Senate Resources, 4/27/26, 3:30pm

I call the Senate Resources Committee meeting to order. Today is Monday, April 27th, 2026, and the time is 3:30 PM. Please turn off your cell phones. Committee members present today: Senator Rauscher, Senator Karasacki, Senator Dunbar, Senator Myers, myself Senator Giesel. I expect Senator Clayman along possibly shortly.

He has a bill in another committee. And the same is true of Vice Chair Senator Wielekowski. However, we do have a quorum to conduct business. Thank you, Heather and Chloe, for keeping the lights on here, keeping the records and the audio going. Today we're hearing for continuing the thread of Senate Bill 280, oil and gas property tax.

And today the Department of Revenue is here to— they have a PowerPoint to present and answer some questions. So I would welcome Mr. Dan Stickel, Chief Economist, Tax Division, Department of Revenue, to the table for the presentation. I'm also going to look here online. We have from the Department of Revenue David Herbert, who is the Commercial Analyst, Tax Division, And I also see Weston Nash, Commercial Analyst, Department of Natural Resources. So, welcome, Mr. Stickle.

All right. Good afternoon. For the record, Dan Stickle, Chief Economist with the Department of Revenue. And we have had a chance to do a preliminary review of the committee substitute that was released last week. We have provided a fiscal note and have a presentation that kind of walks through through our preliminary interpretation and understanding of what the committee substitute does and walks through the fiscal note and then provides some detailed modeling in the same format as the modeling we previously presented for other versions of the bill.

So slide 2 is some acronyms throughout the presentation as a reference for the committee.

Slide 3 is kind of the organization of the presentation as I kind of walk through. So we'll start with kind of walking through our understanding of the proposed legislation and the revenue impacts. So we did an estimated revenue impact for each of the different provisions of the bill. And then we'll talk about our estimate of implementation costs and then conclude with the detailed project modeling. Great, thank you.

So a disclaimer before we get into this on slide 5. So I'm an economist, not an auditor. We do have one of the most complicated oil and gas fiscal systems and production taxes in the world, and this bill adds some complexity to that existing system. And so it's a, it's a very complex bill, and there's a lot of provisions within it that would interact with each other. And, and so the analysis here, it's based on our preliminary interpretation of the bill and how the different provisions would apply based on our baseline AKLNG modeling and our spring 2026 revenue forecast.

There are some provisions of the bill that would require some significant regulations and decisions to be made by the department, and that would impact the impact of some of these provisions once we come out with those regulations. Madam Chair? Yes, Senator Myers, question. Thank you. Mr. Stickel, the top bullet point there, it says it would add additional dispute.

Are you saying that it would increase the chances of a lawsuit against the state? Senator Myers, through the Chair, we believe that's a likelihood. Or at least a distinct possibility that there would be increased tax appeals, potential dispute, and potential litigation, in particular around the provisions where we by regulation are going to make decisions around how lease expenditures are allocated between oil and gas and some of the provisions around publishing of detailed field and potentially company-specific prevailing value calculations. So that kind of reflects some of the comments that we had from industry last week. Okay.

And so when we get to the implementation costs, we are requesting additional resources to hopefully help deal with some of those concerns. Thank you. Senator Rosier. Thank you, Madam Chair. So bullet point number 4, many provisions will need to be addressed through regulations.

Are there regulations easy to see in the legislation here, or are they something that we don't envision yet in the legislation that may happen? Senator Rauscher, through the chair. So I think the provisions that require regulations, that's pretty easy to understand where we're going to need to do regulations, that there would be significant regulations. We envision needing to do some level of regulations to implement a major gas sale and AKLNG project regardless. But some of the provisions of this bill leave material decisions open to interpretation by the department.

If that answers it, thank you.

Senator Kawasaki. Thank you. So when we have a discussion in the next couple of pages, are you going to discuss those material questions that you've got so that we as a legislative body can sort of tweak those potentially so that there's— so it's absolutely clear what we're meaning? Sure, Senator Kawasaki, excuse me, through the chair. It happens.

I will try to highlight those.

[Speaker:MR. BOLL] The prevailing value is one of the pieces. The lease expenditure allocation is a significant piece. Those are just two examples. [Speaker:COMMISSIONER MAY] Right. Okay.

[Speaker:COMMISSIONER TREGONING] All right. I see no other questions. [Speaker:MR. BOLL] All right. Moving on to Slide 6. So as far as the overall legislation goes, we have kind of approached it in terms of 3 broad categories of changes.

So the first broad category is increased oversight and disclosure requirements for AGDC, and related to that, DOR is directed to provide some analytical support related to the, the state equity investment decision. In particular, firmer language around oil and gas royalty and tax valuation. And then we also have some new reporting requirements coming out of DOR relating to the tax valuation. And then an overall increase in oil and gas taxes, which is a combination of— there's increases to some existing taxes, there's decreases to other taxes, and then some new taxes levied by this bill.

Um, so slide 7, as far as the impact specifically on Department of Revenue, we've broken this out into 7 different categories, and I will walk through each of these in turn. The first 5, the first 5 are the, the most significant as far as revenue impact, and then the The last two I'll touch on as well.

Another note on slide 8 before we get into the specific provisions. So we have an indeterminate fiscal note for this bill. Again, it's a complex bill with many different pieces, and it's challenging for us to analyze with certainty. It's uncertain whether the project proceeds with the changes in this bill. It is a slight tax decrease initially, but then a slight tax increase over the life of the project.

And there's other policy provisions as well that would apply under this bill. And again, when I say increase and decrease, that's relative to current law, which is the current property tax on the project. And we have uncertainty around how some of the provisions of the bill would be interpreted and applied, as I mentioned earlier. Some regulatory decisions would have to be made by future bureaucrats in my agency.

And in addition to the direct impacts of the bill, when we show the fiscal note, we're just analyzing the impacts of each individual provision. The project broadly would have much broader impacts, economic impacts, gas supply impacts, and then impacts to indirect impacts on various state revenues beyond those directly impacted by the bill, as well as impacts on municipalities as well. And those aren't directly shown in the fiscal notes.

Did you have a question, Senator Myers? No. Oh, okay, sorry.

Senator Kawasaki, do you have a question? Just really quick. Trying to read the room here. Yeah, thanks. Just in that last bullet, it talks about benefits and impacts.

And when you talk about impacts, you're talking about something that's counter to a benefit maybe, or something that's going to be an outlay, a capital outlay? Is that how you're using the word impact? Sure, yeah. Senator Wilkowski through the chair. So trying to— I'm sorry.

That's okay. Senator Kawasaki through the chair. I'm ready for Senator Likowski. Don't insult him like that.

But yeah, to acknowledge that there are benefits to the communities in terms of, you know, they're going to get increased sales tax revenue, increased economic activity, but then also some of the impacts that we've been hearing about— need more teachers, more firefighters, more roads. Just to acknowledge that there are impacts on both sides to the municipalities. Thank you.

I don't see any other questions.

All right, so slide 9. First off, this bill would exempt the entire Alaska Natural Gas project from state and local property taxes, and that exemption would repeal if commence— construction does not commence prior to 2028 or if commercial operations do not commence prior to 2032. Our baseline spring revenue forecast conservatively does not include any revenue from the AK LNG project, and so relative to the official state revenue forecast, the property tax exemption would not impact the revenue forecast. In that last bullet point, we do provide The metrics there, if the project were to proceed under current law tax, the current law property tax revenue is estimated at $25 million per year initially when the project begins, ramping up to $244 million by full operations. And these represent the state— the state portion of the property tax revenue only.

