Alaska State Legislature

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SCS 2d CSHB 247(FIN) am S: "An Act relating to the exploration incentive credits; relating to the powers and duties of the Alaska Oil and Gas Conservation Commission; relating to interest applicable to delinquent tax; relating to the oil and gas production tax, tax payments, and credits; relating to tax credit certificates; relating to refunds for the gas storage facility tax credit, the liquefied natural gas storage facility tax credit, and the qualified in-state oil refinery infrastructure expenditures tax credit; relating to oil and gas lease expenditures and production tax credits for municipal entities; requiring a bond or cash deposit with a business license application for an oil or gas business; and providing for an effective date."

00 SENATE CS FOR 2d CS FOR HOUSE BILL NO. 247(FIN) am S 01 "An Act relating to the exploration incentive credits; relating to the powers and duties 02 of the Alaska Oil and Gas Conservation Commission; relating to interest applicable to 03 delinquent tax; relating to the oil and gas production tax, tax payments, and credits; 04 relating to tax credit certificates; relating to refunds for the gas storage facility tax 05 credit, the liquefied natural gas storage facility tax credit, and the qualified in-state oil 06 refinery infrastructure expenditures tax credit; relating to oil and gas lease expenditures 07 and production tax credits for municipal entities; requiring a bond or cash deposit with 08 a business license application for an oil or gas business; and providing for an effective 09 date." 10 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 11 * Section 1. AS 31.05.030 is amended by adding a new subsection to read: 12 (n) Upon request of the commissioner of revenue, the commission shall

01 determine the commencement of regular production from a lease or property for 02 purposes of AS 43.55.160(f) and (g). 03 * Sec. 2. AS 38.05.036(a) is amended to read: 04 (a) The department may conduct audits regarding royalty and net profits under 05 oil and gas contracts, agreements, or leases under this chapter and regarding costs 06 related to exploration licenses entered into under AS 38.05.131 - 38.05.134 and 07 exploration incentive credits under this chapter [OR UNDER AS 41.09]. For purposes 08 of an audit under this section, 09 (1) the department may examine the books, papers, records, or 10 memoranda of a person regarding matters related to the audit; and 11 (2) the records and premises where a business is conducted shall be 12 open at all reasonable times for inspection by the department. 13 * Sec. 3. AS 38.05.036(b) is amended to read: 14 (b) The Department of Revenue may obtain from the department information 15 relating to royalty and net profits payments and to exploration incentive credits under 16 this chapter [OR UNDER AS 41.09], whether or not that information is confidential. 17 The Department of Revenue may use the information in carrying out its functions and 18 responsibilities under AS 43, and shall hold that information confidential to the extent 19 required by an agreement with the department or by AS 38.05.035(a)(8) [, 20 AS 41.09.010(d),] or AS 43.05.230. 21 * Sec. 4. AS 38.05.036(c) is amended to read: 22 (c) The department may obtain from the Department of Revenue all 23 information obtained under AS 43 relating to royalty and net profits and to exploration 24 incentive credits. The department may use the information for purposes of carrying out 25 its responsibilities and functions under this chapter [AND AS 41.09]. Information 26 made available to the department that was obtained under AS 43 is confidential and 27 subject to the provisions of AS 43.05.230. 28 * Sec. 5. AS 38.05.036(f) is amended to read: 29 (f) Except as otherwise provided in this section or in connection with official 30 investigations or proceedings of the department, it is unlawful for a current or former 31 officer, employee, or agent of the state to divulge information obtained by the

