
cannot afford  the oil production  tax credit program.   He stated                                                              
opposition to  Version D and expressed support  for the governor's                                                              
original  version  of  HB  247,  which he  said  is  generous  and                                                              
provides a balance  between the needs of the people  of Alaska and                                                              
the oil  industry.  He noted  that the representatives  of the oil                                                              
industry  were  given  hours  in which  to  communicate  with  the                                                              
legislature,  and   he  asked  the  committee  to   remember  that                                                              
[legislators]  represent "all  the people of  Alaska" and  all the                                                              
interests of those people.                                                                                                      
MR. HANSON  posited that  the credit program  is not  an effective                                                              
way  to   increase  oil   production.    He   said  there   is  no                                                              
prequalification  of projects  that get  to receive  credits.   He                                                              
said, "Due  to the program's  confidentiality, we do not  know who                                                              
gets  the credits,  how they  use  the money,  how many  Louisiana                                                              
jobs  are funded, or  how many  Alaska dollars  end up  in Texas."                                                              
He also  noted that oil companies  are already being given  a huge                                                              
tax break,  because if the price  of oil is under $73  per barrel,                                                              
the  industry is  not even  paying a  production tax  credit.   He                                                              
     That's   why  they're  concerned   about  taking   their                                                                   
     credits.   They're not  even paying  taxes to do  credit                                                                   
     against.  And  that's why they all want it  to be rolled                                                                   
     forward.    We  should  realize  there's  two  kinds  of                                                                   
     incentives  [that] were given:   One we've  already got,                                                                   
     with no  production taxes; the second one  we should cut                                                                   
     way  back  on and  definitely  not  roll it  forward  to                                                                   
     burden our future.                                                                                                         
MR. HANSON said  Hilcorp Energy is an example of  the need for tax                                                              
credits to be  tied to a requirement that a corporation  must meet                                                              
all  requirements  in  order to  receive  the  credits.   He  said                                                              
recently  Hilcorp  Energy was  noted  by the  Alaska  Oil and  Gas                                                              
Commission   as   being   in   "endemic   disregard   for   Alaska                                                              
regulations" and  was fined $20,000.   He said Hilcorp  Energy has                                                              
had  over 25  regulatory  transgressions in  the  last few  years.                                                              
Mr. Hanson stated,  "Obviously, this should be  a requirement that                                                              
you obey  the law if  you're going to get  any of this  help money                                                              
from us."   He wished the committee luck and asked  that it return                                                              
to the original bill version.                                                                                                   
4:15:53 PM                                                                                                                    
TRISTAN GLOWA testified  that he would like the  committee to stop                                                              
working  on Version D  and return  to the  original version  of HB
247.   He said he  is a student, a  young person, and  a community                                                              
organizer  in Fairbanks, and  he works with  young people  who are                                                              
trying  to plan  for their  future  in Alaska.   He  said cuts  to                                                              
public schools  and universities are being made,  without "leaving                                                              
much room  for sharing  the sacrifice here."   He related  that he                                                              
grew up  in Fairbanks, studied  Outside, and had been  taking time                                                              
off  school, and  he  had initially  thought  he  could return  to                                                              
school  in Alaska,  while serving  his community,  but that  dream                                                              
has been  "snuffed out,"  because immense  cuts to the  university                                                              
have  ended programs  through which  he would  have continued  his                                                              
community  service.   Mr. Glowa  said, "So,  the sacrifice  is ...                                                              
hitting ...  my generation very  hard, and here you  are proposing                                                              
to  benefit these  ... corporations  more."   He  opined that  the                                                              
state cannot afford to do so.                                                                                                   
MR.  GLOWA  called  Alaska  "a   textbook  petro  state,"  and  he                                                              
indicated  that Alaska needs  to be  diversifying its  economy and                                                              
revenue stream;  it needs  a tax base  that is independent  of the                                                              
oil and  gas industry.  He said  the first step should  be to stop                                                              
giving  money  to the  corporations,  which  he said  are  driving                                                              
climate change.   He stated the  need for Alaska to have  a stable                                                              
economy.    He  stated, "It's  incredibly  irresponsible  at  this                                                              
point  for  ... you  as  our legislator  to  be ...  proposing  to                                                              
continue  to  subsidize  these  oil and  gas  corporations."    He                                                              
opined  that the  committee  should return  to  the original  bill                                                              
version  proposed by  the governor,  because "that's  the kind  of                                                              
leadership  that we  need" for  a sustainable  fiscal [plan].   He                                                              
expressed  his hope  that the  committee will  listen to what  its                                                              
constituents are  saying and not just be listening  to the oil and                                                              
gas industry.                                                                                                                   
4:18:46 PM                                                                                                                    
JAMES  JACOBSON  testified that  he  has lived  in  Alaska for  50                                                              
years, and  he opined that  providing any  credits to oil  and gas                                                              
companies,  whether large  or small,  is akin  to former  Governor                                                              
Sean Parnell's  years-long push to  replace ACES with  Senate Bill                                                              
21.  He continued:                                                                                                              
     One  might just  as well  throw a pocket  full of  money                                                                   
     into  a wind  storm [and]  expect or hope  that some  of                                                                   
     the  bills will blow  back to the  buttoned pocket.   It                                                                   
     ain't going  to happen.  It doesn't make  economic sense                                                                   
     at  all.  When  the oil and  gas marked their  (indisc.)                                                                   
     that   Alaska's  petroleum   products  are   financially                                                                   
     feasible  to  drill  and  pump,  rest  assured  the  oil                                                                   
     companies  will   be  seeking  them,  with   or  without                                                                   
     credits from the state - hopefully without.                                                                                
     Oil  and  gas  companies   are  cutting  back  on  their                                                                   
     efforts and  expenses.  That makes sense.   The State of                                                                   
     Alaska   should  do   the  same,   and  we  should   not                                                                   
     underwrite   or  insure  their   oil  and  gas   company                                                                   
     business adventures.                                                                                                       
MR.  JACOBSON offered  his understanding  that if  the annual  tax                                                              
credit  is exceeded  by  a company,  the  overage  can be  carried                                                              
forward to  a future year.   He said this  serves to give  the oil                                                              
companies a  throttle hold on  Alaska's petroleum  products, which                                                              
he opined  is unacceptable  because the  overall fiscal  health of                                                              
Alaska  is suffering  needlessly  from oil  and gas  credits.   He                                                              
added, "So, stop  that, and bring the audits of  the oil companies                                                              
up  to date."   He  posited that  because  the legislature  cannot                                                              
predict   the  future   of  a   complex  international   petroleum                                                              
situation, it  should cease gifting  the state's money to  the oil                                                              
companies.   He concluded,  "We're not partners  with oil  and gas                                                              
companies.  Remember Amerada Hess [Corporation]."                                                                               
4:20:24 PM                                                                                                                    
STEVEN SUTHERLIN  testified that he appreciates the  concern about                                                              
the  state's budget,  but said  it seems  the idea  is that  there                                                              
needs to be  a change regarding tax credits or that  the PFD needs                                                              
to be accessed.   He indicated that [the oil and  gas industry] is                                                              
a "long-term  business," and he  said he thinks  [the legislature]                                                              
sometimes  takes  heat  for taking  the  time  to  try to  make  a                                                              
careful  adjustment  on  tax   credits.    Regarding  drilling  in                                                              
Alaska, he  said it sometimes can  take 10 years to  bring product                                                              
on  line; therefore,  he said  he thinks  care needs  to be  taken                                                              
when  cutting out  credits.   He  offered  his understanding  that                                                              
some  of the early  credits during  ACES were  a kind of  "payback                                                              
... to try to  make less of a bitter pill out  of some ... bonding                                                              
requirements and  regulatory ... roadblocks that  sometimes get in                                                              
people's way."                                                                                                                  
MR. SUTHERLIN  encouraged [the state]  to work with  the industry.                                                              
He opined  that if there is a  price war with the  Saudi Arabians,                                                              
then  "we need to  fight for  our own share  - whatever  that is."                                                              
He  reiterated his caution  to "keep  a steady  hand on  the till"                                                              
and take care  in how quickly changes are made.   He remarked that                                                              
there  have   been  some  large   fields  discovered   by  smaller                                                              
companies.   He mentioned an environmental impact  statement being                                                              
done for  (indisc.) well project up  north where there  is a great                                                              
deal of oil  and gas that will "provide more  money for everything                                                              
MR. SUTHERLAND  relayed that  he is a  graduate of  the University                                                              
of Alaska  Anchorage (UAA), and  he thinks that the  University of                                                              
Alaska needs to  take a look at whether it is  monetizing its land                                                              
resources  as well  as it  can.  He  indicated that  he helped  to                                                              
establish a  preservation bank  at UAA.  He  said it hurts  him to                                                              
see budget cuts,  and he indicated that care must  be taken not to                                                              
kill off the business.                                                                                                          
4:24:28 PM                                                                                                                    
ANDY  BOND  testified  that  he  has  worked  in  the  Alaska  oil                                                              
business  for 30  years,  and  he related  the  benefits that  his                                                              
family  has  reaped from  the  industry, including  a  comfortable                                                              
existence  and school  tuitions.  He  said he  would love  for his                                                              
grown children  to return to  Alaska after college to  raise their                                                              
own  families; however,  he said  the future  looks bleak,  and he                                                              
warned that another  tax change will greatly hamper  the future of                                                              
the  oil industry.   He said  the state  cannot survive  without a                                                              
healthy  oil  industry  that   is  investing  massive  amounts  of                                                              
capital.  Mr.  Bond stated that the recent downturn  in oil prices                                                              
has  caused   huge  layoffs  in   the  oil  industry   across  all                                                              
companies;  capital  investments for  Alaska  oil exploration  and                                                              
development have  been slashed; and he has seen  many friends lose                                                              
jobs over  the last few months.   He warned that  additional taxes                                                              
to the  oil industry will  further reduce investments  and require                                                              
higher oil prices.                                                                                                              
MR. BOND  stated that he has  seen many changes over the  years of                                                              
tax  policies,  companies, and  oil  prices,  and many  times  the                                                              
changes appear  to be knee-jerk reactions to oil  price changes or                                                              
"other factors."                                                                                                                
MR. BOND stated  his opposition to "the changes  represented in HB
247," because  he said  they will not  result in more  investment,                                                              
jobs, or  new oil in  Alaska.  He opined  that Senate Bill  21 was                                                              
beneficial for  Alaska, because it attracted new  investments over                                                              
the last  few years,  and tax  credits have supplied  Southcentral                                                              
Alaska  with  gas  for  many   years  in  the  future,  which  was                                                              
something  unexpected years ago.   He  said, "Tax credits  counter                                                              
Alaska's  high-cost environment  and  allow the  state to  compete                                                              
with other international  oil investments."  He  said higher taxes                                                              
will  discourage future  investment.  Further,  he said  companies                                                              
are also  nervous about another  change to the tax  structure; tax                                                              
stability is  a key factor for  companies, and another  change may                                                              
cause  them to  look elsewhere  to  make investments.   He  opined                                                              
that tax stability  will encourage more investment,  which in turn                                                              
will get more oil into the pipeline.                                                                                            
MR. BOND opined  that the state needs to reduce  the deficit first                                                              
by making  substantial cuts to  state government and  services; it                                                              
needs  to  react  as  the private  sector  does  during  difficult                                                              
fiscal times.   He said state  spending has gotten out  of control                                                              
over the  last few years.  Mr.  Bond posited that the  next source                                                              
