00 CS FOR HOUSE BILL NO. 386(O&G) 01 "An Act making uniform throughout the state the deadline for certain exploration 02 expenditures used as credits against the production tax on oil and gas produced from a 03 lease or property in the state by extending to July 1, 2010, the deadline for those 04 expenditures on leases or properties located north of 68 degrees, 15 minutes, North 05 latitude, and expanding the purposes for which use of that credit is allowed; and 06 delaying to June 30, 2010, the last date by which hydrocarbon exploration geophysical 07 work must be performed or drilling of a stratigraphic test well or exploratory well must 08 be completed in order for a person to qualify for an exploration incentive credit under 09 the oil and gas exploration incentive credit that is not authorized by the Alaska Land 10 Act." 11 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 12 * Section 1. AS 41.09.010(c) is amended to read: 01 (c) An exploration incentive credit may be extended under (a) of this section 02 to a qualified applicant if 03 (1) application for the exploration incentive credit is made by the 04 qualified applicant to the commissioner and is approved before drilling or geophysical 05 work commences; 06 (2) all geophysical work is performed, and all stratigraphic test wells 07 or exploratory wells are drilled, after August 7, 1994, and before July 1, 2010 [2007]; 08 and 09 (3) copies of all raw and processed data derived from drilling a 10 stratigraphic test well or exploratory well or performing geophysical work are 11 provided by the qualified applicant to the commissioner within 30 days after the 12 completion, abandonment, or suspension of the well or completion of the geophysical 13 work. 14 * Sec. 2. AS 43.55.025(a) is amended to read: 15 (a) The credit authorized by this section may be applied against the 16 production tax due under this chapter, a bonus bid submitted or lease rental 17 payment due under AS 38.05, or a state tax liability under AS 43.20 or AS 43.56. 18 Subject to the terms and conditions of this section, on oil and gas produced on or after 19 July 1, 2004, from an oil and gas lease, or on gas produced from a gas only lease, a 20 credit [AGAINST THE PRODUCTION TAX DUE UNDER THIS CHAPTER] is 21 allowed for exploration expenditures that qualify under (b) of this section in an 22 amount equal to one of the following: 23 (1) 20 percent of the total exploration expenditures that qualify only 24 under (b) and (c) of this section; 25 (2) 20 percent of the total exploration expenditures for work performed 26 before July 1, 2007, and that qualify only under (b) and (d) of this section; 27 (3) 40 percent of the total exploration expenditures that qualify under 28 (b), (c), and (d) of this section; or 29 (4) 40 percent of the total exploration expenditures that qualify only 30 under (b) and (e) of this section. 31 * Sec. 3. AS 43.55.025(b) is amended to read: 01 (b) To qualify for the production tax credit under (a) of this section, an 02 exploration expenditure must be incurred for work performed on or after July 1, 2003, 03 and before July 1, 2010 [2007], except that an exploration expenditure for a Cook Inlet 04 prospect must be incurred for work performed on or after July 1, 2005, [AND 05 BEFORE JULY 1, 2010, AND EXCEPT THAT AN EXPLORATION 06 EXPENDITURE, IN WHOLE OR IN PART, SOUTH OF 68 DEGREES, 15 07 MINUTES, NORTH LATITUDE, AND NOT PART OF A COOK INLET 08 PROSPECT MUST BE INCURRED FOR WORK PERFORMED ON OR AFTER 09 JULY 1, 2003, AND BEFORE JULY 1, 2010,] and 10 (1) may be for seismic or geophysical exploration costs not connected 11 with a specific well; 12 (2) if for an exploration well, 13 (A) must be incurred by an explorer that holds an interest in the 14 exploration well for which the production tax credit is claimed; 15 (B) may be for either an oil or gas discovery well or a dry hole; 16 and 17 (C) must be for goods, services, or rentals of personal property 18 reasonably required for the surface preparation, drilling, casing, cementing, 19 and logging of an exploration well, and, in the case of a dry hole, for the 20 expenses required for abandonment if the well is abandoned within 18 months 21 after the date the well was spudded; 22 (3) may not be for testing, stimulation, or completion costs; 23 administration, supervision, engineering, or lease operating costs; geological or 24 management costs; community relations or environmental costs; bonuses, taxes, or 25 other payments to governments related to the well; or other costs that are generally 26 recognized as indirect costs or financing costs; and 27 (4) may not be incurred for an exploration well or seismic exploration 28 that is included in a plan of exploration or a plan of development for any unit on 29 May 13, 2003. 