Agriculture, Forestry & Economic Development- House

Twenty twenty one to January twenty twenty two and in our haste we uh we've got the Senate sponsors backwards so to always make the Senate feel good we want to make sure it was in the right order that's what the amendment does. I have a motion is there any discussion on the motion all those in favor say aye. Because no. You may proceed Sir. Thank you Rodney. We doing up there. However Roddy Baker with this with the Arkansas Independent petroleum producers. Of what. This House Bill. Seventeen fifty five does it is first of all it's for old only. Of so the people Northwest Arkansas there's not pertain to gas wheels and is in the counties of Columbia union the Fayette little bit Miller but mainly Washita and obey the counties and what this does is defined of the the amount of the tax could be leveled on their equipment and also with the main thing is it what how it defines newly discovered. in the industry will they will get a perspective that that they newly discovered them is when you draw a whale for the first time in a brand new hole that's newly discovered but it's been interpreted as newly discovered is if you have a well that's been producing five six seven years and it starts to go down a production and they bring in what they call a work over Regan it worked well back over and put new pop on it and get it back up to where is is doing its maximum production. That that's of the classified as newly discovered of so what we're trying to clarify this and I want to tell you all that the older gas business is under assault I think this is something that does just a few counties down the south I haven't heard any negative twelve against the super super tenets eighty percent of your money on this goes to schools as a part of the the counties cities and libraries but I might have Mr Baker he landed to identify himself he can answer any technical questions and we'll take questions after he has an opening statement. Thank you. You're welcome thank you Mr Mr This bill but does basically for things of one of the first things that would do is change the average price used in insisting all wells from a three year moving average. To a previous years one year number and this is been this way I believe since two thousand three there are some benefits of it there are some problems would depending on where you are in the cycle as prices go up what it does is that it takes the. it mitigates any sharp increases and sharp declines so in a time when prices going up it benefits the producer and the local entities schools and county government would not get quite as much money but when it starts down the price curve in prices go lower then schools and counties it would not be a sharp it would mitigate that coming down you really get the same money but it it. Differs on when you get that money into kind of smoothed it out of that's currently the way it is in the fate bill shall I've talked to producers there and they're not. Having as much problem with that you're talking about much larger companies and when you get a small company you have placed the decline in prices that moving average can have a big impact because first of all you get hit low prices and secondly as it comes down if it comes down sharply we've had experience in Arkansas where the number that three year average was twice or more what to the private local current priceless so you can say that that tension flared on the way down so it's for small businesses it's particularly difficult for those small businesses You know how did you get a pretty to kind of look at your notes. The There's also a factor that used in figure the future value of wells and if you look through that it's I have doesn't calculations I guess but it's based on fourteen fourteen years there's one factor for small wells zero two in the first year that does not follow the form it's an arbitrary number that's putting in Ennis thirty two hundred and fifty dollars currently at times in the past it's been slightly above that at different times one time I think it was twenty seven hundred twenty two fifty something along that line point is is not using. The formula is used to determine this and the rest in the rest of the calculations and what it does it inflates that value of that will on that zero two barrels in that first year when figuring future that used Most cases that would be a negative number for cloud to go negative I understand the department has a three hundred dollar minimum floor on any asset and we believe if you're gonna use foreign it ought to go to use your use a formula that ought to go to three hundred dollar minimum and that's another part of this the part that I think probably because the most aggravation is the use of the term in the process of newly discovered men why is being applied if this year's average production is more than last year's average production then the difference the increase is considered to be currently consider the newly discovered. Now the benefit of this to the county or to the. in the assessment is that if that's the more than ten percent increase on the value of that well then the ten percent constitutional annual limit that you can increase real property does not apply. to my knowledge I've asked people that are have been in business for decades I believe that first showed up about twenty sixteen was not used prior to that so that's a a new calculation and the committee these wells and they'll be people here died their own wells or seventy seven five eighty years old and they're not a new hole in the ground. this not that they moved over to build a new a different way I'll close to it is the same will the same hold aground and how you. That fits the description that we typically think of a newly discovered is is really kind of hard put together because that normally means that you had a a an improvement or dish if it was your house and you built a swimming pool or a large shed out back and that would be newly discovered if you have a property and you expanded it added on to it and. Chains used to that would be the newly discovered in the traditional sense in a way that