HB 3004: "An Act relating to oil and gas, and to the oil and gas properties production (severance) tax as it applies to oil; providing for an adjustment to increase the tax collected when oil prices exceed certain amounts and to reduce the tax collected when oil prices fall below $16 per barrel; providing for relief from the tax when the price per barrel is low or when the taxpayer demonstrates that a reduction in the tax is necessary to establish or reestablish production from an oil field or pool that would not otherwise be economically feasible; delaying until July 1, 2016, the deadline for certain exploration expenditures that form the basis for a credit against the tax on oil and gas produced from a lease or property in the state; amending the powers and duties of the Alaska Oil and Gas Conservation Commission; and providing for an effective date."
00 HOUSE BILL NO. 3004 01 "An Act relating to oil and gas, and to the oil and gas properties production (severance) 02 tax as it applies to oil; providing for an adjustment to increase the tax collected when oil 03 prices exceed certain amounts and to reduce the tax collected when oil prices fall below 04 $16 per barrel; providing for relief from the tax when the price per barrel is low or 05 when the taxpayer demonstrates that a reduction in the tax is necessary to establish or 06 reestablish production from an oil field or pool that would not otherwise be 07 economically feasible; delaying until July 1, 2016, the deadline for certain exploration 08 expenditures that form the basis for a credit against the tax on oil and gas produced 09 from a lease or property in the state; amending the powers and duties of the Alaska Oil 10 and Gas Conservation Commission; and providing for an effective date." 11 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 12 * Section 1. AS 31.05.030(d) is amended to read:
01 (d) The commission may require 02 (1) identification of ownership of wells, producing leases, tanks, 03 plants, and drilling structures; 04 (2) the making and filing of reports, well logs, drilling logs, electric 05 logs, lithologic logs, directional surveys, and all other subsurface information on a 06 well drilled for oil or gas, or for the discovery of oil or gas, or for geologic 07 information, and the required reports and information shall be filed within 30 days 08 after the completion, abandonment, or suspension of the well; 09 (3) the drilling, casing, and plugging of wells in a manner that will 10 prevent the escape of oil or gas out of one stratum into another, the intrusion of water 11 into an oil or gas stratum, the pollution of fresh water supplies by oil, gas, or salt 12 water, and prevent blowouts, cavings, seepages and fires; 13 (4) the furnishing of a reasonable bond with sufficient surety 14 conditions for the performance of the duty to plug each dry or abandoned well or the 15 repair of wells causing waste; 16 (5) the operation of wells with efficient gas-oil and water-oil ratios, 17 and may fix these ratios; 18 (6) the gauging or other measuring of oil and gas to determine the 19 quality and quantity of oil and gas; 20 (7) every person who produces oil or gas in the state to keep and 21 maintain for a period of five years in the state complete and accurate records of the 22 quantities of oil and gas produced, which shall be available for examination by the 23 Department of Natural Resources or its agents at all reasonable times; 24 (8) the measuring and monitoring of oil and gas pool pressures; 25 (9) the filing and approval of a plan of development and operation for 26 a field or pool in order to prevent waste, ensure [INSURE] a greater ultimate recovery 27 of oil and gas, and protect the correlative rights of persons owning interests in the 28 tracts of land affected. 29 (10) working interest owners to provide, at cost plus a reasonable 30 rate of return determined under regulations adopted by the commission and 31 without causing substantial injury to the owner, access to production and other
