SB 175: "An Act providing for the use of petroleum production and other facilities by additional entities; amending the powers of the Alaska Oil and Gas Conservation Commission; relating to oil and gas properties production taxes and credits; providing for production tax adjustments to increase the amount of tax at high oil prices, reduce the amount of tax at low oil prices, and reduce the amount of tax on the production of heavy oil; relating to the determination of the gross value of oil and gas at the point of production; and providing for an effective date."
00 SENATE BILL NO. 175 01 "An Act providing for the use of petroleum production and other facilities by additional 02 entities; amending the powers of the Alaska Oil and Gas Conservation Commission; 03 relating to oil and gas properties production taxes and credits; providing for production 04 tax adjustments to increase the amount of tax at high oil prices, reduce the amount of 05 tax at low oil prices, and reduce the amount of tax on the production of heavy oil; 06 relating to the determination of the gross value of oil and gas at the point of production; 07 and providing for an effective date." 08 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 09 * Section 1. The uncodified law of the State of Alaska is amended by adding a new section 10 to read: 11 LEGISLATIVE FINDINGS AND INTENT. The legislature finds that 12 (1) the current tax on the production of oil and gas was enacted after 13 significant hearings on the taxation of oil production, during which the tax on natural gas
01 production and appropriate rates for tax credits were discussed only briefly; 02 (2) the hearings that preceded the enactment of the current tax on oil and gas 03 production did not adequately address the optimal tax and credits applicable to the production 04 of natural gas; and 05 (3) detailed expert analysis and additional legislative hearings are needed for 06 the legislature to determine an appropriate production tax on natural gas; an appropriate 07 production tax on natural gas should 08 (A) facilitate the construction of a natural gas pipeline from the North 09 Slope to market; 10 (B) maximize the long-term revenue from natural gas to the people of 11 the state; and 12 (C) encourage continued and new production of natural gas. 13 * Sec. 2. AS 31.05.030(d) is amended to read: 14 (d) The commission may require 15 (1) identification of ownership of wells, producing leases, tanks, 16 plants, and drilling structures; 17 (2) the making and filing of reports, well logs, drilling logs, electric 18 logs, lithologic logs, directional surveys, and all other subsurface information on a 19 well drilled for oil or gas, or for the discovery of oil or gas, or for geologic 20 information, and the required reports and information shall be filed within 30 days 21 after the completion, abandonment, or suspension of the well; 22 (3) the drilling, casing, and plugging of wells in a manner that will 23 prevent the escape of oil or gas out of one stratum into another, the intrusion of water 24 into an oil or gas stratum, the pollution of fresh water supplies by oil, gas, or salt 25 water, and prevent blowouts, cavings, seepages and fires; 26 (4) the furnishing of a reasonable bond with sufficient surety 27 conditions for the performance of the duty to plug each dry or abandoned well or the 28 repair of wells causing waste; 29 (5) the operation of wells with efficient gas-oil and water-oil ratios, 30 and may fix these ratios; 31 (6) the gauging or other measuring of oil and gas to determine the
01 quality and quantity of oil and gas; 02 (7) every person who produces oil or gas in the state to keep and 03 maintain for a period of five years in the state complete and accurate records of the 04 quantities of oil and gas produced, which shall be available for examination by the 05 Department of Natural Resources or its agents at all reasonable times; 06 (8) the measuring and monitoring of oil and gas pool pressures; 07 (9) the filing and approval of a plan of development and operation for 08 a field or pool in order to prevent waste, ensure [INSURE] a greater ultimate recovery 09 of oil and gas, and protect the correlative rights of persons owning interests in the 10 tracts of land affected; 11 (10) working interest owners to provide, at cost plus a reasonable 12 rate of return determined under regulations adopted by the commission and 13 without causing substantial injury to the owner, access by or for the benefit of 14 other producers to production and other facilities whenever necessary; for 15 purposes of this paragraph, the commission's regulations must be consistent with 16 the standards of the Regulatory Commission of Alaska adopted to implement 17 AS 42.05.311(a); the commission may act under this paragraph 18 (A) to 19 (i) maximize the economic and physical recovery of 20 the state's oil and gas resources; 21 (ii) maximize competition among explorers and 22 producers seeking to explore and develop the state's oil and gas 23 resources; 24 (iii) minimize the adverse effects of exploration, 25 development, production, and transportation activity; or 26 (iv) otherwise protect the best interest of the state; 27 (B) only if the commission finds that directing the working 28 interest owner to provide access by or for the benefit of other producers 29 would not materially interfere with the owner's paramount use of the 30 facility; and 31 (C) only if the commission finds that the facility has excess
01 capacity or that it is feasible to expand the facility with the expansion costs 02 and any additional operating costs to be borne by the other producers that 03 use the added capacity in proportion to the amount of use by each 04 producer. 05 * Sec. 3. AS 43.55 is amended by adding a new section to article 1 to read: 06 Sec. 43.55.001. Oil production tax. (a) There is levied on the producer of oil a 07 tax for all oil produced from each lease or property in the state, less any oil the 08 ownership or right to which is exempt from taxation. The tax is equal to the product of 09 the tax rate determined under (b) of this section multiplied by the taxable gross value 10 at the point of production of taxable oil produced from the lease or property. 11 (b) The tax rate equals 15 percent, except that, if the average price a barrel for 12 Alaska North Slope crude oil for sale on the United States West Coast during the 13 calendar year for which the tax is due is 14 (1) more than $35 a barrel, the tax rate is equal to the lesser of 15 (A) 40 percent; or 16 (B) 15 percent plus the product of 0.35 percent multiplied by 17 the difference between the average price a barrel for Alaska North Slope crude 18 oil for sale on the United States West Coast during the calendar year for which 19 the tax is due and $35; and 20 (2) less than $20 a barrel, the tax rate is equal to 15 percent minus the 21 product of 0.35 percent multiplied by the difference between $20 and the average 22 price a barrel for Alaska North Slope crude oil for sale on the United States West 23 Coast during the calendar year for which the tax is due. 24 (c) For purposes of (a) of this section, the taxable gross value at the point of 25 production determined under AS 43.55.150 is adjusted for 26 (1) an operating unit producing less than 75,000 barrels a day, by 27 subtracting the gross value at the point of production of 7,500 barrels for each day on 28 which oil is produced from the operating unit from the gross value at the point of 29 production for that operating unit of oil that is not exempt from taxation, except that 30 the taxable gross value at the point of production may not be less than zero; each 31 lessee receiving the benefit of the reduction in gross value at the point of production
01 under this paragraph shall claim the reduction benefit in proportion to the interest of 02 each lessee in the oil produced from the operating unit; the reduction in this paragraph 03 does not apply if the commissioner of natural resources determines that it is 04 economically feasible for the unit to produce 75,000 barrels or more a day and that the 05 volume of production is reduced for the purpose of qualifying for the reduction in this 06 paragraph; and 07 (2) oil with an API gravity equal to or less than 20 degrees, by 08 multiplying the gross value at the point of production, including any reduction under 09 (1) of this subsection, by 50 percent. 10 * Sec. 4. AS 43.55.011(e) is amended to read: 11 (e) There is levied on the producer of [OIL OR] gas a tax for all [OIL AND] 12 gas produced each month from each lease or property in the state, less any [OIL AND] 13 gas the ownership or right to which is exempt from taxation or constitutes a 14 landowner's royalty interest. Except as otherwise provided under (j) [AND (k)] of this 15 section, the tax is equal to the greater of 22.5 percent of the production tax value of the 16 taxable [OIL AND] gas as calculated under AS 43.55.160, or the minimum tax 17 determined under (f) of this section. 18 * Sec. 5. AS 43.55.011(f) is amended to read: 19 (f) The levy of tax under this section on a producer of [OIL AND] gas 20 produced north of 68 degrees North latitude may not be less than 21 (1) four percent of the gross value at the point of production when the 22 average price per barrel for Alaska North Slope crude oil for sale on the United States 23 West Coast during the calendar year for which the tax is due is more than $25; 24 (2) three percent of the gross value at the point of production when the 25 average price per barrel for Alaska North Slope crude oil for sale on the United States 26 West Coast during the calendar year for which the tax is due is over $20 but not over 27 $25; 28 (3) two percent of the gross value at the point of production when the 29 average price per barrel for Alaska North Slope crude oil for sale on the United States 30 West Coast during the calendar year for which the tax is due is over $17.50 but not 31 over $20;