of savings  should come  from the many  savings accounts  that the                                                              
state  has,  because  he  said   that  was  the  design  of  those                                                              
accounts.   He stated that all  those sources should  be exhausted                                                              
first,  and the  state should  examine  whether there  has been  a                                                              
recovery  in oil  prices before  even  considering any  additional                                                              
taxes on the oil industry or individual income or sales taxes.                                                                  
MR.  BOND urged  the committee  to  reject HB  247 completely  and                                                              
continue  with the balance  that was struck  with Senate  Bill 21,                                                              
which he  said would give Alaska  the best chance to  recover from                                                              
the price  downturn and  get investments going  again to  fill the                                                              
4:27:13 PM                                                                                                                    
JEANIE PIERCE  testified in opposition  to Version D.   She opined                                                              
that  the legislature  should  call a  special  session to  debate                                                              
this   issue  between   everybody.    Regarding   the  4   percent                                                              
production tax  floor under Senate Bill 21, she  said [the public]                                                              
was misled that  "it was not going to get underneath  there."  She                                                              
then  stated, "All  the taxes  get  underneath there  but a  few."                                                              
Ms. Pierce continued:                                                                                                           
     We  give   an  85  percent  reimbursement   for  capital                                                                   
     expenses.   That's a  huge subsidy,  and we aren't  even                                                                   
     partners.   I  mean, you  guys call us  partners, but  I                                                                   
     haven't  seen anything written in  paper.  What  kind of                                                                   
     partner pays  85 percent?  That's called a  sucker.  ...                                                                   
     Under  the  version,  ...  it's  not even  vetted  by  a                                                                   
     bankruptcy  attorney.   This is  an old  pattern of  you                                                                   
     guys.   You guys need to  return to the ...  table again                                                                   
     and  readdress  these things  -  revisit what  you  did.                                                                   
     ...  All  these things  getting  underneath  here -  ...                                                                   
     this is bad policy.                                                                                                        
     ... The operating  loss on the North Slope:   90 percent                                                                   
     of  the  credit  is  used  as a  loss;  10  percent  for                                                                   
     exploration   credits.    Does  anybody   think  there's                                                                   
     something wrong with this picture here?                                                                                    
MS. PIERCE  expressed her hope  that the Democrats,  Independents,                                                              
and  moderate Republicans  would "just  say no"  to this bad  deal                                                              
that will  favor the oil companies  again, which the  state cannot                                                              
afford.  She  questioned whether the state's paying  out more than                                                              
it is receiving  in production tax was "a head  scratcher" for any                                                              
legislators, because  she posited that "it sure  was to Alaskans."                                                              
She  implored [the  legislature]  to do  things  right, to  "start                                                              
representing  Alaskans,  not  your back  pocket."   She  said  the                                                              
state  has a good  governor, whom  she called  "a rock  star," who                                                              
the  people  of Alaska  like,  because  they  know he  makes  good                                                              
choices.   She stated that  she thinks  the people of  Alaska want                                                              
the legislature to "come on board with him."                                                                                    
4:29:40 PM                                                                                                                    
JAMES  SQUYRES testified  as  "an Article  1,  Section 2  Alaskan"                                                              
opposed  to Version  D.   He  noted that  he is  also a  certified                                                              
public  accountant (CPA).   He  called the proposed  CS "a  budget                                                              
buster"  and implored  the committee  to get  the credits down  to                                                              
where  the overall  budget is  "$4.5 billion  total spend,"  which                                                              
closely  aligns   with  the  Institute  of  Social   and  Economic                                                              
Research  (ISER) Goldsmith  economic  plan -  one of  two he  said                                                              
does not include  an income tax or recalculation of  the PFD.  Mr.                                                              
Squyres  opined  that  $4.5   billion  is  a  serious  goal  worth                                                              
obtaining.  He  stated that the oil and gas credits  by themselves                                                              
are  the crux of  the issue:   because  less aggressive  cuts were                                                              
taken  elsewhere, the  legislature  has "painted"  itself "into  a                                                              
corner."  He continued:                                                                                                         
     I  understand  [the] Wilson/Seaton  proposal  brings  us                                                                   
     much closer  to where we need  to be, and I  support and                                                                   
     applaud  their  effort, although  it  may still  not  be                                                                   
     enough.    This unlikely  coalition  should  be a  clear                                                                   
     indicator  to those  on this  committee of  how far  off                                                                   
     this current CS is.                                                                                                        
     Continuing  the oil  and  gas program  and not  stopping                                                                   
     the  accrual  sooner rather  than  later, while  it  may                                                                   
     benefit  some,  likely  comes  at  the  expense  of  the                                                                   
     overall  Alaska economy.   If the subsidies  require new                                                                   
     revenue, the  overall Alaska (indisc.) will  contract as                                                                   
     a  result,  and  it's  a clear  violation  of  the  last                                                                   
     phrase  in  Article 1,  Section  2,  that you  swore  to                                                                   
     uphold,  and  it's  not  the desired  direction  for  an                                                                   
     overall economy already in an oil and gas recession.                                                                       
     I  understand the  CS already  puts  the handwriting  on                                                                   
     the wall for  oil and gas companies in 2020.   Why wait?                                                                   
     Stop  the accruals of  fiscal year  2017.  This  version                                                                   
     is bad  trade if you're seriously entertaining  a change                                                                   
     to  the calculations  of [the]  PFD; it  not only  drops                                                                   
     the  PFD   by  $1,000,   but  catches  all   the  future                                                                   
     appreciation  of the  dividend forever.   The time  [of]                                                                   
     these credits  ... [has] passed and [they]  are expenses                                                                   
     that  Alaska  can no  longer  afford.   They  should  be                                                                   
      terminated sooner rather than later.  Keep the budget                                                                     
     at 4.5 or less.                                                                                                            
4:31:54 PM                                                                                                                    
REPRESENTATIVE  KREISS-TOMKINS expressed  his appreciation  of Mr.                                                              
Squyres' testimony  that "it's a zero  sum game" and the  means to                                                              
balance the  budget "doesn't  come from here,"  it will be  from a                                                              
tax or income tax "or something."                                                                                               
4:32:11 PM                                                                                                                    
WILLIAM  JOHN  NEUMEISTER testified  that  he has  been  following                                                              
legislative proceedings  on the television.  He  related that back                                                              
in  1975, during an  oil embargo,  The Flying  Tigers sued  an oil                                                              
company   over  the   price   of  jet   fuel   at  the   Anchorage                                                              
International  Airport.   He  said, "That  oil  company lost;  the                                                              
airline prevailed;  they're still here doing business  in Alaska."                                                              
He related  that his father used  to be an auditor for  the Public                                                              
Utility  Commission  in  Pennsylvania,  and  "they  asked  him  to                                                              
change numbers,"  to which his  father replied, "No, I  don't work                                                              
for  them, and I  don't work  for you;  I work  for the people  of                                                              
this  great   state."    Mr.  Neumeister  concluded   by  thanking                                                              
legislators for the hard work they do.                                                                                          
4:33:27 PM                                                                                                                    
BRAD  FLUETSCH  mentioned  a  media  report,  and  he  stated  his                                                              
understanding of  the report is that the legislature  approved tax                                                              
credits between  2006 and 2014 totaling $7.4 billion.   He said if                                                              
that is  true, then 2015  and 2016 would  bring the total  to $8.5                                                              
billion  in tax  credits in  the last  decade.   He remarked  that                                                              
production  barely increased.   He opined that currently  Alaska's                                                              
economy  is overly concentrated  in oil  and gas,  and he  said he                                                              
speculates  what $8.5  billion could  have done  to diversify  the                                                              
state's   economy   if  Alaska   had   "used  those   funds   more                                                              
appropriately."   He stated  his belief that  the State  of Alaska                                                              
should  cease 100 percent  of all oil  and gas subsidies,  because                                                              
he said  it is ridiculous  to pay to  have oil pumped  and receive                                                              
no  revenue.   He said  "most of  us" cut  production when  prices                                                              
drop  and increase  it when they  rise.   He expressed  admiration                                                              
for Governor  Walker, whom he indicated talked  about Alaska being                                                              
an owner  state.   He questioned what  happened to  the Republican                                                              
Party and asked  what happened to the honest,  hard-working values                                                              
of Governor Hickel's administration.  He concluded:                                                                             
     And  so, I'm very  disturbed that you  want to  reach in                                                                   
     to  the Alaskans'  pockets  and take  $1,000 ...  [from]                                                                   
     every  man, woman, and  child and just  hand it  over to                                                                   
     the  oil and  gas industry.   You should  be ashamed  of                                                                   
     yourselves.   ...  This is  just unbelievable.   I  hope                                                                   
     you  reconsider  this.   I  hope  you  cut oil  and  gas                                                                   
     subsidies  to zero  this year, in  this budget,  because                                                                   
     no  one takes  you seriously  in any  other budget  this                                                                   
4:35:47 PM                                                                                                                    
MARLEANNA HALL, Executive Director, Resource Development Council                                                                
for Alaska, Inc., (RDC), paraphrased from her written testimony,                                                                
which read as follows [original punctuation provided]:                                                                          
     Good  afternoon. My  name is  Marleanna Hall,  and I  am                                                                   
     the  executive  director  of  the  Resource  Development                                                                   
     Council.   RDC   is  a   statewide   trade   association                                                                   
     comprised  of individuals  and  companies from  Alaska's                                                                   
     oil  and gas,  mining,  forest products,  fisheries  and                                                                   
     tourism  industries.  RDC members  are  truly the  life-                                                                   
     blood   of  Alaska's  economy.   We  believe   the  best                                                                   
     approach  to   expand  the  economy  and   generate  new                                                                   
     revenues for  the state is to produce more  oil, attract                                                                   
     more  tourists,   harvest  more  fish,  and   mine  more                                                                   
     With  regard to  Committee  Substitute  HB 247,  raising                                                                   
     taxes  on companies  that  are reporting  record  losses                                                                   
     and  are  in negative  cash  flow  is not  sound  fiscal                                                                   
     Increasing  taxes  on our  natural  resource  industries                                                                   
     will  not  increase  production  for  the  Trans  Alaska                                                                   
     Pipeline System,  it will not encourage  the development                                                                   
     of  new  mines  in  Alaska, it  will  not  attract  more                                                                   
     tourists,  and it  will not increase  investment in  the                                                                   
     fishing  industry.  Higher   taxes  in  this  low-priced                                                                   
     commodity environment  will likely deter  investment and                                                                   
     lead  to  lower  state revenues  and  a  weaker  private                                                                   
     sector over the long run.                                                                                                  
     As you're  aware and have heard over and  over today and                                                                   
     the  last four months,  the oil  industry is  struggling                                                                   
     with   low  oil  prices   and  tight  capital   markets.                                                                   
     Companies   are  cutting   budgets   and  making   tough                                                                   
     investment decisions.  Increasing taxes on  the industry                                                                   
     at  this time  will jeopardize  new investment,  further                                                                   
     damaging our private sector economy.                                                                                       
     This  morning,   Kara  Moriarty  with  AOGA   asked  the                                                                   
     questions  that should  be asked:  Will the CS  increase                                                                   
     investment,  jobs, energy security, production?  Because                                                                   
     that is  what is vital to Alaska's future.  Changing the                                                                   
     tax regime now will make a bad situation worse.                                                                            
     When you  incentivize something, you get more  of it. We                                                                   
     need to  incentivize the industry to drill  more, create                                                                   
     more  wealth, create  more  activity, and  aim for  next                                                                   