30 * Sec. 4. AS 43.55.025(f) is amended to read: 31 (f) For a production tax credit under this section, 01 (1) an explorer shall, in a form prescribed by the department and 02 within six months of the completion of the exploration activity, claim the credit and 03 submit information sufficient to demonstrate to the department's satisfaction that the 04 claimed exploration expenditures qualify under this section; 05 (2) an explorer shall agree, in writing, 06 (A) to notify the Department of Natural Resources, within 30 07 days after completion of seismic or geophysical data processing, completion of 08 a well, or filing of a claim for credit, whichever is the latest, for which 09 exploration costs are claimed, of the date of completion and submit a report to 10 that department describing the processing sequence and providing a list of data 11 sets available; if, under (c)(2)(B) of this section, an explorer submits a claim 12 for a credit for expenditures for an exploration well that is located within three 13 miles of a well already drilled for oil and gas, in addition to the submissions 14 required under (1) of this subsection, the explorer shall submit the information 15 necessary for the commissioner of natural resources to evaluate the validity of 16 the explorer's claim that the well is directed at a distinctly separate exploration 17 target, and the commissioner of natural resources shall, upon receipt of all 18 evidence sufficient for the commissioner to evaluate the explorer's claim, make 19 that determination within 60 days; 20 (B) to provide to the Department of Natural Resources, within 21 30 days after the date of a request, specific data sets, ancillary data, and reports 22 identified in (A) of this paragraph; 23 (C) that, notwithstanding any provision of AS 38, information 24 provided under this paragraph will be held confidential by the Department of 25 Natural Resources for 10 years following the completion date, at which time 26 that department will release the information after 30 days' public notice; 27 (3) if more than one explorer holds an interest in a well or seismic 28 exploration, each explorer may claim an amount of credit that is proportional to the 29 explorer's cost incurred; 30 (4) the department may exercise the full extent of its powers as though 31 the explorer were a taxpayer under this title, in order to verify that the claimed 01 expenditures are qualified exploration expenditures under this section; and 02 (5) if the department is satisfied that the explorer's claimed 03 expenditures are qualified under this section, the department shall issue to the explorer 04 a production tax credit certificate for the amount of credit to be allowed [AGAINST 05 PRODUCTION TAXES DUE UNDER THIS CHAPTER]; however, notwithstanding 06 any other provision of this section, the department may not issue to an explorer a 07 production tax credit certificate if the total of production tax credits submitted for 08 Cook Inlet production, based on exploration expenditures for work performed during 09 the period described in (b) of this section for that production, that have been approved 10 by the department exceeds $20,000,000. 11 * Sec. 5. AS 43.55.025(h) is amended to read: 12 (h) A producer that purchases a production tax credit certificate may apply the 13 credits against its production tax liability under this chapter or against an obligation 14 described in (a) of this section other than the tax due under this chapter. If the 15 producer applies the tax credit against the production tax liability under this 16 chapter, regardless [. REGARDLESS] of the price the producer paid for the 17 certificate, the producer may receive a credit against its production tax liability for the 18 full amount of the credit, but for not more than the amount for which the certificate is 19 issued. However the producer applies the tax credit, a [A] production tax credit 20 allowed under this section may not be applied more than once. 21 * Sec. 6. AS 43.55.025(i) is amended to read: 22 (i) For a production tax credit under this section that is claimed 23 (1) against the tax due under this chapter, 24 (A) [(1)] the amount of the credit that may be applied against 25 the production tax for each tax month may not exceed the total production tax 26 liability of the taxpayer applying the credit for the same month; and 27 (B) [(2)] an amount of the production tax credit that is greater 28 than the total tax liability of the taxpayer applying the credit for a tax month 29 may be carried forward and applied against the taxpayer's production tax 30 liability in one or more immediately following months; 31 (2) against an obligation described in (a) of this section other than 01 tax due under this chapter, the amount of the credit that may be applied and the 02 balance of the credit that may be carried forward and applied to a liability 03 described in (a) of this section during a later period must conform to regulations 04 adopted by the department that authorize use of credits allowed by this section 05 for purposes other than reduction of the tax obligation due under this chapter.