Senator Roscher, a question? Yeah, thank you, Madam Chair. Um, bullet point number 2, the exemption would repeal if these things don't happen prior to their dates. What happens then? Uh, Senator Rauscher through the Chair, so as far as the, the property tax piece, um, our understanding is that that piece would revert to current law.

If the project doesn't proceed, some of the other provisions would still remain in place. Follow-up? Yes, Senator Rauscher. At a $20 mil rate, is that what we are saying? Senator Rauscher, through the Chair, that is correct.

Okay, thank you.

I see no other questions. Thank you.

All right, moving on to slide 10. So the alternative volumetric tax, I have a couple slides on this. Um, so along with the property tax exemption, um, this is another provision. The alternative volumetric tax would replace the property tax, and this timeline is subject to those same 2028 and 2032 threshold deadlines. Um, so the rates would be $0.15 per 1,000 cubic feet for the treatment plant, $0.15 per 1,000 cubic feet for the pipeline, and $0.25 per 1,000 cubic feet for the LNG plant, fixed for 10 years and then adjusted annually thereafter based on inflation using the CPI for, for anchorage.

And then that alternative volumetric tax would— the entire tax would be levied by the state. That is a change from the bill as introduced, where the state and municipalities would separately levy the tax. Under the committee substitute, the tax would be levied by the state, and the state would share a portion of that with the municipalities, similar way that we do for, say, fish taxes and cruise ship taxes. So 50% of the tax levied by the state is shared with the municipalities where the property is located. And then for the pipeline, 50% is shared with municipalities, with the state receiving this share in the unorganized borough, and then the remaining 50% would be shared with all municipalities across the state via community revenue sharing.

Questions? Senator Rauscher. Madam Chair, thank you. So when the appropriation time comes, is it up to the legislature to decide which of the communities and how many and the amount that each get? It's under the determination of those who will appropriate?

Sure, Senator Rauscher, through the chair. So the language would be subject to appropriation. It's similar language that we have for other shared taxes in the state since the Constitution bars dedicated funding to the municipalities. So technically it is subject to appropriation.

Senator Rauscher, is it mirroring the Community Assistance Program? And so it would go through DCCED. Okay, thank you.

Other questions? Seeing none.

All right, moving on to slide 11, put some numbers to this. So if the project were to proceed under this bill, we would estimate an increase to total revenue to the state, which includes the, the shared revenue portion of A little under $10 million in 2029, ramping up to a little, uh, $620 million by, uh, 2033. The state would share 81% of the revenue for the pipeline component.

With municipalities either directly or through the community revenue sharing, and then would share half of the revenue for the gas treatment plant and LNG export facility with the North Slope and Kenai Peninsula boroughs. In terms of bottom line unrestricted general fund revenue to the state, that would be $1.85 million initially, increasing to $255 million per year upon full capacity operations, and then with inflation adjustments thereafter.

I see no questions.

Slide 12, the next provision of the bill is a community impact fee. So this would be a fee of $1 million for each mile of the main pipeline installed during construction. And so it would be based— The fee in a given year would be based on the amount of pipeline installed during the previous calendar year and only prior to commercial operations. We do have some uncertainty around exactly how that would be calculated, in particular in the year that commercial operations begins and how installation is defined. The project envisions a 739-mile pipeline for Phase 1 and then a total of 807 miles of pipeline for the full project.

So if the the project proceeds, the maximum total revenue would be the $807 million. Our modeling assumes that the community impact fee would apply to the entirety of the Phase 1 portion of the pipeline, or $739 million. Depending on how those provisions are interpreted and how project schedules change, it could be less than that. And the— all of the funds for this a particular fee would be designated for a grant program to impacted communities administered through DCCED. That would be patterned under the NPRA Impact Grant Program.

Senator Clayman has a question. Just a question in terms of how the billion dollars is assessed or collected. If you're on an 870— 870 miles, you say in the first year they build 100 miles, that means it would be $100 million for that first 100 miles, if the next year they build another 100 miles, does that mean they'd collect for the first 100 miles, continue to collect that $100 million, and then for the second $100 million, collect at that point? Yeah, Senator Clayman, through the chair. So our interpretation is that each— the first $100 million, that would be collected one time, and that would be that that fee would apply in the year following the year that that first 100 million was installed, and we would have to define exactly what installed means.

And this fee would only apply prior to the start of commercial operations. So an outstanding question is then, if the 100 million miles of pipe is installed and then in the following year the fee is due and commercial operations begin, we do have some uncertainty around exactly how that would be impacted. Thank you, and we can work on defining that. I thought we had defined in the bill that installed meant two pieces of pipe welded together, but perhaps it isn't clearly articulated. So thank you for bringing that up.

We can work on that. Senator Clayman, follow-up. And so just to make sure I'm tracking, so that first 100 miles, assuming it fits the installed definition, there's $100 million paid Essentially, upon completion of the first 100 miles and then the second 100 miles, there will be $100 million paid for that. But after that first $100 million is paid, there's no further assessment related to the first $100 million. Senator Clayman, through the Chair, that's understanding, correct?

Okay, thank you. We can clarify that in definitions again. Senator Dunbar, did I see your hand up? Yes, thank you, Madam Chair. Thank you, Mr. Stickell.

The, the entities that will be involved in building this, not including AGDC, which is state, but I'm wondering, uh, if they are federal taxpayers, will this kind of community impact fee have any impact on their federal taxes? That is, is it an expense that they can account for? Senator Dunbar, through the chair, so I would assume so. I'm not a federal tax expert, but I would, I would assume that this would be deductible in the same way that any other tax would be. Follow-up, Senator Dunbar?

No, just— no, it's interesting. So they might be able to reduce their federal taxes by some percentage of this amount of money that Alaska would receive. Thank you, Madam Chair. Senator Kawasaki. Yeah, thanks.

And I think we're getting sort of— so I'm trying to understand how this would work. So there's installed pipe, pipe at point A is going to— from one place to another in a couple different segments. And then the next year, it would be $1 million per mile of that particular— and then I'm guessing the pipe's not just going to be in one point. People are going to be doing these all throughout stages and throughout different parts of wherever those pipes are shipped to. When they start because— so how, I guess, how is it that the Department will measure its, you know, how many miles that is or how many lengths or pieces or is that how that would work out?

Just trying to think of how this would work out for the regulatory side of things. [Speaker:COMMISSIONER ARKOOSH] Sure. Senator Kawasaki, through the Chair, yes, this would be one of the items that we would establish clear regulations on exactly how we were going to calculate and define that. Follow up. Follow up.

And then for distribution of those funds, I guess, you know, the kind of idea is that the communities that are impacted the most are the ones that are going to get the funding. But, you know, if you're in the middle of the Brooks Range, you're not— that's— there's nobody particularly impacted, but maybe Fairbanks and the North Slope would be impacted. But probably less. And is that the decision that gets made at the— where does that decision get made? Well, our plan was that the decision would be made at the community assistance program level.

Okay. Okay. So they would be applying for those impact fees. Okay. Thank you.

Senator Myers. Yeah, thank you. So kind of following up on Senator Dunbar's question, you said it would likely be deductible from federal taxes, but then since we're adding in a, well, effectively a corporate income tax in this bill as well, if it's deductible from federal taxes, does that also make it deductible from state taxes then? Senator Myers, through the chair, yes. So in terms of order of operation, Yes, various— there's an order of operations where your taxes paid to the state on severance taxes, other ad valorem taxes, taxes like this become part of your federal taxable income.

