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CSHB 128(RES): "An Act relating to allowable lease expenditures for the purpose of determining the production tax value of oil and gas for the purposes of the oil and gas production tax; and providing for an effective date."

00                       CS FOR HOUSE BILL NO. 128(RES)                                                                    
01 "An Act relating to allowable lease expenditures for the purpose of determining the                                     
02 production tax value of oil and gas for the purposes of the oil and gas production tax;                                 
03 and providing for an effective date."                                                                                   
04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:                                                                
05    * Section 1. AS 43.55.165(e) is amended to read:                                                                   
06            (e)  For purposes of this section, lease expenditures do not include                                         
07                 (1)  depreciation, depletion, or amortization;                                                          
08                 (2)  oil or gas royalty payments, production payments, lease profit                                     
09       shares, or other payments or distributions of a share of oil or gas production, profit, or                        
10       revenue;                                                                                                          
11                 (3)  taxes based on or measured by net income;                                                          
12                 (4)  interest or other financing charges or costs of raising equity or debt                             
13       capital;                                                                                                          
14                 (5)  acquisition costs for a lease or property or exploration license;                                  
01                 (6)  costs arising from fraud, wilful misconduct, or gross negligence;                                  
02                 (7)  fines or penalties imposed by law;                                                                 
03                 (8)  costs of arbitration, litigation, or other dispute resolution activities                           
04       that involve the state or concern the rights or obligations among owners of interests in,                         
05       or rights to production from, one or more leases or properties or a unit;                                         
06                 (9)  costs incurred in organizing a partnership, joint venture, or other                                
07       business entity or arrangement;                                                                                   
08                 (10)  amounts paid to indemnify the state; the exclusion provided by                                    
09       this paragraph does not apply to the costs of obtaining insurance or a surety bond from                           
10       a third-party insurer or surety;                                                                                  
11                 (11)  surcharges levied under AS 43.55.201 or 43.55.300;                                                
12                 (12)  for a transaction that is an internal transfer or is otherwise not an                             
13       arm's length transaction, expenditures incurred that are in excess of fair market value;                          
14                 (13)  an expenditure incurred to purchase an interest in any corporation,                               
15       partnership, limited liability company, business trust, or any other business entity,                             
16       whether or not the transaction is treated as an asset sale for federal income tax                                 
17       purposes;                                                                                                         
18                 (14)  a tax levied under AS 43.55.011;                                                                  
19                 (15)  the portion of costs incurred for dismantlement, removal,                                         
20       surrender, or abandonment of a facility, pipeline, well pad, platform, or other                                   
21       structure, or for the restoration of a lease, field, unit, area, body of water, or right-of-                      
22       way in conjunction with dismantlement, removal, surrender, or abandonment, that is                                
23       attributable to production of oil or gas occurring before April 1, 2006; the portion is                           
24       calculated as a ratio of the amount of oil and gas production, in barrels of oil                                  
25       equivalent, associated with the facility, pipeline, well pad, platform, other structure,                          
26       lease, field, unit, area, body of water, or right-of-way occurring before April 1, 2006,                          
27       to the total amount of oil and gas production, in barrels of oil equivalent, associated                           
28       with that facility, pipeline, well pad, platform, other structure, lease, field, unit, area,                      
29       body of water, or right-of-way through the end of the calendar month before                                       
30       commencement of the dismantlement, removal, surrender, or abandonment; a cost is                                  
31       not excluded under this paragraph if the dismantlement, removal, surrender, or                                    
01       abandonment for which the cost is incurred is undertaken for the purpose of replacing,                            
02       renovating, or improving the facility, pipeline, well pad, platform, or other structure;                          
03       for the purposes of this paragraph, "barrel of oil equivalent" means                                              
04                      (A)  in the case of oil, one barrel;                                                               
05                      (B)  in the case of gas, 6,000 cubic feet;                                                         
06                 (16)  costs incurred for containment, control, cleanup, or removal in                                   
07       connection with any unpermitted release of oil or a hazardous substance and any                                   
08       liability for damages imposed on the producer or explorer for that unpermitted release;                           
09       this paragraph does not apply to the cost of developing and maintaining an oil                                    
10       discharge prevention and contingency plan under AS 46.04.030;                                                     
11                 (17)  costs incurred to satisfy a work commitment under an exploration                                  
12       license under AS 38.05.132;                                                                                       
13                 (18)  that portion of expenditures, that would otherwise be qualified                                   
14       capital expenditures as defined in AS 43.55.023(k), incurred during a calendar year                               
15       that are less than the product of $0.30 multiplied by the total taxable production from                           
16       each lease or property, in BTU equivalent barrels, during that calendar year, except                              
17       that, when a portion of a calendar year is subject to this provision, the expenditures                            
18       and volumes shall be prorated within that calendar year;                                                      
19                 (19)  costs or that portion of the costs determined by the                                          
20       commissioner, in consultation with the commissioner of environmental                                          
21       conservation, the commissioner of natural resources, and the person in the                                    
22       Department of Natural Resources who is the lead person for exercising oversight                               
