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SB 163: "An Act extending and amending the requirements applicable to the credit that may be claimed for certain oil and gas exploration expenses incurred in Cook Inlet against oil and gas properties production (severance) taxes."

00                             SENATE BILL NO. 163                                                                         
01 "An Act extending and amending the requirements applicable to the credit that may be                                    
02 claimed for certain oil and gas exploration expenses incurred in Cook Inlet against oil                                 
03 and gas properties production (severance) taxes."                                                                       
04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:                                                                
05    * Section 1.  AS 43.55.025(b) is amended to read:                                                                  
06            (b)  To qualify for the production tax credit under (a) of this section, an                                  
07       exploration expenditure must be incurred for work performed on or after July 1, 2003,                             
08       and before July 1, 2007, except that an exploration expenditure for a Cook Inlet                              
09       prospect must be incurred for work performed on or after July 1, 2005, and                                    
10       before July 1, 2010, and                                                                                      
11                 (1)  may be for seismic or geophysical exploration costs not connected                                  
12       with a specific well;                                                                                             
13                 (2)  if for an exploration well,                                                                        
14                      (A)  must be incurred by an explorer that holds an interest in the                                 
01            exploration well for which the production tax credit is claimed;                                             
02                      (B)  may be for either an oil or gas discovery well or a dry hole;                                 
03            and                                                                                                          
04                      (C)  must be for goods, services, or rentals of personal property                                  
05            reasonably required for the surface preparation, drilling, casing, cementing,                                
06            and logging of an exploration well, and, in the case of a dry hole, for the                                  
07            expenses required for abandonment if the well is abandoned within 18 months                                  
08            after the date the well was spudded;                                                                         
09                 (3)  may not be for testing, stimulation, or completion costs;                                          
10       administration, supervision, engineering, or lease operating costs; geological or                                 
11       management costs; community relations or environmental costs; bonuses, taxes, or                                  
12       other payments to governments related to the well; or other costs that are generally                              
13       recognized as indirect costs or financing costs; and                                                              
14                 (4)  may not be incurred for an exploration well or seismic exploration                                 
15       that is included in a plan of exploration or a plan of development for any unit on                                
16       May 13, 2003.                                                                                                     
17    * Sec. 2.  AS 43.55.025(c) is amended to read:                                                                     
18            (c)  To be eligible for a 20 percent production tax credit, exploration                                      
19       expenditures must                                                                                                 
20                 (1)  qualify under (b) of this section; and                                                             
21                 (2)  be for an exploration well, subject to the following:                                          
22                      (A)  for an exploration well other than a well that is                                         
23            described in (B) of this paragraph, the well must be [THAT IS] located and                               
24            drilled in such a manner that the bottom hole is located not less than three                                 
25            miles away from the bottom hole of a preexisting suspended, completed, or                                    
26            abandoned oil or gas well; in this subparagraph [PARAGRAPH],                                             
27            "preexisting" means a well that was spudded more than 150 days but less than                                 
28            35 years before the exploration well was spudded;                                                        
29                      (B)  for an exploration well that explores a Cook Inlet                                        
30            prospect, the well must be located at least three miles from any other well                              
31            drilled for oil and gas with all distances measured as the horizontal                                    
01            distance between exploration targets, except that the exploration well that                              
02            is located within three miles of a well drilled for oil and gas qualifies for                            
03            the tax credit authorized by this subsection if the exploration well tests                               
04            potential hydrocarbon traps that the commissioner of natural resources                                   
05            determines, after analyzing evidence submitted by the explorer and from                                  
06            other information that the commissioner of natural resources determines                                  
07            relevant, constitute a distinctly separate exploration target.                                           
08    * Sec. 3.  AS 43.55.025(d) is amended to read:                                                                     
09            (d)  To be eligible for an additional 20 percent production tax credit, an                                   
10       exploration expenditure must                                                                                      
11                 (1)  qualify under (b) of this section; and                                                             
12                 (2)  be for an exploration well that is located not less than 25 miles                                  
13       outside of the outer boundary, as delineated on July 1, 2003, of any unit that is under a                         
14       plan of development, except that for an exploration well for a Cook Inlet prospect                            
15       to qualify under this paragraph, the exploration well must be located not less                                
16       than 10 miles outside the outer boundary, as delineated on July 1, 2003, of any                               
17       unit that is under a plan of development.                                                                     
18    * Sec. 4.  AS 43.55.025(f) is amended to read:                                                                     
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; if, under (c)(2)(B) of this section, an explorer submits a                               
31            claim for a credit for expenditures for an exploration well that is located                              
01            within three miles of a well already drilled for oil and gas, in addition to                             
02            the submissions required under (1) of this subsection, the explorer shall                                
03            submit the information necessary for the commissioner of natural                                         
04            resources to evaluate the validity of the explorer's claim that the well is                              
05            directed at a distinctly separate exploration target, and the commissioner                               
06            of natural resources shall, upon receipt of all evidence sufficient for the                              
07            commissioner to evaluate the explorer's claim, make that determination                                   
08            within 60 days;                                                                                          
09                      (B)  to provide to the Department of Natural Resources, within                                     
10            30 days after the date of a request, specific data sets, ancillary data, and reports                         
11            identified in (A) of this paragraph;                                                                         
12                      (C)  that, notwithstanding any provision of AS 38, information                                     
13            provided under this paragraph will be held confidential by the Department of                                 
14            Natural Resources for 10 years following the completion date, at which time                                  
15            that department will release the information after 30 days' public notice;                                   
16                 (3)  if more than one explorer holds an interest in a well or seismic                                   
17       exploration, each explorer may claim an amount of credit that is proportional to the                              
18       explorer's cost incurred;                                                                                         
19                 (4)  the department may exercise the full extent of its powers as though                                
20       the explorer were a taxpayer under this title, in order to verify that the claimed                                
21       expenditures are qualified exploration expenditures under this section; and                                       
22                 (5)  if the department is satisfied that the explorer's claimed                                         
23       expenditures are qualified under this section, the department shall issue to the explorer                         
24       a production tax credit certificate for the amount of credit to be allowed against                                
25       production taxes due under this chapter; however, notwithstanding any other                                   
26       provision of this section, the department may not issue to an explorer a                                      
27       production tax credit certificate if the total of production tax credits submitted                            
28       for Cook Inlet production, based on exploration expenditures for work                                         
29       performed during the period described in (b) of this section for that production,                             
30       that have been approved by the department exceeds $20,000,000.                                                
31    * Sec. 5.  AS 43.55.025(k) is amended to read:                                                                     
01            (k)  In this section,                                                                                        
02                 (1)  "Cook Inlet production" means oil or gas production from the                                   
03       Cook Inlet sedimentary basin, as that term is defined by regulation adopted to                                
04       implement AS 38.05.180(f)(4);                                                                                 
05                 (2)  "Cook Inlet prospect" means a location within the Cook Inlet                                   
06       sedimentary basin, as that term is defined by regulation adopted to implement                                 
07       AS 38.05.180(f)(4);                                                                                           
08                 (3)  "explorer" means a person who, in exploring for new oil or gas                                 
09       reserves, incurs expenditures.