The federal taxable income gets apportioned to Alaska and forms the basis of your state corporate income tax, taxable income. So it's not a 1-to-1 deduction from corporate income tax, but it does get factored into the calculation. Okay, and just follow up on that. Thank you, Senator Myers. Thank you.

So the— during this time period though that we're collecting this fee, the company that's building it is pulling in no revenue. So is this— is this going to carry forward then? Sure. Senator Myers to the Chair. So it is.

Possible that if the company has other operations that they could be pulling in revenue. The way we've modeled it for purposes of— so we model that the midstream company is not subject to corporate income tax in our baseline model. When we get to the portion of this bill where it levies a tax that would potentially apply to that company, we assume that the company earns net operating losses that will end up carrying forward. And yes, those net operating losses end up offsetting a portion of that revenue for the first several years of the project. Okay, thank you.

I see no further questions. Okay, and then just to put a finer point on this, our modeling assumption is that the pipeline, Phase 1 pipeline, begins production in 2029. And that half of the 739 million miles is installed in 2027 and the other half in 2028, and that that translates into revenue received in 2028 and 2029.

Very good. Thank you.

All right. Slide 13. So that was a nice segue to the pass-through entity tax. So under current law, only C corporations doing in the business— doing business in the state are subject to corporate income tax. This bill would create a tax on all oil and gas pass-through entities.

This would include so-called S corporations as well as other pass-through entities. The new tax would be retroactive to the beginning of 2026, and non-oil and gas companies would continue to be exempt. The, the bill sets tax.

Starting at 5% of taxable income between $1 and $2 million, and then ratcheting up to a maximum tax rate of 9— a maximum marginal tax rate of 9.4% on income over $5 million. That would be the same, uh, maximum, uh, marginal rate as exists for corporate income tax for current companies. Um, and do note that, um, regardless of if the natural gas project goes forward, this would have a material impact on oil and gas industry. Several current companies would be subject to this tax. So before I call on Senator Wielechowski, can I ask you, the top tax bracket right now for C corporations is 9.4%, and what is the income bracket that that begins at?

Sure, Chair Giesel, it begins at $222,000 of taxable income. Thank you. That's what I thought. Thank you for confirming that. Senator Wilkowski.

Thank you, Madam Chair, and good afternoon, Mr. Stickle. Uh, I, I don't want to jump ahead. I know you have an annual state revenue slide on page 32, slide 32, but I noticed in that slide you didn't have an amount for, um, you didn't have any additional revenue in 2026 or '27, and I'm just curious what the amount would be from the pass-through entity tax in 2026 and '27. Sure, Senator Wilkowski, through the chair. So in the charts that we show later, we're showing incremental revenue from the AKLNG project.

And so we assume that, you know, given that the project developer would be in an outlay situation where they're incurring potentially net operating losses and there would be no incremental income to the upstream, we're assuming that there would not be a positive impact of this provision until the project begins production. Looking more broadly, since this would apply to current companies, we have a range of estimates. The range is from about $0 to $100 million per year.

Follow-up, Senator Wielechowski? That's quite a range. Is there any way you can narrow that down a little bit? It is. So, Senator Wielechowski, through the Chair, the high end of that range reflects roughly an extrapolation of our current corporate income tax forecast.

Currently, corporate income tax is paid by about two-thirds of the oil and gas companies. And then the low end of that range reflects the uncertainty around the income that those companies may have. We have heard anecdotally that simply extrapolating current companies may not hit the nail on the head. So it's up to the $100 million is kind of what we view as the potential revenue there. Follow-up, Senator Wilkowski.

Just looking at the structure of how the pass-through entity provision is written, do you believe that it's written in a way that fully captures the oil and gas pass-through entities that exist, or does it continue to allow other loopholes or other exemptions? Senator Wielechowski, through the chair. So again, I'm getting a little out over my skis here, but in terms of the fact that it casts a wide net to capture all pass-through entities, I know some previous iterations of language like this would tax only S corp entities, which could potentially leave out partnerships, limited liability companies. I think it casts a wide net, you know, the exemption. So it would apply to taxable income over $1 million.

So there's potentially some small companies that would not be captured by the, by the tax. But we do think that there would be several, potentially several larger companies with over the million dollars of taxable income, and those would all be likely captured.

Follow-up? Well, for 2026 and 2027, I find it hard to believe that it would have a zero impact. And that would— I mean, I, I just looking at the SEC reports filed by Conoco, we know that they're making huge profits in Alaska. We know the split at Prudhoe Bay is roughly a third, a third, a third between Conoco Exxon and Hilcorp.

It seems hard to believe that Hilcorp is making nothing.

Is it your expectation that they're not going to make any profit in Alaska in '26 or '27? No, Senator Murkowski, through the chair. So we provide a wide range to, you know, reflect the uncertainty. We don't know what Hilcorp or any other company that could potentially be subject to the tax. We don't know what their income is.

My expectation would be that the number falls somewhere in between the $0 to $100 million.

Follow-up? Senator Myers. Thank you, Madam Chair. So, Mr. Sickel, this is a bit of a— well, we've had versions of this floating around the building for a while now. This is a rather wider version than most of the others.

And so I'm looking at page 22, lines 14, 15, 16 of the bill that are talking about from the sale of oil or gas produced in the state and from the marine transportation of oil or gas produced in the state. I don't believe that those were captured in previous versions of this tax that have been floating around. So have you I realize you can't tell us names, but have you identified other companies that may be subject to this tax besides the usual suspects of oil and gas producers on the slope or Cook Inlet or the developer of the LNG line? Sen. Myers, to the Chair. So we haven't done an in-depth research and analysis of companies that would potentially be impacted.

We've used kind of our preexisting approach estimating the fiscal impacts. And then for purposes of this bill, we've really focused on modeling out what the impact would be on the AK LNG project and those related companies in particular, since that was the primary focus of the bill. Okay. Thank you. I see no further questions.

All right. So slide 14. Has some more information around the pass-through entity tax. Again, we've estimated that wide range of $0 to $100 million per year for a tax of this type, and that represents just the tax on the current oil and gas operations in the state before accounting for the AK LNG project in particular. Again, about two-thirds of oil and gas producers in oil and gas production, about two-thirds of that, it comes from companies subject to corporate income tax, and this new tax would apply to the remaining companies.

Um, with the AK LNG project, if the project were to go forward under this bill, the tax could apply to the incremental upstream income for certain companies that don't currently pay the corporate income tax, and we also assume that it would apply to the midstream operator, which for modeling purposes we assume would not be subject to the current corporate income tax. The incremental revenue from corporate income tax, that would be zero for several years due to expected net operating losses during construction as well as depreciation impacts on the corporate income tax. We think that— we model that revenue could exceed $60 million per year in the late 2030s and then increasing significantly in through the 2040s once all of those net operating loss balances are used up and the capital is fully depreciated. Senator Dunbar. Thank you, Madam Chair.

So this is a really interesting slide, Mr. Stickell, based on what you said to Senator Wilkowski. I'm going to try to add some of this stuff up here. I believe that $60 million projection in the last bullet, that is just attributed to the project, correct? Or is that both the project and one of the other major producers impacted by the S corp change? Senator Dunbar, through the chair, so that is a What our model estimates for the total incremental revenue from the project and related operations.