01 (4) one percent of the gross value at the point of production when the 02 average price per barrel for Alaska North Slope crude oil for sale on the United States 03 West Coast during the calendar year for which the tax is due is over $15 but not over 04 $17.50; or 05 (5) zero percent of the gross value at the point of production when the 06 average price per barrel for Alaska North Slope crude oil for sale on the United States 07 West Coast during the calendar year for which the tax is due is $15 or less. 08 * Sec. 6. AS 43.55.011(g) is amended to read: 09 (g) In addition to the tax levied under (e) of this section, for each calendar year 10 that includes one or more months for which the price index determined under (h) of 11 this section is greater than zero, there is levied on the producer of [OIL OR] gas a tax 12 for all [OIL AND] gas produced that calendar year from each lease or property in the 13 state, less any [OIL AND] gas the ownership or right to which is exempt from taxation 14 or constitutes a landowner's royalty interest. Except as otherwise provided under (j) 15 [AND (k)] of this section, the tax levied under this subsection is equal to the sum, over 16 all months in the calendar year, of the amounts calculated for each month as follows: 17 .25 percent of the monthly production tax value of the taxable [OIL AND] gas as 18 calculated under AS 43.55.160, multiplied by the price index determined under (h) of 19 this section. However, the amount calculated under this subsection for any month may 20 not exceed 25 percent of the monthly production tax value of the taxable [OIL AND] 21 gas as calculated under AS 43.55.160. 22 * Sec. 7. AS 43.55.011(h) is amended to read: 23 (h) For purposes of (g) of this section, the price index for a month is calculated 24 by subtracting 40 from the number that is equal to the quotient of the total monthly 25 production tax value of the taxable [OIL AND] gas produced by the producer during 26 that month, as calculated under AS 43.55.160, divided by the total amount of the 27 taxable [OIL AND] gas produced by the producer during that month, in BTU 28 equivalent barrels. However, a price index may not be less than zero. 29 * Sec. 8. AS 43.55.011(i) is amended to read: 30 (i) There is levied on the producer of [OIL OR] gas a tax for all [OIL AND] 31 gas produced each calendar year from each lease or property in the state the ownership
01 or right to which constitutes a landowner's royalty interest, except for [OIL AND] gas 02 the ownership or right to which is exempt from taxation. The provisions of this 03 subsection apply to a landowner's royalty interest as follows: 04 (1) [THE TAX LEVIED FOR OIL IS EQUAL TO FIVE PERCENT 05 OF THE GROSS VALUE AT THE POINT OF PRODUCTION OF THE OIL; 06 (2)] the tax levied [FOR GAS] is equal to 1.667 percent of the gross 07 value at the point of production of the gas; 08 (2) [(3)] if the department determines that, for purposes of reducing the 09 producer's tax liability under (1) [OR (2)] of this subsection, the producer has received 10 or will receive consideration from the royalty owner offsetting all or a part of the 11 producer's royalty obligation, other than a deduction under AS 43.55.020(d) of the 12 amount of a tax paid, then, notwithstanding (1) [AND (2)] of this subsection, the tax is 13 equal to 25 percent of the gross value at the point of production of the [OIL AND] gas. 14 * Sec. 9. AS 43.55.011(l) is amended to read: 15 (l) When a limitation under (j) [OR (k)] of this section on the tax levied by (e) 16 and (g) of this section has the effect of reducing the producer's tax on [OIL OR] gas 17 produced from a lease or property below the amount of tax that would be levied in the 18 absence of that limitation, the amount of the reduction is applied first against the tax 19 levied by (g) of this section. However, that tax may not be reduced below zero. 20 * Sec. 10. AS 43.55.011(m) is amended to read: 21 (m) Notwithstanding any contrary provision of AS 38.05.180(i), 22 AS 41.09.010, AS 43.20.043, AS 43.55.024, or 43.55.025, tax credits under 23 AS 38.05.180(i), AS 41.09.010, AS 43.20.043, AS 43.55.024, and 43.55.025 that are 24 allocated to gas produced from leases or properties in the Cook Inlet sedimentary 25 basin and that are available to be applied against a tax levied by (e) of this section on 26 gas produced from leases or properties in the Cook Inlet sedimentary basin during a 27 calendar year may be applied only against the tax levied by (e) of this section on that 28 gas. The amount by which the amount of tax credits that are allocated to gas produced 29 from leases or properties in the Cook Inlet sedimentary basin and that the producer 30 would otherwise be allowed to use for a later calendar year or transfer to another 31 person exceeds the amount of tax credits whose application would reduce the tax
01 levied by (e) of this section on that gas to zero, if any, is considered the amount of 02 excess tax credits, and the excess tax credits are subject to the following: 03 (1) for each lease or property for which a limitation under (j) [OR (k)] 04 of this section on the tax levied by (e) and (g) of this section has the effect of reducing 05 the producer's tax below the amount of tax that would be levied in the absence of that 06 limitation, the producer shall calculate the amount of that reduction; 07 (2) the producer shall calculate the total of the reductions calculated 08 under (1) of this subsection for all affected leases or properties; 09 (3) the producer shall reduce the amount of excess tax credits by the 10 total calculated under (2) of this subsection, but not to less than zero; 11 (4) any amount of excess tax credits remaining after reduction under 12 (3) of this subsection may be used for a later calendar year, transferred to another 13 person, or applied against a tax levied on [OIL OR] gas produced from a lease or 14 property located anywhere in the state to the extent otherwise allowed under 15 applicable law governing the tax credits. 16 * Sec. 11. AS 43.55.020(a) is amended to read: 17 (a) For a calendar year, a producer subject to tax under AS 43.55.001 or 18 43.55.011(e), (f), (g), or (i) [AS 43.55.011(e), (f), (g), OR (i)], and notwithstanding 19 that a producer may be liable for the tax under AS 43.55.011(f) rather than the tax 20 under AS 43.55.011(e), shall pay the tax as follows: 21 (1) an installment payment of the estimated tax levied by 22 AS 43.55.001 or 43.55.011(e) or (f) [AS 43.55.011(e) OR (f)], net of any tax credits 23 applied as allowed by law, is due for each month of the calendar year on the last day 24 of the following month; the amount of the installment payment is the sum of the 25 amounts calculated under (2) and (3) of this subsection, but not less than zero; 26 (2) the first of the two amounts used to calculate the installment 27 payment for a month under (1) of this subsection is equal to the remainder obtained by 28 subtracting 29 (A) 1/12 of the tax credits that are allowed by law to be applied 30 against the tax levied by AS 43.55.011(e) for the calendar year; from 31 (B) the sum of
01 (i) the taxable gross value at the point of production 02 of oil produced from leases or properties in the state determined 03 under AS 43.55.001(c) during the month, multiplied by the tax rate 04 determined under AS 43.55.001(b); and 05 (ii) the total of the monthly production values calculated 06 in the manner provided in AS 43.55.160(a)(2) of [ALL OIL AND] gas 07 taxable under AS 43.55.011(e) and produced by the producer from 08 leases or properties in the state during the month, multiplied by 22.5 09 percent; 10 (3) the second of the two amounts used to calculate the installment 11 payment for a month under (1) of this subsection is the amount calculated for the 12 month under AS 43.55.011(g); 13 (4) an installment payment of the estimated tax levied by 14 AS 43.55.011(i) for each lease or property is due for each month of the calendar year 15 on the last day of the following month; the amount of the installment payment is [THE 16 SUM OF 17 (A) THE APPLICABLE PERCENTAGE RATE FOR OIL 18 PROVIDED UNDER AS 43.55.011(i), MULTIPLIED BY THE GROSS 19 VALUE AT THE POINT OF PRODUCTION OF THE OIL TAXABLE 20 UNDER AS 43.55.011(i) AND PRODUCED FROM THE LEASE OR 21 PROPERTY DURING THE MONTH; PLUS 22 (B)] the applicable percentage rate for gas provided under 23 AS 43.55.011(i), multiplied times the gross value at the point of production of 24 the gas taxable under AS 43.55.011(i) and produced from the lease or property 25 during the month; 26 (5) any amount of tax levied by AS 43.55.001 and 43.55.011(e) - (g) 27 and (i) [AS 43.55.011(e) - (g) AND (i)], net of any credits applied as allowed by law, 28 that exceeds the total of the amounts due as installment payments of estimated tax is 29 due on March 31 of the year following the calendar year of production. 30 * Sec. 12. AS 43.55.020(b) is amended to read: 31 (b) The production tax on oil or [AND] gas shall be paid to the department by