01 department as a result of an audit under this section that is required by an agreement 02 with the department or by AS 38.05.035(a)(8) [OR AS 41.09.010(d)] to be kept 03 confidential. 04 * Sec. 6. AS 38.05.036(g) is amended to read: 05 (g) Nothing in this section prohibits the publication of statistics in a manner 06 that maintains the confidentiality of information to the extent required by an 07 agreement with the department or by AS 38.05.035(a)(8) [OR AS 41.09.010(d)]. 08 * Sec. 7. AS 40.25.100(a) is amended to read: 09 (a) Information in the possession of the Department of Revenue that discloses 10 the particulars of the business or affairs of a taxpayer or other person, including 11 information under AS 38.05.020(b)(11) that is subject to a confidentiality agreement 12 under AS 38.05.020(b)(12), is not a matter of public record, except as provided in 13 AS 43.05.230(i) - (l) [AS 43.05.230(i) OR (k)] or for purposes of investigation and 14 law enforcement. The information shall be kept confidential except when its 15 production is required in an official investigation, administrative adjudication under 16 AS 43.05.405 - 43.05.499, or court proceeding. These restrictions do not prohibit the 17 publication of statistics presented in a manner that prevents the identification of 18 particular reports and items, prohibit the publication of tax lists showing the names of 19 taxpayers who are delinquent and relevant information that may assist in the collection 20 of delinquent taxes, or prohibit the publication of records, proceedings, and decisions 21 under AS 43.05.405 - 43.05.499. 22 * Sec. 8. AS 43.05.225 is amended to read: 23 Sec. 43.05.225. Interest. Unless otherwise provided, 24 (1) a delinquent tax [UNDER THIS TITLE,] 25 (A) under this title, before January 1, 2014, bears interest in 26 each calendar quarter at the rate of five percentage points above the annual rate 27 charged member banks for advances by the 12th Federal Reserve District as of 28 the first day of that calendar quarter, or at the annual rate of 11 percent, 29 whichever is greater, compounded quarterly as of the last day of that quarter; 30 [OR] 31 (B) under this title, on and after January 1, 2014, except as

01 provided in (C) of this paragraph, bears interest in each calendar quarter at 02 the rate of three percentage points above the annual rate charged member 03 banks for advances by the 12th Federal Reserve District as of the first day of 04 that calendar quarter; 05 (C) under AS 43.55, on and after January 1, 2017, 06 (i) for the first three years after a tax becomes 07 delinquent, bears interest in each calendar quarter at the rate of 08 seven percentage points above the annual rate charged member 09 banks for advances by the 12th Federal Reserve District as of the 10 first day of that calendar quarter, compounded quarterly as of the 11 last day of that quarter; and 12 (ii) after the first three years after a tax becomes 13 delinquent, does not bear interest; 14 (2) the interest rate is 12 percent a year for 15 (A) delinquent fees payable under AS 05.15.095(c); and 16 (B) unclaimed property that is not timely paid or delivered, as 17 allowed by AS 34.45.470(a). 18 * Sec. 9. AS 43.05.230 is amended by adding a new subsection to read: 19 (l) For tax credit certificates purchased by the department in the preceding 20 calendar year under AS 43.55.028, the department shall make the aggregate amount of 21 tax credits purchased under each statutory section or subsection, as applicable, 22 classified to prevent the identification of a particular taxpayer public by April 30 of 23 each year. 24 * Sec. 10. AS 43.20.046(e) is amended to read: 25 (e) Subject to the requirements in AS 43.55.028(j), the [THE] department 26 may use available money in the oil and gas tax credit fund established in AS 43.55.028 27 to make the refund applied for under (d) of this section in whole or in part if the 28 department finds that, [(1) THE CLAIMANT DOES NOT HAVE AN 29 OUTSTANDING LIABILITY TO THE STATE FOR UNPAID DELINQUENT 30 TAXES UNDER THIS TITLE; AND (2)] after application of all available tax credits, 31 the claimant's total tax liability under this chapter for the calendar year in which the

