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HCS CSSB 185(FIN): "An Act providing for a reduction of royalty on certain oil produced from Cook Inlet submerged land, and for a credit for certain exploration expenses against oil and gas properties production taxes on oil and gas produced from a lease or property in the state."

00                HOUSE CS FOR CS FOR SENATE BILL NO. 185(FIN)                                                             
01 "An Act providing for a reduction of royalty on certain oil produced from Cook Inlet                                    
02 submerged land, and for a credit for certain exploration expenses against oil and gas                                   
03 properties production taxes on oil and gas produced from a lease or property in the                                     
04 state."                                                                                                                 
05 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:                                                                
06    * Section 1.  AS 31.05.030 is amended by adding a new subsection to read:                                          
07            (j)  The commission shall certify to the Department of Natural Resources the                                 
08       volume of oil production from a field or platform for the purposes of                                             
09       AS 38.05.180(f)(6)(A), (C), (E), and (G).                                                                         
10    * Sec. 2.  AS 38.05.180(f) is amended by adding a new paragraph to read:                                           
11                 (6)  notwithstanding and in lieu of a requirement in the leasing method                                 
12       chosen of a minimum fixed royalty share, or the royalty provision of a lease, for leases                          
13       unitized as described in (p) of this section, leases subject to an agreement described in                         
14       (s) or (t) of this section, or interests unitized under AS 31.05, the lessee of all or part of                    
01       an oil field located offshore in Cook Inlet on which an oil production platform                                   
02       specified in (A), (C), or (E) of this paragraph operates, or the lessee of all or part of the                     
03       field located offshore in Cook Inlet and described in (G) of this paragraph,                                      
04                      (A)  shall pay a royalty of five percent on oil produced from the                                  
05            platform if oil production that equaled or exceeded a volume of 1,200 barrels a                              
06            day declines to less than that amount for a period of at least one calendar                                  
07            quarter, as certified by the Alaska Oil and Gas Conservation Commission, for                                 
08            as long as the volume of oil produced from the platform remains less than                                    
09            1,200 barrels a day; the provisions of this subparagraph apply to                                            
10                           (i)  Dolly;                                                                                   
11                           (ii)  Grayling;                                                                               
12                           (iii)  King Salmon;                                                                           
13                           (iv)  Steelhead; and                                                                          
14                           (v)  Monopod;                                                                                 
15                      (B)  shall pay a royalty calculated under this subparagraph if the                                 
16            volume of oil produced from the platform that was certified by the Alaska Oil                                
17            and Gas Conservation Commission under (A) of this paragraph later increases                                  
18            to 1,200 or more barrels a day and remains at 1,200 or more barrels a day for a                              
19            period of at least one calendar quarter; until the royalty rate determined under                             
20            this subparagraph applies, the royalty continues to be calculated under (A) of                               
21            this paragraph; on and after the first day of the month following the month the                              
22            increased production exceeds the period specified in this subparagraph, the                                  
23            royalty payable under this subparagraph is                                                                   
24                           (i)  for production of at least 1,200 barrels a day but not                                   
25                 more than 1,300 barrels a day - seven percent;                                                          
26                           (ii)  for production of more than 1,300 barrels a day but                                     
27                 not more than 1,400 barrels a day - 8.5 percent;                                                        
28                           (iii)  for production of more than 1,400 barrels a day but                                    
29                 not more than 1,500 barrels a day - 10 percent; and                                                     
30                           (iv)  for production of more than 1,500 barrels a day -                                       
31                 12.5 percent;                                                                                           
01                      (C)  shall pay a royalty of five percent on oil produced from the                                  
02            platform if oil production that equaled or exceeded a volume of 975 barrels a                                
03            day declines to less than that amount for a period of at least one calendar                                  
04            quarter, as certified by the Alaska Oil and Gas Conservation Commission, for                                 
05            as long as the volume of oil produced from the platform remains less than 975                                
06            barrels a day; the provisions of this subparagraph apply to                                                  
07                           (i)  Baker;                                                                                   
08                           (ii)  Dillon;                                                                                 
09                           (iii)  XTO.A; and                                                                             
10                           (iv)  XTO.C;                                                                                  
11                      (D)  shall pay a royalty calculated under this subparagraph if the                                 
12            volume of oil produced from the platform that was certified by the Alaska Oil                                
13            and Gas Conservation Commission under (C) of this paragraph later increases                                  
14            to 975 or more barrels a day and remains at 975 or more barrels a day for a                                  
15            period of at least one calendar quarter; until the royalty rate determined under                             
