Legislature(2009 - 2010)BUTROVICH 205
03/31/2010 03:30 PM Senate RESOURCES
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|Overview by Dnr and Dor on Cook Inlet Incentives|
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 290-TAX CREDIT TO DRILL WELLS IN COOK INLET 4:52:31 PM CO-CHAIR WIELECHOWSKI announced SB 290 to be up for consideration. 4:52:53 PM MARY JACKSON, staff to Senator Wagoner, said the tax credit in SB 290 is patterned after the Oklahoma land rush and it deals exclusively with exploration. They call it the Cook Inlet Stampede. It basically says that the first, second and third explorer that comes gets a good benefit starting at 100 percent and then going down to 75 percent and down to 50 percent. It is offered under the alternative tax credit for oil and gas exploration in Section 1. Section 2 of the bill defines exactly what it is by defining the first three explorers as those drilling into the sub-Cretaceous zone. It allows for only one credit per explorer and if more than one qualifies for one event, the department will determine the percentage of the credit goes to each. A unique twist is if the exploration results in production in paying quantities, the credits are required to be repaid by 50 percent. Finally, if explorers come in and actually start producing it strengthens the Basin. MS. JACKSON reviewed materials in the packet that include a sponsor statement, a sectional analysis, a memorandum of understanding from the Department of Revenue (November 2009) that said there was a recent review by the department, a letter of support from Escopeta Oil, a stratigraphic map that depicts the zones and a recent DNR oil and gas activity map. A March 30 DOR fiscal note is indeterminate. She pointed out that this new credit, if it's $20 million and they would have originally gotten a 40 percent credit; it's a difference of 60 percent, not the full $20 million. She said language needed to be developed that clarifies this is intended only for offshore exploration. State leases are offshore in the Cook Inlet Basin; therefore, information received from drilling of the well becomes public and DNR gets to see it. 4:57:18 PM The DNR recommended changing the sub-Cretaceous to the pre- Tertiary period. The third point talks about the possible need for three credits for jack-up rigs and permanent platforms that are already there. A fourth is a question from DOR as to what is considered transportation, although she is reasonably confident that is addressed. The last issue was raised by the DOR which was an oversight - a 25 percent net operating loss for capital credits - and nowhere was it ever intended that anyone get 125 percent. So that needs to be clarified. 4:58:50 PM CO-CHAIR WIELECHOWSKI read a statement from Escopeta Oil, because he thought it was "pretty amazing." It predicts that the Kitchen Lights Unit (KLU) contains approximately 440 million barrels of recoverable oil and 5 tcf of natural gas. It goes on to say that after platform and infrastructure implementation there could be approximately 75,000 million barrels of oil and 300 mmcf of gas per day from the KLU anticlinal feature alone. SENATOR WAGONER added that a portion of the reserves they are talking about are from the Sunfish that ARCO discovered years ago and didn't produce because the price went down to about $9 barrel. 5:00:03 PM MS. DAVIS said after conferring with Kevin Banks, she believed SB 290 would require DNR and DOR to work together to administer this particular credit. First they want to make abundantly clear that language on page 2, line 6, about the first to bore a hole either implies that you have spudded the well (begun to drill) or completed it. The joint recommendation would be to go with the spud date for two reasons: one, it insures that good quality field practices are being applied to the drilling well, and second, the spud date is recorded by date and hour in the event there is competition between two players. The DNR would have to come up with some sort of certification or determination on whether a well results in production in paying quantities. 5:02:41 PM KEVIN BANKS, Director, Division of Oil and Gas, Department of Natural Resources (DNR), explained that the notion here is that you drill a well into a target that hasn't been discovered - a sub-Cretaceous or pre-Tertiary zone. If production comes from that zone, then part of the credit would be paid back. He said that typically exploration wells are not converted in producers for a number of reasons relating to location of the resource when it comes time to produce after further field evaluations. CO-CHAIR WIELECHOWSKI asked if he had any public data on reserves in the sub-Cretaceous zone. MR. BANKS answered that they don't know very much about what is in the sub-Cretaceous zone; possibly a well in the McArthur River that struck oil at that depth could qualify, but he didn't know if it had ever been produced. MS. DAVIS pointed out that if the first rig that comes into Cook Inlet receives 100 percent of its cost as its credit, then you have essentially achieved the objective of getting a jack up rig into Cook Inlet. Under the current lease expenditure regulations, the cost of mobilizing that rig to the State of Alaska is fully allowed as a lease expenditure. But once that rig is in Alaska, they also allow the deduction of the demobilization to other parts of Alaska, but not if it leaves Alaska. Hopefully, she said, the rig should be put to work numerous times in Alaska. 5:05:38 PM CO-CHAIR WIELECHOWSKI set SB 290 aside.