01 claim is made is zero. [IN THIS SUBSECTION, "UNPAID DELINQUENT TAX" 02 MEANS AN AMOUNT OF TAX FOR WHICH THE DEPARTMENT HAS ISSUED 03 AN ASSESSMENT THAT HAS NOT BEEN PAID AND, IF CONTESTED, HAS 04 NOT BEEN FINALLY RESOLVED IN THE TAXPAYER'S FAVOR.] 05 * Sec. 11. AS 43.20.047(e) is amended to read: 06 (e) Subject to the requirements in AS 43.55.028(j), the [THE] department 07 may use money available in the oil and gas tax credit fund established in AS 43.55.028 08 to make a refund or payment under (d) of this section in whole or in part if the 09 department finds that, [(1) THE CLAIMANT DOES NOT HAVE AN 10 OUTSTANDING LIABILITY TO THE STATE FOR UNPAID DELINQUENT 11 TAXES UNDER THIS TITLE; AND (2)] after application of all available tax credits, 12 the claimant's total tax liability under this chapter for the calendar year in which the 13 claim is made is zero. [IN THIS SUBSECTION, "UNPAID DELINQUENT TAX" 14 MEANS AN AMOUNT OF TAX FOR WHICH THE DEPARTMENT HAS ISSUED 15 AN ASSESSMENT THAT HAS NOT BEEN PAID AND, IF CONTESTED, HAS 16 NOT BEEN FINALLY RESOLVED IN THE TAXPAYER'S FAVOR.] 17 * Sec. 12. AS 43.20.053(a) is amended to read: 18 (a) A taxpayer that owns an in-state oil refinery whose primary function is the 19 manufacturing and sale of refined petroleum products to third parties in arm's length 20 transactions may apply a credit against the tax due under this chapter for a qualified 21 infrastructure expenditure incurred in the state. For [FOR] a tax year beginning after 22 December 31, 2014, and before January 1, 2017, the [JANUARY 1, 2020. THE] total 23 amount of credit a taxpayer may receive under this section may not exceed the lesser 24 of 40 percent of qualified infrastructure expenditures incurred in the state during the 25 tax year or $10,000,000 for each in-state refinery for which qualified expenditures are 26 incurred. For a tax year beginning after December 31, 2016, and before 27 January 1, 2018, the total amount of credit a taxpayer may receive under this 28 section may not exceed the lesser of 20 percent of qualified infrastructure 29 expenditures incurred in the state during the tax year or $5,000,000 for each in- 30 state refinery for which qualified expenditures are incurred. 31 * Sec. 13. AS 43.20.053(e) is amended to read:

01 (e) Subject to the requirements in AS 43.55.028(j), the [THE] department 02 may use money available in the oil and gas tax credit fund established in AS 43.55.028 03 to make a refund or payment under (d) of this section in whole or in part if the 04 department finds that, 05 [(1) THE CLAIMANT DOES NOT HAVE AN OUTSTANDING 06 LIABILITY TO THE STATE FOR UNPAID DELINQUENT TAXES UNDER THIS 07 TITLE; AND 08 (2)] after application of all available tax credits, the claimant's total tax 09 liability under this chapter for the calendar year in which the claim is made is zero. 10 * Sec. 14. AS 43.55.011(j) is amended to read: 11 (j) For a calendar year [BEFORE 2022], the tax levied by (e) of this section 12 for gas produced from a lease or property in the Cook Inlet sedimentary basin may not 13 exceed 14 (1) for a lease or property that first commenced commercial production 15 of gas before April 1, 2006, the product obtained by multiplying (A) the amount of 16 taxable gas produced during the calendar year from the lease or property, times (B) the 17 average rate of tax that was imposed under this chapter for taxable gas produced from 18 the lease or property for the 12-month period ending on March 31, 2006, times (C) the 19 quotient obtained by dividing the total gross value at the point of production of the 20 taxable gas produced from the lease or property during the 12-month period ending on 21 March 31, 2006, by the total amount of that gas; 22 (2) for a lease or property that first commences commercial production 23 of gas after March 31, 2006, the product obtained by multiplying (A) the amount of 24 taxable gas produced during the calendar year from the lease or property, times (B) the 25 average rate of tax that was imposed under this chapter for taxable gas produced from 26 all leases or properties in the Cook Inlet sedimentary basin for the 12-month period 27 ending on March 31, 2006, times (C) the average prevailing value for gas delivered in 28 the Cook Inlet area for the 12-month period ending March 31, 2006, as determined by 29 the department under AS 43.55.020(f). 30 * Sec. 15. AS 43.55.011(k) is amended to read: 31 (k) For a calendar year [BEFORE 2022], the tax levied by (e) of this section

