Enrolled HB 286: Amending the manner of determining the royalty received by the state on gas production by directing the commissioner of natural resources to accept, under certain circumstances, the transfer price of the gas if established by transfer price order of the Regulatory Commission of Alaska; extending and amending the requirements applicable to the credit that may be claimed for certain oil and gas exploration expenses incurred in Cook Inlet against oil and gas properties production (severance) taxes, and amending the credit against those taxes for certain exploration expenditures from leases or properties in the state; and providing for an effective date.
00Enrolled HB 286 01 Amending the manner of determining the royalty received by the state on gas production by 02 directing the commissioner of natural resources to accept, under certain circumstances, the 03 transfer price of the gas if established by transfer price order of the Regulatory Commission of 04 Alaska; extending and amending the requirements applicable to the credit that may be claimed 05 for certain oil and gas exploration expenses incurred in Cook Inlet against oil and gas 06 properties production (severance) taxes, and amending the credit against those taxes for 07 certain exploration expenditures from leases or properties in the state; and providing for an 08 effective date. 09 _______________ 10 * Section 1. AS 38.05.180(aa) is amended to read: 11 (aa) Within 90 days after the written request of a lessee of a lease issued under 12 this section or of a lessee of federal land from which the state is entitled under
01 applicable federal law to receive a share of the royalty on gas production, the 02 commissioner shall enter into an agreement with the lessee to use or accept, as the 03 value of the state's royalty share of gas production, the price for the gas established 04 in the contract between the lessee and a gas or electric utility [AS THE VALUE OF 05 THE STATE'S ROYALTY SHARE OF GAS PRODUCTION] sold by the lessee 06 under the contract or the transfer price between the lessee and a gas or electric 07 utility for a transfer by the lessee under an order establishing the transfer price 08 (1) but only if the primary function of the utility with which the lessee 09 has entered into the contract or transfer is to provide, either directly or by selling at 10 wholesale to another utility, gas or electricity to the general public, including 11 residential consumers, within the utilities' service areas, and the utility with which the 12 lessee has entered into 13 (A) the contract is not an affiliated interest, as that term is 14 defined in AS 42.05.990, with the lessee or with a subsequent purchaser of 15 more than 10 percent of the utility's gas or electricity; or 16 (B) the transfer is an affiliated interest, as that term is 17 defined in AS 42.05.990, and the transfer price between the lessee and the 18 utility is established by an order of the Regulatory Commission of Alaska; 19 and 20 (2) unless the commissioner makes a written finding, based on clear 21 and convincing evidence, that 22 (A) the contract price or transfer price is unreasonably low; 23 (B) the prospective reduction in royalty receipts would not be 24 balanced by increased benefits to in-state gas and electric consumers; 25 (C) the lessee and the utility are related in management, 26 ownership, or other aspect and, in the case of a transfer price, that 27 relationship is not regulated under AS 42.05; and 28 (D) the contract price or transfer price is not in the best 29 interest of the state. 30 * Sec. 2. AS 43.55.025(a) is amended to read: 31 (a) Subject to the terms and conditions of this section, on oil and gas produced
01 on or after July 1, 2004, from an oil and gas lease, or on gas produced from a gas 02 only lease, [ON OR AFTER JULY 1, 2004,] a credit against the production tax due 03 under this chapter is allowed for exploration expenditures that qualify under (b) of 04 this section in an amount equal to one of the following: 05 (1) 20 percent of the total exploration expenditures that qualify only 06 under (b) and (c) of this section; 07 (2) [,] 20 percent of the total exploration expenditures for work 08 performed before July 1, 2007, and that qualify only under (b) and (d) of this section 09 [, OR BOTH, FOR A TOTAL CREDIT THAT DOES NOT EXCEED 40 PERCENT 10 OF THE TOTAL EXPLORATION EXPENDITURES]; 11 (3) 40 percent of the total exploration expenditures that qualify 12 under (b), (c), and (d) of this section; or 13 (4) [(2)] 40 percent of the total exploration expenditures that qualify 14 only under (b) and (e) of this section [, FOR A TOTAL PRODUCTION TAX 15 CREDIT THAT DOES NOT EXCEED 40 PERCENT OF THE TOTAL QUALIFIED 16 EXPLORATION EXPENDITURES]. 