Great. And so what, what you're saying here is, so you told Senator Wilkowski that $0 to $100 million at the top related to the current, uh, potential impact of the pass-through tax. And if it was $100 million, that would be if the current major operator on the slope was taxed at about the same rate as the other major operators on the slope, $100 million per year. So what you're saying here is that the, the midstream pipeline operator that could come in by the late 2030s, their taxable income would be about 60%— I mean, $60 million versus $100 million— 60% of the, of each of the major North Slope operators. Uh, in other words, they become one of the largest corporations in Alaska, which makes a lot of sense.

They're one of the largest corporations earning revenue in Alaska, and then you could say could be even larger by the 2040s. Uh, that strikes me as a really strong argument for passing this provision of this bill. What it's saying here is that by the late 2030s, within a decade, we'd have a new company operating in Alaska that would be— have as much.

Taxable income as the largest oil producers we have on the North Slope, and that their taxable income would be even larger by the late 2040s. Uh, is that a fair interpretation of what this is saying? Uh, Senator Dunbar, through the chair, so the modeled income that would accrue to developer, it would be significant. And so this would be a significant— it would be a significant tax potential, tax revenue to the state, and a significant potential tax liability to the developer. Follow-up, Chair.

But it's on taxable income, which in Alaska for the oil and gas system is net, correct? So it's not just a significant tax liability. What you're projecting is very significant tax— I'm sorry, profits for this company. In fact, if you back out 9.4%, I guess it's not clean, but you are estimating here more than $600 million of taxable income by the late 2030s annually.

Is that correct, Mr. Stickel? Yes, Senator Dunbar, through the chair, correct. Yeah. Well, I hope we all— I hope the project is as successful as you're projecting it to be. Thank you, Madam Chair.

And hopefully these elements are included in the legislation. Senator Myers was next, and then it will be Senator Wilkowski. Yeah, thank you. Actually, I've got a kind of a takeoff of something Senator Dunbar was addressing. The bill defined— the bill says taxable income.

It doesn't say profit directly. Is taxable income just profit, or are there other things that that would not be profit that could still be considered taxable income, you know, paying down debt or something like that? Sure, Senator Myers, through the chair. So for corporate income tax, we adopt a lot of the federal corporate income tax definitions. I talk a lot about the complexity of our fiscal system may rival, the rival to that may be the federal tax code for personal and corporate income.

So there are a lot of deductions that go into there. There's, you know, depreciation, amortization. When we're looking at state revenue, there's apportionment methodologies where we're taking a federal income and apportioning it to the state. So yes, it's not going to be a one-to-one profit. The taxable income under corporate income tax laws could be higher or lower than what a Alaska-specific calculation would be, and we do see that in our companies that do file.

Interesting. Okay. Thank you. It's probably worth noting that what they pay to the state, just like you and I, is deductible from federal taxes. Mm-hmm.

We pay no taxes, so obviously we lose that deduction, but if they were paying a tax, it would be obviously deductible. Senator Wielekowski was next on my list. How many companies on the North Slope— or how many oil companies in Alaska pay the corporate income tax? Uh, Senator Wielechowski, through the chair, uh, I believe it's in the low double digits or high single digits in a typical year. I don't have the exact number.

And do you know how much, uh, ConocoPhillips pays in corporate income taxes? Senator Bullockowski, through the Chair, I do. I can't share that.

Is it more than zero? Senator Bullockowski, through the Chair, I assume that was a rhetorical question.

I think this is important. This is a major component of the bill. I think we should have a better estimate than zero to $100 million.

Sure, Senator Wielekowski is the chair. I respect that. We have— we don't know. We have not required tax filings for companies that would potentially be subject to the tax. So we do not have a full universe of what their potential taxable income would be.

An extrapolation looking at, say, production tax filings or looking at corporate income tax liabilities for companies that do file. That's really the best information that we could— that we have to go on. Those numbers would yield an estimate close to $100 million a year based on the spring revenue forecast without looking at the AKLNG project for the first several years, and then that would kind of taper off closer to the $70 million range once you get about 10 years out. And so that is probably the higher end of the range, you know, if you want to think about that. But there's uncertainty around that, and we don't know for certain what the profitability of these companies is.

Well, follow-up? Just, I don't want to beat this, but you've done fiscal notes in the past for previous bills that are exactly like this or very similar to this. Haven't you? Senator Wilkowski, through the Chair, yes. And yes, so in previous legislatures and previous similar legislation, we put a point estimate on the fiscal note.

What we've done here is we've made that point estimate more like the top of a range based on some feedback that we've received. Yes, follow-up. Who'd you get feedback from? Senator Wilkowski, through the chair. So we've talked to several companies who may be impacted, and they've expressed reasons and a thought that our numbers were on the high side.

That was one of the— and kind of that information, that feedback directly from the potential taxpayers, combined with, you know, the fact that it is an uncertain number and we don't have access to actual data from those companies. That's why we went with the range. Follow-up?

Is it fair to say that if the impact was zero, there probably wouldn't be very much opposition to this provision?

Senator Wielechowski, through the Chair, probably.

Okay. Senator Myers. Thank you, Madam Chair. So I guess this kind of touches on a point that you brought up at the beginning and that AOGA brought up when they were here last week, is that there was a concern that a couple of portions of this bill open up more information to the public, but then AOGA was concerned that that could lead to more antitrust allegations. Which could potentially embroil them in lawsuits, maybe embroil the state in a lawsuit, something along those lines.

Is that your read as well? And could you, if it is, could you provide a little bit more detail as to what concerns you have in that regard? [Speaker:MR. BOLL] Sure. Senator Myers, to the Chair. So I believe that those concerns were targeted towards what I'm going to present on slide 18, which talks about some of the new valuation and in particular reporting requirements on Department of Revenue and whether those could potentially run afoul of some of the antitrust.

That would be something that we would look at through the regulations process. It would be a significant increase to what we're reporting. Okay. Well, I'll wait until then. Senator Wielechowski.

Do you think it's a concern or a problem that the policymakers tasked with ensuring we get the constitutional— follow our constitutional obligation to get the maximum value for the resource, are basically guessing what the impact will be. And that we can't get information about how this will impact rates of return, how this will impact profitability. We have no idea what the profitability is. Could be zero, could be hundreds of millions. Do you think that's an ideal way for us as policymakers to be setting policy, to be basically guessing?

What this impact will be. Sure, Senator Wielekowski, through the chair, and just to put a one more caveat on the range of $0 to $100 million per year that we've been bantering about. So that is an annual range. So what we do see with some of our, even our major corporations that typically pay significant amounts of tax revenue, given company-specific issues, like there will be years when they have zero tax due in a given year or a net refund. And so you could potentially have a year where a pass-through entity tax on a few new companies could generate zero incremental dollars in a given year.

You could have a year where there's more than $100 million per year. So that range is kind of— kind of reflects the fact that there would be a small number of taxpayers in addition to the uncertainty. As to, you know, the question about lack of information, you know, that's a policy consideration, and it's a weight of, you know, the benefit of having the additional information versus what the— you know, if there would be any potential detrimental impacts to the companies of providing that information. Certainly, there's been certainly policy proposals around increasing disclosure, and that's certainly prerogative of the legislature.

All right, I see no further questions on slide 14. All right, so slide 15. Another provision of the bill is there would be a disallowance of North Slope gas costs from the production tax. And this is one of the more technical— it's a simple concept to talk about, but it becomes one of the more challenging and technical aspects of the bill. So under the current oil and gas production tax, which is the state severance tax on oil and gas, North Slope producers calculate tax based on several different segments of production in the state, or ring fences.