01 or on behalf of the producer. 02 * Sec. 13. AS 43.55.020(d) is repealed and reenacted to read: 03 (d) In making settlement with the royalty owner, the producer may deduct the 04 amount of the tax paid on taxable royalty oil or gas, or may deduct taxable royalty oil 05 or gas equivalent in value at the time the tax becomes due to the amount of the tax 06 paid. If the total deductions of installment payments of estimated tax for a calendar 07 year exceed the actual tax for that calendar year, the producer shall, before April 1 of 08 the following year, refund the excess to the royalty owner. Unless otherwise agreed 09 between the producer and the royalty owner, the amount of the tax paid under 10 (1) AS 43.55.001 on taxable royalty oil for a calendar year, other than 11 oil the ownership or right to which constitutes a landowner's royalty interest, is 12 considered to be the gross value at the point of production of the taxable royalty oil 13 produced during the calendar year multiplied by a figure that is a quotient, in which 14 (A) the numerator is the producer's total tax liability under 15 AS 43.55.001 for the calendar year of production; and 16 (B) the denominator is the total gross value at the point of 17 production of the oil taxable under AS 43.55.001 produced by the producer 18 from all leases and properties in the state during the calendar year; and 19 (2) AS 43.55.011(e) - (g) on taxable royalty gas for a calendar year, 20 other than gas the ownership or right to which constitutes a landowner's royalty 21 interest, is considered to be the gross value at the point of production of the taxable 22 royalty gas produced during the calendar year multiplied by a figure that is a quotient, 23 in which 24 (A) the numerator is the producer's total tax liability under 25 AS 43.55.011(e) - (g) for the calendar year of production; and 26 (B) the denominator is the total gross value at the point of 27 production of the gas taxable under AS 43.55.011(e) - (g) produced by the 28 producer from all leases and properties in the state during the calendar year. 29 * Sec. 14. AS 43.55.020(e) is amended to read: 30 (e) Gas flared, released, or allowed to escape in excess of the amount 31 authorized by the Alaska Oil and Gas Conservation Commission is considered, for the
01 purpose of AS 43.55.001 - 43.55.180 [AS 43.55.011 - 43.55.180], as gas produced 02 from a lease or property. Oil or gas used in the operation of a lease or property in the 03 state in drilling for or producing oil or gas, or for repressuring, except to the extent 04 determined by the Alaska Oil and Gas Conservation Commission to be waste, is not 05 considered, for the purpose of AS 43.55.001 - 43.55.180 [AS 43.55.011 - 43.55.180], 06 as oil or gas produced from a lease or property. 07 * Sec. 15. AS 43.55.023(a) is amended to read: 08 (a) A producer or explorer may take a tax credit for a qualified capital 09 expenditure as follows: 10 (1) notwithstanding that a qualified capital expenditure may be a 11 deductible lease expenditure for purposes of calculating the production tax value of 12 [OIL AND] gas under AS 43.55.160(a), unless a credit for that expenditure is taken 13 under AS 38.05.180(i), AS 41.09.010, AS 43.20.043, or AS 43.55.025, a producer or 14 explorer that incurs a qualified capital expenditure may also elect to take a tax credit 15 against a tax due under AS 43.55.011(e) in the amount of 20 percent of that 16 expenditure; 17 (2) a producer or explorer may take a credit for a qualified capital 18 expenditure incurred in connection with geological or geophysical exploration or in 19 connection with an exploration well only if the producer or explorer provides to the 20 department, as part of the statement required under AS 43.55.030(a) for the calendar 21 year for which the credit is sought to be taken, the producer's or explorer's written 22 agreement 23 (A) to notify the Department of Natural Resources, before the 24 later of 30 days after completion of the geological or geophysical data 25 processing or completion of the well, or 30 days after the statement is filed, of 26 the date of completion and to submit a report to that department describing the 27 processing sequence and provide a list of data sets available; 28 (B) to provide to the Department of Natural Resources, within 29 30 days after the date of a request, specific data sets, ancillary data, and reports 30 identified in (A) of this paragraph; 31 (C) that, notwithstanding any provision of AS 38, the
01 Department of Natural Resources shall hold confidential the information 02 provided to that department under this paragraph for 10 years following the 03 completion date, after which the department shall publicly release the 04 information after 30 days' public notice. 05 * Sec. 16. AS 43.55.023(e) is amended to read: 06 (e) A person to which a transferable tax credit certificate is issued under (d) of 07 this section may transfer the certificate to another person, and a transferee may further 08 transfer the certificate. Subject to the limitations set out in (a) - (c) of this section, and 09 notwithstanding any action the department may take with respect to the applicant 10 under (g) of this section, the owner of a certificate may apply the credit or a portion of 11 the credit shown on the certificate only against a tax due under AS 43.55.011(e). 12 However, a credit shown on a transferable tax credit certificate may not be applied to 13 reduce a transferee's total tax due under AS 43.55.011(e) on [OIL AND] gas produced 14 during a calendar year to less than 80 percent of the tax that would otherwise be due 15 without applying that credit. Any portion of a credit not used under this subsection 16 may be applied in a later period. 17 * Sec. 17. AS 43.55.023(f) is amended to read: 18 (f) Under standards established in regulations adopted by the department and 19 subject to appropriations made by law, the department, on the written application of 20 the person to whom a transferable tax credit has been issued under (d) of this section 21 and whose average amount of [OIL AND] gas produced a day taxable under 22 AS 43.55.011(e) is not more than 50,000 BTU equivalent barrels a day for the 23 preceding calendar year, shall issue a cash refund, in whole or in part, for the 24 certificate if the department finds 25 (1) within 24 months after having applied for the transferable tax credit 26 certificate, that the applicant incurred a qualified capital expenditure or was the 27 successful bidder on a bid submitted for a lease on state land under AS 38.05.180(f); 28 (2) that the amount of the refund would not exceed the total of 29 qualified capital expenditures and successful bids described in (1) of this subsection 30 that have not been the subject of a finding made under this paragraph for purposes of a 31 previous refund;
01 (3) that the applicant does not have an outstanding liability to the state 02 for unpaid delinquent taxes under this title; and 03 (4) that the sum of the amount of the refund applied for and amounts 04 previously refunded to the applicant during the calendar year under this subsection 05 would not exceed $25,000,000. 06 * Sec. 18. AS 43.55.023(h) is amended to read: 07 (h) Regulations adopted to implement this section must include provisions 08 prescribing reporting, record keeping, the apportionment of capital expenditures 09 that are related to both oil and gas between qualified capital expenditures and 10 capital expenditures that are not qualified capital expenditures, and certification 11 procedures and requirements to verify the accuracy of credits claimed and to ensure 12 that a credit is not used more than once. 13 * Sec. 19. AS 43.55.023(i) is amended to read: 14 (i) For the purposes of this section, 15 (1) a producer's or explorer's transitional investment expenditures are 16 the sum of the expenditures the producer or explorer incurred after March 31, 2001, 17 and before April 1, 2006, that would be qualified capital expenditures if they were 18 incurred after March 31, 2006, less the sum of the payments or credits the producer or 19 explorer received before April 1, 2006, for the sale or other transfer of assets, 20 including geological, geophysical, or well data or interpretations, acquired by the 21 producer or explorer as a result of expenditures the producer or explorer incurred 22 before April 1, 2006, that would be qualified capital expenditures, if they were 23 incurred after March 31, 2006; 24 (2) a producer or explorer may elect to take a tax credit against a tax 25 due under AS 43.55.011(e) in the amount of 20 percent of the producer's or explorer's 26 transitional investment expenditures, but only to the extent that the amount does not 27 exceed 1/10 of the producer's or explorer's qualified capital expenditures that are 28 incurred during the calendar year for which the credit is taken; 29 (3) a producer or explorer may not take a tax credit for a transitional 30 investment expenditure 31 (A) for any calendar year after the later of