01 may not exceed one dollar per barrel of oil for oil produced from a lease or property 02 in the Cook Inlet sedimentary basin [MAY NOT EXCEED 03 (1) FOR A LEASE OR PROPERTY THAT FIRST COMMENCED 04 COMMERCIAL PRODUCTION OF OIL BEFORE APRIL 1, 2006, THE PRODUCT 05 OBTAINED BY MULTIPLYING (A) THE AMOUNT OF TAXABLE OIL 06 PRODUCED DURING THE CALENDAR YEAR FROM THE LEASE OR 07 PROPERTY, TIMES (B) THE AVERAGE RATE OF TAX THAT WAS IMPOSED 08 UNDER THIS CHAPTER FOR TAXABLE OIL PRODUCED FROM THE LEASE 09 OR PROPERTY FOR THE 12-MONTH PERIOD ENDING ON MARCH 31, 2006, 10 TIMES (C) THE QUOTIENT OBTAINED BY DIVIDING THE TOTAL GROSS 11 VALUE AT THE POINT OF PRODUCTION OF THE TAXABLE OIL PRODUCED 12 FROM THE LEASE OR PROPERTY DURING THE 12-MONTH PERIOD 13 ENDING ON MARCH 31, 2006, BY THE TOTAL AMOUNT OF THAT OIL; 14 (2) FOR A LEASE OR PROPERTY THAT FIRST COMMENCES 15 COMMERCIAL PRODUCTION OF OIL AFTER MARCH 31, 2006, THE 16 PRODUCT OBTAINED BY MULTIPLYING (A) THE AMOUNT OF TAXABLE 17 OIL PRODUCED DURING THE CALENDAR YEAR FROM THE LEASE OR 18 PROPERTY, TIMES (B) THE AVERAGE RATE OF TAX THAT WAS IMPOSED 19 UNDER THIS CHAPTER FOR TAXABLE OIL PRODUCED FROM ALL LEASES 20 OR PROPERTIES IN THE COOK INLET SEDIMENTARY BASIN FOR THE 12- 21 MONTH PERIOD ENDING ON MARCH 31, 2006, TIMES (C) THE AVERAGE 22 PREVAILING VALUE FOR OIL PRODUCED AND DELIVERED IN THE COOK 23 INLET AREA FOR THE 12-MONTH PERIOD ENDING ON MARCH 31, 2006, AS 24 DETERMINED BY THE DEPARTMENT UNDER AS 43.55.020(f)]. 25 * Sec. 16. AS 43.55.011(o) is amended to read: 26 (o) Notwithstanding other provisions of this section, for a calendar year 27 [BEFORE 2022], the tax levied under (e) of this section for each 1,000 cubic feet of 28 gas for gas produced from a lease or property outside the Cook Inlet sedimentary basin 29 and used in the state, other than gas subject to (p) of this section, may not exceed the 30 amount of tax for each 1,000 cubic feet of gas that is determined under (j)(2) of this 31 section.