01 facilities whenever necessary; for purposes of this paragraph, the commission's 02 regulations must be consistent with the standards of the Regulatory Commission 03 of Alaska adopted to implement AS 42.05.311(a); the commission may act under 04 this paragraph 05 (A) to 06 (i) maximize the economic and physical recovery of 07 the state's oil and gas resources; 08 (ii) maximize competition among parties seeking to 09 explore and develop the state's oil and gas resources; 10 (iii) minimize the adverse affects of exploration, 11 development, production, and transportation activity; or 12 (iv) otherwise protect the best interest of the state; 13 and 14 (B) only if the commission finds that the facility has excess 15 capacity and that directing the working interest owner to provide access 16 by or for the benefit of others would not materially interfere with the 17 owner's paramount use of the facility. 18 * Sec. 2. AS 36.30.850(b)(33) is amended to read: 19 (33) contracts between the Department of Natural Resources or the 20 Department of Revenue, as appropriate, and contractors qualified to evaluate 21 hydrocarbon development, production, transportation, and economics, to assist the 22 commissioner of natural resources or the commissioner of revenue, as appropriate, 23 in evaluating applications for 24 (A) royalty increases or decreases or other royalty adjustments, 25 and evaluating the related financial and technical data, entered into under 26 AS 38.05.180(j); or 27 (B) tax reductions, and evaluating the related financial and 28 technical data, as authorized by AS 43.55.011(j) and (k); 29 * Sec. 3. AS 43.55.011(a) is amended to read: 30 (a) There is levied upon the producer of oil a tax for all oil produced from 31 each lease or property in the state, less any oil the ownership or right to which is
01 exempt from taxation. The tax is equal to, 02 (1) in the case of North Slope oil, either the percentage-of-value 03 amount calculated under (b)(1) [(b)] of this section or the cents-per-barrel amount 04 calculated under (c)(1) [(c)] of this section, whichever is greater; if [, MULTIPLIED 05 BY THE ECONOMIC LIMIT FACTOR DETERMINED FOR THE OIL 06 PRODUCTION OF THE LEASE OR PROPERTY UNDER AS 43.55.013. IF] the 07 amounts calculated under (b)(1) and (c)(1) [(b) AND (c)] of this section are equal, the 08 amount calculated under (b)(1) [(b)] of this section shall be treated as if it were the 09 greater for purposes of this section; 10 (2) in the case of oil that is not North Slope oil, either the 11 percentage-of-value amount calculated under (b)(2) of this section or the cents- 12 per-barrel amount calculated under (c)(2) of this section, whichever is greater, 13 multiplied by the economic limit factor determined for the oil production of the 14 lease or property under AS 43.55.013; if the amounts calculated under (b)(2) and 15 (c)(2) of this section are equal, the amount calculated under (b)(2) of this section 16 shall be treated as if it were the greater for purposes of this section. 17 * Sec. 4. AS 43.55.011(b) is amended to read: 18 (b) The percentage-of-value amount equals, 19 (1) in the case of North Slope oil, the tax rate set out in (e) of this 20 section multiplied by the gross value at the point of production of taxable oil 21 produced from the lease or property; 22 (2) in the case of oil that is not North Slope oil, [12.25 PERCENT 23 OF THE GROSS VALUE AT THE POINT OF PRODUCTION OF TAXABLE OIL 24 PRODUCED ON OR BEFORE JUNE 30, 1981, FROM THE LEASE OR 25 PROPERTY AND] 15 percent of the gross value at the point of production of taxable 26 oil produced from the lease or property, [AFTER JUNE 30, 1981;] except that [FOR 27 A LEASE OR PROPERTY COMING INTO COMMERCIAL OIL PRODUCTION 28 AFTER JUNE 30, 1981,] the percentage-of-value amount equals 12.25 percent of the 29 gross value at the point of production of taxable oil produced from the lease or 30 property in the first five years after the date that is the start of commercial oil 31 production [AND EQUALS 15 PERCENT OF THE GROSS VALUE AT THE