And for oil and gas, those are two separate tax calculations before the application of tax credits. Gas is subject to a 13% tax on gross value with a 17.7-cent-per-thousand-cubic-feet ceiling for qualifying gas used in-state. This would be gas sold to utilities primarily. Oil is subject to a 35% net profits tax. Again, this is the tax before credits.

A 4% gross tax floor is based on the value of North Slope applies to the oil tax calculation, but it also sets a floor for statewide application of tax credits. And under current law, any lease expenditures on the North Slope, regardless of if they're related to oil or gas, all lease expenditures on the North Slope are allowed to be applied in the oil tax calculation towards that 35% net profits tax calculation. And what this bill would do is it would disallow any lease expenditures deemed to be for gas retroactive to January 1st, 2026.

Senator Dunbar. Well, actually, Madam Chair, my question sort of relates to the next slide. If we could go to the next slide. I don't know if any folks—. Are there any questions on this slide?

I'll just make a comment. For the public that's listening, yes, it's this complicated. Yeah. Mr. Sickel, we're ready, I think, to go to the next slide. Sure.

Unless you have a comment. Yeah, and Chair Giesel, just a comment. I presented earlier this year in Senate Finance Committee, I presented an order of operations presentation that went into this calculation of the current law, including the interaction between oil and gas and tax floors and tax credits. In intricate detail. So if anyone is interested in that, it's out there on the legislature website.

Thank you. Can I ask my question? Yes, sure. Senator Dunbar. Thank you, Madam Chair.

And this is maybe framing for your next several slides, and I think I know the answer, but I'd like you to be thinking about it and how it would change. I think some of us— you and I, Mr. Stickell— had a detailed conversation about the, the graph that you presented where our revenue dips into the negative relative to this project because of these lease expenditures. And I expressed that I didn't want that to happen, and I think that was part of the genesis of this provision in the CS. But I always envisioned it as lease expenditures on gas connected to the project— that is, gas produced— the expenses that were related to gas produced to be sold into the pipe, and not for the typical operations now, the include things like enhanced oil recovery and that kind of thing. And when AOGA presented to us, they said, well, the way it's written, we interpret it as implying to all of it, particularly because of this retroactivity provision.

It appears to me, based on your slides, that you took AOGA's interpretation, or I should say your interpretation matches AOGA's, correct, where you interpreted it as applying to all gas lease expenditures, not just gas lease expenditures connected to the project. Is that correct? Uh, Senator Dunbar, through the chair, that's correct. Very good. I'll say I think that will frame the next several, um, slides.

And I'll just say I, I am working on an amendment. I think some other people might as well to change that because I don't think the interpret— the, the intent of this committee was to alter current operations vis-à-vis gas, uh, gas lease expenditures. I could be wrong. That's just what I is how I interpret it. And I guess my question is, um, would that make it, uh, more or less impactful and more or less complex for the Department of Revenue if such an amendment were to be put forward, that so that it's only for lease expenditures relative to gas being sold into the pipe?

Sure, Senator Dunbar, through the chair. So potentially slightly less impactful to the extent that that we could deem certain lease expenditures as clearly unrelated to the AKLNG project. I'm not sure it would make it less complex. It might actually make it more complex because now for a given lease expenditure, let's say a company goes out and drills a well, we are now saying, first off, we have to determine what allocation of that well belongs to oil or gas, and now we would also have to say what allocation of that well belongs to AKLNG versus not AKLNG. So it would add another layer that we would have to address through the regulatory process.

Follow-up, Madam Chair? Follow-up. I guess my disagree— I don't disagree with you, Mr. Stigl, that it probably would add some complexity. I disagree that the impact would be minor from that kind of amendment, because AOGA's own testimony was that this would be potentially catastrophic for them if we didn't make such a change. I'll say also, I mean, the first thing we could do is remove retroactivity for this provision.

That would— I don't believe there's any expenditures currently occurring on the North Slope related to the project and extracting gas for the project. Would you think that's correct? Senator Dunbar, through the chair, maybe, maybe not. It would depend on what regulations we adopt. Okay.

I'll just say then, if a producer were to make a claim that their current expenditures between January 1st and now were related to this AK LNG project that many of them will privately express to you they don't think is going to happen to happen, that they are currently spending money on that I think would be ridiculous on its face and I hope that the Department of Revenue would throw that out and don't accept those kind of arguments from producers. But I still think we should make that kind of amendment. Thank you, Madam Chair.

Further questions?

Senator Myers. Sorry, maybe I lost track of thought— track of where we are a little bit. I wasn't sure if we were starting the slide or ending the slide. I've got a bit of a question kind of related to Senator Dunbar. So we've been through— you mentioned that if this provision gets passed, that you would have to come up with some regulations that would— to figure out how exactly to apportion from a well that has, you know, 1/3 oil, 2/3 gas, or vice versa coming out.

You'd have to figure out how to apportion those costs then.

If that gas was not— it was not sold, let's say that the project did not move forward or that this is before that, you know, before the project moves forward, if the gas is, you know, kept and reinjected or something, would you tend to then say that all of that particular well was oil then because that's the only portion of it that was sold? Sure, Senator Myers, through the chair. So again, we're speaking to potential interpretations of future regulations. So those would be things that would be addressed. Currently, for gas that is re-injected, we do not consider that to be produced.

So an argument could be made that that isn't gas produced, but, you know, how a future, you know, how how future regulators would interpret the provision and apply regulations and, you know, what their decision-making process and potential motivations would be, that's hard to speak to. Okay. Follow-up to that? Follow-up. Yeah.

So we've been through various iterations of the Gas Line Project. We've had producer-led versions. Now we've got a developer-led version, which is kind of like a version we had almost 20 years ago where we were talking, talking to TransCanada.

The producers as of right now are, at least in appearance, they appear to be neutral, if not maybe a little bit helpful towards getting this project online because they want to make money off of the gas too. If we pass this provision, let's say, let's say we, we pass this provision and the gas line is not built now, But in the future, there's another version, either a gas line or a direct shipping option that we've talked about that as a possibility as well, that would monetize the gas.

But then we now have an interpretation where something that was gas coming out of the ground that was not sold is now going to potentially be sold. And that changes the— how the regulations are attached to a particular well based on the share of oil versus gas coming out, do you believe that that would then make the producers hostile to a particular project because either, either, or because their, their profitability would go down because oil is the much more profitable.

Of the two products? Sure. Senator Myers, through the Chair, so it would add a level of uncertainty, certainly. Whether that would result in hostility, you know, that would be speculation. I think we are getting a little bit into some of the next slide where I talk about allocations and then my final point on slide 17, which I will get to, which is far less complicated methods exist for generating an equivalent amount of incremental revenue to the state.

So this would be a challenging provision for us to implement, for the industry to implement. It would add a lot of, um, uncertainty, and we'd have to address a lot of issues through regulation. And if the desire is to take some incremental level of government take, there are much cleaner ways to do that. Very good. Why don't you proceed through your slides?

We are interested in your suggestions.

All right. So slide 16, again, adding— mentioning to the complexity. And if we had a very simple system to begin with, this might not be quite as challenging, but it's another layer on You know, people struggle to understand the tax, and companies struggle to understand what the impact of taxes on their investment will be. And, you know, we sometimes struggle to forecast exactly what the revenue would be. And this would be adding another— another piece to the puzzle.