     year's production to be even higher than this year's.                                                                      
     The  current tax  policy  has brought  new  exploration,                                                                   
     jobs,  and continued  investment to  the state. The  oil                                                                   
     industry  is truly  the foundation  of Alaska's  economy                                                                   
     and  keeping it  strong  is the  key  to sustaining  the                                                                   
     private  sector,  Alaskan  jobs, state  government,  and                                                                   
     the overall economy.                                                                                                       
     Conversely, this  bill moves us in the  wrong direction.                                                                   
     It represents  the sixth major  tax change in  Alaska in                                                                   
     the   last  11   years.   Make  no   mistake,  this   CS                                                                   
     fundamentally changes the entire tax system again.                                                                         
     My  members are  not asking  for a  tax decrease  during                                                                   
     this  time of  low commodity  prices  like other  states                                                                   
     and countries  are considering,  but we do  request that                                                                   
     as the state  considers changes to tax policy,  it do no                                                                   
     harm to the state's largest industry.                                                                                      
     I  thank   you  for  the  opportunity  to   offer  RDC's                                                                   
     perspective  on CS HB 247  today and urge you  to reject                                                                   
     this legislation.                                                                                                          
4:39:00 PM                                                                                                                    
CARL PORTMAN  testified that he does not support  increasing taxes                                                              
on the  oil and  gas industry,  as proposed under  Version D.   He                                                              
said  Alaska  cannot increase  oil  production by  raising  taxes,                                                              
especially considering  that North Slope  oil is selling  for less                                                              
than it costs  to produce.  He stated that the  industry is losing                                                              
hundreds of  millions of dollars  annually and is being  forced to                                                              
cut jobs  and expenses;  therefore, any tax  increase will  have a                                                              
direct  impact   on  future   investment  in  Alaska   and  future                                                              
production.   He said the current  oil tax policy is working:   it                                                              
has encouraged  new industry  investment in  the state,  which has                                                              
"stabilized  a  long,  steep   slide  in  production."    He  said                                                              
production  is up 1 percent  in the past  12 months, which  is the                                                              
first increase since 2002.  He stated that is significant.                                                                      
MR.  PORTMAN  said  some  legislators  say the  oil  tax  bill  is                                                              
necessary  because "the  oil industry  needs to  have skin  in the                                                              
game and feel the pain like everyone else."  He continued:                                                                      
     ...  Such thinking  ignores the fact  that the  industry                                                                   
     already  has  skin in  the  game.   For  decades it  has                                                                   
     accounted   for   over  80   percent   of  the   state's                                                                   
     unrestricted  general fund  revenues.   It also  ignores                                                                   
     the  fact  that  the  industry   is  feeling  the  pain,                                                                   
     projected  to  lose a  billion  dollars in  Alaska  this                                                                   
     year from low oil prices.                                                                                                  
MR.  PORTMAN opined  that passage  of HB 247  would not  encourage                                                              
future  investment, but would  instead do just  the opposite.   He                                                              
said  the  bill  would  not  result  in  new  production,  either,                                                              
because  with  less  investment  comes less  production  and  less                                                              
state  revenue over  the long  term to fund  education and  public                                                              
services.   He warned that increasing  taxes and costs  on the oil                                                              
industry will  make matters worse  on both the private  and public                                                              
sectors.   He predicted that while  Version D may provide  a small                                                              
amount of short-term  revenue for Alaska, it would  be at the cost                                                              
of jeopardizing  Alaska's economy  over the  long term.   He urged                                                              
the committee to reject Version D.                                                                                              
4:41:36 PM                                                                                                                    
ROY  J.  TANSY,  JR., Executive  Vice  President,  Ahtna  Netiye',                                                              
Inc., testified  that he is a  shareholder who is  requesting that                                                              
the  Middle Earth  Frontier Basin  tax credits,  which are  due to                                                              
expire  June  30,  2016,  be  extended  to at  least  the  end  of                                                              
December 2016.  He continued:                                                                                                   
     Ahtna wants  the opportunity to conduct and  complete an                                                                   
     exploratory well  on state land near Glennallen.   Ahtna                                                                   
     has endured  some significant setbacks recently.   These                                                                   
     include  two outside investors  pulling entirely  out of                                                                   
     the  project and  Ahtna assuming  100 percent  ownership                                                                   
     of  Tolsona.   The  most  recent  hurdle was  just  last                                                                   
     month  when the Cook  Inlet drill rig  we were  about to                                                                   
     use  became unavailable.    The reason  being that  this                                                                   
     contractor  party decided  to drill  another well.   The                                                                   
     Saxon   drill  rig,   which  is   part  of  our   entire                                                                   
     permitting  process  was  based upon,  will  not  become                                                                   
     available until approximately July 1, 2016.                                                                                
     We  are   currently  in  the  unfortunate   position  of                                                                   
     evaluating  whether or not to  go forward, based  on tax                                                                   
     credits  and  other  major   expenditures  for  seismic,                                                                   
     engineering,  permitting,   and  permanent  construction                                                                   
     that have already been completed.                                                                                          
     Ahtna  is utilizing  the Middle Earth  ... and  Frontier                                                                   
     Basin   tax   credits    to   promote   local   economic                                                                   
     development   and   long-term    (indisc.)   for   local                                                                   
     If  our finds  prove  to be  significant,  it could  ...                                                                   
     change the  direction of energy development  in Interior                                                                   
     Alaska.    One  line in  Ahtna's  vision  statement  is:                                                                   
     "Our  land  sustains us."    We  believe that  our  land                                                                   
     truly  takes  care  of us,  whether  it's  for  hunting,                                                                   
     shelter,  or to  provide  a mineral,  earth, energy,  or                                                                   
     timber resources we need in order to survive.                                                                              
     I  know  you've all  been  immersed in  the  legislative                                                                   
     session  since January, and  I can't (indisc.)  strongly                                                                   
     enough how  heartwarming it is  to see the  thousands of                                                                   
     truckloads  haul gravel  in  the Ahtna  region to  build                                                                   
     the  pad  on  the  (indisc.)   land.    The  people  are                                                                   
     working.   This is economic  development activity.   The                                                                   
     civil  construction of the  road being completed  by our                                                                   
     new  construction   company,  with  two-thirds   of  the                                                                   
     employees being Ahtna shareholders.                                                                                        
     ...   The  (indisc.)  started   by  (indisc.)   approved                                                                   
     exploration  license  and  application (indisc.).    Our                                                                   
     shareholders live  in a remote and beautiful  region and                                                                   
     believe  in hard work,  ingenuity, and  prayer.   We are                                                                   
     the perfect  example of an Alaska region  that is trying                                                                   
     to develop  a local natural resource to  meet our energy                                                                   
     needs,  and we have  the pioneer  spirit [and]  strength                                                                   
     within us,  and we are  committed to the  program, which                                                                   
     would   not   be  possible   without   the   development                                                                   
     incentives  of the  Middle  Earth/Frontier tax  credits.                                                                   
     We're  trying to  do our  part as Alaskans  to be  self-                                                                   
     Energy   resource  development   such  as  the   Tolsona                                                                   
     program  that  we are  heavily  invested in  is  Ahtna's                                                                   
     commitment  to a  long-term energy  solution.  It  could                                                                   
     have great  local impact in terms of energy  relief, and                                                                   
     it could  have an even larger significance  to the state                                                                   
     if it  proves to be  substantial.   The point is  we are                                                                   
     doing  something for Alaska.   We  are not wringing  our                                                                   
     hands hoping...                                                                                                            
[Because of technical difficulties, the remaining portion of Mr.                                                                
Tansy, Jr.'s testimony was not recorded.]                                                                                       
4:45:34 PM                                                                                                                    
The committee took a brief at-ease at 4:45 p.m. to address                                                                      
technical difficulties.                                                                                                         
4:46:02 PM                                                                                                                    
MARK MORRIS paraphrased his written testimony, which read as                                                                    
follows [original punctuation provided]:                                                                                        
     This is  a time of great turmoil, great  difficulty, and                                                                   
     a time  of great sacrifice.   This  is a time  when true                                                                   
     leadership  is  indispensable.   Our  state faces  great                                                                   
     financial   trouble.      Short  term   solutions   that                                                                   
     compromise  our   long  term  fiscal  health   are  very                                                                   
     tempting, but we must not take that road!                                                                              
     Tax  credits to  developers of our  State's North  Slope                                                                   
     resources are  a tried and true investment  that produce                                                                   
     revenue to  our State in our  future.  I am  not writing                                                                   
     to address Cook Inlet tax credits.                                                                                         
     The pipeline  (TAPS) is approximately  ¼ full.   It used                                                                   
     to  be  full.   All  Alaskans  have benefited  from  our                                                                   
     State's   vast  oil   reserves  when   they  have   been                                                                   
     converted  to  revenue by  the  oil companies;  big  and                                                                   
     But we face a perilous future.                                                                                             
     The  oil decline  in  TAPS must  be  stopped and  better                                                                   
     yet, reversed.   If it  isn't, the difficulties  we face                                                                   
     now  will pale  in comparison  to what  we will face  in                                                                   
     our  future.   Our State  Government  is dependent  upon                                                                   
     the  revenues we receive  when our  oil is converted  to                                                                   
     revenue by oil companies; big and small.                                                                                   
     The small  oil companies  need financing to  convert our                                                                   
     oil  reserves  into revenue.    We split  the  financial                                                                   
     gains  with  approximately  2/3  going to  our  State  &                                                                   
     Federal Government  and 1/3 going to the  oil companies.                                                                   
     That  is a great  investment!  Tax  credits are  used as                                                                   
     guaranteed  returns  to  help the  small  oil  companies                                                                   
     receive financing  from out of state banks.   This sends                                                                   
     money  into our  State to  convert the  oil reserves  we                                                                   
     own into revenue for our State.                                                                                            
     Fiscal  year  2015 data  for  the  North Slope  shows  a                                                                   
     total  "Government Take"  of approximately $2.2  Billion                                                                   
     dollars,  while  spending  $0.2 Billion  ($224  Million)                                                                   
     dollars   in  credits.   (source:     enalytica.     See                                                                   
     The  tax  credits  we provide  are  an  investment  that                                                                   
     provides revenue to our State for many decades.                                                                            
     Our  oil reserves  have provided  the revenue our  State                                                                   
     Government has used to help our local communities:                                                                         
   · maintain roads and airports                                                                                                
   · build water systems for safe drinking water                                                                                
   · build wastewater collection and treatment systems to                                                                       
     protect our health                                                                                                         
   · assist with funding our schools                                                                                            
   · build new schools                                                                                                          
   · provide health and social services to Alaskans in need                                                                     
   · build and renovate our harbors                                                                                             
   · reduce the cost of heating oil and electricity where                                                                       
     it is very high and other great programs.                                                                                  
     We have  built great university and  vocational training                                                                   
