00 SENATE BILL NO. 145 01 "An Act providing for a credit against the oil and gas production tax for costs incurred 02 in drilling certain oil or natural gas exploration wells in the Nenana Basin." 03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 04 * Section 1. AS 43.55.025(a) is amended to read: 05 (a) Subject to the terms and conditions of this section, a credit against the 06 production tax levied by AS 43.55.011(e) is allowed for exploration expenditures that 07 qualify under (b) of this section in an amount equal to one of the following: 08 (1) 30 percent of the total exploration expenditures that qualify only 09 under (b) and (c) of this section; 10 (2) 30 percent of the total exploration expenditures that qualify only 11 under (b) and (d) of this section; 12 (3) 40 percent of the total exploration expenditures that qualify under 13 (b), (c), and (d) of this section; 14 (4) 40 percent of the total exploration expenditures that qualify only 01 under (b) and (e) of this section; or 02 (5) 80, 90, or 100 percent, or a lesser amount described in (l) or (n) of 03 this section, of the total exploration expenditures described in (b)(1) and (2) of this 04 section and not excluded by (b)(3) and (4) of this section that qualify only under (l) or 05 (n) of this section. 06 * Sec. 2. AS 43.55.025 is amended by adding a new subsection to read: 07 (n) The first three persons that drill an exploration well for the purpose of 08 discovering oil or gas in the Nenana Basin are eligible for the credit under this 09 subsection. To qualify for the credit under this subsection, the well for which the 10 credit is claimed must be drilled to a depth greater than 8,000 feet or, if authorized by 11 the commissioner of natural resources before the drill bit first turns to the right for the 12 purpose of drilling the well, to a target depth of less than 8,000 feet, but not less than 13 5,000 feet. The person that drills the first exploration well is entitled to a credit in the 14 amount of 100 percent of its exploration well expenditures or $25,000,000, whichever 15 is less; the person that drills the second exploration well is entitled to a credit in the 16 amount of 90 percent of its exploration well expenditures or $22,500,000, whichever 17 is less; and the person that drills the third exploration well is entitled to a credit in the 18 amount of 80 percent of its exploration well expenditures or $20,000,000, whichever 19 is less. A person or an affiliate of a person may qualify for a credit for more than one 20 well under this subsection. The department shall make a determination of the order in 21 which the wells are drilled based on the date and time that the drill bit first turns to the 22 right for the purpose of drilling the well. Exploration expenditures eligible for the 23 credit in this subsection must be incurred for work performed after December 31, 24 2011. If the exploration well for which a credit is received under this subsection 25 results in sustained production of oil or gas from a reservoir discovered by the 26 exploration well, and notwithstanding that the credit may have been transferred under 27 (g) of this section, 50 percent of the amount of the credit received shall be repaid to 28 the department by the person that received the credit in monthly installments over the 29 10-year period commencing 60 days after the start of sustained production of oil or 30 gas. The amount of a monthly installment shall be the greater of 1/240 of the total 31 amount of credit received or 10 percent of the gross value at the point of production 01 for the month immediately preceding the month the payment is due. Whether the 02 exploration well for which a credit is requested under this subsection is located in the 03 Nenana Basin, reached the required depth, or resulted in sustained production of oil or 04 gas from a reservoir discovered by the exploration well shall be determined by the 05 commissioner of natural resources and reported to the commissioner. A taxpayer that 06 obtains a credit under this subsection may not claim a tax credit under AS 43.55.023 07 or another provision in this section for the same exploration expenditure. In this 08 subsection, 09 (1) "reservoir" means an oil or gas accumulation, discovered and 10 evaluated by testing, that is separate from any other accumulation of oil or gas; 11 (2) "sustained production" means production of oil or gas from a 12 reservoir into a pipeline or other means of transportation to market, but does not 13 include testing, evaluation, or pilot production.