01 (i) 2013; or 02 (ii) the sixth calendar year after the calendar year for 03 which the producer first applies a credit under this subsection against a 04 tax due under AS 43.55.011(e), if the producer did not have 05 commercial production of [OIL OR] gas from a lease or property in the 06 state before April 1, 2006; 07 (B) more than once; or 08 (C) if a credit for that expenditure was taken under 09 AS 38.05.180(i), AS 41.09.010, AS 43.20.043, or AS 43.55.025; 10 (4) notwithstanding (d), (e), and (g) of this section, a producer or 11 explorer may not transfer a tax credit or obtain a transferable tax credit certificate for a 12 transitional investment expenditure. 13 * Sec. 20. AS 43.55.024(a) is amended to read: 14 (a) For a calendar year for which a producer's tax liability under 15 AS 43.55.011(e) or (f) on [OIL AND] gas produced from leases or properties outside 16 the Cook Inlet sedimentary basin, no part of which is north of 68 degrees North 17 latitude, exceeds zero before application of any credits under this chapter, a producer 18 that is qualified under (e) of this section may apply a tax credit against that liability of 19 not more than $6,000,000. 20 * Sec. 21. AS 43.55.024(b) is amended to read: 21 (b) A producer may not take a tax credit under (a) of this section for any 22 calendar year after the later of 23 (1) 2016; or 24 (2) the ninth calendar year after the calendar year during which the 25 producer first has commercial [OIL OR] gas production before May 1, 2016, from at 26 least one lease or property in the state outside the Cook Inlet sedimentary basin, no 27 part of which is north of 68 degrees North latitude, if the producer did not have 28 commercial [OIL OR] gas production from a lease or property in the state outside the 29 Cook Inlet sedimentary basin, no part of which is north of 68 degrees North latitude, 30 before April 1, 2006. 31 * Sec. 22. AS 43.55.024(c) is amended to read:
01 (c) For a calendar year for which a producer's tax liability under 02 AS 43.55.011(e) or (f) exceeds zero before application of any credits under this 03 chapter, other than a credit under (a) of this section but after application of any credit 04 under (a) of this section, a producer that is qualified under (e) of this section and 05 whose average amount of [OIL AND] gas produced a day and taxable under 06 AS 43.55.011(e) or (f) is less than 100,000 BTU equivalent barrels a day may apply a 07 tax credit under this subsection against that liability. A producer whose average 08 amount of [OIL AND] gas produced a day and taxable under AS 43.55.011(e) or (f) is 09 (1) not more than 50,000 BTU equivalent barrels may apply a tax 10 credit of not more than $12,000,000 for the calendar year; 11 (2) more than 50,000 and less than 100,000 BTU equivalent barrels 12 may apply a tax credit of not more than $12,000,000 multiplied by the following 13 fraction for the calendar year: 14 1 - [2 X (AP - 50,000)] / 100,000 15 where AP = the average amount of [OIL AND] gas taxable under AS 43.55.011(e) or 16 (f), produced a day during the calendar year in BTU equivalent barrels. 17 * Sec. 23. AS 43.55.024(d) is amended to read: 18 (d) A producer may not take a tax credit under (c) of this section for any 19 calendar year after the later of 20 (1) 2016; or 21 (2) if the producer did not have commercial [OIL OR] gas production 22 from a lease or property in the state before April 1, 2006, the ninth calendar year after 23 the calendar year during which the producer first has commercial [OIL OR] gas 24 production before May 1, 2016, from at least one lease or property in the state. 25 * Sec. 24. AS 43.55.024(f) is amended to read: 26 (f) A tax credit authorized by (a) of this section may not be applied to reduce a 27 producer's tax liability for any calendar year under AS 43.55.011(e) on [OIL AND] 28 gas produced from leases or properties outside the Cook Inlet sedimentary basin, no 29 part of which is north of 68 degrees North latitude, below zero. 30 * Sec. 25. AS 43.55.025(b) is amended to read: 31 (b) To qualify for the production tax credit under (a) of this section, a gas
01 [AN] exploration expenditure must be incurred for work performed on or after July 1, 02 2003, and before July 1, 2016, except that a gas [AN] exploration expenditure for a 03 Cook Inlet prospect must be incurred for work performed on or after July 1, 2005, and 04 (1) may be for seismic or geophysical exploration costs not connected 05 with a specific well; 06 (2) if for an exploration well, 07 (A) must be incurred by an explorer that holds an interest in the 08 exploration well for which the production tax credit is claimed; 09 (B) may be for a [EITHER AN OIL OR] gas discovery well or 10 a dry hole; and 11 (C) must be for goods, services, or rentals of personal property 12 reasonably required for the surface preparation, drilling, casing, cementing, 13 and logging of an exploration well, and, in the case of a dry hole, for the 14 expenses required for abandonment if the well is abandoned within 18 months 15 after the date the well was spudded; 16 (3) may not be for testing, stimulation, or completion costs; 17 administration, supervision, engineering, or lease operating costs; geological or 18 management costs; community relations or environmental costs; bonuses, taxes, or 19 other payments to governments related to the well; or other costs that are generally 20 recognized as indirect costs or financing costs; and 21 (4) may not be incurred for an exploration well or seismic exploration 22 that is included in a plan of exploration or a plan of development for any unit on 23 May 13, 2003. 24 * Sec. 26. AS 43.55.025(i) is amended to read: 25 (i) For a production tax credit under this section, 26 (1) the amount of the credit that may be applied against the production 27 tax for each calendar year may not exceed the total production tax liability under 28 AS 43.55.011(e) or (f) of the taxpayer applying the credit for the same calendar year; 29 and 30 (2) an amount of the production tax credit that is greater than the total 31 tax liability under AS 43.55.011(e) or (f) of the taxpayer applying the credit for a
01 calendar year may be carried forward and applied against the taxpayer's production tax 02 liability under AS 43.55.011(e) or (f) in one or more immediately following calendar 03 years; and 04 (3) a natural gas exploration expenditure that qualifies for a tax 05 credit under this section may not qualify for a tax credit under AS 43.55.026. 06 * Sec. 27. AS 43.55 is amended by adding a new section to read: 07 Sec. 43.55.026. Tax credit for oil exploration. (a) Subject to the terms and 08 conditions of this section, a credit against the production tax due under AS 43.55.001 09 is allowed for exploration expenditures that qualify under (b) of this section in an 10 amount equal to the sum of 25 percent of the actual expenditures directly related to the 11 drilling of an oil development well, excluding expenditures related to corporate 12 overhead or for oil facilities other than the oil development well, and one of the 13 following: 14 (1) 30 percent of the total exploration expenditures that qualify only 15 under (b) and (c) of this section; 16 (2) 30 percent of the total exploration expenditures for work performed 17 before July 1, 2016, and that qualify only under (b) and (d) of this section; 18 (3) 50 percent of the total exploration expenditures that qualify under 19 (b), (c), and (d) of this section; or 20 (4) 50 percent of the total exploration expenditures that qualify only 21 under (b) and (e) of this section. 22 (b) To qualify for the production tax credit under (a) of this section, an oil 23 exploration expenditure must be incurred for work performed after May 31, 2007, and 24 before July 1, 2016, and 25 (1) may be for seismic or geophysical exploration costs not connected 26 with a specific well; 27 (2) if for an exploration well, 28 (A) must be incurred by an explorer that holds an interest in the 29 exploration well for which the production tax credit is claimed; 30 (B) may be for an oil discovery well or a dry hole; and 31 (C) must be for goods, services, or rentals of personal property
01 reasonably required for the surface preparation, drilling, casing, cementing, 02 and logging of an exploration well, and, in the case of a dry hole, for the 03 expenses required for abandonment if the well is abandoned within 18 months 04 after the date the well was spudded; 05 (3) may not be for testing, stimulation, or completion costs; 06 administration, supervision, engineering, or lease operating costs; geological or 07 management costs; community relations or environmental costs; bonuses, taxes, or 08 other payments to governments related to the well; or other costs that are generally 09 recognized as indirect costs or financing costs; and 10 (4) may not be incurred for an exploration well or seismic exploration 11 that is included in a plan of exploration or a plan of development for any unit on 12 May 13, 2003. 13 (c) To be eligible for the 30 percent production tax credit authorized by (a)(1) 14 of this section or the 50 percent production tax credit authorized by (a)(3) of this 15 section, exploration expenditures must 16 (1) qualify under (b) of this section; and 17 (2) be for an exploration well, subject to the following: 18 (A) for an exploration well other than a well that is described in 19 (B) of this paragraph, the well must be located and drilled in such a manner 20 that the bottom hole is located not less than three miles away from the bottom 21 hole of a preexisting suspended, completed, or abandoned oil or gas well; in 22 this subparagraph, "preexisting" means a well that was spudded more than 150 23 days but less than 35 years before the exploration well was spudded; 24 (B) for an exploration well that explores a Cook Inlet prospect, 25 the well must be located at least three miles from any other well drilled for oil 26 and gas with all distances measured as the horizontal distance between 27 exploration targets, except that the exploration well that is located within three 28 miles of a well drilled for oil and gas qualifies for the tax credit authorized by 29 this subsection if the exploration well tests potential hydrocarbon traps that the 30 commissioner of natural resources determines, after analyzing evidence 31 submitted by the explorer and from other information that the commissioner of