16            this subparagraph applies, the royalty continues to be calculated under (C) of                               
17            this paragraph; on and after the first day of the month following the month the                              
18            increased production exceeds the period specified in this subparagraph, the                                  
19            royalty payable under this subparagraph is                                                                   
20                           (i)  for production of at least 975 barrels a day but not                                     
21                 more than 1,100 barrels a day - seven percent;                                                          
22                           (ii)  for production of more than 1,100 barrels a day but                                     
23                 not more than 1,200 barrels a day - 8.5 percent;                                                        
24                           (iii)  for production of more than 1,200 barrels a day but                                    
25                 not more than 1,350 barrels a day - 10 percent; and                                                     
26                           (iv)  for production of more than 1,350 barrels a day -                                       
27                 12.5 percent;                                                                                           
28                      (E)  shall pay a royalty of five percent on oil produced from the                                  
29            platform if oil production that equaled or exceeded a volume of  750 barrels a                               
30            day declines to less than that amount for a period of at least one calendar                                  
31            quarter, as certified by the Alaska Oil and Gas Conservation Commission, for                                 
01            as long as the volume of oil produced from the platform remains less than 750                                
02            barrels a day; the provisions of this subparagraph apply to                                                  
03                           (i)  Granite Point;                                                                           
04                           (ii)  Anna; and                                                                               
05                           (iii)  Bruce;                                                                                 
06                      (F)  shall pay a royalty calculated under this subparagraph if the                                 
07            volume of oil produced from the platform that was certified by the Alaska Oil                                
08            and Gas Conservation Commission under (E) of this paragraph later increases                                  
09            to 750 or more barrels a day and remains at 750 or more barrels a day for a                                  
10            period of at least one calendar quarter; until the royalty rate determined under                             
11            this subparagraph applies, the royalty continues to be calculated under (E) of                               
12            this paragraph; on and after the first day of the month following the month the                              
13            increased production exceeds the period specified in this subparagraph, the                                  
14            royalty payable under this subparagraph is                                                                   
15                           (i)  for production of at least 750 barrels a day but not                                     
16                 more than 850 barrels a day - seven percent;                                                            
17                           (ii)  for production of more than 850 barrels a day but                                       
18                 not more than 1,000 barrels a day - 8.5 percent;                                                        
19                           (iii)  for production of more than 1,000 barrels a day but                                    
20                 not more than 1,200 barrels a day - 10 percent; and                                                     
21                           (iv)  for production of more than 1,200 barrels a day -                                       
22                 12.5 percent;                                                                                           
23                      (G)  shall pay a royalty of five percent on oil produced from the                                  
24            field if oil production that equaled or exceeded a volume of 750 barrels a day                               
25            declines to less than that amount for a period of at least one calendar quarter,                             
26            as certified by the Alaska Oil and Gas Conservation Commission, for as long                                  
27            as the volume of oil produced from the field remains less than 750 barrels a                                 
28            day; the provisions of this subparagraph apply to the West McArthur River                                    
29            field;                                                                                                       
30                      (H)  shall pay a royalty calculated under this subparagraph if the                                 
31            volume of oil produced from the field that was certified by the Alaska Oil and                               
01            Gas Conservation Commission under (G) of this paragraph later increases to                                   
02            750 or more barrels a day and remains at 750 or more barrels a day for a period                              
03            of at least one calendar quarter; until the royalty rate determined under this                               
04            subparagraph applies, the royalty continues to be calculated under (G) of this                               
05            paragraph; on and after the first day of the month following the month the                                   
06            increased production exceeds the period specified in this subparagraph, the                                  
07            royalty payable under this subparagraph is                                                                   
08                           (i)  for production of at least 750 barrels a day but not                                     
09                 more than 850 barrels a day - seven percent;                                                            
10                           (ii)  for production of more than 850 barrels a day but                                       
11                 not more than 1,000 barrels a day - 8.5 percent;                                                        
12                           (iii)  for production of more than 1,000 barrels a day but                                    
13                 not more than 1,200 barrels a day - 10 percent; and                                                     
14                           (iv)  for production of more than 1,200 barrels a day -                                       
15                 12.5 percent; and                                                                                       
16                      (I)  may obtain the benefits of the royalty adjustments set out in                                 