We would need to develop and implement the methodology for breaking out oil versus gas costs. Again, via regulation, and the decision-making on that regulation could have many millions of dollars of impact depending on which direction we go, potentially hundreds of millions of dollars of impact. So that's a significant level of discretion that's being left with the Department of Revenue for policymaking there. The bill does suggest that we consider be— BTU or energy equivalent barrels of production. That is good guidance for some of the allocations, but that is only one possible allocation that we would be directed to look at, and that wouldn't cover all of the circumstances.

So again, if a company goes out and drills a well, are they— is that oil costs? Is that gas costs? Is it some split between oil and gas costs? And, you know, even looking at a BTU equivalent allocation, given the fact that oil is a higher-value commodity, a company could make the argument that that's more of an oil well, even if it does produce some gas. So there's a lot of issues that we would have to work through on that.

And again, under current law, you know, as— or under the provision as we believe it is written, it would apply to all production on the North Slope, regardless of if it's associated with the AKLNG project, and so it would have an impact on some current companies. There are— there is gas being produced and sold on the North Slope presently, and so some of those costs, it would be that this provision could potentially be a tax increase for those companies that are producing the gas. And then, again, as I mentioned to an earlier question, trying to further parse out which costs are directly related to the AKLNG project could be challenging. Madam Chair. Yes, Senator Myers.

Yeah, thank you. So it's my understanding that you got more of the gases on the eastern side of the field. The western side is heavier oil, less gas. So it's my understanding that a couple of companies on the western side of the field are actually buying gas from the eastern side and then reinjecting it as— thank you— EOR. So Since that is a commercial transaction, but it is then being reinjected back into the ground, back into state land, which version does that count as?

Does that count as a gas sale or not? Sure. Senator Myers, through the chair. So there's some instances where that would count as a sale and there's some instances where it would not. Oh, man.

The usual. It depends. Okay. One more, Madam Chair. Yes, follow-up.

Thank you. Well, that's clear as mud. Appreciate it. The other concern is I think we've heard some testimony from a couple of people last week that said that if— that this provision could take currently existing wells and make them uneconomic. Would— have you done modeling on what this provision would do not only to gas production, uh, but also to current oil production?

Uh, Senator Myers, through the chair, we haven't— we have not attempted to quantify the impact on current production. Again, a significant part of that quantification would depend on the regulations that the department would develop. So we could develop a regulation that deems a lot of costs to be gas or not a lot of costs to be gas and everything in between. And so that— I think that uncertainty is one of the challenges. Okay.

Thank you. Senator Dunbar. Thank you, Madam Chair. Mr. Stickell, are any of the wells on North Slope currently producing gas for export as LNG through the AK LNG pipeline? Senator Dunbar, through the chair, no.

Great. Then when I do an amendment saying it's only related to this being sold into the pipe, then none of the currently producing wells become uneconomic. Thank you, Madam Chair.

Senator Wilkerson. Thank you. I just want to clarify, did I hear you say correctly that this— the way the regulations are written and the way this law is interpreted could potentially mean hundreds of millions of dollars? Senator Blakowski, through the chair, yes.

It seems to me, Madam Chair, that this is a provision we should probably spend a little more time on. And if we had a bill in front of us that was going to make us or cost us hundreds of millions of dollars, we'd probably spend quite a bit of time on that. I don't think this is a provision we should gloss over. I think this is something we probably need to tackle a little bit more comprehensively. Rather than wait a few years down the road and find out we're losing hundreds of millions of dollars and not being able to recover that.

Thank you, Senator Wielechowski. I— you make a good point. At the same time, I also understand the complexity of this provision, particularly applied to Point Thompson. So there needs to be a middle ground. The other thing I would call out, Mr. Stickell, and it's causing some confusion, and it caused some confusion with AOGA— is Section 26, which is 4355.020(f).

This was repealed and reenacted. The words were already there that says the department, based on the value determined under and of this section, may require tax to be paid on oil or gas that is produced but not sold. That was already written. In statute. We just— the drafter of this bill simply changed the position of it.

And same for the second one, may require tax to be paid on gas that is produced and stored in a gas storage facility. So that's a confusing section. Do you require a tax to be paid if the oil or gas is not sold? Mr. Sickel. Chair Giesel, so apologies, I think I have many things in front of me.

Yes, sure. The bill was not one of them, so I'm not looking at the exact language.

So this may be related to one of the other elements of the bill, which has new valuation requirements for Department of Revenue. My understanding is There's some— for gas of low value, there's some flexibility to the department presently where we may require. And my understanding is that the bill changes some of that to a shall require.

It— the bill changes it to— puts it in Section 3 on 4555-020F. It has a 3. Shall require tax to be paid on oil or gas that is produced and sold at no cost, or under circumstances where the sale price does not represent the prevailing value, etc. Yeah, so you're right, this is a place where we are adding in the prevailing value piece. Sure.

And Chair Giesel, so I talked with some of our production tax group staff, and typically where the, the may language comes in is in special circumstances where there's a very de minimis value of the oil or gas, potentially at an audit. So we're doing an audit and there would be some de minimis amount of incremental revenue, and it's basically— it's not worth the time and paperwork for us or the company to go through and assess the de minimis value.

Value of oil and gas, and with the shale, we would be required to go through that process. Gotcha. Thank you. Senator Myers. Yeah, thank you.

Regarding making wells uneconomic, so the question is not what wells are being— sending gas down an LNG project right now. Obviously none. But the question is which wells in the future would be doing so. You don't necessarily have to drill new wells in order to supply— right now, in order to supply gas, you just have to change Does the pipe go over here to get reinjected? Does the pipe go over here to get processed and then sent south?

So even if nothing is uneconomic right now, is it entirely possible that wells that already exist, once the project is done, could then become uneconomic if this provision passes? Sure. Senator Myers, you're the chair, so these are good questions. Yeah, and you know, as kind of an example, so our baseline modeling, we assume that several billion dollars will be developed into Point Thompson to expand that field. That will result in significant gas sales into the project.

That will also result in significant additional liquids production. And how will we allocate those costs? And similarly, if there's an exploration well, let's say a company drills an exploration well next to Point Thompson, are they exploring for oil or gas or something in between? And these are the types of questions that we would have to work through. If we deem that the additional expenditures are all associated with the AK LNG project, then that would have a significant negative impact on the company.

If we deem that the expenditures are associated with oil, then that would have less of an impact on the company. Or significant negative impact on the state. Senator Dunbar? Sorry, Madam Chair. I do have a question, though.

Hold on. Will you finish, Senator Myers? Yeah, I'm done. Thank you. All right.

Senator Dunbar? No, I just— it's a little bit frustrating because it's one of these heads they win, tails we lose kind of situation. We've created this incredibly complex system And if you try to reclaim any value or protect the state in any way from its revenues going negative, you're told you can't do it, and the uncertainty might, you know, harm these companies. But on the flip side, there's never any harm to the state. But my question actually is for you, Mr. Stickle.

You said there are easier and more simple ways to do this. You know what I'm trying to get at. I don't want us to go into negative revenue for until 2032, as your graphs suggested. So my question is, what are those easier ways to accomplish this? What would you suggest we do if our goal was to prevent us from having our revenue associated with this project go negative until 2032?

[Speaker] Sure. Senator Dunbar, through the Chair. So I would— look at some of the existing levers. We've discussed those extensively, rather than adding a new lever, would be— and this is simply from a standpoint, not as a policy recommendation, but as a standpoint of the complexity in trying to ward off, you know, years and years of audits and litigation and regulations and uncertainty, and the uncertainty that that creates for the companies as they're planning out their investment. Follow-up, Senator Dunbar.