23       over the maintenance of oil and gas facilities, equipment, and infrastructure in                              
24       the state, and taking into consideration good oil field practice, to be                                       
25                      (A)  related to the repair and replacement of property or                                      
26            equipment that was not maintained or was improperly maintained;                                          
27                      (B)  incurred to maintain the operational capability of                                        
28            facilities or equipment shut down because of a lack of or improper                                       
29            maintenance of property or equipment; or                                                                 
30                      (C)  incremental operating expenses incurred as a result of                                    
31            operating facilities or equipment at diminished capacity when that                                       
01            diminished capacity is caused by the lack of or improper maintenance of                                  
02            property or equipment:                                                                                   
03                      (20) costs related to the maintenance of oil and gas facilities,                               
04            equipment, and infrastructure that are incurred as a result of a violation                               
05            of a regulation adopted by the person in the Department of Natural                                       
06            Resources who is the lead person for exercising oversight over the                                       
07            maintenance of oil and gas facilities, equipment, and infrastructure in the                              
08            state.                                                                                                   
09    * Sec. 2. AS 43.55.165(j) is amended by adding new paragraphs to read:                                             
10                 (4)  "good oil field practice" means a practice that is generally accepted                              
11       to be good, safe, and efficient in operating an oil field, and includes testing, operating,                       
12       and maintaining production, processing, and transportation facilities and equipment                               
13       consistent with standards established by the American Petroleum Institute, the                                    
14       American Society for Testing and Materials, federal regulations, maintenance                                      
15       programs consistent with regulations adopted by the person in the Department of                                   
16       Natural Resources who is the lead person for exercising oversight over the                                        
17       maintenance of oil and gas facilities, equipment, and infrastructure in the state, and                            
18       other standards applicable to the production, processing, and transportation of oil, gas,                         
19       produced water, and other fluids;                                                                                 
20                 (5)  "improper maintenance" means maintenance that is not consistent                                    
21       with good oil field practice.                                                                                     
22    * Sec. 3. The uncodified law of the State of Alaska is amended by adding a new section to                          
23 read:                                                                                                                   
24       APPLICABILITY. (a) AS 43.55.165(e)(19), as enacted in sec. 1 of this Act, applies to                              
25 oil and gas produced after March 31, 2006.                                                                              
26       (b)  AS 43.55.165(e)(20), as enacted in sec. 1 of this Act, applies to oil and gas                                
27 produced after the effective date of the regulations described in sec. 6 of this Act.                                   
28    * Sec. 4. The uncodified law of the State of Alaska is amended by adding a new section to                          
29 read:                                                                                                                   
30       TRANSITIONAL PROVISIONS. (a) A person that filed a statement under                                                
31 AS 43.55.030 before the effective date of this Act and deducted costs that may not be treated                           
01 as lease expenditures or claimed as a credit based on costs that may not be claimed as lease                            
02 expenditures under AS 43.55.165(e)(19), as enacted by sec. 1 of this Act, shall file an                                 
03 amended return and pay any additional tax within 90 days after the effective date of this Act.                          
04       (b)  A person required to make an installment payment of estimated tax under                                      
05 AS 43.55.020(a) before the effective date of this Act for a period not included in a return                             
06 required to be filed before the effective date of this Act shall determine the amount of the                            
07 underpayment, if any, that is attributable to costs that may not be treated as lease expenditures                       
08 or claimed as a credit based on costs that may not be claimed as lease expenditures under                               
09 AS 43.55.165(e)(19) as enacted by sec. 1 of this Act. The amount of any underpayment                                    
10 determined under this subsection shall be paid within 90 days after the effective date of this                          
11 Act.                                                                                                                    
12       (c)  Interest on an additional amount of tax due under (a) of this section or on the                              
13 amount of the underpayment of an installment under (b) of this section does not begin to                                
14 accrue until 90 days after the effective date of this Act.                                                              
15    * Sec. 5. The uncodified law of the State of Alaska is amended by adding a new section to                          
16 read:                                                                                                                   
17       RETROACTIVITY. AS 43.55.165(e)(19), as enacted in sec. 1 of this Act, is                                          
18 retroactive to April 1, 2006.                                                                                           
19    * Sec. 6. The uncodified law of the State of Alaska is amended by adding a new section to                          
20 read:                                                                                                                   
21       CONDITIONAL EFFECT; NOTICE. (a) AS 43.55.165(e)(20), as enacted in sec. 1 of                                      
22 this Act, takes effect only if the person in the Department of Natural Resources who is the                             
23 lead person for exercising oversight over the maintenance of oil and gas facilities, equipment,                         
24 and infrastructure in the state adopts regulations related to the maintenance of oil and gas                            
25 facilities, equipment, and infrastructure in the state.                                                                 
26       (b)  The commissioner of natural resources shall notify the revisor of statutes of the                            
27 effective date of the regulations described in (a) of this section.                                                     
28    * Sec. 7. If AS 43.55.165(e)(20), as enacted in sec. 1 of this Act, takes effect, it takes effect                  
29 on the effective date of the regulations described in sec. 6 of this Act.                                               
30    * Sec. 8. Except as provided in sec. 7 of this Act, this Act takes effect immediately under                      
31 AS 01.10.070(c).