17 * Sec. 3. AS 43.55.025(b) is amended to read: 18 (b) To qualify for the production tax credit under (a) of this section, an 19 exploration expenditure must be incurred for work performed on or after July 1, 2003, 20 and before July 1, 2007, except that an exploration expenditure for a Cook Inlet 21 prospect must be incurred for work performed on or after July 1, 2005, and 22 before July 1, 2010, and except that an exploration expenditure, in whole or in 23 part, south of 68 degrees, 15 minutes, North latitude, and not part of a Cook Inlet 24 prospect must be incurred for work performed on or after July 1, 2003, and 25 before July 1, 2010, and 26 (1) may be for seismic or geophysical exploration costs not connected 27 with a specific well; 28 (2) if for an exploration well, 29 (A) must be incurred by an explorer that holds an interest in the 30 exploration well for which the production tax credit is claimed; 31 (B) may be for either an oil or gas discovery well or a dry hole;
01 and 02 (C) must be for goods, services, or rentals of personal property 03 reasonably required for the surface preparation, drilling, casing, cementing, 04 and logging of an exploration well, and, in the case of a dry hole, for the 05 expenses required for abandonment if the well is abandoned within 18 months 06 after the date the well was spudded; 07 (3) may not be for testing, stimulation, or completion costs; 08 administration, supervision, engineering, or lease operating costs; geological or 09 management costs; community relations or environmental costs; bonuses, taxes, or 10 other payments to governments related to the well; or other costs that are generally 11 recognized as indirect costs or financing costs; and 12 (4) may not be incurred for an exploration well or seismic exploration 13 that is included in a plan of exploration or a plan of development for any unit on 14 May 13, 2003. 15 * Sec. 4. AS 43.55.025(c) is amended to read: 16 (c) To be eligible for the [A] 20 percent production tax credit authorized by 17 (a)(1) of this section or the 40 percent production tax credit authorized by (a)(3) 18 of this section, exploration expenditures must 19 (1) qualify under (b) of this section; and 20 (2) be for an exploration well, subject to the following: 21 (A) for an exploration well other than a well that is 22 described in (B) of this paragraph, the well must be [THAT IS] located and 23 drilled in such a manner that the bottom hole is located not less than three 24 miles away from the bottom hole of a preexisting suspended, completed, or 25 abandoned oil or gas well; in this subparagraph [PARAGRAPH], 26 "preexisting" means a well that was spudded more than 150 days but less than 27 35 years before the exploration well was spudded; 28 (B) for an exploration well that explores a Cook Inlet 29 prospect, the well must be located at least three miles from any other well 30 drilled for oil and gas with all distances measured as the horizontal 31 distance between exploration targets, except that the exploration well that
01 is located within three miles of a well drilled for oil and gas qualifies for 02 the tax credit authorized by this subsection if the exploration well tests 03 potential hydrocarbon traps that the commissioner of natural resources 04 determines, after analyzing evidence submitted by the explorer and from 05 other information that the commissioner of natural resources determines 06 relevant, constitute a distinctly separate exploration target. 07 * Sec. 5. AS 43.55.025(d) is amended to read: 08 (d) To be eligible for the [AN ADDITIONAL] 20 percent production tax 09 credit authorized by (a)(2) of this section or the 40 percent production tax credit 10 authorized by (a)(3) of this section, an exploration expenditure must 11 (1) qualify under (b) of this section; and 12 (2) be for an exploration well that is located not less than 25 miles 13 outside of the outer boundary, as delineated on July 1, 2003, of any unit that is under a 14 plan of development, except that for an exploration well for a Cook Inlet prospect 15 to qualify under this paragraph, the exploration well must be located not less 16 than 10 miles outside the outer boundary, as delineated on July 1, 2003, of any 17 unit that is under a plan of development. 