17            (A) - (H) of this paragraph only if the commissioner determines that the                                     
18            reduction in production from the platform or the field is                                                    
19                           (i)  based on the average daily production during the                                         
20                 calendar quarter based on reservoir conditions; and                                                     
21                           (ii)  not the result of short-term production declines due                                    
22                 to mechanical or other choke-back factors, temporary shutdowns or                                       
23                 decreased production due to environmental or facility constraints, or                                   
24                 market conditions.                                                                                      
25    * Sec. 3.  AS 43.55 is amended by adding a new section to read:                                                    
26            Sec. 43.55.025.  Oil and gas exploration tax credit.  (a)  Subject to the terms                            
27       and conditions of this section, on oil and gas produced on or after July 1, 2004, a                               
28       credit against the tax due under this chapter is allowed in an amount equal to                                    
29                 (1)  20 percent of the total exploration expenditures that qualify under                                
30       (b) and (c) of this section, 20 percent of the total exploration expenditures that qualify                        
31       under (b) and (d) of this section, or both, for a total credit that does not exceed 40                            
01       percent of the total exploration expenditures; or                                                                 
02                 (2)  40 percent of the total exploration expenditures that qualify under                                
03       (b) and (e) of this section, for a total production tax credit that does not exceed 40                            
04       percent of the total qualified exploration expenditures.                                                          
05            (b)  To qualify for the production tax credit under (a) of this section, an                                  
06       exploration expenditure must be incurred for work performed on or after July 1, 2003,                             
07       and before July 1, 2007, and                                                                                      
08                 (1)  may be for seismic or geophysical exploration costs not connected                                  
09       with a specific well;                                                                                             
10                 (2)  if for an exploration well,                                                                        
11                      (A)  must be incurred by an explorer that holds an interest in the                                 
12            exploration well for which the production tax credit is claimed;                                             
13                      (B)  may be for either an oil or gas discovery well or a dry hole;                                 
14            and                                                                                                          
15                      (C)  must be for goods, services, or rentals of personal property                                  
16            reasonably required for the surface preparation, drilling, casing, cementing,                                
17            and logging of an exploration well, and, in the case of a dry hole, for the                                  
18            expenses required for abandonment if the well is abandoned within 18 months                                  
19            after the date the well was spudded;                                                                         
20                 (3)  may not be for testing, stimulation, or completion costs;                                          
21       administration, supervision, engineering, or lease operating costs; geological or                                 
22       management costs; community relations or environmental costs; bonuses, taxes, or                                  
23       other payments to governments related to the well; or other costs that are generally                              
24       recognized as indirect costs or financing costs; and                                                              
25                 (4)  may not be incurred for an exploration well or seismic exploration                                 
26       that is included in a plan of exploration or a plan of development for any unit on                                
27       May 13, 2003.                                                                                                     
28            (c)  To be eligible for a 20 percent production tax credit, exploration                                      
29       expenditures must                                                                                                 
30                 (1)  qualify under (b) of this section; and                                                             
31                 (2)  be for an exploration well that is located and drilled in such a                                   
01       manner that the bottom hole is located not less than three miles away from the bottom                             
02       hole of a preexisting suspended, completed, or abandoned oil or gas well; in this                                 
03       paragraph, "preexisting" means a well that was spudded more than 150 days but less                                
04       than 15 years before the exploration well was spudded.                                                            
05            (d)  To be eligible for an additional 20 percent production tax credit, an                                   
06       exploration expenditure must                                                                                      
07                 (1)  qualify under (b) of this section; and                                                             
08                 (2)  be for an exploration well that is located not less than 25 miles                                  
09       outside of the outer boundary, as delineated on July 1, 2003, of any unit that is under a                         
10       plan of development.                                                                                              
11            (e)  To be eligible for the 40 percent production tax credit in (a) of this section,                         
12       the exploration expenditure must                                                                                  
13                 (1)  qualify under (b) of this section;                                                                 
14                 (2)  be for seismic exploration; and                                                                    
15                 (3)  have been conducted outside the boundaries of a production unit or                                 
16       an exploration unit; however, the amount of the expenditure that is otherwise eligible                            
17       under this subsection is reduced proportionately by the portion of the seismic                                    
18       exploration activity that crossed into a production unit or an exploration unit.                                  