     and  then we  have assisted  our  children in  attending                                                                   
     these  schools and other  post secondary education  with                                                                   
     loans and other State programs.                                                                                            
     All  of this is  at great  risk if  we fail to  continue                                                               
     converting our oil resources into revenues.                                                                            
     Tax  credits work!   Small  oil companies  have a  track                                                                   
     record in  both finding and developing our  oil reserves                                                                   
     as  well  as  taking  older   developments  that  bigger                                                                   
     companies   have  developed   and  re-working  them   to                                                                   
     produce more oil.                                                                                                          
     However,  we  need  tax  credits  to work  for  all  oil                                                                   
     companies,  big and small.   We have much more  oil that                                                                   
     has  not  been  developed  into  revenue.   We  need  to                                                                   
     invest  in  the development  of  this  oil to  secure  a                                                                   
     bright future  for Alaska.   Tax credits do that.   They                                                                   
     are an investment in our future.                                                                                           
     These  are the  "Jay Hammond"  days  again.   By that  I                                                                   
     mean  decisions face Alaska's  leaders that can  provide                                                                   
     another  30-40 years of prosperity  for our State.   But                                                                   
     to do that  sacrifices have to be made as  they did then                                                                   
     through  Gov.  Hammond   and  the  Alaska  Legislature's                                                                   
     We  each  individually,   and  together,  have  to  make                                                                   
     concessions   to  provide  a   bright  future   for  our                                                                   
     Let's come  together to do this.  Leave  North Slope tax                                                                 
     credits  alone.     They  work  for  our   future;  both                                                                 
     individually and collectively.                                                                                             
     Thank you for your time.  Make good decisions.                                                                             
4:50:59 PM                                                                                                                    
DOUG WOODBY  testified that his  wife is a  teacher, and he  has a                                                              
son who  works in town  and another son  who is away, but  whom he                                                              
hopes  can return  to  Alaska  and be  employed  in a  sustainable                                                              
economy.   He said his  family is prepared  to pay income  tax and                                                              
do without the  majority of its PFD, if that is  what is necessary                                                              
to  help the state  maintain its  governmental services;  however,                                                              
he  said they  are  not  willing to  see  the revenue  they  would                                                              
contribute  to  the  state  transferred  over  "to  subsidize  the                                                              
wealthiest corporations  in the world."  For that  reason, he said                                                              
he  is requesting  that  the committee  return  to the  governor's                                                              
original proposal in HB 247 to use that as a starting point.                                                                    
4:52:07 PM                                                                                                                    
JUDY CRONDAHL testified  that she has lived in Alaska  for over 50                                                              
years, which she  said is long enough to know "some  of the giants                                                              
that   were   instrumental   in  putting   together   the   Alaska                                                              
Constitution" and  the governorship of Jay Hammond,  whom she said                                                              
did not  "roll over to the  oil companies."  She  recollected when                                                              
Alaska did  not have big oil  companies and when she paid  a state                                                              
income  tax.   She  said  she lived  in  Alaska through  "the  big                                                              
money,"  and she  speculated  that she  would live  here during  a                                                              
time when  there is not  so much money.   Ms. Crondahl  emphasized                                                              
the need  to protect Alaska,  and she opined that  Governor Walker                                                              
is  "every  bit  the  giant  that Jay  Hammond  was."    She  said                                                              
Governor  Walker  put  together  a budget  that  will  get  Alaska                                                              
through  lean  times,  and  she   encouraged  the  return  to  his                                                              
original proposal on the oil tax credits.                                                                                       
MS. CRONDAHL  encouraged legislators to  be brave enough  to adopt                                                              
a state income  tax, so that those who can afford  to pay can make                                                              
that sacrifice.   She included  herself, the legislators,  and the                                                              
oil  companies   in  the  list  of  those  who   could  make  that                                                              
sacrifice.   She  talked about  the cuts in  services to  schools,                                                              
social services,  and senior programs, while money  is being spent                                                              
on  "a  great  big  legislative  office  in  Anchorage,"  oil  tax                                                              
credits,  and an extended  legislative session.   She  opined that                                                              
it is time  for the legislature to show the same  courage shown by                                                              
Governor Walker  and make tough decisions, because  if it does not                                                              
make  them  this  year,  the   decisions  will  grow  increasingly                                                              
tougher each year.                                                                                                              
4:54:39 PM                                                                                                                    
JOHN SONIN testified  that he is a 15-year resident  of Alaska who                                                              
is  taken aback  by the  legislature's  persistence in  "demeaning                                                              
the quality  of life for us Alaskans  in the face of  profit."  He                                                              
opined that  priorities are skewed  when people are being  made to                                                              
"endure the  stress of companies  ... maximizing the profit."   He                                                              
mentioned  the loss  of money  for seniors and  education,  and he                                                              
stated  that he would  gladly give  up his entire  PFD if  he knew                                                              
the money would  go to education, because children  are the future                                                              
of  the  world.   He  questioned  having  a 10-year  forecast  for                                                              
maximizing  a  budget when  it  could  ruin opportunities  in  the                                                              
future.   He said, "We  all know that oil  is not going to  go on;                                                              
you  have to  stop  here before  we run  out."   He  said the  oil                                                              
belongs  to  [Alaskans],  who  should  be  receiving  the  maximum                                                              
benefit  from it.   He said he  had nothing  else to say,  because                                                              
previous  testifiers  were  so  "on  the  mark."    He  asked  the                                                              
committee to  consider the owners  before making it easier  on the                                                              
producers of the oil to reap "the benefits of our wealth."                                                                      
4:57:29 PM                                                                                                                    
RICHARD  STEELE testified that  he is a  retired teacher,  who has                                                              
lived  in  Alaska since  1979  and  would  like the  committee  to                                                              
return  to the  governor's original  version of  HB 247 and  lower                                                              
the tax  credits to oil  companies.   He opined that  Alaska needs                                                              
the money more than the oil companies do.                                                                                       
4:58:10 PM                                                                                                                    
BILL WARREN  testified that  he is a  65-year resident  of Alaska.                                                              
He  also relayed that  he is  a member  of Local 367  Pipefitters,                                                              
who welded  on TAPS from Ketchikan  to Barrow.  He  stated support                                                              
for the  governor's version  of HB 247  as a balanced  approach to                                                              
the crisis  in which the  state finds  itself currently.   He said                                                              
he sides  with the  Democrats and moderates,  although he  is Non-                                                              
partisan.   He opined that Alaska  is the best place in  the world                                                              
to live.   He said he got  through the depression of  the mid-'80s                                                              
and  is  stronger  for  it.   He  opined  that  [the  legislature]                                                              
"really  screwed  up"  when  it  did not  align  with  the  Alaska                                                              
Natural  Gas Development  Authority  (ANGDA) and  get the  natural                                                              
gasline back in  2002, and he indicated that with  that, the state                                                              
would  not  have to  worry  about  instate  energy "and  all  this                                                              
MR. WARREN said  he supports the gross barrel tax  and letting the                                                              
federal  government  "worry  about  all  the  write-offs,  welding                                                              
rods,  et  cetera  ...."    He   stated,  "You  guys  have  it  so                                                              
complicated, nobody  can figure things  out.  Get it simple."   He                                                              
recommended that  if the state is going to spend  money, it should                                                              
"get  a payback  for it."   He said  he would  support the  Agrium                                                              
deal  if it  would mean  work for Alaskans  and  would be "a  bona                                                              
fide  deal."   Further,  he  indicated  he would  support  Donovan                                                              
Mine.    He mentioned  Richfield  and  said,  "They found  oil  in                                                              
Swanson River and  they found oil in Prudhoe Bay,  and they didn't                                                              
have any  handouts.  And  consequently, they've all  made billions                                                              
of dollars -  billions of billions - and we come  out pretty good,                                                              
too.   But we're in  a tough  spot now."   Mr. Warren said  we all                                                              
need  to get  through this  as Alaskans,  and he  opined that  the                                                              
state needs to diversify as the governor desires.  He continued:                                                                
     I don't  know what kind  of agenda the House  majority's                                                                   
     pulling  off here, but  all I  know is when  pipefitters                                                                   
     make a mistake  repeatedly, they get laid off.   ... You                                                                   
     guys  have  got  to  get   off  the  dime  here  and  do                                                                   
     something.    And  I  think  you  guys  carry  too  much                                                                   
     baggage  with the oil companies;  I think you  guys have                                                                   
     got  a  lot of  campaign  contributions, et  cetera,  et                                                                   
     cetera, so, ... let's go for Alaskans.                                                                                     
MR. WARREN opined  that there was a lot of good  testimony given -                                                              
most of it  from Alaskans who believe in the state  - and he asked                                                              
the committee to  take it to heart and do its  job and move Alaska                                                              
5:01:37 PM                                                                                                                    
GEORGE  PIERCE  observed  that  committee  members  who  had  been                                                              
present  to hear from  all the big  oil companies had  disappeared                                                              
now that  it was time  to hear the  public's testimony.   He said,                                                              
"Shame  on  you."   He  then  told  the Democrat  members  of  the                                                              
committee to  stand their ground,  because they are the  only ones                                                              
who  can "stop  this giveaway."   He admonished  the committee  to                                                              
keep  their  hands off  his  PFD, which  he  said  comes from  his                                                              
resources.    He  indicated  that  if  the  oil  companies  cannot                                                              
produce  "with  all  these  giveaways,"  they should  get  out  of                                                              
Alaska,  and   [the  state]  should   end  all  the   credits  and                                                              
subsidies.    He  said  legislators  are "in  bed"  with  the  oil                                                              
companies  and should  get out, because  legislators are  supposed                                                              
to represent Alaskans - not oil companies.                                                                                      
MR.  PIERCE stated  that the  Republican-led  legislature has  had                                                              
six  oil and  gas tax changes  in the  past eleven  years, and  he                                                              
said  the  state  cannot  afford  it.   He  opined  that  the  oil                                                              
companies  got   themselves  into  "this  mess"   and  should  get                                                              
themselves  out of  it.   He said Senate  Bill 21  was a  giveaway                                                              
that  promised more production  and more  hiring, but  neither one                                                              
happened.   He said  the legislature continues  to extend  oil and                                                              
gas tax  credits - for up to  eight years - and wants  to take his                                                              
PFD  right now.    He stated,  "We see  who  you cater  to."   Mr.                                                              
Pierce urged  legislators to vote against "this  heavily gutted HB
247,"  which he said  looks nothing  like the governor's  original                                                              
bill version, which would recoup lost revenue for the state.                                                                    
MR.  PIERCE referred  to  the promised  4  percent production  tax                                                              
floor,  and he  said credits  dip  below that,  because there  are                                                              
endless  credits,  which include  those  for net  operating  loss,                                                              
small  producers, various  exploration  credits,  and per  taxable                                                              
barrel credits.   There are also subsidies, he added.   He stated,                                                              
"Stop giving  Cook Inlet credits  and subsidies."  He  said Alaska                                                              
gives corporation  welfare subsidies  in the billions  of dollars:                                                              
up to  75 percent  of the cost  to develop a  well and  65 percent                                                              
for  new  oil  development.    He  said  he  has  heard  the  word                                                              
"partner"  thrown around,  but  emphasized,  "These companies  are                                                              
not our partners."                                                                                                              
MR. PIERCE,  in response to Chair  Johnson, said he would  wrap up                                                              
his  testimony, but  commented that  he wished  the same had  been                                                              
asked of those testifying for the oil companies.  He continued:                                                                 
     But  anyway, you guys  have to  stop what you're  doing.                                                                   
     We've  got an $8  billion resource,  and we've got  $1.2                                                                   