Yeah, we already have years— every year is audits and litigation, and all of that has been since we went to the net profit system, or the net revenue system rather. You said there are existing levers that we discussed. Could you list them please? Because I, I don't— I'm actually not following what you mean. What are the existing policy levers we could pull?

Sure, Senator Dunbar. So, I mean, you can look at If the goal is to raise revenue from the oil and gas industry, you know, we have property tax, royalty, corporate income tax, production tax. Royalties are fixed by contract, so we're really looking at corporate tax, property tax, production tax as, as kind of the levers to look at. We've done extensive presentations on oil and gas production tax and looking at You know, there's been multiple bills introduced and presentations looking at minimum tax floors and changes to tax credits and hardening floors and adjusting tax rates. And just from a standpoint of administrative complexity, we're at a point where we kind of understand the framework of the existing tax.

And so working within that existing framework would be easier from an administrative standpoint than adding another wrinkle. Thank you. Thank you, Madam Chair. Well, it's certainly true that the audits and the litigation are expensive for both sides, the state and the companies. So I appreciate your recommendation.

You know, this disallowance of gas costs from production tax— I believe the other name for it is severability. And that bill was offered in the past by Senator Steadman. Obviously it never passed, perhaps because of the complexity. So thank you. So Senator Wilkowski.

Thank you. And I appreciate what you just said, but fundamentally what you're saying is reopen the oil tax structure, which I think is a good idea. I think we should. But we all know how that will go. Is there a simple way that we can cap lease expenditures or have some sort of a— maybe cap it at 50% so that we don't get gutted every year on our revenue stream like is happening with the Willow Project, which is costing us $300, $500 million this year, every year.

Is there a way that you could recommend that we could easily insert it and levelize the stream of the lease expenditures in the event that we don't change, decouple this? Sure, Senator Bullockowski, through the Chair, obviously we would have to kind of work on that and think through possibilities. There's a myriad of options for changes that could be proposed or made to the production tax system, certainly.

And just, I guess, along this whole— this line of thinking, just to mention, you know, we at the Department of Revenue, we will take the guidance of any legislation passed, and we will implement the legislation to the best of our abilities. We just wanted to highlight that this would be a complex and potentially contentious provision so that it doesn't come as a surprise when when we're requesting additional support and having litigation and audits and whatnot.

So, yes, Senator Wilkowski.

It—. We've been trying to fix this for years, and in my experience, it is extremely difficult, almost impossible, to make significant changes like you're suggesting without the assistance of the executive branch. And is the executive branch willing to help us in this, in fixing this problem, which I think many on this committee recognize, sounds like the department recognizes, we're talking shifts of hundreds of millions of dollars per year in either direction. Is there any— would the department be willing to come up with some sort of proposals in the next few days? That we could incorporate in this bill, if you think this is too complex to do, so that we could work together to rein in this problem before we start seeing deductions of hundreds of millions of dollars.

All right, sure. Senator Lekowski, the chair. So to be clear, I'm not, I'm not suggesting any particular policy change, and I'm not suggesting that we reopen the oil and gas production tax broadly.

You know, I would be happy to take the question back to the administration. It feels like a challenging nut to crack in the next several days, but would be happy to bring that back to the administration.

Thank you, Mr. Stickle. So I am looking at slide 17, which is kind of what we have been discussing. Perhaps that content has already been covered. [Speaker:MR. HAYES] So, yes, slide 17. So we have talked a lot about this.

The impact on the existing forecast would be indeterminate, depending on the regulations. What we did for our modeling scenarios that we will be presenting later on is we made an assumption. And our assumption is that half of the incremental upstream lease expenditures would be deemed to be gas costs. And that is just an assumption. And based on that assumption, revenue would be— would increase by between $0 and $50 million per year during most years of our modeling.

So that gives you kind of a sense of the order of magnitude that might be possible if this was applied to the to the AKLNG project.

All right. Oh, Senator Wielekowski. Curious why you're saying that could increase revenue by $0 to $50 million per year, but then in the— when talking about the previous slide, you suggested the interpretation could result in swings of hundreds of millions of dollars per year. Sure, Senator Wielekowski. So the interpretation would have significant impact on current oil and gas revenue.

What we've done for this analysis is we've looked only at what we are assuming for incremental upstream lease expenditures, and if we assume that half of those are gas costs. So it's a distinction between a commentary on the potential impacts on $8 billion of current lease expenditures per year versus the, the potential impact on, you know, hundreds of millions of dollars per year of additional incremental lease expenditures. For the project.

Senator Dunbar. Well, thank you, Madam Chair. That's interesting. That means you've already done some modeling. I mean, you sort of started the presentation by saying that it's very difficult to tell what lease expenditures are attributable to normal ongoing operations and what are attributable to the project.

But you just said that you have projected hundreds of millions attributable to the project. So you already have done some modeling—. Sure. —About what those lease expenditures are, correct? Senator Dunbar, through the chair, so we have an assumption about what the additional lease expenditures that will be made by upstream companies.

That is an assumption in the AKLNG modeling. So we have some minor additional operating costs at Prudhoe Bay. We have some additional operating costs at Point Thompson. We have significant additional capital costs at Point Thompson. Those are assumptions that have been developed in collaboration with AGDC that we use for modeling purposes.

And that gives us kind of a baseline on which to do our modeling. So when we needed to provide, you know, we wanted to provide detailed modeling and analysis of what this bill could potentially mean in terms of state revenue and cost of gas supply. And so we made the simple assumption that half of those costs would be deemed to be gas. Sure. Very good.

Thank you, Madam Chair. And only, only of those incremental costs. With no impact on current costs. And again, that is just an assumption. Mm-hmm.

All right. Slide 18 is another complicating subject, I'm told, because it deals with prevailing value, I believe. Sure. Yeah, so slide 18 is the new valuation and reporting requirements for DOR. So this provision would require that gas sold at no or low value would be subject to tax.

Currently, there, as we talked about earlier, there's some discretion left to Department of Revenue that those sales may be subject to tax. This changes to a shall and also adds a requirement that oil and gas valuation must be based on fair market value for production tax purposes. And then we are required to publish a monthly report with information about our determination of value for oil and gas by field, unit, or area. And I think that was one of the concerns raised by industry, is the potential level of detail that might be required in that report. We assume for modeling purposes that we're receiving fair value for our oil and gas now, and so that this— we assume that this would not have a significant impact on revenue collections.

So we don't include a number for this in the fiscal note, but it would be a new reporting requirement and it would add some new stipulations around our tax administration and audits. So what the industry has— well, I'll use the term pointed out, okay? Pointed out is that in a sense, government, that is the Department of Revenue, would be setting the price for gas. Sold at the wellhead by publishing a prevailing value, because the companies then would look at that and go, oh, okay, well, this is what I have to sell it at. I can't sell it above that.

I certainly don't want to sell it below that. Is that kind of how you would interpret it also, Mr. Stickel? Sure, Chair Giesel. So we do publish prevailing values presently, um, for certain sales.

We have a prevailing value that we publish for Alaska North Slope oil sold on the West Coast. We have a prevailing value that we publish for Cook Inlet gas sold in the Cook Inlet area. We have a prevailing value for North Slope gas sold to utilities. This would require additional valuations that we would have to do. So for instance, if oil is sold to Asia, that's not something that we're currently calculating, or if there's, you know, potentially potentially some locations where there's only one producer into that, that could form some challenges.