19            (f)  For a production tax credit under this section,                                                         
20                 (1)  an explorer shall, in a form prescribed by the department and                                      
21       within six months of the completion of the exploration activity, claim the credit and                             
22       submit information sufficient to demonstrate to the department's satisfaction that the                            
23       claimed exploration expenditures qualify under this section;                                                      
24                 (2)  an explorer shall agree, in writing,                                                               
25                      (A)  to notify the Department of Natural Resources, within 30                                      
26            days after completion of seismic or geophysical data processing, completion of                               
27            a well, or filing of a claim for credit, whichever is the latest, for which                                  
28            exploration costs are claimed, of the date of completion and submit a report to                              
29            that department describing the processing sequence and providing a list of data                              
30            sets available;                                                                                              
31                      (B)  to provide to the Department of Natural Resources, within                                     
01            30 days after the date of a request, specific data sets, ancillary data, and reports                         
02            identified in (A) of this paragraph;                                                                         
03                      (C)  that, notwithstanding any provision of AS 38, information                                     
04            provided under this paragraph will be held confidential by the Department of                                 
05            Natural Resources for 10 years following the completion date, at which time                                  
06            that department will release the information after 30 days' public notice;                                   
07                 (3)  if more than one explorer holds an interest in a well or seismic                                   
08       exploration, each explorer may claim an amount of credit that is proportional to the                              
09       explorer's cost incurred;                                                                                         
10                 (4)  the department may exercise the full extent of its powers as though                                
11       the explorer were a taxpayer under this title, in order to verify that the claimed                                
12       expenditures are qualified exploration expenditures under this section; and                                       
13                 (5)  if the department is satisfied that the explorer's claimed                                         
14       expenditures are qualified under this section, the department shall issue to the explorer                         
15       a production tax credit certificate for the amount of credit to be allowed against                                
16       production taxes due under this chapter.                                                                          
17            (g)  An explorer may transfer, convey, or sell its production tax credit                                     
18       certificate to any person, and any person who receives a production tax credit                                    
19       certificate may also transfer, convey, or sell the certificate.                                                   
20            (h)  A producer that purchases a production tax credit certificate may apply the                             
21       credits against its production tax liability under this chapter.  Regardless of the price                         
22       the producer paid for the certificate, the producer may receive a credit against its                              
23       production tax liability for the full amount of the credit, but for not more than the                             
24       amount for which the certificate is issued.  A production tax credit allowed under this                           
25       section may not be applied more than once.                                                                        
26            (i)  For a production tax credit under this section,                                                         
27                 (1)  the amount of the credit that may be applied against the production                                
28       tax for each tax month may not exceed the total production tax liability of the taxpayer                          
29       applying the credit for the same month; and                                                                       
30                 (2)  an amount of the production tax credit that is greater than the total                              
31       tax liability of the taxpayer applying the credit for a tax month may be carried forward                          
01       and applied against the taxpayer's production tax liability in one or more immediately                            
02       following months.                                                                                                 
03            (j)  Notwithstanding any other provision of this title, of AS 31.05, or of                                   
04       AS 40.25.100, the department shall provide to the Department of Natural Resources                                 
05       information submitted with a claim under this section to support the eligibility of an                            
06       exploration expenditure, including seismic exploration data and well data, and any                                
07       information described in (f)(2) of this section received by the department.                                       
08            (k)  In this section, "explorer" means a person who, in exploring for new oil or                             
09       gas reserves, incurs expenditures.                                                                                
10    * Sec. 4.  The uncodified law of the State of Alaska is amended by adding a new section to                         
11 read:                                                                                                                   
12       REPORT TO THE LEGISLATURE.  On or before the first day of the Second Regular                                      
13 Session of the Twenty-Third Alaska State Legislature, the commissioner of natural resources                             
14 shall prepare a report to the legislature.  The report must include a discussion                                        
15            (1)  of specific incentives that could be used to spur oil and gas exploration;                              
16            (2)  and an analysis of the impact of pipeline tariffs on independent oil                                    
17 producers;                                                                                                              
18            (3)  and an analysis of the costs of access to facilities and infrastructure;                                
19            (4)  and an analysis of the costs of exploration and development in the state                                
20 and opportunities or approaches to mitigate that higher cost; and                                                       
21            (5)  of the potential costs and benefits inherent to each option.