     billion, and  we get to pay oil companies  subsidies out                                                                   
     of our money.   You guys need to get out  of what you're                                                                   
     doing.    Do  us a  favor  and  quit  your job  and  let                                                                   
     somebody else get in.                                                                                                      
CHAIR JOHNSON  reminded Mr. Pierce  that everyone gets  the chance                                                              
[to vote for candidates] every two years.                                                                                       
5:05:55 PM                                                                                                                    
DAVID  OTNESS  testified  that   as  a  third  -  out  of  five  -                                                              
generation Alaskan,  who has lived in the state for  65 years, his                                                              
concern runs  deep for the future  of the state.  He  related that                                                              
he  had worked  on  the  pipeline and  all  over  the state,  from                                                              
Ketchikan to  Barrow to Prudhoe Bay.   He expressed his  hope that                                                              
the legislature  would consider that it is making  history through                                                              
its  decisions,  while  also  considering  the  result  of  former                                                              
policies.   He emphasized  that Alaska is  hurting while  there is                                                              
an insistence  on giving  out credits egregiously  in the  face of                                                              
the state's  financial downfall.  He  spoke of all the  years that                                                              
money was coming  in when the state should have  had its financial                                                              
plan  in order,  but "here  we are  just sort  of wobbling  around                                                              
looking  towards any  way out  of the  water."   He expressed  his                                                              
hope  that "sane heads  prevail," realize  that "we're  doing this                                                              
to  ourselves at this  point and  it's really  wrong," and  have a                                                              
change of heart.                                                                                                                
5:08:16 PM                                                                                                                    
DANIEL DONKEL,  Donkel Oil &  Gas, indicated that he  first leased                                                              
in  Cook Inlet  in 1983,  had  his first  production (indisc.)  at                                                              
Soldotna,  (indisc.) Marathon.   He opined that  Alaska is  one of                                                              
the  most wonderful states  in the  Union.   He stated  his belief                                                              
that Alaska  could fill  the Trans Alaska  Pipeline, and  that the                                                              
Cook  Inlet could  "go  back to  the highs  of  270,000 barrels  a                                                              
day."  He said  he has met geologists that work  for the major oil                                                              
companies.   He said  that in  1973, Cook  Inlet held  the highest                                                              
average well  rate in the  nation of  14 (indisc.) barrels  a day.                                                              
He  opined   that  Cook   Inlet  is  amazing   and  is   the  most                                                              
underexplored  basin in  the country.   He  said, "I'd  go out  in                                                              
Apache;  I sold  them  200,000 acres  in 2000."    He quoted  Bill                                                              
Armstrong as  saying that [Alaska]  has it made, because  there is                                                              
more  oil under  its  ground than  Saudi Arabia  and  many of  the                                                              
other  Middle  East countries  combined.   He  posited,  "Alaska's                                                              
problem isn't  the resources.   You've got  so much oil  every one                                                              
of you should  be extremely wealthy."  He said he  thinks a lot of                                                              
Alaskans know  that the state  is two and  half times the  size of                                                              
Texas.   He said,  "Your (indisc.)  sales are  killing you.   Your                                                              
(indisc.) is  killing you."   He questioned what store  owner, who                                                              
cannot  sell a product,  would increase the  price of  the product                                                              
by  18  percent.   He  mentioned  there  were  no bidders  in  the                                                              
Beaufort Sea last  year, and he said he sent a  letter to the then                                                              
acting  director a year  ago regarding the  high price  of acreage                                                              
MR.  DONKEL recommended  the  legislature soften  the monopoly  to                                                              
allow in  more independent  producers.  He  said, "If you  go back                                                              
to the way  the rules were when (indisc.) drilled,  you would fill                                                              
the pipeline.   And  you need to  change the rules.   ...  And you                                                              
wouldn't need  any of these credits  or these incentives,  and you                                                              
would have a lot of money in royalty income."                                                                                   
5:12:57 PM                                                                                                                    
BOB  SHAVELSON, Executive  Director,  Cook Inletkeeper,  testified                                                              
that he  is representing  over 1,200 Alaskans.   He said  he likes                                                              
what  Mr. Warren  from Nikiski  said about the  need to  simplify,                                                              
because  as  the state  continues  to  take  money away  from  its                                                              
agencies,  it diminishes  its capacity  to stand  toe to toe  with                                                              
the oil and  gas industry.  He encouraged the  committee to return                                                              
to the governor's  original bill version of HB 247,  because if it                                                              
does  not,  it  will be  "staring  at  close  to $800  million  in                                                              
refundable  cash  credits to  the  oil  companies in  fiscal  year                                                              
2017,  and that  doesn't even  include the  credits deducted  from                                                              
the tax liabilities."                                                                                                           
MR. SHAVELSON  stated that  having looked at  Cook Inlet  for over                                                              
20 years,  he sees  a zero production  tax on oil  and a  close to                                                              
zero production  tax on gas.   He said  recently there was  a jack                                                              
up rig in Homer,  and everyone on the rig was  from Louisiana.  He                                                              
added  that   they  were   independent  contractors   not  getting                                                              
worker's compensation,  and "local guys were getting  pushed out."                                                              
He  said there  was some revenue  coming into  the community,  but                                                              
certainly  not as talked  about during  discussion of  Senate Bill                                                              
21,  where "production  and  jobs  were going  to  go through  the                                                              
MR. SHAVELSON  stated that the oil  and gas industry is  a boom or                                                              
bust industry;  the resource  is a finite  one being taken  out of                                                              
the  ground.    He  said  if  Alaska  truly  wants  a  sustainable                                                              
economy,  it  better consider  renewable  energy.   He  said  Cook                                                              
Inlet  offers   renewable  energy  options,   including  volcanoes                                                              
geothermal  and the  second-highest  tides in  North America  [for                                                              
hydro  power].    He  stated   that  Alaska  is  standing  on  the                                                              
frontlines  of rapid climate  change, and  it is not  diversifying                                                              
its energy sources  as it should.  Instead, he said,  the state is                                                              
"going  all-in on  the  same things  that  have failed  us in  the                                                              
past."   He  expressed  his  hope that  the  state  can present  a                                                              
bright future for its future generations.                                                                                       
5:15:28 PM                                                                                                                    
PAMELA  THROOP  testified that  she  has  lived in  Fairbanks  for                                                              
almost 41 years  and is self-employed as a commercial  real estate                                                              
broker.   She stated support  for the governor's  original version                                                              
of  HB 247.    She  expressed her  belief  that the  state  cannot                                                              
continue to give  away its money to legislators and  its wealth to                                                              
the  oil companies.    She  said, "We  should  all  be ashamed  of                                                              
ourselves; we  were spending like  drunken sailors.  The  party is                                                              
over."   She  said she  feels like  the state has  "taken all  the                                                              
diamonds out  of the ground"  and is  now just "scratching."   Ms.                                                              
Throop  described  the  cuts   being  made  to  every  agency  and                                                              
department in  the state while not  one bit is being cut  from the                                                              
oil  and gas  credits as  "absolutely  astounding and  appalling."                                                              
She said she  wants her extended generations to live  in Alaska if                                                              
they want  to do  so.  She  said she did  not support  Senate Bill                                                              
21.   She  said about  three  or four  weeks after  the bill  [was                                                              
enacted] ConocoPhillips  Alaska, Inc., laid off "a  ton of people"                                                              
and BP  closed down two  or three out of  five of its rigs  on the                                                              
North Slope.   She said none  of the giveaways of  oil, resources,                                                              
and money have  gained the state anything.  As  a business person,                                                              
who  deals   with  other  business  people,  she   emphasized  the                                                              
importance  of running  the State of  Alaska as  a business.   She                                                              
said she  doesn't know  anyone who "pays  for ... the  business to                                                              
come  in  the front  door."    She  expressed  her hope  that  the                                                              
legislature  will have the  courage to  make the tough  decisions.                                                              
She emphasized that  she does not want the PFD touched.   She said                                                              
people  are struggling  in Fairbanks  as it  is, and losing  money                                                              
from the PFD  would take too much from the economy.   She said Jay                                                              
Hammond was  an incredible statesman and governor,  and she stated                                                              
her  belief that  Governor  Walker is  as  capable and  as much  a                                                              
visionary as former Governor Hammond was.  She continued:                                                                       
     I  think that all  of us  ... have  to make these  tough                                                                   
     decisions.    If  the oil  companies  can't  make  money                                                                   
     here,  then  they  can't  make  money  here.    It  will                                                                   
     equalize  at some  point.   I would  rather it  equalize                                                                   
     and  be real  than equalize  and  be unreal  and we  all                                                                   
     continue to live in a false economy.                                                                                       
     25  percent of our  budget this year,  if you  give away                                                                   
     that  money,  will  be  spent on  that  $800  million  -                                                                   
     nearly  a  billion -  $8  billion  in the  last  several                                                                   
     years.   My God,  what we couldn't  have done  with that                                                                   
     for business development in this state.                                                                                    
MS.  THROOP  reiterated  that  she would  like  the  committee  to                                                              
return  to  the  original  bill  version and  "take  out  all  the                                                              
giveaways to the oil and gas companies."                                                                                        
5:19:21 PM                                                                                                                    
MERRICK  PEIRCE testified that  he likes  the original  version of                                                              
HB 247,  submitted by the governor,  and he does not  support "the                                                              
watered  down version  of this  legislation."   He said the  state                                                              
has  a crippling  deficit  that  is about  to  destroy the  Alaska                                                              
economy,  and   he  does  not  think  the  legislature   is  fully                                                              
comprehending the  magnitude of the deficit the state  faces if it                                                              
does not  have legislation in place  "to fix what's been  going on                                                              
with  these  liable, generous  credits  and subsidies  that  don't                                                              
exist  in any  other country  in the  world."  He  said the  state                                                              
will  never  get  on  top  of   the  $4  billion  deficit  if  the                                                              
subsidies, which are almost a billion a year, are not stopped.                                                                  
MR.  PEIRCE asked  the committee  to consider  that the  subsidies                                                              
paid  to  date failed  to  demonstrate  any  real benefit  to  the                                                              
state.   He said some estimates  are that the state has  paid over                                                              
$3 billion  in subsidies  for Cook Inlet  development.   He opined                                                              
that  Alaska should  have the  lowest  cost energy  in the  United                                                              
States -  in the world - but  it does not.  He said  the wholesale                                                              
price  of gas  in  Cook Inlet  is $6-$8  per  one million  British                                                              
thermal  units (MMBtu),  whereas the  Henry Hub  price for  gas in                                                              
Louisiana,  where there  are no  subsidies in  play, is less  than                                                              
$2.   The consequence for the  community of Fairbanks is  that gas                                                              
cannot  be delivered  there  for  a price  that  is comparable  to                                                              
firewood  or fuel oil.   He  asked the  committee to consider  the                                                              
difference that  would be made if the Interior  Energy Project was                                                              
able  to buy gas  at the  Henry Hub  price versus  the $6-$8.   He                                                              
surmised  that price  difference may  make all  the difference  in                                                              
allowing  the project  to  succeed.   Conversely,  because of  the                                                              
disproportionality  of  the  way  the subsidies  are  being  paid,                                                              
"we're not seeing (indisc. -- shuffling papers) to Alaskans."                                                                   
MR. PEIRCE  mentioned secrecy in  the manner in which  credits are                                                              
paid.  He continued:                                                                                                            
     I  think it  opens the  possibility  for legislators  to                                                                   
     bribes  (indisc.) being  employed by  a certain  company                                                                   
     that  I'm  aware  of that  disconnected  the  amount  of                                                                   
     money that  we paid out in subsidies  to proportionality                                                                   
     for  the benefit gained.   For  example, as I  mentioned                                                                   
     before,  the Henry  Hub price  of natural  gas is  about                                                                   
     $2.   With federal developments  in the Cook  Inlet, the                                                                   
     amount  of money  that we've  paid out  could result  in                                                                   