is defined in the law this case where it's coming from the same will it's been there for decades and in a well if most of you probably know this but if you don't well most productive times right after first real after is a clinching resource and you'll get your best deals that first year two territory and is typically going to start down and it's this typical us with all your gas and all rights so over time it's probably produced that number before let's say it was it to barrels last year is gonna three barrels this year that mainly happens when somebody goes and reworks the well does mark on it you have a point that goes out or you have some maintenance that comes up point that improves it if it goes up well it's produced at that level before it's not anything new it's historically been there but again they have a gradual other clients throughout their life and we think it's all based to referred this is newly discovered it doesn't fit the the definition that we see in the codes that I read in lace Elise and it's I think in a sense of of fairness it's hard call something's been a working one way for fifty years is newly discovered. Those are missing one point. Will populations I'm sorry which of those several years ago there was instrument reached on on how to assess the caissons casing is the pipe that goes in the hole which is real on the ground and basically that has been valued from where it the upper perforation where it goes into a formation law in it and then measure from there up to the service and equipment going over to the first major at the tanks and all that has been considered part of the casing and part of what's basically around this this is not something is has residual life once you get through it you're not going to pull that pop out of the ground and this so Quitman on the top is is going to be decades typically and and during all this time has been considered as one unit it's it's it's it's been priced or sensitive dollar foot that's been simple way to do that there's people here again explain it better than I can and that was changed three years ago and they're saying above the ground would be business personal well that represents a large increase in tax liability compared to what you've been doing for the last decade or two or three I don't know exactly when that was formed but it's sometime ago and so when you look at that kind of increase in violation not been implemented in less in the previous two years it's been in effect counties have not implemented we don't think that that's a fair assessment to move and change that definition at this point I understand that there's a need for tax revenue in a local Local entities but to arbitrarily do that we don't think a fundamentally fair and their people again that will address that better than I can is it come off those of four points that are in this bill we're trying to address thank you. We'll of take any questions. Are there any questions. Seeing no questions we do have a few people signed up to speak for and against we'll start with the against miss Sandra call your. Please state your name and who you're with and it looks like Mr Paul Goehring is coming with you. Thank you madam chair and members of the committee I'm center call your director assessment coordination division of the FNA I just have a brief a statement that I'd like to make for you today I'm going to speak on this bill elected county assessor's or the primary appraisers of property for taxation they're required by the constitution of Arkansas to value all property at market value basically what the properties worth in the market place in addition ACD which is assessment coordination is tasked to aid all seventy five counties sisters with their valuations and monitor that those values are fair and consistent as the goal of the Arkansas constitution is for all property types to be assessed fairly and equitably the only exceptions to the mandate in the constitution or properties that have been identified as exempt from taxation in tangible personal property bye Amendment fifty seven an agricultural land by Amendment fifty nine. House bill seventeen fifty five removes the valuation authority from the county assessor and all production would no longer be assessed in the same fair manner as other property in the State. as far as the new discovered and I would like to just comment on that for a second you know I I do understand I grew up in south Arkansas and I and I've been around all my whole life but I do know it with my experience that operators have the ability to decide how much they're going to pop I've seen it through the years I've watched the trends if what you know if all prices go really high they turn them up and try to pump as much as they can if they go low they're turning down which makes complete business sense but if we remove that mechanism that we have in place and all goes high and they start pumping a lot then there's this whole new production I realize it's the same whale and it's the same reserve but it's a whole new amount of production and we're not capturing the value of that and when you don't capture that then that will in our opinion is undervalued I'm pretty sure you listen to my concerns and I would be happy to take any questions. Representative Hillman you're recognized for a question. Thank you madam chairman of I'm no farmer not sometimes I have trouble understanding things and you talk about this this all well down there and is old and granted by those is there. And when you put more out of it. That's are there yet it's newly discovered. The increase in production we call it newly discovered but it's it's a mechanism that we put into place that ACT did several years ago to capture that value if you only allowed ten percent increase and all is very high and all the production is very high you've left a lot of value there that you're not touching you're not you're not you're not putting on the books well what I'm trying to understand this I've got this diesel tank at home you know and some days upon ten gallons out of it some guys up top two hundred gallons out of it so would that be classified is that that one of