01 * Sec. 17. AS 43.55.020(a) is amended to read: 02 (a) For a calendar year, a producer subject to tax under AS 43.55.011 shall pay 03 the tax as follows: 04 (1) for oil and gas produced before January 1, 2014, an installment 05 payment of the estimated tax levied by AS 43.55.011(e), net of any tax credits applied 06 as allowed by law, is due for each month of the calendar year on the last day of the 07 following month; except as otherwise provided under (2) of this subsection, the 08 amount of the installment payment is the sum of the following amounts, less 1/12 of 09 the tax credits that are allowed by law to be applied against the tax levied by 10 AS 43.55.011(e) for the calendar year, but the amount of the installment payment may 11 not be less than zero: 12 (A) for oil and gas not subject to AS 43.55.011(o) or (p) 13 produced from leases or properties in the state outside the cook inlet 14 sedimentary basin, other than leases or properties subject to AS 43.55.011(f), 15 the greater of 16 (i) zero; or 17 (ii) the sum of 25 percent and the tax rate calculated for 18 the month under AS 43.55.011(g) multiplied by the remainder obtained 19 by subtracting 1/12 of the producer's adjusted lease expenditures for the 20 calendar year of production under AS 43.55.165 and 43.55.170 that are 21 deductible for the oil and gas under AS 43.55.160 from the gross value 22 at the point of production of the oil and gas produced from the leases or 23 properties during the month for which the installment payment is 24 calculated; 25 (B) for oil and gas produced from leases or properties subject 26 to AS 43.55.011(f), the greatest of 27 (i) zero; 28 (ii) zero percent, one percent, two percent, three 29 percent, or four percent, as applicable, of the gross value at the point of 30 production of the oil and gas produced from the leases or properties 31 during the month for which the installment payment is calculated; or

01 (iii) the sum of 25 percent and the tax rate calculated for 02 the month under AS 43.55.011(g) multiplied by the remainder obtained 03 by subtracting 1/12 of the producer's adjusted lease expenditures for the 04 calendar year of production under AS 43.55.165 and 43.55.170 that are 05 deductible for the oil and gas under AS 43.55.160 from the gross value 06 at the point of production of the oil and gas produced from those leases 07 or properties during the month for which the installment payment is 08 calculated; 09 (C) for oil or gas subject to AS 43.55.011(j), (k), or (o), for 10 each lease or property, the greater of 11 (i) zero; or 12 (ii) the sum of 25 percent and the tax rate calculated for 13 the month under AS 43.55.011(g) multiplied by the remainder obtained 14 by subtracting 1/12 of the producer's adjusted lease expenditures for the 15 calendar year of production under AS 43.55.165 and 43.55.170 that are 16 deductible under AS 43.55.160 for the oil or gas, respectively, 17 produced from the lease or property from the gross value at the point of 18 production of the oil or gas, respectively, produced from the lease or 19 property during the month for which the installment payment is 20 calculated; 21 (D) for oil and gas subject to AS 43.55.011(p), the lesser of 22 (i) the sum of 25 percent and the tax rate calculated for 23 the month under AS 43.55.011(g) multiplied by the remainder obtained 24 by subtracting 1/12 of the producer's adjusted lease expenditures for the 25 calendar year of production under AS 43.55.165 and 43.55.170 that are 26 deductible for the oil and gas under AS 43.55.160 from the gross value 27 at the point of production of the oil and gas produced from the leases or 28 properties during the month for which the installment payment is 29 calculated, but not less than zero; or 30 (ii) four percent of the gross value at the point of 31 production of the oil and gas produced from the leases or properties