01 POINT OF PRODUCTION OF TAXABLE OIL PRODUCED THEREAFTER 02 FROM THE LEASE OR PROPERTY]. 03 * Sec. 5. AS 43.55.011(c) is amended to read: 04 (c) The cents-per-barrel amount equals, 05 (1) in the case of North Slope oil, $0.80 per barrel of taxable crude 06 oil produced from the lease or property, as adjusted by AS 43.55.012, multiplied 07 by the economic limit factor determined for oil production of the lease or 08 property under AS 43.55.013 and by the price adjustment factor set out in 09 (e)(2)(D) of this section; 10 (2) in the case of oil that is not North Slope oil, $0.60 per barrel of 11 taxable old crude oil produced from the lease or property, and $0.80 per barrel for all 12 other taxable oil produced from the lease or property, both as adjusted by 13 AS 43.55.012. 14 * Sec. 6. AS 43.55.011 is amended by adding new subsections to read: 15 (e) This subsection and (f) - (l) of this section apply only to North Slope oil. 16 Except as provided in (i) of this section for heavy oil, the tax rate is the lesser of 17 (1) 40 percent; or 18 (2) the product of the volume adjusted tax rate multiplied by the price 19 adjustment factor; for purposes of 20 (A) this paragraph, the volume adjusted tax rate is the 21 adjustment in (f) of this section added to the greater of 22 (i) the applicable tax rate determined under (C) of this 23 paragraph, except that, if during a month in which the average ANS 24 West Coast price per barrel of oil is less than $12, the applicable tax 25 rate is zero and the volume adjusted tax rate is determined only by the 26 application of (ii) of this subparagraph; or 27 (ii) the economic limit factor determined for the oil 28 production of the lease or property under AS 43.55.013 multiplied by 29 the nominal tax rate; 30 (B) subparagraph (A) of this paragraph, the nominal tax rate is 31 (i) 12.25 percent during the first five years from the
01 date that is the start of commercial oil production; and 02 (ii) 15 percent after the first five years from the date 03 that is the start of commercial oil production; 04 (C) sub-subparagraph (A)(i) of this paragraph, during each 05 month in which the average ANS West Coast price per barrel of oil averages 06 (i) at least $16, the applicable rate is five percent; 07 (ii) at least $15, but less than $16, the applicable rate is 08 four percent; 09 (iii) at least $14, but less than $15, the applicable rate is 10 three percent; 11 (iv) at least $13, but less than $14, the applicable rate is 12 two percent; and 13 (v) at least $12, but less than $13, the applicable rate is 14 one percent; and 15 (D) this paragraph and for the purpose of determining the 16 cents-per-barrel amount under (c)(1) of this section, the price adjustment factor 17 is one, except that the price adjustment factor is the average ANS West Coast 18 price per barrel of oil for the month divided by 19 (i) 16 during each month in which the average ANS 20 West Coast price per barrel of oil is less than $16 per barrel; 21 (ii) 20 during each month in which the average ANS 22 West Coast price per barrel of oil is more than $20 per barrel. 23 (f) For the purposes of determining the volume adjusted tax rate in (e)(2)(A) 24 of this section, the tax rate shall be increased by the following amounts when the 25 average ANS West Coast price per barrel of oil is 26 (1) at least $40 but less than $45, one percentage point; 27 (2) at least $45 but less than $50, two percentage points; 28 (3) at least $50 but less than $55, three percentage points; 29 (4) at least $55 but less than $60, four percentage points; 30 (5) at least $60 but less than $65, five percentage points; 31 (6) at least $65 but less than $70, six percentage points.