01 natural resources determines relevant, constitute a distinctly separate 02 exploration target. 03 (d) To be eligible for the 30 percent production tax credit authorized by (a)(2) 04 of this section or the 50 percent production tax credit authorized by (a)(3) of this 05 section, an exploration expenditure must 06 (1) qualify under (b) of this section; and 07 (2) be for an exploration well that is located not less than 25 miles 08 outside of the outer boundary, as delineated on July 1, 2003, of any unit that is under a 09 plan of development, except that for an exploration well for a Cook Inlet prospect to 10 qualify under this paragraph, the exploration well must be located not less than 10 11 miles outside the outer boundary, as delineated on July 1, 2003, of any unit that is 12 under a plan of development. 13 (e) To be eligible for the 50 percent production tax credit authorized by (a)(4) 14 of this section, the exploration expenditure must 15 (1) qualify under (b) of this section; 16 (2) be for seismic exploration; and 17 (3) have been conducted outside the boundaries of a production unit or 18 an exploration unit; however, the amount of the expenditure that is otherwise eligible 19 under this subsection is reduced proportionately by the portion of the seismic 20 exploration activity that crossed into a production unit or an exploration unit. 21 (f) For a production tax credit under this section, 22 (1) an explorer shall, in a form prescribed by the department and 23 within six months of the completion of the exploration activity, claim the credit and 24 submit information sufficient to demonstrate to the department's satisfaction that the 25 claimed exploration expenditures qualify under this section; 26 (2) an explorer shall agree, in writing, 27 (A) to notify the Department of Natural Resources, within 30 28 days after completion of seismic or geophysical data processing, completion of 29 a well, or filing of a claim for credit, whichever is the latest, for which 30 exploration costs are claimed, of the date of completion and submit a report to 31 that department describing the processing sequence and providing a list of data
01 sets available; if, under (c)(2)(B) of this section, an explorer submits a claim 02 for a credit for expenditures for an exploration well that is located within three 03 miles of a well already drilled for oil and gas, in addition to the submissions 04 required under (1) of this subsection, the explorer shall submit the information 05 necessary for the commissioner of natural resources to evaluate the validity of 06 the explorer's claim that the well is directed at a distinctly separate exploration 07 target, and the commissioner of natural resources shall, upon receipt of all 08 evidence sufficient for the commissioner to evaluate the explorer's claim, make 09 that determination within 60 days; 10 (B) to provide to the Department of Natural Resources, within 11 30 days after the date of a request, specific data sets, ancillary data, and reports 12 identified in (A) of this paragraph; 13 (C) that, notwithstanding any provision of AS 38, information 14 provided under this paragraph will be held confidential by the Department of 15 Natural Resources for 10 years following the completion date, at which time 16 that department will release the information after 30 days' public notice; 17 (3) if more than one explorer holds an interest in a well or seismic 18 exploration, each explorer may claim an amount of credit that is proportional to the 19 explorer's cost incurred; 20 (4) the department may exercise the full extent of its powers as though 21 the explorer were a taxpayer under this title, in order to verify that the claimed 22 expenditures are qualified exploration expenditures under this section; and 23 (5) if the department is satisfied that the explorer's claimed 24 expenditures are qualified under this section, the department shall issue to the explorer 25 a production tax credit certificate for the amount of credit to be allowed against 26 production taxes due under AS 43.55.001. 27 (g) An explorer may transfer, convey, or sell its production tax credit 28 certificate to any person, and any person who receives a production tax credit 29 certificate may also transfer, convey, or sell the certificate. 30 (h) A producer that purchases a production tax credit certificate may apply the 31 credits against its production tax liability under AS 43.55.001. Regardless of the price
01 the producer paid for the certificate, the producer may receive a credit against its 02 production tax liability for the full amount of the credit, but for not more than the 03 amount for which the certificate is issued. A production tax credit allowed under this 04 section may not be applied more than once. 05 (i) For a production tax credit under this section, 06 (1) the amount of the credit that may be applied against the production 07 tax for each calendar year may not exceed the total production tax liability under 08 AS 43.55.001 of the taxpayer applying the credit for the same calendar year; and 09 (2) an amount of the production tax credit that is greater than the total 10 tax liability under AS 43.55.001 of the taxpayer applying the credit for a calendar year 11 may be carried forward and applied against the taxpayer's production tax liability 12 under AS 43.55.001 in one or more immediately following calendar years; and 13 (3) an oil exploration expenditure that qualifies for a tax credit under 14 this section may not qualify for a tax credit under AS 43.55.025. 15 (j) Notwithstanding any other provision of this title, of AS 31.05, or of 16 AS 40.25.100, the department shall provide to the Department of Natural Resources 17 information submitted with a claim under this section to support the eligibility of an 18 exploration expenditure, including seismic exploration data and well data, and any 19 information described in (f)(2) of this section received by the department. 20 (k) In this section, "Cook Inlet prospect" means a location within the Cook 21 Inlet sedimentary basin, as that term is defined by regulation adopted to implement 22 AS 38.05.180(f)(4). 23 * Sec. 28. AS 43.55.030(a) is amended to read: 24 (a) The person paying the tax shall file with the department on March 31 of 25 the year following the calendar year for which the tax was levied a statement, under 26 oath, in a form prescribed by the department, giving, with other information required, 27 the following: 28 (1) a description of each lease or property from which the oil or 29 [AND] gas was [WERE] produced, by name, legal description, lease number, or 30 accounting codes assigned by the department; 31 (2) the names of the producer and the person paying the tax;
01 (3) the gross amount of oil and the gross amount of gas produced from 02 each lease or property, and the percentage of the gross amount of oil and the gross 03 amount of gas owned by each producer for whom the tax is paid; 04 (4) the gross value at the point of production of the oil and the gross 05 value at the point of production of the gas produced from each lease or property 06 owned by each producer for whom the tax is paid; 07 (5) the name of the first purchaser and the price received for the oil and 08 for the gas, unless relieved from this requirement in whole or in part by the 09 department; and 10 (6) the producer's lease expenditures and adjustments as calculated 11 under AS 43.55.160 - 43.55.170. 12 * Sec. 29. AS 43.55.080 is amended to read: 13 Sec. 43.55.080. Collection and deposit of revenue. Except as otherwise 14 provided under art. IX, sec. 17, Constitution of the State of Alaska, the department 15 shall deposit in the general fund the money collected by it under AS 43.55.001 - 16 43.55.180 [AS 43.55.011 - 43.55.180]. 17 * Sec. 30. AS 43.55.135 is amended to read: 18 Sec. 43.55.135. Measurement. For the purposes of AS 43.55.001 - 43.55.180 19 [AS 43.55.011 - 43.55.180], except as otherwise provided, oil is measured in terms of 20 a "barrel of oil" and gas is measured in terms of a "cubic foot of gas." 21 * Sec. 31. AS 43.55.150(a) is amended to read: 22 (a) For the purposes of AS 43.55.001 - 43.55.180 [AS 43.55.011 - 43.55.180], 23 the gross value at the point of production is calculated using the reasonable costs of 24 transportation of the oil or gas. The reasonable costs of transportation are the actual 25 costs, except when the 26 (1) parties to the transportation of oil or gas are affiliated; 27 (2) contract for the transportation of oil or gas is not an arm's length 28 transaction or is not representative of the market value of that transportation; or 29 [AND] 30 (3) method of transportation of oil or gas is not reasonable in view of 31 existing alternative methods of transportation.
