00                            SENATE BILL NO. 164                                                                         
01 "An Act providing for a credit against the oil and gas production tax for costs incurred                                
02 in drilling certain oil and gas exploration wells in the Kotzebue basin or the Selawik                                  
03 basin; and providing for an effective date."                                                                            
04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:                                                                
05    * Section 1. AS 43.55.025(a) is amended to read:                                                                   
06            (a)  Subject to the terms and conditions of this section, a credit against the                               
07       production tax levied by AS 43.55.011(e) is allowed for exploration expenditures that                             
08       qualify under (b) of this section in an amount equal to one of the following:                                     
09                 (1)  30 percent of the total exploration expenditures that qualify only                                 
10       under (b) and (c) of this section;                                                                                
11                 (2)  30 percent of the total exploration expenditures that qualify only                                 
12       under (b) and (d) of this section;                                                                                
13                 (3)  40 percent of the total exploration expenditures that qualify under                                
14       (b), (c), and (d) of this section;                                                                                

01                 (4)  40 percent of the total exploration expenditures that qualify only                                 
02       under (b) and (e) of this section; or                                                                             
03                 (5)  80, 90, or 100 percent, or a lesser amount described in (l) or (n) of                          
04       this section, of the total exploration expenditures described in (b)(1) and (2) of this                           
05       section and not excluded by (b)(3) and (4) of this section that qualify only under (l) or                     
06       (n) of this section.                                                                                          
07    * Sec. 2. AS 43.55.025(l) is amended to read:                                                                      
08            (l)  The first three unaffiliated persons that drill an offshore exploration well                            
09       for the purpose of discovering oil or gas in Cook Inlet that penetrates and evaluates a                           
10       prospect in the pre-Tertiary zone using a jack-up rig are eligible for the credit under                           
11       this subsection. The person that drills the first exploration well is entitled to a credit in                     
12       the amount of 100 percent of its exploration expenditures or $25,000,000, whichever                               
13       is 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                               
15       $22,500,000, whichever is less; and the person that drills the third exploration well                             
16       using the same jack-up rig is entitled to a credit in the amount of 80 percent of its                             
17       exploration expenditures or $20,000,000, whichever is less. A person or an affiliate of                           
18       a person drilling an exploration well is not entitled to a credit for more than one                               
19       exploration well under this subsection. The department shall make a determination of                              
20       the order in which the wells are drilled based on the date and time that the drill bit first                      
21       turns to the right against the seafloor for the purpose of drilling the well. Exploration                         
22       expenditures eligible for the credit in this subsection may include the necessary and                             
23       reasonable costs to modify an existing jack-up rig for use in Cook Inlet, may not                                 
24       include the cost to construct or manufacture a jack-up rig, and, notwithstanding (b) of                           
25       this section, must be incurred for work performed after March 31, 2010. If the                                    
26       exploration well for which a credit is received under this subsection results in                                  
27       sustained production of oil or gas from a reservoir discovered by the exploration well,                           
28       and notwithstanding that the credit may have been transferred under (g) of this section,                          
29       50 percent of the amount of the credit received shall be repaid to the department by the                          
30       person that received the credit in equal monthly installments over a 10-year period                               
31       commencing 60 days after the start of sustained production of oil or gas. Whether the                             