01 during the month, but not less than zero; 02 (2) an amount calculated under (1)(C) of this subsection for oil or gas 03 subject to AS 43.55.011(j), (k), or (o) may not exceed the product obtained by 04 carrying out the calculation set out in AS 43.55.011(j)(1) or (2) or 43.55.011(o), as 05 applicable, for gas or set out in AS 43.55.011(k)(1) or (2), as applicable, for oil, but 06 substituting in AS 43.55.011(j)(1)(A) or (2)(A) or 43.55.011(o), as applicable, the 07 amount of taxable gas produced during the month for the amount of taxable gas 08 produced during the calendar year and substituting in AS 43.55.011(k)(1)(A) or 09 (2)(A), as applicable, the amount of taxable oil produced during the month for the 10 amount of taxable oil produced during the calendar year; 11 (3) an installment payment of the estimated tax levied by 12 AS 43.55.011(i) for each lease or property is due for each month of the calendar year 13 on the last day of the following month; the amount of the installment payment is the 14 sum of 15 (A) the applicable tax rate for oil provided under 16 AS 43.55.011(i), multiplied by the gross value at the point of production of the 17 oil taxable under AS 43.55.011(i) and produced from the lease or property 18 during the month; and 19 (B) the applicable tax rate for gas provided under 20 AS 43.55.011(i), multiplied by the gross value at the point of production of the 21 gas taxable under AS 43.55.011(i) and produced from the lease or property 22 during the month; 23 (4) any amount of tax levied by AS 43.55.011, net of any credits 24 applied as allowed by law, that exceeds the total of the amounts due as installment 25 payments of estimated tax is due on March 31 of the year following the calendar year 26 of production; 27 (5) for oil and gas produced on and after January 1, 2014, and before 28 January 1, 2022, an installment payment of the estimated tax levied by 29 AS 43.55.011(e), net of any tax credits applied as allowed by law, is due for each 30 month of the calendar year on the last day of the following month; except as otherwise 31 provided under (6) of this subsection, the amount of the installment payment is the

01 sum of the following amounts, less 1/12 of the tax credits that are allowed by law to be 02 applied against the tax levied by AS 43.55.011(e) for the calendar year, but the amount 03 of the installment payment may not be less than zero: 04 (A) for oil and gas not subject to AS 43.55.011(o) or (p) 05 produced from leases or properties in the state outside the Cook Inlet 06 sedimentary basin, other than leases or properties subject to AS 43.55.011(f), 07 the greater of 08 (i) zero; or 09 (ii) 35 percent multiplied by the remainder obtained by 10 subtracting 1/12 of the producer's adjusted lease expenditures for the 11 calendar year of production under AS 43.55.165 and 43.55.170 that are 12 deductible for the oil and gas under AS 43.55.160 from the gross value 13 at the point of production of the oil and gas produced from the leases or 14 properties during the month for which the installment payment is 15 calculated; 16 (B) for oil and gas produced from leases or properties subject 17 to AS 43.55.011(f), the greatest of 18 (i) zero; 19 (ii) zero percent, one percent, two percent, three 20 percent, or four percent, as applicable, of the gross value at the point of 21 production of the oil and gas produced from the leases or properties 22 during the month for which the installment payment is calculated; or 23 (iii) 35 percent multiplied by the remainder obtained by 24 subtracting 1/12 of the producer's adjusted lease expenditures for the 25 calendar year of production under AS 43.55.165 and 43.55.170 that are 26 deductible for the oil and gas under AS 43.55.160 from the gross value 27 at the point of production of the oil and gas produced from those leases 28 or properties during the month for which the installment payment is 29 calculated, except that, for the purposes of this calculation, a reduction 30 from the gross value at the point of production may apply for oil and 31 gas subject to AS 43.55.160(f) or (g);