We would go through a regulatory process to flesh out exactly how we would implement this, this provision. I— we hear the concerns from industry. Those are valid concerns, and we would work through that in the regulatory process. So you already determine the prevailing value for gas sold in the state to utilities, you said. Now the utility must be IGU into your gas utility, and is that published then?

Uh, Chair Giesel says yes, we have multiple sales on the North Slope, um, and yes, that's published. So we're requiring something more than that So, Chair Giesel, so my understanding is this would require a more additional information as well as the— a little bit more of a detailed monthly report. And then the by-field unit or area adds additional detail to what we'd have to publish potentially. Okay. All right.

Thank you for that. Any other questions? Senator Wilkowski. Thank you. I think you understand the concern that the committee is trying to get at with this provision.

And I think gas is just fundamentally different than oil in the way it's sold. One of the concerns is that for gas anyway, it could be sold at extremely, extremely low prices. We've heard this, but— and this is where I'm curious what your opinion is, if you feel qualified to answer it. Is it a concern that a company could sell their gas for 25 cents or 50 cents per MCF and then that's what our production tax and royalty is based on, in which case we'd get virtually nothing for a product that ultimately might be sold on the spot market for $20, $25 an MCF. We'd be getting pennies.

Do you think that's a legitimate concern that companies might try to do that? Uh, sure, Senator Likowski, through the chair. So we would need to go through a regulatory process for gas valuation for a major gas sale regardless of, of any of the bills before us. The current regulations were not really developed around this type of project where the companies are selling the gas at the wellhead end of the project. So there would be a regulatory process and, you know, we think we could address that through the regulatory process.

Yes, Senator Wielechowski. When you say address what through the regulatory process? Senator Wielechowski, through the chair, the concerns around gas valuation and whether the state's getting fair value for the gas. So we would address that through the regulatory process. Follow-up.

So are you saying we don't need to have this provision in the, in the bill and that you'll just have regulations addressing that? Senator Wielekowski, through the chair, so that's, that'd be a policy, a policy decision. Some of, I believe some of the concerns could be addressed through regulation.

And that would give us more— definitely more flexibility in how we define those valuations. But— Senator Bullockowski. But to the fundamental question I had, I mean, is it a legitimate concern that a company could sell into the pipeline for pennies and then we get virtually nothing? Is that— do you think that's a legitimate concern or— or fear that the department has?

Senator Murkowski, through the Chair, I mean, that's a— it's a question, you know. And there's a balance to that question. I think we heard testimony from Matt Kissinger with AGDC that, you know, there could be a legitimate situation where a company could sell in at a very low rate, and that would be a prevailing market rate, and that could be in the best interest of all the parties.

Senator Dunbar. But doesn't that— I'm sorry, Madam Chair. Doesn't that sort of militate against the idea of going from property tax to an AVT? I get that royalty is different, but if the gas is being sold very cheaply into these facilities, the facilities themselves are maintaining most of the value. And it seems like— I don't know, it just seems like the way you just said is an argument against passing the underlying bill, because the property tax, the property value, the valuation of the, of the.

Facilities wouldn't be as variable, you know, based on the price of the gas going up and down. In fact, the properties could be more valuable as the price of gas decreased because they become more profitable, perhaps. So— and we have a long— I mean, talking about complexity, we have a long history of doing property taxes. You guys know how to do that. You don't need any more staff to do that.

I mean, the uncertainty you're describing around the price, Doesn't that indicate we should not abandon the property tax and not go with the ABT framework?

Senator Dunbar, through the chair, that's absolutely a policy question. I don't want to comment on that. Okay. Thank you, Madam Chair. Senator Myers.

Thank you. So to Senator Wielekowski's point, I don't understand why a company would want to sell. For less than prevailing value. Because yeah, it would— yeah, okay, it would cut into our royalties and our production tax. Of course, we're gonna be mad about that.

But it's going to cut into their profits too. You know, if they've got a commodity that they're— you know, they can— you know, you've got an assumption in here they're going to sell for a buck and a half. If they've got a commodity that they can sell for a buck and a half, what company in the world would take the same commodity and sell it for 50 cents? I mean, I can see it a little bit differently for You know, back, back when it was a producer-led project, because they could try to make an argument, oh, well, this is the really low gas cost, but it's a really high transportation cost. And so, you know, they'll make their money back on the other end.

It's going to be their, their argument internally. You know, they're going to not say that to us. But since we've got two different companies, two different sets of companies that are producing the gas versus transporting the gas, that issue doesn't exist. So why would a company sell it for less than fair market value? Sure.

Senator Myers, through the chair. So the question, you know, question is what is fair market value? And that would be— we would have to define exactly what that means. So if you have gas that there is not presently a market for, the market value would be what you can sell it into the pipeline for.

Follow-up, Senator Wilcox. Just to respond, and I appreciate the debate. I think what you could theoretically see, and correct me if I'm wrong, but ConocoPhillips sells into the pipeline 25 cents an MCF, they pay the tariff $4. They establish a new company where they pick it up, Conoco LNG Shipping, and they buy it for the very, for slightly over, but then they sell it for $25. And so they've avoided paying a high royalty, they've avoided paying a high production tax, they've picked it up on the other end.

At a very low price and they make a huge profit selling it. You could very easily envision some very clever accountants and tax attorneys structuring this in a way that they pay very little royalty, very little production tax, and make massive profits at the expense of the state of Alaska. Senator Wilkowski, through the chair. So the current project envisions that the gas will be sold to the midstream developer at the wellhead. And so the, the sale from the owners of the gas, which are primarily ExxonConocoHillCorp, that sale would take place prior to the inlet of the gas treatment plant.

And that's a fundamental difference between this project and some of the prior iterations of the project, where the producers would own the gas all the way till the sales point, and we'd be doing effectively a netback.

So in this scenario, it's actually Glenfarm that would be making the profit, having gotten a very low price on the gas.

All right, we have one more slide, 19, in this section. All right, and slide 19, this is probably the most straightforward piece of this, actually. So as part of As part of the AGDC requirements in the bill and increased oversight, AGDC is required to negotiate state purchase options for the gas project, and DOR is required to cooperate with and assist the legislature in determining whether to acquire an ownership interest, including analyzing funding sources and providing fiscal analysis of the investment opportunities. And so that would The way we would implement that is by expanding our— significantly expanding our internal commercial analysis expertise within DOR to prepare for these analyses and be ready to provide the requested assistance to the legislature. Senator Myers.

Thank you. Mr. Stickel, would your agency then be effectively duplicating effort that's already happening inside of AGDC? Senator Myers, through the Chair, we would be working collaboratively with AGDC. And we would be working with them probably in lieu of consultant expertise or in collaboration with consultant expertise.

Presently, this requirement doesn't exist. So this would be a new requirement for AGDC and for DOR. To provide the advising. Hmm, okay.

Any further questions on this slide? All right. Well, Mr. Sickel, I kind of didn't think we'd get all the way through, but thank you. I appreciate it. I have a note here that you are available to come back on Wednesday to discuss this with us again, or the rest of the presentation?

Yes. All right, great. Thank you. Tomorrow we do have Gaffney Klein. Joining us in the morning.

So at this time, thank you for the presentation. We'll set this aside and pick it up again at slide— looked like 20 or so. Yeah, slide 20. So this will conclude our meeting today. Tomorrow we will meet at 9:00 a.m., and we're going to hear from Gaffney Klein.

So at this time, we'll stand adjourned. Let the record reflect the time is 5:01 p.m.