pop two hundred gallons out to ten would be needed discovered diesel in my tank no Sir well I don't see much difference in the two well it we're just we're just trying to value those wells based on the reserves and the only way that we know is based on how much they're pumping out of the grant but if it's already there it's all right they are you already know the answer so I can't see how that could be newly discovered that it if you want another device to have to tax it then think of another device but just to have this to say aye newly discovered not later is there what it but well that. Mr Gehring was you want to make a statement before I took any more questions. Madam chair Paul gearing with DFA if they did release a fiscal impact statement for house bill seventeen fifty five I did want to point out initially that one of our issues that we identified was the implementation date of seventeen fifty five of course with the amendment that was adopted by committee that addresses that issue we also did a note in the revenue impact for this particular bill it was undetermined what type type of impact this would have on local property tax collections we certainly do indicate that that there would be some type of reduction by limiting the valuations as provided in the bill but as to how that would actually impact the collections of local taxes. DFA in a CD would not have any data to provide that information. Are there any questions. Saying the questions thank you for your testimony. Mister James Langley for the bill. Please state your name and who you're with and you may begin. Somebody thank you my name is James Langley I would game plan that operating company. I'm an independent producer in south Arkansas based in Spock of Arkansas I've been producing all wells since nineteen seventy four. I wear second hand in that I've been a Ford dealer for forty five years. And operations park of Arkansas so I'm well familiar. We all in stream smart Arkansas. I came here to support this bill today for several reasons this just started a few years ago the newly discovered thing is is is VOL four tried today. You just go over. Came on the scene about two thousand sixteen. They showed up and the producers tax bill from Washtenaw county some of our country lease rates went up twenty one hundred percent in one year. The ten percent cap that the constitution calls for does not apply if you call it you discover. I thought about this a lot and I wanted to describe you discovered in this matter. All of us in this room drive automobiles. If you buy a new automobile manufacturers don't give you a list of things that you're supposed to do to the car. Most of us don't do it you read it does scare you to death. We drive the car for several years and we would first get it is getting twenty twenty one miles per gallon it rights movement drives good but after a few years that car the brakes gives Khalil. The gas mileage falls to fifteen eighteen gallons. Colin drive is good to be taken to shop and we have it repaired and lo and behold starts getting twenty one miles per gallon again. All wells like to you will will you put it all in and I'd like to point out the average all will in Arkansas much four barrels a day or less. Was not a profit deal put you pulled you all will loan you pulled you pop it you put Neeraj in two minutes. And the first you're much for Blair if you establish a production right. Next year your pop Sullivan so it goes down to three borough is not handed much fluid. Thirty year may go to to Burleson you reach a point where it's not economical cost you more operations work. So you call a workover rig you re work it. And it comes back to for borrowers. E. D. classifies this increase from the one bearable for you put you pop in. The four barrels a newly discovered. There's different rules for newly discovered. The ten percent rule does not apply. We. A question this we discuss it with a CD to no avail. So we thank you for here dark here not applied today this bill has all the parties to total people will discuss I'll be happy to take any questions I thank you for listening to my story. Are there any questions sing no question spank you Sir for being here today thank you very much next we have Mister jim Phillips please state your name and who you're with. And then you may proceed. Thank you madam for let me be here today thank all y'all for serving for us my name is jim Phillips I'm with Arkansas production services company an independent all operator in the state I currently operate of a little over a hundred oils I am a sitting all on gas Commissioner of my second term of about ten years and feels certain that my family owns Otis well servicing company in the state fifty seven fifty seven years. And the part of the bill that I'm going to discuss today is a the part about the real property and. The. The best way to put a value on it is is with the dollar per foot and of is it what is he is stated earlier in it though Quitman if we start at the zone and go all the way to the vial it does it does two things it gives you a fair assessment of the property consistent and it's easy to calculate it doesn't take a lot of extra staff didn't call stated bunch of extra money to go out look instead of same people out everywhere and. The the good thing about it is where that wells perforated is of record at the state anybody can go say it's all public record. Mandated by the commission. So to run these records to keep up with the value of it would be very simple very easy and so if a well is drilled that's the TD and then if you plug it back and come back to another zone if you're perforated in this saying and it depletes and you come up to another saying and and shoot it we're fine with that be and newly discovered because it's in a different pool of all is not in the same one that we originally produced the. And we're fine with that and the bill says that out but when you come up and set a new plug the case in this down below you if that at that point you have a new TV and the whale is called a P. B. T. the up plug back so that's the new the day up on record at the commission that we would need to work off