01 (g) During a month in which the average ANS West Coast price per barrel of 02 oil is less than $10 per barrel, the payment of 03 (1) one-half of the tax due and payable under this chapter is waived; 04 and 05 (2) the remaining one-half of the tax due and payable under this 06 chapter is deferred, subject to the following: 07 (A) the amount of tax payment that is deferred under this 08 paragraph is payable by the taxpayer 09 (i) during each month in which the average ANS West 10 Coast price per barrel of oil is at least $16 per barrel; and 11 (ii) sequentially on a month-for-month basis in the 12 order in which the tax payment was deferred based on payment of one 13 month's deferred tax during each month that the average ANS West 14 Coast price per barrel of oil is at least $16 per barrel; and 15 (B) amounts due and payable because of a payment deferral 16 under this paragraph bear interest at the rate of a 10-year note of the United 17 States treasury at the time of the deferral. 18 (h) Before February 1 of each year, the commissioner shall review the prices 19 described in (e) and (g) of this section and the related denominators set out in 20 (e)(2)(D)(i) and (ii) of this section and recommend to the legislature whether the prices 21 and denominators should be adjusted. 22 (i) Notwithstanding (e) of this section, the tax rate for heavy oil is the volume 23 adjusted tax rate provided in this subsection. The volume adjusted tax rate for heavy 24 oil is determined by multiplying the economic limit factor determined for the oil 25 production of the lease or property under AS 43.55.013 by the tax rate set out in 26 (e)(2)(A)(i) and (ii) of this section. In this subsection, "heavy oil" means oil equal to or 27 less than 20 degrees API gravity. 28 (j) A producer of North Slope oil may apply for a reduction of the tax due 29 under (e), (k), and (l) of this section on the production of North Slope oil 30 (1) if and to the extent that the amount calculated under (A) of this 31 paragraph is greater than the amount calculated under (B) of this paragraph, but a
01 reduction of the tax may not result in collection of tax due under this section that is 02 less than the amount calculated under (B) of this paragraph: 03 (A) the amount of tax on the production of the oil that results 04 from applying the provisions of (e) of this section; 05 (B) the amount of tax on the production of the oil that would 06 result from applying the provisions of (a)(2) and (b)(2) of this section as if the 07 oil were not North Slope oil; and 08 (2) if the commissioner in consultation with the commission of natural 09 resources determines that the application meets the requirements of 10 AS 38.05.180(j)(1)(A), (j)(1)(B), or (j)(1)(C). 11 (k) When the commissioner receives an application under (j) of this section, 12 the commissioner 13 (1) may not approve a tax reduction 14 (A) unless the applicant makes a clear and convincing showing 15 that the tax reduction meets the requirements of (j) of this section and this 16 subsection and is in the best interests of the state; 17 (B) that reduces the amount of the tax recovered to less than the 18 amount determined under (j)(1)(B) of this section; 19 (C) without including an explicit condition that the tax 20 reduction is not assignable without the prior written approval, which may not 21 be unreasonably withheld, of the commissioner; in the preliminary and final 22 findings and determinations prepared under this subsection, the commissioner 23 shall set out the conditions under which the tax reduction may be assigned; 24 (2) shall require the applicant to submit financial and technical data 25 that demonstrate that the requirements of (j) of this section and this subsection are 26 met; the commissioner 27 (A) may require disclosure of only the financial and technical 28 data related to development, production, and transportation of oil and gas or 29 gas only from the field or pool that are reasonably available to the applicant; 30 and 31 (B) shall, at the request of the applicant, keep confidential
01 under AS 38.05.035(a)(9) and AS 43.05.230 the dates described in (A) of this 02 paragraph; the confidential data may be disclosed by the commissioner to 03 legislators and to the legislative auditor and, if authorized by the chair or vice- 04 chair of the Legislative Budget and Audit Committee, to the director of the 05 division of legislative finance, the permanent employees of their respective 06 divisions who are responsible for evaluating a tax reduction, and to agents or 07 contractors of the legislative auditor or the legislative finance director who are 08 engaged under contract to evaluate the tax reduction if each signs an 09 appropriate confidentiality agreement; 10 (3) may require the applicant for the tax reduction under (j) of this 11 section and this subsection to pay for the services of an independent contractor, 12 selected by the applicant from a list of qualified consultants compiled by the 13 commissioner, to evaluate hydrocarbon development, production, transportation, and 14 economics and to assist the commissioner in evaluating the application and financial 15 and technical data; if, under this paragraph, the