01       exploration well for which a credit is requested under this subsection penetrated and                             
02       evaluated a prospect in the pre-Tertiary zone and the exploration well resulted in                                
03       sustained production of oil or gas from a reservoir discovered by the exploration well                            
04       shall be determined by the commissioner of natural resources and reported to the                                  
05       commissioner. A taxpayer that obtains a credit under this subsection may not claim a                              
06       tax credit under AS 43.55.023 or another provision in this section for the same                                   
07       exploration expenditure. [IN THIS SUBSECTION,                                                                     
08                 (1)  "JACK-UP RIG" MEANS A MOBILE DRILLING PLATFORM                                                     
09       WITH EXTENDIBLE LEGS FOR SUPPORT ON THE OCEAN FLOOR;                                                              
10                 (2)  "RESERVOIR" MEANS AN OIL AND GAS ACCUMULATION,                                                     
11       DISCOVERED AND EVALUATED BY TESTING, THAT IS SEPARATE FROM                                                        
12       ANY OTHER ACCUMULATION OF OIL AND GAS;                                                                            
13                 (3)  "SUSTAINED PRODUCTION" MEANS PRODUCTION OF OIL                                                     
14       OR GAS FROM A RESERVOIR INTO A PIPELINE OR OTHER MEANS OF                                                         
15       TRANSPORTATION TO MARKET, BUT DOES NOT INCLUDE TESTING,                                                           
16       EVALUATION, OR PILOT PRODUCTION.]                                                                                 
17    * Sec. 3. AS 43.55.025(m) is amended by adding new paragraphs to read:                                             
18                 (5)  "jack-up rig" means a mobile drilling platform with extendible legs                                
19       for support on the ocean floor;                                                                                   
20                 (6)  "reservoir" means an oil and gas accumulation, discovered and                                      
21       evaluated by testing, that is separate from any other accumulation of oil and gas;                                
22                 (7)  "sustained production" means production of oil or gas from a                                       
23       reservoir into a pipeline or other means of transportation to market, but does not                                
24       include testing, evaluation, or pilot production.                                                                 
25    * Sec. 4. AS 43.55.025 is amended by adding a new subsection to read:                                              
26            (n)  The first three persons that drill an exploration well for the purpose of                               
27       discovering oil or gas in the Kotzebue basin or the Selawik basin are eligible for the                            
28       credit under this subsection. To qualify for the credit under this subsection, the well                           
29       for which the credit is claimed must be drilled to a depth greater than 2,000 feet or, if                         
30       authorized by the commissioner of natural resources before the drill bit first turns to                           
31       the right for the purpose of drilling the well, to a target depth of less than 2,000 feet.                        

01       The person that drills the first exploration well is entitled to a credit in the amount of                        
02       100 percent of its exploration well expenditures or $30,000,000, whichever is less; the                           
03       person that drills the second exploration well is entitled to a credit in the amount of 90                        
04       percent of its exploration well expenditures or $27,000,000, whichever is less; and the                           
05       person that drills the third exploration well is entitled to a credit in the amount of 80                         
06       percent of its exploration well expenditures or $24,000,000, whichever is less. A                                 
07       person or an affiliate of a person may qualify for a drilling 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 based on the date and time that the drill bit first                      
10       turns to the right for the purpose of drilling the well. Exploration expenditures eligible                        
11       for the credit in this subsection must be incurred for work performed after                                       
12       December 31, 2011. If the exploration well for which a credit is received under this                              
13       subsection results in sustained production of oil or gas from a reservoir discovered by                           
14       the exploration well, and notwithstanding that the credit may have been transferred                               
15       under (g) of this section, 50 percent of the amount of the credit received shall be                               
16       repaid to the department by the person that received the credit in equal monthly                                  
17       installments over a 10-year period commencing 60 days after the start of sustained                                
18       production of oil or gas. Whether the exploration well for which a credit is requested                            
19       under this subsection is located in the Kotzebue basin or the Selawik basin, reached                              
20       the required depth, and resulted in sustained production of oil or gas from a reservoir                           
21       discovered by the exploration well shall be determined by the commissioner of natural                             
22       resources and reported to the commissioner. A taxpayer that obtains a credit under this                           
23       subsection may not obtain a production tax credit under any subsection of                                         
24       AS 43.55.023 or another provision of this section for the same exploration                                        
25       expenditure, even if the costs incurred in drilling the qualifying exploration well                               
26       exceed the maximum amount of the credit under this subsection.                                                    
27    * Sec. 5. This Act takes effect immediately under AS 01.10.070(c).