     the  cost of  gas paid  for by  the state  over $50  per                                                                   
     MMBtu.   And we  don't even  own the gas  at the  end of                                                                   
     the  day.   We're  practically the  only  region in  the                                                                   
     world  where we own the  oil and the  gas, we pay  up to                                                                   
     85  percent subsidies to  develop the  well, and  at the                                                                   
     end  of the day,  we don't  have any ownership  interest                                                                   
     in  the well.   That doesn't make  the slightest  bit of                                                                   
5:22:40 PM                                                                                                                    
KATI  CAPOZZI testified  in opposition  to HB  247, including  the                                                              
original  version  and  all the  proposed  committee  substitutes.                                                              
She said  she thinks  changing the tax  structure on  any industry                                                              
or business  six times in eleven  years hurts that business.   She                                                              
urged the  committee to  "do no further  harm to an  industry that                                                              
is operating  at a  loss and making  painful, necessary  cuts that                                                              
go along  with periods of  low revenue."   She opined that  a vote                                                              
for HB 247 is a vote for job losses for Alaskans.                                                                               
5:23:23 PM                                                                                                                    
MICHAEL  JEFFERSON testified  in opposition  to HB  247 in  all of                                                              
its forms.   He stated that  changing the tax structure  six times                                                              
in eleven  years is bad,  not only for  the oil and  gas industry,                                                              
but all industries  that consider operating in Alaska.   He opined                                                              
at a  time when the  economy is bad and  the deficit is  huge, the                                                              
state should be  looking for ways to cut the budget,  while at the                                                              
same  time "getting  more businesses  up here  to employ  people."                                                              
He  posited, "The  best  way to  cut  the budget  is  to not  have                                                              
people need those  state services, and the best way  to do that is                                                              
to give  them good paying  jobs."  He  predicted that HB  247 will                                                              
reduce oil and  gas work in Alaska - some of  the best paying jobs                                                              
available.   He  said while  neither  he nor  likely his  children                                                              
will  ever work for  an oil  company, he  wants those  jobs there,                                                              
because  he  makes money  off  the people  who  work  for the  oil                                                              
companies.   He  explained that  he  is in  the service  industry,                                                              
thus he needs  [the oil and gas industry] to have  good jobs so he                                                              
can keep  his job.  He implored  the committee not to  pass HB 247                                                              
in any of its iterations.                                                                                                       
5:24:58 PM                                                                                                                    
WILLIAM TOPEL  testified as a fiscal conservative  and resident of                                                              
Alaska since 1966  in opposition to Version D of HB  247.  He said                                                              
the state needs  innovation to get through its fiscal  crisis.  He                                                              
posited  that  that innovation  is  a sustainable  budget,  macro-                                                              
economic  approach  conceived  by  Professor  Scott  Goldsmith  of                                                              
ISER, "with no  need for taxes or a cut to the PFD  or a change to                                                              
the  permanent, while  giving  our permanent  fund investments  as                                                              
part of our revenue stream."  He continued:                                                                                     
     The legislature  can stay at $4.5 billion for  FY 17 and                                                                   
     our vision  is intact.   The legislators' vote  in March                                                                   
     did  that.    The  continued   tinkering  with  Governor                                                                   
     Walker's  original HB 247 has  resulted in about  a $700                                                                   
     million  budget  busted overage  and  a continuation  of                                                                   
     the  oil and  gas tax  credits  program that  originated                                                                   
     with ACES under former Governor Palin.                                                                                     
     Your  (indisc.) for  HB 247  are not much  better.   The                                                                   
     current   version's  still   [a]   budget  buster   that                                                                   
     continues  for four more years.   That program  has cost                                                                   
     the  state  about $3-$8  billion  or more,  with  little                                                                   
     benefit to  Alaska, except to some oil companies.   That                                                                   
     program is the  only one of its kind in  the whole world                                                                   
     for  the oil  and gas industry.   The  program may  have                                                                   
     been a good  idea at one time, but we can't  afford this                                                                   
     program  any  more.    It  needs to  be  ended,  as  the                                                                   
     original  HB 247 recommended.   Since the original  bill                                                                   
     also allowed  for a transition time to pay  for existing                                                                   
     accrued  credits  earned, so  the  state can  honor  its                                                                   
     previous legal commitment subject to appropriation.                                                                        
     If  you  don't  leave  this  tax  credits  program  now,                                                                   
     there'll  be increased  pressure to  tax Alaskans or  to                                                                   
     cap the  PFD, which was structured as a  permanent fund,                                                                   
     or to  increase oil taxes.   Those are not  necessary if                                                                   
     you  continue to  control spending  along a  sustainable                                                                   
     budget path, as outlined by several economists now.                                                                        
     I want  the entire Alaska  economy and oil  companies in                                                                   
     the private  sector to flourish - not just  some and not                                                                   
     just  the public  sector.   If  you  continue with  this                                                                   
     credits  program,  you are  subsidizing  some in  Alaska                                                                   
     while  threatening a  majority of  Alaskans.  While  the                                                                   
     state   cuts  back   on  programs   and  services,   but                                                                   
     continues  to pay some oil  companies to do  business in                                                                   
     Alaska,  that's no  different to  an ROI  - a return  on                                                                   
     investment  -   and  an  average  voter  will   see  the                                                                   
     unfairness in what you are doing.                                                                                          
MR. TOPEL concluded  by urging the committee to  discard Version D                                                              
and restore the original bill version.                                                                                          
5:28:01 PM                                                                                                                    
LISA   HERBERT,    President/CEO,   Alaska    Chamber,   expressed                                                              
appreciation  for the efforts of  the legislature.   She testified                                                              
that  the chamber  is  aware of  the administration's  efforts  to                                                              
find  revenue  to  fund  state  government,  including  increasing                                                              
taxes on  oil production and removing  tax credits on oil  and gas                                                              
exploration.  She  said the chamber is concerned that  many of the                                                              
proposals  are   shortsighted  and  will   discourage  investment,                                                              
stifle economic  activity, and reduce jobs.  She  said the chamber                                                              
thinks that  the future of Alaska  lies in finding  and developing                                                              
more oil  - not taxing it more.   She said in general  the chamber                                                              
believes  it is unwise  to force  any industry  to pay  more taxes                                                              
when it is  losing enormous amounts of money.   She indicated that                                                              
broad-based  taxes when necessary,  instead of targeted  measures,                                                              
are more  balanced, may  be better received  by investors,  and do                                                              
not  "pit the  industry  against  one another."    Notwithstanding                                                              
that, she  said the chamber  further believes that  before turning                                                              
to taxes,  the state must reduce  spending to an  affordable level                                                              
and use  permanent fund earnings,  neither of which has  been done                                                              
MS.  HERBERT  said modifying  the  NOL  carry forward,  the  gross                                                              
value  reduction, and  the gross  minimum tax  that will  increase                                                              
the effective  tax rates  on North Slope  producers should  not be                                                              
adopted.   She  said Senate Bill  21 made  substantial changes  to                                                              
oil  and  gas taxes  roughly  two  years  ago.   She  offered  her                                                              
understanding  that  recent evidence  indicates  that North  Slope                                                              
oil production  is "up,"  which she said  is "positive news  in an                                                              
otherwise  gloomy  industry  picture."    She  said  the  existing                                                              
incentives  for   oil  and  gas  exploration  were   effective  in                                                              
generating exploration  and contributed to the resurgence  of Cook                                                              
Inlet production;  however, the credits are a  significant cost of                                                              
state  treasury.    She  stated  that  the  chamber  supports  the                                                              
state's  review of exploration  credits  and encourage changes  to                                                              
those credits that  are not efficient, no longer  necessary, or do                                                              
not  produce the  desired result.   Nevertheless,  she said  state                                                              
should  pay for  credits already  incurred, because  "a deal  is a                                                              
deal"  and stability is  an essential  part of  a tax policy  that                                                              
has attracted investment  to Alaska.  She said  the Alaska Chamber                                                              
encourages the  legislature to continue its efforts  to reduce the                                                              
cost  of  government.   She  added  that  until  it does  so,  tax                                                              
increases are premature.                                                                                                        
5:30:33 PM                                                                                                                    
ROBERT BULMER testified  that he was born in Alaska,  and he asked                                                              
why Alaska's  government would  want to change  its tax  policy at                                                              
this time.   He stated that many more taxes will  decrease the oil                                                              
industry  capability and  desire to  produce more  oil.  He  asked                                                              
the committee  to consider the  trials and costs the  oil industry                                                              
is facing  with the drastic  reduction of  the value of  oil today                                                              
compared  to what it  was in  the past.   He questioned  why, with                                                              
the  greater demand put  upon the  oil industry  and the  price of                                                              
oil today,  the industry would want  to produce at all.   He said,                                                              
"Give  oil a  break.   We  need  more oil  - not  less.   We  need                                                              
incentive - not  more taxations.  My company does  no business for                                                              
the oil industry."                                                                                                              
5:31:47 PM                                                                                                                    
STUART  COHEN testified  that  as  a business  owner  of about  30                                                              
years,  who  imports  and  sells between  many  countries  of  the                                                              
world, he understands  what it is like to have good  times and bad                                                              
times.  He  acknowledged that sometimes it is  necessary to invest                                                              
during  the bad  times;  however,  he stated  that  when he  makes                                                              
decisions  about investments,  they  are based  on  whether it  is                                                              
feasible to  get a return  on the money  invested.   He questioned                                                              
whether, with  current prices and production rates,  the state can                                                              
actually see  a return on its  tax credit investments.   Mr. Cohen                                                              
surmised  that  if the  state  is  underwriting, for  example,  60                                                              
percent  of  development  and 85  percent  of  some of  the  other                                                              
costs, not  only may it  not get equity,  but it may not  even get                                                              
interest on equity.  He said he does not understand that.                                                                       
MR.  COHEN said  he hears  people talk  about the  need to have  a                                                              
stable  tax  regime,  but  he  does  not  recollect  hearing  that                                                              
sentiment  during the  three  years former  Governor Sean  Parnell                                                              
was attempting to  get taxes lowered.  He opined,  "Taxes are just                                                              
what you  pay to live in  a modern, democratic society,  and we're                                                              
going  to have  to pay  them and oil  companies  also have to  pay                                                              
them."   He said he understands  that the state does not  want oil                                                              
companies to  leave the state,  because they have generated  a lot                                                              
of wealth  for Alaskans;  however, he said  he thinks  things have                                                              
changed, the  credits being paid  are excessive, thus  he supports                                                              
Governor Walker's original version of HB 247.                                                                                   
5:33:53 PM                                                                                                                    
CURTIS  THAYER, President/CEO,  Alaska Chamber,  relayed that  the                                                              
Alaska  Chamber represents  over  700 companies  that employ  over                                                              
100,000  Alaskans.   He  opined that  Senate  Bill 21  effectively                                                              
incentivized  more  oil  exploration   and  discovery.    He  said                                                              
ConocoPhillips  Alaska, Inc.,  increased investment  on the  North                                                              
Slope;  ExxonMobil  Corporation  is  producing now  out  of  Point                                                              
Thomson;  and there are  new companies involved  in the  last five                                                              
years,  such as  Hilcorp, Caelus,  Armstrong, and  BlueCrest.   He                                                              
said all those  companies moved to Alaska because  of the reformed                                                              
tax environment.   He added  that in the  last 10 years  "we" have                                                              