commissioner requires payment for the 16 services of an independent contractor, the total cost of the services to be paid for by 17 the applicant may not exceed $150,000 for each application, and the commissioner 18 shall determine the relevant scope of the work to be performed by the contractor; 19 selection of an independent contractor under this paragraph is not subject to AS 36.30; 20 (4) shall make and publish a preliminary findings and determination on 21 the tax reduction application, give reasonable public notice of the preliminary findings 22 and determination, and invite public comment on the preliminary findings and 23 determination during a 30-day period for receipt of public comment; 24 (5) shall offer to appear before the Legislative Budget and Audit 25 Committee, on a day that is not earlier than 10 days and not later than 20 days after 26 giving public notice under (4) of this subsection, to provide the committee a review of 27 the commissioner's preliminary findings and determination on the tax reduction 28 application and administrative process; if the Legislative Budget and Audit Committee 29 accepts the commissioner's offer, the committee shall give notice of the committee's 30 meeting to all members of the legislature; 31 (6) shall make copies of the preliminary findings and determination
01 available to 02 (A) the presiding officer of each house of the legislature; 03 (B) the chairs of the legislature's standing committees on 04 resources; and 05 (C) the chairs of the legislature's special committees on oil and 06 gas, if any; and 07 (7) shall, within 30 days after the close of the public comment period 08 under (4) of this subsection, 09 (A) prepare a summary of the public response to the 10 commissioner's preliminary findings and determination; 11 (B) make a final findings and determination; the 12 commissioner's final findings and determination prepared under this 13 subparagraph regarding a tax reduction is final and not appealable to the court; 14 (C) transmit a copy of the final findings and determination to 15 the lessee; and 16 (D) make copies of the final findings and determination 17 available to each person who submitted comment under (4) of this subsection 18 and who has filed a request for the copies. 19 (l) In this section, "North Slope oil" means oil produced from a portion of a 20 reservoir located north of 68 degrees North latitude. 21 * Sec. 7. AS 43.55.012(b) is amended to read: 22 (b) The cents-per-barrel amount set out in AS 43.55.011(c)(1) and (2) 23 [AS 43.55.011(c)] applies to oil of 27 degrees API gravity. For each degree of API 24 gravity less than 27 degrees, the cents-per-barrel amount shall be reduced by $.005 25 and for each degree of API gravity greater than 27 degrees the cents-per-barrel amount 26 shall be increased by $.005 except that oil above 40 degrees API gravity shall be taxed 27 as 40 degree oil. In applying the gravity adjustment under this subsection, fractional 28 degrees of API gravity shall be disregarded. 29 * Sec. 8. AS 43.55.025(b) is amended to read: 30 (b) To qualify for the production tax credit under (a) of this section, an 31 exploration expenditure must be incurred for work performed on or after July 1, 2003,
01 and before July 1, 2016 [2007], except that an exploration expenditure for a Cook Inlet 02 prospect must be incurred for work performed on or after July 1, 2005, [AND 03 BEFORE JULY 1, 2010, AND EXCEPT THAT AN EXPLORATION 04 EXPENDITURE, IN WHOLE OR IN PART, SOUTH OF 68 DEGREES, 15 05 MINUTES, NORTH LATITUDE, AND NOT PART OF A COOK INLET 06 PROSPECT MUST BE INCURRED FOR WORK PERFORMED ON OR AFTER 07 JULY 1, 2003, AND BEFORE JULY 1, 2010,] and 08 (1) may be for seismic or geophysical exploration costs not connected 09 with a specific well; 10 (2) if for an exploration well, 11 (A) must be incurred by an explorer that holds an interest in the 12 exploration well for which the production tax credit is claimed; 13 (B) may be for either an oil or gas discovery well or a dry hole; 14 and 15 (C) must be for goods, services, or rentals of personal property 16 reasonably required for the surface preparation, drilling, casing, cementing, 17 and logging of an exploration well, and, in the case of a dry hole, for the 18 expenses required for abandonment if the well is abandoned within 18 months 19 after the date the well was spudded; 20 (3) may not be for testing, stimulation, or completion costs; 21 administration, supervision, engineering, or lease operating costs; geological or 22 management costs; community relations or environmental costs; bonuses, taxes, or 23 other payments to governments related to the well; or other costs that are generally 24 recognized as indirect costs or financing costs; and 25 (4) may not be incurred for an exploration well or seismic exploration 26 that is included in a plan of exploration or a plan of development for any unit on 27 May 13, 2003. 28 * Sec. 9. The uncodified law of the State of Alaska is amended by adding a new section to 29 read: 30 RETROACTIVITY. Sections 3 - 8 of this Act are retroactive to January 1, 2006, and 31 apply to oil produced after December 31, 2005.
01 * Sec. 10. This Act takes effect immediately under AS 01.10.070(c).