01 * Sec. 32. AS 43.55.150(b) is amended to read: 02 (b) If the department finds that the conditions in (a)(1), (2), or [AND] (3) of 03 this section are present, the department shall determine the reasonable costs of 04 transportation, using the fair market value of like transportation, the fair market value 05 of equally efficient and available alternative modes of transportation, or other 06 reasonable methods. Transportation costs fixed by tariff rates properly on file with the 07 Regulatory Commission of Alaska or other regulatory agency shall be considered 08 prima facie reasonable. 09 * Sec. 33. AS 43.55.160(a) is amended to read: 10 (a) Except as provided in (b) of this section, for the purposes of 11 (1) AS 43.55.011(e), the annual production tax value of the taxable gas 12 produced during a calendar year 13 (A) [OIL AND GAS PRODUCED DURING A CALENDAR 14 YEAR] from leases or properties in the state that include land north of 68 15 degrees North latitude is the gross value at the point of production of the [OIL 16 AND] gas taxable under AS 43.55.011(e) and produced by the producer from 17 those leases or properties, less the producer's lease expenditures under 18 AS 43.55.165 for the calendar year applicable to the [OIL AND] gas produced 19 by the producer from those leases or properties, as adjusted under 20 AS 43.55.170; 21 (B) [OIL AND GAS PRODUCED DURING A CALENDAR 22 YEAR] from leases or properties in the state outside the Cook Inlet 23 sedimentary basin, no part of which is north of 68 degrees North latitude, is the 24 gross value at the point of production of the [OIL AND] gas taxable under 25 AS 43.55.011(e) and produced by the producer from those leases or properties, 26 less the producer's lease expenditures under AS 43.55.165 for the calendar year 27 applicable to the [OIL AND] gas produced by the producer from those leases 28 or properties, as adjusted under AS 43.55.170; 29 (C) [OIL PRODUCED DURING A CALENDAR YEAR 30 FROM A LEASE OR PROPERTY IN THE COOK INLET SEDIMENTARY 31 BASIN IS THE GROSS VALUE AT THE POINT OF PRODUCTION OF
01 THE OIL TAXABLE UNDER AS 43.55.011(e) AND PRODUCED BY THE 02 PRODUCER FROM THAT LEASE OR PROPERTY, LESS THE 03 PRODUCER'S LEASE EXPENDITURES UNDER AS 43.55.165 FOR THE 04 CALENDAR YEAR APPLICABLE TO THE OIL PRODUCED BY THE 05 PRODUCER FROM THAT LEASE OR PROPERTY, AS ADJUSTED 06 UNDER AS 43.55.170; 07 (D) GAS PRODUCED DURING A CALENDAR YEAR] 08 from a lease or property in the Cook Inlet sedimentary basin is the gross value 09 at the point of production of the gas taxable under AS 43.55.011(e) and 10 produced by the producer from that lease or property, less the producer's lease 11 expenditures under AS 43.55.165 for the calendar year applicable to the gas 12 produced by the producer from that lease or property, as adjusted under 13 AS 43.55.170; 14 (2) AS 43.55.011(g), the monthly production tax value of the taxable 15 gas produced during a month 16 (A) [OIL AND GAS PRODUCED DURING A MONTH] from 17 leases or properties in the state that include land north of 68 degrees North 18 latitude is the gross value at the point of production of the [OIL AND] gas 19 taxable under AS 43.55.011(g) and produced by the producer from those leases 20 or properties, less 1/12 of the producer's lease expenditures under 21 AS 43.55.165 for the calendar year applicable to the [OIL AND] gas produced 22 by the producer from those leases or properties, as adjusted under 23 AS 43.55.170; 24 (B) [OIL AND GAS PRODUCED DURING A MONTH] from 25 leases or properties in the state outside the Cook Inlet sedimentary basin, no 26 part of which is north of 68 degrees North latitude, is the gross value at the 27 point of production of the [OIL AND] gas taxable under AS 43.55.011(g) and 28 produced by the producer from those leases or properties, less 1/12 of the 29 producer's lease expenditures under AS 43.55.165 for the calendar year 30 applicable to the [OIL AND] gas produced by the producer from those leases 31 or properties, as adjusted under AS 43.55.170;
01 (C) [OIL PRODUCED DURING A MONTH FROM A 02 LEASE OR PROPERTY IN THE COOK INLET SEDIMENTARY BASIN IS 03 THE GROSS VALUE AT THE POINT OF PRODUCTION OF THE OIL 04 TAXABLE UNDER AS 43.55.011(g) AND PRODUCED BY THE 05 PRODUCER FROM THAT LEASE OR PROPERTY, LESS 1/12 OF THE 06 PRODUCER'S LEASE EXPENDITURES UNDER AS 43.55.165 FOR THE 07 CALENDAR YEAR APPLICABLE TO THE OIL PRODUCED BY THE 08 PRODUCER FROM THAT LEASE OR PROPERTY, AS ADJUSTED 09 UNDER AS 43.55.170; 10 (D) GAS PRODUCED DURING A MONTH] from a lease or 11 property in the Cook Inlet sedimentary basin is the gross value at the point of 12 production of the gas taxable under AS 43.55.011(g) and produced by the 13 producer from that lease or property, less 1/12 of the producer's lease 14 expenditures under AS 43.55.165 for the calendar year applicable to the gas 15 produced by the producer from that lease or property, as adjusted under 16 AS 43.55.170. 17 * Sec. 34. AS 43.55.160(c) is amended to read: 18 (c) Notwithstanding any contrary provision of AS 43.55.150, for purposes of 19 calculating a monthly production tax value under (a)(2) of this section, the gross value 20 at the point of production of the [OIL AND] gas taxable under AS 43.55.011(g) is 21 calculated under regulations adopted by the department that provide for using an 22 appropriate monthly share of the producer's costs of transportation for the calendar 23 year. 24 * Sec. 35. AS 43.55.160(d) is amended to read: 25 (d) Irrespective of whether a producer produces taxable [OIL OR] gas during a 26 calendar year or month, the producer is considered to have generated a positive 27 production tax value if a calculation described in (a) of this section yields a positive 28 number because the producer's adjusted lease expenditures for a calendar year under 29 AS 43.55.165 and 43.55.170 are less than zero as a result of the producer's receiving a 30 payment or credit under AS 43.55.170. An explorer that has taken a tax credit under 31 AS 43.55.023(b) or that has obtained a transferable tax credit certificate under
01 AS 43.55.023(d) for the amount of a tax credit under AS 43.55.023(b) is considered a 02 producer, subject to the tax levied under AS 43.55.011(e), to the extent that the 03 explorer generates a positive production tax value as the result of the explorer's 04 receiving a payment or credit under AS 43.55.170. 05 * Sec. 36. AS 43.55.160(e) is amended to read: 06 (e) Any adjusted lease expenditures under AS 43.55.165 and 43.55.170 that 07 would otherwise be deductible by a producer in a calendar year but whose deduction 08 would cause an annual production tax value calculated under (a)(1) of this section of 09 taxable [OIL OR] gas produced during the calendar year to be less than zero may be 10 used to establish a carried-forward annual loss under AS 43.55.023(b). In this 11 subsection, "producer" includes "explorer." 12 * Sec. 37. AS 43.55.165(a) is amended to read: 13 (a) Except as provided under (c) - (e) of this section, for the purposes of 14 AS 43.55.160, a producer's lease expenditures for a calendar year are the ordinary and 15 necessary costs upstream of the point of production of [OIL AND] gas that are 16 incurred during the calendar year by the producer after March 31, 2006, and that are 17 direct costs of exploring for, developing, or producing [OIL OR] gas deposits located 18 within the producer's leases or properties in the state or, in the case of land in which 19 the producer does not own a working interest, that are direct costs of exploring for 20 [OIL OR] gas deposits located within other land in the state. In determining whether 21 costs are lease expenditures, the department shall consider, among other factors, 22 (1) the typical industry practices and standards in the state that 23 determine the costs, other than items listed in (e) of this section, that an operator is 24 allowed to bill a working interest owner that is not the operator, under unit operating 25 agreements or similar operating agreements that were in effect before December 2, 26 2005, and were subject to negotiation with at least one working interest owner with 27 substantial bargaining power, other than the operator; and 28 (2) the standards adopted by the Department of Natural Resources that 29 determine the costs, other than items listed in (e) of this section, that a lessee is 30 allowed to deduct from revenue in calculating net profits under a lease issued under 31 AS 38.05.180(f)(3)(B), (D), or (E).