18 * Sec. 6. AS 43.55.025(e) is amended to read: 19 (e) To be eligible for the 40 percent production tax credit authorized by 20 (a)(4) [IN (a)] of this section, the exploration expenditure must 21 (1) qualify under (b) of this section; 22 (2) be for seismic exploration; and 23 (3) have been conducted outside the boundaries of a production unit or 24 an exploration unit; however, the amount of the expenditure that is otherwise eligible 25 under this subsection is reduced proportionately by the portion of the seismic 26 exploration activity that crossed into a production unit or an exploration unit. 27 * Sec. 7. AS 43.55.025(f) is amended to read: 28 (f) For a production tax credit under this section, 29 (1) an explorer shall, in a form prescribed by the department and 30 within six months of the completion of the exploration activity, claim the credit and 31 submit information sufficient to demonstrate to the department's satisfaction that the
01 claimed exploration expenditures qualify under this section; 02 (2) an explorer shall agree, in writing, 03 (A) to notify the Department of Natural Resources, within 30 04 days after completion of seismic or geophysical data processing, completion of 05 a well, or filing of a claim for credit, whichever is the latest, for which 06 exploration costs are claimed, of the date of completion and submit a report to 07 that department describing the processing sequence and providing a list of data 08 sets available; if, under (c)(2)(B) of this section, an explorer submits a 09 claim for a credit for expenditures for an exploration well that is located 10 within three miles of a well already drilled for oil and gas, in addition to 11 the submissions required under (1) of this subsection, the explorer shall 12 submit the information necessary for the commissioner of natural 13 resources to evaluate the validity of the explorer's claim that the well is 14 directed at a distinctly separate exploration target, and the commissioner 15 of natural resources shall, upon receipt of all evidence sufficient for the 16 commissioner to evaluate the explorer's claim, make that determination 17 within 60 days; 18 (B) to provide to the Department of Natural Resources, within 19 30 days after the date of a request, specific data sets, ancillary data, and reports 20 identified in (A) of this paragraph; 21 (C) that, notwithstanding any provision of AS 38, information 22 provided under this paragraph will be held confidential by the Department of 23 Natural Resources for 10 years following the completion date, at which time 24 that department will release the information after 30 days' public notice; 25 (3) if more than one explorer holds an interest in a well or seismic 26 exploration, each explorer may claim an amount of credit that is proportional to the 27 explorer's cost incurred; 28 (4) the department may exercise the full extent of its powers as though 29 the explorer were a taxpayer under this title, in order to verify that the claimed 30 expenditures are qualified exploration expenditures under this section; and 31 (5) if the department is satisfied that the explorer's claimed
01 expenditures are qualified under this section, the department shall issue to the explorer 02 a production tax credit certificate for the amount of credit to be allowed against 03 production taxes due under this chapter; however, notwithstanding any other 04 provision of this section, the department may not issue to an explorer a 05 production tax credit certificate if the total of production tax credits submitted 06 for Cook Inlet production, based on exploration expenditures for work 07 performed during the period described in (b) of this section for that production, 08 that have been approved by the department exceeds $20,000,000. 09 * Sec. 8. AS 43.55.025(k) is amended to read: 10 (k) In this section, 11 (1) "Cook Inlet production" means oil or gas production from the 12 Cook Inlet sedimentary basin, as that term is defined by regulation adopted to 13 implement AS 38.05.180(f)(4); 14 (2) "Cook Inlet prospect" means a location within the Cook Inlet 15 sedimentary basin, as that term is defined by regulation adopted to implement 16 AS 38.05.180(f)(4); 17 (3) "explorer" means a person who, in exploring for new oil or gas 18 reserves, incurs expenditures. 19 * Sec. 9. This Act takes effect immediately under AS 01.10.070(c).