of. And I'd be happy to take any questions are there any questions saying nine thank you Sir for your testimony and the next one four is rob Reynolds. Please state your name and who you're with. And then you may proceed thank you ma'am my name is Robert Reynolds I'm an independent oil producer based in elder radio I am a licensed professional engineer and a member of the Arkansas pollution control and ecology Commission with me today is Mr Adam Perkins I return. Of. The topic that I'd like to speak about is in figuring valuations. In the past we've. Use rules of thumb about operating calls up reading culture very real. This is proposed legislation would. Specifically. Make the expense allowance. As nearly as practicable on actual expenses per barrel of oil produced and to me that is a Much welcome of dose of reality for assisting the. In assisting property. Residential property commercial property you typically see comparable sales we don't we don't have a handful of sales in the state of Arkansas in a year's time we don't have comparable sleeves with you get with actual revenue an actual expenses and determine those values annually. With that I'll answer any questions please. Seeing no questions thank you for your a test and and and Mister Perkins may be able to explain better than that his role in his help in this this state your name for the record thank you madam chairman Alan Perkins I'm an attorney here in Little Rock with BP GMR of some of these on the last weeks you probably remember that I practiced primarily oil and gas law on my practice and assisted representative gene in drafting this legislation I received just just. Really a few minutes ago actually a couple hours ago but I was in a long meeting of a copy of the F. N. A.'s assessment of the bill including their legal analysis and I wanted to respond to a couple of things that are on there. they claim that that this is some attack on the the valuation based on actual market value is required by the constitution but it's not that all of the oil producers in South Arkansas or subject to the lambs of the ACD whenever they choose to change the guidelines and what they're looking for some consistency and predictability as small business owners it's very important to them. so that and that there was a statement in the legal analysis that are received from them that H. B. seventeen fifty five will set the value of oil wells and production equipment and that species of property would no longer be taxed according to its value but it's just not a correct statement so oil wells after this bill if it were to be adopted will still be assessed based on their production the only thing that's been omitted the is the no longer useful section of the well border after it's been plugged back that section below can no longer produce oil it's worthless so this is simply a recognition of the fact that that is that property no longer has any market value at all in fact it's a liability because eventually the operator will have to plug and abandon that actually has a negative value so that it's just a and appreciation of that fact next to the the analysis of that I've seen claims that it may be subject to constitutional challenge by prohibiting taxation of oil will casings rendered inoperable I'm sorry already address that so I'll move on It says it may be subject to a separate constitutional challenge by setting the valuation of production equipment of the single rate of one dollar per foot is real property but under the. The procedures used right now Ouachita County that's exactly how it's done and in the past that's been in ACT guidelines until they chose to change it for reasons that were not explained so again this is not something new it's simply trying to adopt some consistency and predictability in the way their taxes are going to be assessed from year to year There were a number of other. Claims in their in their legal analysis which are are very broad and general claiming that their constitutional issues but I don't see them certainly the General Assembly has the authority to make these kinds of choices in fact they they claim that it's on the it did may violate the separation of powers that the you may not have the authority to do that but it if it's worthwhile to take a look at the constitutional provision that they site for that article sixteen section five this is what it says all real and tangible personal property subject to taxation shall be taxed according to its value that value to be ascertained in such manner as the General Assembly shall direct and so I I just present to you that that this is certainly within your authority this is not a constitutional issue this is an issue that an administrative agency doesn't like the legislature telling them what to do and with that I'll take any questions you might have are there any questions. Seeing the questions thank you for your testimony saying no one else signed up for or against representative Jane would you like to close for your bill. Thank you madam chairman once again and and I will say that that the only sticking point is the newly discovered Hannah and I'll say ms call your and her boss you have worked with me great they're doing their job I'm trying to protect industry and jobs in south Arkansas over the last ten years production of south Arkansas has been cut in half just because the link to the whales and once again none of the schools of the county governments have called me and contact me that against this bill so this is a this is a pro business bill and had appreciate the of the good motion as amended. Representative Joe Jett you're recognized for motion. Make a motion as mentor mentor. Is there any discussion on the motion all those in favor say aye. Opposed no congratulations your bill is passed thank you madam chairman thank you members of committee I've got a couple announcements next Wednesday we will have a meeting we've got a couple of bills that we need to do and then the following Monday we'll have a special order Senate bill three twelve Senate bill three twelve will be on special order it'll be the only thing we hear that day and with that were turned.