00                            SENATE BILL NO. 112                                                                         
01 "An Act relating to a credit against the oil and gas production tax for drilling certain                                
02 exploration wells using a jack-up rig in the Cook Inlet sedimentary basin."                                             
03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:                                                                
04    * Section 1. AS 43.55.025(l) is amended to read:                                                                   
05            (l)  The first three unaffiliated persons that drill an offshore exploration well                            
06       for the purpose of discovering oil or gas in Cook Inlet that penetrates and evaluates a                           
07       prospect in the pre-Tertiary zone using a jack-up rig, and the first person that drills                       
08       an offshore exploration well for the purpose of discovering oil or gas in Cook                                
09       Inlet that penetrates and evaluates a prospect in the pre-Tertiary zone using the                             
10       second jack-up rig placed in Cook Inlet are eligible for the credit under this                                
11       subsection. The person that drills the first exploration well is entitled to a credit in the                      
12       amount of 100 percent of its exploration expenditures or $25,000,000, whichever is                                
13       less; the person that drills the second exploration well using the same jack-up rig is                            
14       entitled to a credit in the amount of 90 percent of its exploration expenditures or                               

01       $22,500,000, whichever is less; [AND] the person that drills the third exploration well                           
02       using the same jack-up rig is entitled to a credit in the amount of 80 percent of its                             
03       exploration expenditures or $20,000,000, whichever is less; and the person that                               
04       drills the first exploration well using the second jack-up rig placed in Cook Inlet                           
05       after March 31, 2010, is entitled to a credit in the amount of 100 percent of its                             
06       exploration expenditures, or $20,000,000, whichever is less. A person or an affiliate                         
07       of a person drilling an exploration well is not entitled to a credit for more than one                            
08       exploration well under this subsection. The department shall make a determination of                              
09       the order in which the wells are drilled using the first and second jack-up rigs                              
10       placed in Cook Inlet after March 31, 2010, based on the date and time that the drill                          
11       bit first turns to the right against the seafloor for the purpose of drilling the well.                           
12       Exploration expenditures eligible for the credit in this subsection may include the                               
13       necessary and reasonable costs to modify an existing jack-up rig for use in Cook Inlet,                           
14       may not include the cost to construct or manufacture a jack-up rig, and,                                          
15       notwithstanding (b) of this section, must be incurred for work performed after                                    
16       March 31, 2010. If the exploration well for which a credit is received under this                                 
17       subsection results in sustained production of oil or gas from a reservoir discovered by                           
18       the exploration well, and notwithstanding that the credit may have been transferred                               
19       under (g) of this section, 50 percent of the amount of the credit received shall be                               
20       repaid to the department by the person that received the credit in equal monthly                                  
21       installments over a 10-year period commencing 60 days after the start of sustained                                
22       production of oil or gas. Whether the exploration well for which a credit is requested                            
23       under this subsection penetrated and evaluated a prospect in the pre-Tertiary zone and                            
24       the exploration well resulted in sustained production of oil or gas from a reservoir                              
25       discovered by the exploration well shall be determined by the commissioner of natural                             
26       resources and reported to the commissioner. A taxpayer that obtains a credit under this                           
27       subsection may not claim a tax credit under AS 43.55.023 or another provision in this                             
28       section for the same exploration expenditure. In this subsection,                                                 
29                 (1)  "jack-up rig" means a mobile drilling platform with extendible legs                                
30       for support on the ocean floor;                                                                                   
31                 (2)  "reservoir" means an oil and gas accumulation, discovered and                                      

01       evaluated by testing, that is separate from any other accumulation of oil and gas;                                
02                 (3)  "sustained production" means production of oil or gas from a                                       
03       reservoir into a pipeline or other means of transportation to market, but does not                                
04       include testing, evaluation, or pilot production.