received over $50  billion in revenue to the state,  which he said                                                              
is "a pretty  good return on investment" with tax  credits of $700                                                              
MR. THAYER recollected  that a previous testifier  had stated that                                                              
[his  company] has  a project  under the current  tax regime  that                                                              
can add  120,000 barrels of  oil a day  to the pipeline.   He said                                                              
that  is 44  million  barrels a  year and  88  in two  years.   He                                                              
warned  that if  the state  changes its  tax policy,  it might  be                                                              
2024 before  that oil comes on  line.  Mr. Thayer  emphasized that                                                              
the  government's take  on 88 million  barrels is  huge.   He said                                                              
the  state must  realize  that it  is in  a  partnership with  the                                                              
industry  and,  with  that, it  gets  royalties,  production  tax,                                                              
property taxes,  and corporate income  taxes that are  the highest                                                              
in the  country.  He told the  committee that the question  to ask                                                              
when  considering the  tax policy  in HB  247 is  whether it  will                                                              
increase production  on the North  Slope, encourage  new companies                                                              
to invest in  Alaska, and be a long-term revenue  solution for the                                                              
state.  He posited that the answer to all those questions is no.                                                                
MR. THAYER  said HB  247 attempts "to  do a mathematical  equation                                                              
to fix  a budget cap by  our overspending over the  years," rather                                                              
than having a  long-term, stable tax policy on which  the State of                                                              
Alaska,  the industry,  and the  people of  Alaska can  rely.   He                                                              
stated  that keeping the  current tax structure  in place  is good                                                              
for business.   He stated  the need to  look to the future  and to                                                              
not  be short-sighted  on this  issue.   He  said the  legislature                                                              
needs  to deal  with  the state's  spending  problem and  industry                                                              
needs a tax  policy and there needs to be an  end to daily layoffs                                                              
of people  from their jobs,  which he  indicated is caused  by low                                                              
oil prices and high taxation.                                                                                                   
5:37:28 PM                                                                                                                    
PAM GOODE testified:                                                                                                            
     Woe to  you politicians, who continue to  spend money we                                                                   
     don't  have  and continue  to  make promises  you  can't                                                                   
     keep.   I oppose this bill.   I don't like it.   I don't                                                                   
     like the way it was constructed.                                                                                           
MS.  GOODE stated  that  the legislature's  number  one task  this                                                              
session  was  to  achieve  a  $4.5 billion  budget,  and  now  the                                                              
legislature [has  extended the length of the  regular session] and                                                              
is  "wasting  more of  the  people's  money  that we  don't  have,                                                              
because you couldn't  figure it out earlier."  She  opined that if                                                              
the  tax credits  are so  important, then  the legislature  should                                                              
have  "cut somewhere  else,"  but it  chose  not to  do  so.   She                                                              
stated  that "the  second-most important  task of  this year"  was                                                              
for  the legislature not  to do  anything that  it would  regret -                                                              
anything that would  prevent achieving a budget next  year of $4.3                                                              
billion or  less.  She said,  "We've got to get the  spending down                                                              
to at a reality.  We're not there yet."                                                                                         
MS.  GOODE  recommended cancelling  all  future  oil and  gas  tax                                                              
credits, sticking  to a $4.5  billion budget this year,  and using                                                              
the  "ISER Goldsmith  Kingsley"  model.   She  concluded, "Do  not                                                              
touch the  PFD calculations.  Do  not touch the income  from sales                                                              
5:39:06 PM                                                                                                                    
TIM  ROBINSON quoted  [Abraham  Lincoln], whom  he  said tried  to                                                              
ensure the  survival of  America's representative democracy,  that                                                              
the "government  of the people, by the people, and  for the people                                                              
shall  not perish from  this earth."   He  asked the committee  to                                                              
remember  the   people's  connection   to  the  government.     He                                                              
expressed   appreciation  of   Mr.  Warren's   and  Mr.   Peirce's                                                              
testimony  and  knowledge  of   the  industry.    The  tax  credit                                                              
adjustments,  he said, are  being contested  by the oil  companies                                                              
and their  contractors.  He  said approximately three  weeks prior                                                              
he had  heard a representative  of an  oil company testify  to beg                                                              
the  legislature not  to take  away the tax  credits, because  his                                                              
company  had been  losing money  for eight years  drilling  oil in                                                              
Alaska.    Mr. Robinson  said  he  is flabbergasted  that  someone                                                              
would remain  in business for  eight years when losing  money that                                                              
entire  time.   He questioned  how many of  the committee  members                                                              
would remain  in a business  with that much  loss or if  they lost                                                              
money for each year they served in the legislature.                                                                             
MR. ROBINSON  recollected testimony today from an  oil exploration                                                              
company  from  Colorado,  in  which the  testifier  said  the  tax                                                              
atmosphere  in Alaska  currently was the  best in  the world.   He                                                              
recounted  that the  next  testifier from  ExxonMobil  Corporation                                                              
stated  that Alaska taxes  the highest.   Mr. Robinson  questioned                                                              
which   testifier  was   being   honest.     He  said   ExxonMobil                                                              
Corporation made  a $16.2 billion  profit last year,  and although                                                              
he predicted  the company would not  make that kind of  money next                                                              
year, he  said it would still  make billions of dollars.   He said                                                              
he  cannot  comprehend  why  "people  are  running  around  saying                                                              
they're  losing money"  when  it is  "only on  paper that  they're                                                              
losing money."   He stated,  "Every one of  you in that  room that                                                              
are in business  knows what it means to lose money  on paper.  Tax                                                              
credits help you lose money on paper."                                                                                          
MR. ROBINSON related  that he has lived in other  states where oil                                                              
companies have  existed.  He  said those companies  negotiate with                                                              
landowners to drill,  and when they want to  stop production, they                                                              
sit on  that well and pump again  when the price of  oil goes back                                                              
up.   He said,  "They're  not losing  a penny by  sitting on  that                                                              
oil,  but Alaska  is."   He said  the companies  all flooded  into                                                              
Alaska  because  they  saw  an opportunity  to  get  oil  cheaply,                                                              
without having to pay Alaska its fair share.                                                                                    
MR. ROBINSON  recalled that the  testifier from [AOGA]  had talked                                                              
about oil  producers starting to  shut down production if  the tax                                                              
credits do  not remain.   He said this  is a similar  situation to                                                              
that  of  the  private  land   owner  and  the  shutting  down  of                                                              
production when there is no money in it.  He continued:                                                                         
     If they  don't think they're  making enough  money, then                                                                   
     let's  get  somebody  else  in there  to  operate  those                                                                   
     wells.    This is  Alaska's  oil; it's  Alaska's  money.                                                                   
     They don't  care about Alaska  or Alaskans, and  if they                                                                   
     did, they'd  hire more Alaskans,  but they don't.   They                                                                   
     need  to pump  our oil  and  turn the  contract over  to                                                                   
     someone else if they don't want to.                                                                                        
5:43:04 PM                                                                                                                    
HAROLD BORBRIDGE  testified in support of the  governor's original                                                              
version of HB  247.  He said when the tax  credits were formulated                                                              
several years  ago, nobody predicted  that the price of  oil would                                                              
be  fluctuating so  much.  He  said there  has to  be a return  on                                                              
investment  for the money  that the state  spends.   He encouraged                                                              
the legislature  to "revisit this"  and set a reasonable  level of                                                              
credits for  oil companies, "so  that they can weather  the storm,                                                              
so to speak, and address the budget crisis that faces Alaska."                                                                  
5:45:02 PM                                                                                                                    
SCOTT KANYA  testified that  he is a  small family  business owner                                                              
who was "not  very well represented by Mr. Thayer  and the Chamber                                                              
in his  very un-businesslike  recommendation."  He  indicated that                                                              
in response to  money loss or [a declining]  economic climate, his                                                              
business  is  "battening  down  the  hatches"  and  is  witnessing                                                              
people  spending less  discretionary  dollars,  which impacts  his                                                              
business.   He expressed fear  that the legislature's  response to                                                              
the  present fiscal  crisis could  make the  situation worse.   He                                                              
said there  is an analysis that  says if the legislature  taps the                                                              
PFD, a recession  will occur, which would cost the  most impact to                                                              
jobs and  the private sector economy.   He urged the  committee to                                                              
"axe  these oil tax  credits."   He said  he would  like to  see a                                                              
change in oil  tax revenues that would get Alaska  its fair share.                                                              
He described  his amazement  that since  Governor Jay  Hammond, he                                                              
cannot  think  of  anybody  who  has done  more  for  Alaska  than                                                              
Governor  Sarah Palin.   He  said she  put "a  couple ten  billion                                                              
dollars" in  the bank by adjusting  oil taxes.  He said  the state                                                              
would have been broke a couple years ago if she had not done so.                                                                
MR. KANYA  opined that "we"  need to do  what is right  for Alaska                                                              
and  "what is  going to  take care  of our  house."   He said  the                                                              
credits  need to  be  brought  down to  $70  million through  low-                                                              
interest  loans  or -  as  he  recollected  some people  from  the                                                              
industry  were suggesting  -  an equity  investment  on behalf  of                                                              
Alaska, which  would spur  additional investment and  exploration.                                                              
Mr. Kanya  stated that  oil companies made  "a shift"  right after                                                              
Senate Bill 21  [was enacted] by giving pink slips  to "our fellow                                                              
Alaskans  and  other  oil  patch   workers  ...."    He  said  the                                                              
companies  are making  adjustments  to the  new economic  climate,                                                              
and he  opined that the  state needs to do  the same.  He  said he                                                              
does not  understand what's taking  so long.  He said,  "It's just                                                              
... business."   He added, "And  ... we can't afford  $700 million                                                              
at this point."                                                                                                                 
5:47:57 PM                                                                                                                    
LYNNETTE CLARK  testified that  she came to  Alaska as a  child in                                                              
1951 and  settled in the Interior  in 1975.  She said  that as the                                                              
chair of  the Alaska Independence  Party, she represents  close to                                                              
15,000  Alaskans, whom  she said  believe  in independence  rather                                                              
than the  dependence offered by HB  247.  She cited  Article VIII,                                                              
Section 2, of  Constitution of the State of Alaska,  which read as                                                              
     The  legislature  shall  provide  for  the  utilization,                                                                   
     development,  and conservation of all  natural resources                                                                   
     belonging to  the State, including land and  waters, for                                                                   
     the maximum benefit of its people.                                                                                         
MS.  CLARK opined that  HB 247  will violate  that promise  of the                                                              
constitution, which  she reminded committee members  they all took                                                              
an oath  to defend.   She said she thinks  the bill should  not be                                                              
passed.    She   specified  that  she  does  not   even  like  the                                                              
governor's version  of HB 247, although she  suggested perhaps the                                                              
committee  could incorporate portions  of the governor's  original                                                              
bill to craft  a better piece of legislation.  She  said she looks                                                              
at what  has come out  of the House  Rules Standing  Committee and                                                              
"it's  like  reading hieroglyphics."    She  stated, "We  need  to                                                              
stick to  what was committed by  this House and the Senate  ... in                                                              
March ...  [to] hold the overall  spending to $4.5 billion."   She                                                              
indicated  she wants  neither the  permanent fund  touched nor  an                                                              
income tax  nor "any of  the obscene  sales taxes that  are coming                                                              
down the pike"  instated.  She opined there are  programs that are                                                              
pet projects  that need to  be cut.   She further opined  that the                                                              
legislature  needs to  "clear the  deck or Alaskans  are going  to                                                              
clear  it for you  in November."   She  spoke of repealing  Senate                                                              