01 * Sec. 38. AS 43.55.165(b) is amended to read: 02 (b) For purposes of (a) of this section, 03 (1) direct costs include 04 (A) an expenditure, when incurred, to acquire an item if the 05 acquisition cost is otherwise a direct cost, notwithstanding that the expenditure 06 may be required to be capitalized rather than treated as an expense for financial 07 accounting or federal income tax purposes; 08 (B) payments of or in lieu of property taxes, sales and use 09 taxes, motor fuel taxes, and excise taxes; 10 (C) a reasonable allowance, as determined under regulations 11 adopted by the department, for overhead expenses directly related to exploring 12 for, developing, and producing [OIL OR] gas deposits located within leases or 13 properties or other land in the state; 14 (2) an activity does not need to be physically located on, near, or 15 within the premises of the lease or property within which a [AN OIL OR] gas deposit 16 being explored for, developed, or produced is located in order for the cost of the 17 activity to be a cost upstream of the point of production of the [OIL OR] gas. 18 * Sec. 39. AS 43.55.165(c) is amended to read: 19 (c) Subject to (g) and (h) of this section, if the department finds that the 20 pertinent provisions of a unit operating agreement or similar operating agreement are 21 substantially consistent with the department's determinations and standards under (a) 22 of this section concerning whether costs are lease expenditures, the department may 23 authorize or require a producer, subject to conditions prescribed under regulations 24 adopted by the department, to treat as that portion of its lease expenditures for a 25 calendar year applicable to [OIL AND] gas produced from a lease or property in the 26 state only 27 (1) the costs, other than items listed in (e) of this section, that are 28 incurred by the operator during the calendar year and that 29 (A) are billable to the producer by the operator in accordance 30 with the terms of the agreement to which that lease or property is subject; 31 (B) for a producer that is the operator, would be billable to the
01 producer by the operator in accordance with the terms of the agreement to 02 which that lease or property is subject if the producer were not the operator; 03 (C) would be billable to the producer by the operator in 04 accordance with the terms of the agreement if that lease or property were 05 subject to the agreement; or 06 (D) for a producer that is the operator, would be billable to the 07 producer by the operator in accordance with the terms of the agreement if that 08 lease or property were subject to the agreement and if the producer were not 09 the operator; and 10 (2) a reasonable percentage, as determined under regulations adopted 11 by the department, of the costs that are billable under (1) of this subsection as an 12 allowance for overhead expenses directly related to exploring for, developing, and 13 producing [OIL OR] gas deposits located within the lease or property, to the extent 14 those expenses are not billable under the agreement. 15 * Sec. 40. AS 43.55.165(d) is amended to read: 16 (d) Subject to (g) and (h) of this section, if the department makes the finding 17 described in (c) of this section with respect to a unit operating agreement or similar 18 operating agreement and, in addition, finds that at least one working interest owner 19 party to the agreement, other than the operator, with substantial incentive and ability to 20 effectively audit billings under the agreement in fact is effectively auditing billings 21 under the agreement, the department may authorize or require a producer, subject to 22 conditions prescribed under regulations adopted by the department, to treat as that 23 portion of its lease expenditures for a calendar year applicable to [OIL AND] gas 24 produced from a lease or property in the state only 25 (1) the costs, other than items listed in (e) of this section, that are 26 incurred by the operator during the calendar year and that 27 (A) are billed to the producer by the operator under the 28 agreement to which that lease or property is subject and are either not disputed 29 by a working interest owner party to the agreement or are finally determined to 30 be properly billable as a result of dispute resolution; or 31 (B) for a producer that is the operator, would be billable to the
01 producer by the operator in accordance with the terms of the agreement to 02 which that lease or property is subject if the producer were not the operator; 03 and 04 (2) a reasonable percentage, as determined under regulations adopted 05 by the department, of the costs that are billed under (1) of this subsection as an 06 allowance for overhead expenses directly related to exploring for, developing, and 07 producing [OIL OR] gas deposits located within the lease or property, to the extent 08 those expenses are not billable under the agreement. 09 * Sec. 41. AS 43.55.165(e) is amended to read: 10 (e) For purposes of this section, lease expenditures do not include 11 (1) depreciation, depletion, or amortization; 12 (2) [OIL OR] gas royalty payments, production payments, lease profit 13 shares, or other payments or distributions of a share of [OIL OR] gas production, 14 profit, or revenue; 15 (3) taxes based on or measured by net income; 16 (4) interest or other financing charges or costs of raising equity or debt 17 capital; 18 (5) acquisition costs for a lease or property or exploration license; 19 (6) costs arising from fraud, wilful misconduct, or gross negligence; 20 (7) fines or penalties imposed by law; 21 (8) costs of arbitration, litigation, or other dispute resolution activities 22 that involve the state or concern the rights or obligations among owners of interests in, 23 or rights to production from, one or more leases or properties or a unit; 24 (9) costs incurred in organizing a partnership, joint venture, or other 25 business entity or arrangement; 26 (10) amounts paid to indemnify the state; the exclusion provided by 27 this paragraph does not apply to the costs of obtaining insurance or a surety bond from 28 a third-party insurer or surety; 29 (11) [SURCHARGES LEVIED UNDER AS 43.55.201 OR 43.55.300; 30 (12)] for a transaction that is an internal transfer or is otherwise not an 31 arm's length transaction, expenditures incurred that are in excess of fair market value;
01 (12) [(13)] an expenditure incurred to purchase an interest in any 02 corporation, partnership, limited liability company, business trust, or any other 03 business entity, whether or not the transaction is treated as an asset sale for federal 04 income tax purposes; 05 (13) [(14)] a tax levied under AS 43.55.011; 06 (14) [(15)] the portion of costs incurred for dismantlement, removal, 07 surrender, or abandonment of a facility, pipeline, well pad, platform, or other 08 structure, or for the restoration of a lease, field, unit, area, body of water, or right-of- 09 way in conjunction with dismantlement, removal, surrender, or abandonment, that is 10 attributable to production of [OIL OR] gas occurring before April 1, 2006; the portion 11 is calculated as a ratio of the amount of [OIL AND] gas production, in barrels of oil 12 equivalent, associated with the facility, pipeline, well pad, platform, other structure, 13 lease, field, unit, area, body of water, or right-of-way occurring before April 1, 2006, 14 to the total amount of [OIL AND] gas production, in barrels of oil equivalent, 15 associated with that facility, pipeline, well pad, platform, other structure, lease, field, 16 unit, area, body of water, or right-of-way through the end of the calendar month before 17 commencement of the dismantlement, removal, surrender, or abandonment; a cost is 18 not excluded under this paragraph if the dismantlement, removal, surrender, or 19 abandonment for which the cost is incurred is undertaken for the purpose of replacing, 20 renovating, or improving the facility, pipeline, well pad, platform, or other structure; 21 for the purposes of this paragraph, "barrel of oil equivalent" means 22 [(A) IN THE CASE OF OIL, ONE BARREL; 23 (B) IN THE CASE OF GAS,] 6,000 cubic feet of gas; 24 (15) [(16)] costs incurred for containment, control, cleanup, or removal 25 in connection with any unpermitted release of oil or a hazardous substance and any 26 liability for damages imposed on the producer or explorer for that unpermitted release; 27 this paragraph does not apply to the cost of developing and maintaining an oil 28 discharge prevention and contingency plan under AS 46.04.030; 29 (16) [(17)] costs incurred to satisfy a work commitment under an 30 exploration license under AS 38.05.132; 31 (17) [(18)] that portion of expenditures, that would otherwise be
01 qualified capital expenditures as defined in AS 43.55.023(k), incurred during a 02 calendar year that are less than the product of $0.30 multiplied by the total taxable 03 production from each lease or property, in BTU equivalent barrels, during that 04 calendar year, except that, when a portion of a calendar year is subject to this 05 provision, the expenditures and volumes shall be prorated within that calendar year. 06 * Sec. 42. AS 43.55.165(f) is amended to read: 07 (f) For purposes of AS 43.55.023(a) and (b) and only as to expenditures 08 incurred to explore for a [AN OIL OR] gas deposit located within land in which an 09 explorer does not own a working interest, the term "producer" in this section includes 10 "explorer." 11 * Sec. 43. AS 43.55.165(g) is amended to read: 12 (g) The department shall specify or approve a reasonable allocation method 13 for determining the portion of a cost that is appropriately treated as a lease expenditure 14 under this section if a cost that would otherwise constitute a lease expenditure under 15 this section is incurred to explore for, develop, or produce 16 (1) a [BOTH AN OIL OR] gas deposit located within land outside the 17 state and a [AN OIL OR] gas deposit located within a lease or property, or other land, 18 in the state; or 19 (2) a [AN OIL OR] gas deposit located partly within land outside the 20 state and partly within a lease or property, or other land, in the state. 21 * Sec. 44. AS 43.55.165(j)(3) is amended to read: 22 (3) "stratigraphic test well" means a well drilled for the sole purpose of 23 obtaining geological information to aid in exploring for a [AN OIL OR] gas deposit 24 and the target zones of which are located in the state. 25 * Sec. 45. AS 43.55.170(a) is amended to read: 26 (a) Unless the payment or credit has already been subtracted in calculating 27 billable or billed costs under AS 43.55.165(c) or (d), a producer's lease expenditures 28 under AS 43.55.165 must be adjusted by subtracting payments or credits, other than 29 tax credits, received by the producer or by an operator acting for the producer for 30 (1) the use by another person of a production facility in which the 31 producer has an ownership interest or the management by the producer of a production
01 facility under a management agreement providing for the producer to receive a 02 management fee; 03 (2) a reimbursement or similar payment that offsets the producer's 04 lease expenditures, including an insurance recovery from a third-party insurer and a 05 payment from the state or federal government for reimbursement of the producer's 06 upstream costs, including costs for gathering, separating, cleaning, dehydration, 07 compressing, or other field handling associated with the production of [OIL OR] gas 08 upstream of the point of production; 09 (3) the sale or other transfer of 10 (A) an asset, including geological, geophysical, or well data or 11 interpretations, acquired by the producer as a result of a lease expenditure or an 12 expenditure that would be a lease expenditure if it were incurred after 13 March 31, 2006; for purposes of this subparagraph, 14 (i) if a producer removes from the state, for use outside 15 the state, an asset described in this subparagraph, the value of the asset 16 at the time it is removed is considered a payment received by the 17 producer for sale or transfer of the asset; 18 (ii) for a transaction that is an internal transfer or is 19 otherwise not an arm's length transaction, if the sale or transfer of the 20 asset is made for less than fair market value, the amount subtracted 21 must be the fair market value; and 22 (B) [OIL OR] gas 23 (i) that is not considered produced from a lease or 24 property under AS 43.55.020(e); and 25 (ii) the cost of acquiring which is a lease expenditure 26 incurred by the person that acquires the [OIL OR] gas. 27 * Sec. 46. AS 43.55.170(c) is amended to read: 28 (c) For purposes of AS 43.55.023(a) and (b) and only as to expenditures 29 incurred to explore for a [AN OIL OR] gas deposit located within land in which an 30 explorer does not own a working interest, the term "producer" in this section includes 31 "explorer."
01 * Sec. 47. AS 43.55.180(a) is amended to read: 02 (a) The department shall study 03 (1) the effects of the provisions of this chapter on oil and gas 04 exploration, development, and production in the state, on investment expenditures for 05 oil and gas exploration, development, and production in the state, on the entry of new 06 producers into the oil and gas industry in the state, on state revenue, and on tax 07 administration and compliance, giving particular attention to the tax rates provided 08 under AS 43.55.001 and 43.55.011 [AS 43.55.011], the tax credits provided under 09 AS 43.55.023 - 43.55.026 [AS 43.55.023 - 43.55.025], and the deductions for and 10 adjustments to lease expenditures provided under AS 43.55.160 - 43.55.170; and 11 (2) the effects of the tax rates under AS 43.55.011(i) on state revenue 12 and on [OIL AND] gas exploration, development, and production on private land, and 13 the fairness of those tax rates for private landowners. 14 * Sec. 48. AS 43.55.201(b) is amended to read: 15 (b) The surcharge imposed by (a) of this section is in addition to the tax 16 imposed by AS 43.55.001 [AS 43.55.011] and is due on the last day of the month on 17 oil produced from each lease or property during the preceding month. The surcharge is 18 in addition to the surcharge imposed by AS 43.55.300 - 43.55.310. 19 * Sec. 49. AS 43.55.201(c) is amended to read: 20 (c) A producer of oil shall make a report of production on March 31 of the 21 year following the calendar year of production and in the same manner and under the 22 same penalties as required under AS 43.55.001 - 43.55.180 [AS 43.55.011 - 23 43.55.180]. 24 * Sec. 50. AS 43.55.300(b) is amended to read: 25 (b) The surcharge imposed by (a) of this section is in addition to the tax 26 imposed by AS 43.55.001 [AS 43.55.011] and is due on the last day of the month on 27 oil produced from each lease or property during the preceding month. The surcharge is 28 in addition to the surcharge imposed by AS 43.55.201 - 43.55.231. 29 * Sec. 51. AS 43.55.300(c) is amended to read: 30 (c) A producer of oil shall make a report of production on March 31 of the 31 year following the calendar year of production and in the same manner and under the
01 same penalties as required under AS 43.55.001 - 43.55.180 [AS 43.55.011 - 02 43.55.180]. 03 * Sec. 52. AS 43.55.900(3) is amended to read: 04 (3) "BTU equivalent barrel" means 05 [(A) IN THE CASE OF OIL, ONE BARREL; 06 (B) IN THE CASE OF GAS,] the amount of gas that has a 07 heating value of 6,000,000 British thermal units; 08 * Sec. 53. AS 43.55.900(7) is amended to read: 09 (7) "explorer" means a person who, in exploring for new [OIL OR] gas 10 reserves, incurs expenditures; 11 * Sec. 54. AS 43.55.011(k) is repealed. 12 * Sec. 55. The uncodified law of the State of Alaska is amended by adding a new section to 13 read: 14 APPLICABILITY. Sections 3 - 54 of this Act apply to oil and gas produced after 15 May 31, 2007. 16 * Sec. 56. The uncodified law of the State of Alaska is amended by adding a new section to 17 read: 18 TRANSITIONAL PROVISIONS. (a) Notwithstanding any contrary provision of 19 AS 43.55.020(a), as amended by sec. 11 of this Act, 20 (1) a taxpayer subject to tax after December 31, 2006, and before June 1, 21 2007, under AS 43.55 as those provisions read on December 31, 2006, shall file a return and 22 pay the tax due for that period before August 1, 2007; and 23 (2) for oil or gas produced after May 31, 2007, and before January 1, 2008, the 24 amount of the installment payment of the estimated tax required to be paid by 25 AS 43.55.020(a) as that subsection read on May 31, 2007, is due for each month on the last 26 day of the following month. 27 (b) The Department of Revenue shall adopt regulations for the filing and payment of 28 tax by a taxpayer subject to tax for the production of oil or gas under AS 43.55 after May 31, 29 2007, and before January 1, 2008. 30 * Sec. 57. The uncodified law of the State of Alaska is amended by adding a new section to 31 read:
01 TRANSITION: RETROACTIVITY OF REGULATIONS. Notwithstanding any 02 contrary provision of AS 44.62.240, a regulation adopted by the Department of Revenue to 03 implement, interpret, make specific, or otherwise carry out the provisions of secs. 3 - 54 of 04 this Act may apply retroactively to June 1, 2007, if the Department of Revenue expressly 05 designates in the regulation that the regulation applies retroactively to that date. 06 * Sec. 58. The uncodified law of the State of Alaska is amended by adding a new section to 07 read: 08 REVISOR'S INSTRUCTION. The revisor of statutes is instructed to change the 09 heading of 10 (1) AS 43.55 from "Oil and Gas Production Taxes and Oil Surcharge" to "Oil 11 and Gas Production Tax and Oil Surcharge"; 12 (2) art. 1 of AS 43.55 from "Oil and Gas Production Tax" to "Oil and Gas 13 Production Taxes"; 14 (3) AS 43.55.011 from "Oil and gas production tax" to "Gas production tax"; 15 (4) AS 43.55.025 from "Alternative tax credit for oil and gas exploration" to 16 "Alternative tax credit for gas exploration"; 17 (5) AS 43.55.160 from "Determination of production tax value of oil and gas" 18 to "Determination of production tax value of gas." 19 * Sec. 59. Sections 3 - 54, 56, and 58 of this Act take effect June 1, 2007. 20 * Sec. 60. Except as provided in sec. 59 of this Act, this Act takes effect immediately under 21 AS 01.10.070(c).