Bill 21  and getting the state  back on firmer foundation  for the                                                              
maximum benefit of the people of Alaska.                                                                                        
MS. CLARK continued:                                                                                                            
     I  just don't  believe that  we're in  the dire  straits                                                                   
     that  we're in,  by people that  call themselves  fiscal                                                                   
     conservatives  when they  went down...  [to] Juneau.   I                                                                   
     think   we   have   gotten   -  across   the   aisle   -                                                                   
     "Republicrats"    and    "Demrepublicans"   playing    a                                                                   
     political  game instead  of standing  firm and  standing                                                                   
     up  for the  citizens, the  people of this  state.   I'm                                                                   
     committed to  ask you to please  listen to us -  not the                                                                   
     chamber  of commerces,  not  the lawyers  of Exxon,  not                                                                   
     any of  those people.   The testimony you're  getting is                                                                   
     overwhelming  against this bill.   I thank you  for your                                                                   
     time; I  know you're committing  a lot of effort  to it;                                                                   
     but I don't think you're doing a good job.                                                                                 
5:50:59 PM                                                                                                                    
CARLY  DENNIS testified  that  she  is a  junior  at Chugiak  High                                                              
School  who supports the  governor's original  version of  HB 247.                                                              
She  opined that  it is  time for the  state to  solve its  fiscal                                                              
crisis  rather  than  reducing  budgets from  places  that  cannot                                                              
afford  to have  them reduced,  such as  schools.   She said  as a                                                              
student, she finds  it painful to watch great  school teachers and                                                              
programs  being cut, while  oil companies  continue to  receive so                                                              
much  money.    She  said  that  is  one  reason  "all  these  oil                                                              
subsidies really need to go away."                                                                                              
MS. DENNIS  relayed that she  works closely with  Alaska (indisc.)                                                              
Environment.  She continued:                                                                                                    
     And  so,  I  think  this   bill  would  be  a  really  -                                                                   
     (indisc.)  - would  be a  really great  step in  happily                                                                   
     (indisc.) the  budget problem, as well as  (indisc.).  I                                                                   
     think  it was  the man  from Homer,  Bob, who  (indisc.)                                                                   
     diversify  our energy,  and  that's ...  a great  point.                                                                   
     We  can't keep  relying  on oil  as our  main source  of                                                                   
     revenue,  because  it's  bad  for  the  budget  and  the                                                                   
     economy, but  it's also bad for the climate.   And so, I                                                                   
     think if you  get rid of these subsidies,  that would be                                                                   
     a  really great  step in  diversifying  that energy  and                                                                   
     moving  toward renewable  energy,  and I  know it  would                                                                   
     make a lot of people in my community really happy.                                                                         
MS. DENNIS  concluded by  imploring the  committee to  stop paying                                                              
oil companies so much money.                                                                                                    
5:52:56 PM                                                                                                                    
CATHY WALLING testified  in support of the original  version of HB
247.    In response  to  previous  testimony, she  emphasized  the                                                              
importance  of investing  the  state's money  in "renewables"  and                                                              
not  giving  tax  credits,  which  she  opined  the  state  cannot                                                              
afford,  particularly  in  light   of  the  state's  multi-billion                                                              
dollar deficit.   She said she is not aware of  any other place in                                                              
the  world   that  allows  such  huge  tax  credit   subsidies  in                                                              
comparison with  the oil revenue received.  Further,  she said she                                                              
is   not  aware   of  empirical   proof  that   the  credits   are                                                              
incentivizing   investment  in  Alaska   by  the  oil   companies.                                                              
Conversely,  she said  oil companies  invest mostly  based on  the                                                              
oil prices and  the quality of the oil reserves.   She said she is                                                              
"thinking  of $800 million  next year alone,"  and it  strikes her                                                              
that that ends  up being the equivalent of each  Alaskan giving up                                                              
$1,000 of his/her PFD.                                                                                                          
MS.  WALLING urged  the committee  to work to  reduce the  state's                                                              
budget  deficit.   She offered  her understanding  that it  cannot                                                              
happen  with  cuts alone.    She said  she  would  choose to  give                                                              
$1,000 of her  PFD to support education and  other [programs] that                                                              
support  quality  of  life  in  Alaska.   She  further  urged  the                                                              
committee  to look at  the big  picture and to  be bold  and tough                                                              
enough to  make the big decisions.   She said each year  that goes                                                              
by will  be harder.   She thanked the  committee for its  work and                                                              
encourage its  members to make  the courageous moves that  are not                                                              
necessarily  popular and to  put the good  of the state  above the                                                              
focus  on [how  a decision  may  affect getting  reelected].   She                                                              
said that kind  of action from a legislator is  what inspires her,                                                              
and she hopes to see more of it.                                                                                                
5:56:23 PM                                                                                                                    
MICHELLE  WILSON NORDHOFF  testified in  opposition to Version  D.                                                              
She said  her biggest concern  is that  the climate crisis  is not                                                              
being  addressed, including  the fires  in Alberta,  Canada.   She                                                              
said, "We're not  drawing these links."  She  said that discussion                                                              
is not  happening while the focus  is on funding the  oil industry                                                              
in the  state.  She opined that  it is outrageous to  be giving so                                                              
many millions  of dollars to  the most highly  profitable industry                                                              
on  the planet.    She opined  that [the  oil  companies] will  do                                                              
fine,  but money  is needed  for  education, health  care, and  so                                                              
many  other  applications  throughout   the  state.    Ms.  Wilson                                                              
Nordhoff said  she feels like  ExxonMobil Corporation is  a bully,                                                              
and  she wants  the  legislature to  create  a new  path with  the                                                              
industry and cease giving handouts.                                                                                             
5:57:34 PM                                                                                                                    
EMILY FERRY  testified that her  kindergarten twins told  her they                                                              
aspire  to go  to the  University  of Alaska  Southeast in  Juneau                                                              
when they  grow up, and she said  it made her proud  that there is                                                              
a  university system  in the  state  that her  children aspire  to                                                              
attend.   She said she would like  it to stay that way,  but as it                                                              
stands now, the  state is going to give more money  to the oil and                                                              
gas industry than  it is going to put into its  university system.                                                              
She said that  does not bode well for the future  of her children.                                                              
She  said she  supports the  legislature in  "doing the  difficult                                                              
work"  it  is doing  in  "taxing the  oil  and gas  industry"  and                                                              
repealing  those subsidies.   She said,  "We all  need to  pay our                                                              
fair  share, and I'm  one of  the many,  many, many Alaskans  that                                                              
feel that  we can and should  have an income tax and  that Alaskan                                                              
citizens also  need to be a part  of this equation in  paying into                                                              
our government,  having an  ownership stake  in what happens  here                                                              
in  Juneau."   She  encouraged  the  committee  to return  to  the                                                              
governor's original version of HB 247.                                                                                          
5:59:07 PM                                                                                                                    
LOIS  EPSTEIN prefaced  her  testimony by  relating  that she  has                                                              
been an  engineer working on oil  and gas issues for 25  years, 15                                                              
of  them  in  Alaska.    She indicated  that  she  is  a  licensed                                                              
engineer, who  has sat on several federal advisory  committees for                                                              
three   different  federal   agencies,  doing   work  related   to                                                              
refineries,  oil pipelines,  and  offshore operations.   Her  most                                                              
recent experience  related to the BP spill in the  Gulf of Mexico.                                                              
Ms.  Epstein said  she  would offer  some  general principles  she                                                              
thinks  are   important  for  the  committee  to   consider  while                                                              
developing  any  legislation  related to  oil  and gas  taxes  and                                                              
MS. EPSTEIN  said she thinks it  makes sense to eliminate  all oil                                                              
and  gas credits.   She  said the  price of  oil is,  by far,  the                                                              
greatest driver  of the industry's decisions.  She  said, "I think                                                              
we've seen  a lot  of that in  action in the  past year or  so, as                                                              
the  price  of  oil  has  gone  down  so  dramatically  it  really                                                              
affected  our production.   So,  what we're  doing here is  really                                                              
working  at  the  margins."    She said  a  second  principle  she                                                              
supports  is  the  elimination  of  any oil  taxes  based  on  net                                                              
profits.   She said  she does  not believe the  state has  or will                                                              
ever have  the resources  to fully audit  the industry in  the way                                                              
it needs  to for  that approach.   She said  short of  redoing the                                                              
whole structure,  she would say that  the best option would  be to                                                              
support the governor's original version of HB 247.                                                                              
6:01:42 PM                                                                                                                    
PAMELA MILLER testified  in support of the original  version of HB
247  and  in opposition  to  Version  D.    She opined  that  from                                                              
everything she  has read, it is  not in the state's  best interest                                                              
to "continue  the status quo  with the subsidies."   She indicated                                                              
that  a change  to the  industry  "taking that  money out  forward                                                              
instead  of  today"   is  a  balancing  of  the   books  of  state                                                              
government  that  is misleading  to  the  public.   She  said  she                                                              
thinks  "the amendments that  have been  proposed" will  not bring                                                              
new  revenue  to the  State  of Alaska.    She added,  "And  we're                                                              
really  not  talking about  new  revenue;  we're talking  about  a                                                              
program  that is  relatively recent  in its  full construction  of                                                              
how  many tax credits  and subsidies  are offered  to the  oil and                                                              
gas industry."  She continued:                                                                                                  
     It's  kind of  the approach  of  if we  build these  ...                                                                   
     ways  that  they  have  less  of  their  own  risk  that                                                                   
     they'll  come.   There's no proof  that that'll  happen.                                                                   
     There's  no empirical evidence  of the effectiveness  of                                                                   
     it.   What  we know  is  that state  revenues would  not                                                                   
     come in  that are ... deserved  to the people  of Alaska                                                                   
     and that  that amount of total subsidies  is roughly the                                                                   
     ... equivalent  to $1,000 per year per Alaskan.   It's a                                                                   
     very big amount of money.                                                                                                  
MS.  MILLER   questioned  why  the  state  is   contemplating  the                                                              
continuation  of unproven subsidies  now when  the price  [of oil]                                                              
is  so low  and  when decades  from  now, "if  you  were going  to                                                              
pursue oil,  that oil that then  would be produced  might actually                                                              
bring in  some revenue  to the State  of Alaska."   She questioned                                                              
whether all  Alaskans would be  getting their fair share  from the                                                              
oil produced in Prudhoe Bay over the next 50 years.                                                                             
MS. MILLER  stated that  she does not  think the original  version                                                              
by  the governor  goes far  enough;  however, she  asked that  the                                                              
committee step  back and not approve [Version D].   She concluded,                                                              
"We  need  to deal  with  industry  paying  its fair  share  first                                                              
before we  ask Alaskans to provide  the income tax, which  I would                                                              
6:05:14 PM                                                                                                                    
CHAIR JOHNSON closed public testimony on HB 247.                                                                                
[HB 247 was held over.]                                                                                                         

Document Name Date/Time Subjects
HB247 DOR Overview for HRLS 5-11-16 final.pdf HRLS 5/11/2016 9:00:00 AM
HB 247
AOGA Slides for HRUL 05 11 16.pdf HRLS 5/11/2016 9:00:00 AM
HB 247
05 11 16 AOGA Testimony HRUL HB 247 FINAL.pdf HRLS 5/11/2016 9:00:00 AM
HB 247
May 11 2016 House Rules COP.pdf HRLS 5/11/2016 9:00:00 AM
HB 247
COP-Tax Credit Table one-pager.pdf HRLS 5/11/2016 9:00:00 AM
HB 247
BlueCrest House Rules Testimony Slides 05-11-2016..pdf HRLS 5/11/2016 9:00:00 AM
HB 247
HB 247 fiscal note 5.10.16.pdf HRLS 5/11/2016 9:00:00 AM
HB 247
HB 247 Fund Capitalization.pdf HRLS 5/11/2016 9:00:00 AM
HB 247
HB247 cost reduction charts 20% SQ-GOV-RLS ds_20160510.pdf HRLS 5/11/2016 9:00:00 AM
HB 247
FY16 LSE Comparison_mm_05022016.pdf HRLS 5/11/2016 9:00:00 AM
HB 247
enalytica memo - Answers to questions on Rules CS.pdf HRLS 5/11/2016 9:00:00 AM
HB 247
HB 247 Written Testimony A.pdf HRLS 5/11/2016 9:00:00 AM
HB 247
HB 247 Written Testimony B.pdf HRLS 5/11/2016 9:00:00 AM
HB 247