01 (C) for oil or gas subject to AS 43.55.011(j), (k), or (o), for 02 each lease or property, the greater of 03 (i) zero; or 04 (ii) 35 percent multiplied by the remainder obtained by 05 subtracting 1/12 of the producer's adjusted lease expenditures for the 06 calendar year of production under AS 43.55.165 and 43.55.170 that are 07 deductible under AS 43.55.160 for the oil or gas, respectively, 08 produced from the lease or property from the gross value at the point of 09 production of the oil or gas, respectively, produced from the lease or 10 property during the month for which the installment payment is 11 calculated; 12 (D) for oil and gas subject to AS 43.55.011(p), the lesser of 13 (i) 35 percent multiplied by the remainder obtained by 14 subtracting 1/12 of the producer's adjusted lease expenditures for the 15 calendar year of production under AS 43.55.165 and 43.55.170 that are 16 deductible for the oil and gas under AS 43.55.160 from the gross value 17 at the point of production of the oil and gas produced from the leases or 18 properties during the month for which the installment payment is 19 calculated, but not less than zero; or 20 (ii) four percent of the gross value at the point of 21 production of the oil and gas produced from the leases or properties 22 during the month, but not less than zero; 23 (6) an amount calculated under (5)(C) of this subsection for oil or gas 24 subject to AS 43.55.011(j), (k), or (o) may not exceed the product obtained by 25 carrying out the calculation set out in AS 43.55.011(j)(1) or (2) or 43.55.011(o), as 26 applicable, for gas or set out in AS 43.55.011(k)(1) or (2), as applicable, for oil, but 27 substituting in AS 43.55.011(j)(1)(A) or (2)(A) or 43.55.011(o), as applicable, the 28 amount of taxable gas produced during the month for the amount of taxable gas 29 produced during the calendar year and substituting in AS 43.55.011(k)(1)(A) or 30 (2)(A), as applicable, the amount of taxable oil produced during the month for the 31 amount of taxable oil produced during the calendar year;

01 (7) for oil and gas produced on or after January 1, 2022, an installment 02 payment of the estimated tax levied by AS 43.55.011(e), net of any tax credits applied 03 as allowed by law, is due for each month of the calendar year on the last day of the 04 following month; except as otherwise provided under (10) of this subsection, the 05 amount of the installment payment is the sum of the following amounts, less 1/12 of 06 the tax credits that are allowed by law to be applied against the tax levied by 07 AS 43.55.011(e) for the calendar year, but the amount of the installment payment may 08 not be less than zero: 09 (A) for oil produced from leases or properties subject to 10 AS 43.55.011(f) [THAT INCLUDE LAND NORTH OF 68 DEGREES 11 NORTH LATITUDE], the greatest of 12 (i) zero; 13 (ii) zero percent, one percent, two percent, three 14 percent, or four percent, as applicable, of the gross value at the point of 15 production of the oil produced from the leases or properties during the 16 month for which the installment payment is calculated; or 17 (iii) 35 percent multiplied by the remainder obtained by 18 subtracting 1/12 of the producer's adjusted lease expenditures for the 19 calendar year of production under AS 43.55.165 and 43.55.170 that are 20 deductible for the oil under AS 43.55.160(h)(1) from the gross value at 21 the point of production of the oil produced from those leases or 22 properties during the month for which the installment payment is 23 calculated, except that, for the purposes of this calculation, a reduction 24 from the gross value at the point of production may apply for oil 25 subject to AS 43.55.160(f) or 43.55.160(f) and (g); 26 (B) for oil produced before or during the last calendar year 27 under AS 43.55.024(b) for which the producer could take a tax credit under 28 AS 43.55.024(a), from leases or properties in the state outside the Cook Inlet 29 sedimentary basin, no part of which is north of 68 degrees North latitude, other 30 than leases or properties subject to AS 43.55.011(o) or (p) [AS 43.55.011(p)], 31 the greater of

01 (i) zero; or 02 (ii) 35 percent multiplied by the remainder obtained by 03 subtracting 1/12 of the producer's adjusted lease expenditures for the 04 calendar year of production under AS 43.55.165 and 43.55.170 that are 05 deductible for the oil under AS 43.55.160(h)(2) from the gross value at 06 the point of production of the oil produced from the leases or properties 07 during the month for which the installment payment is calculated; 08 (C) for oil and gas produced from leases or properties subject 09 to AS 43.55.011(p), except as otherwise provided under (8) of this subsection, 10 the sum of 11 (i) 35 percent multiplied by the remainder obtained by 12 subtracting 1/12 of the producer's adjusted lease expenditures for the 13 calendar year of production under AS 43.55.165 and 43.55.170 that are 14 deductible for the oil under AS 43.55.160(h)(3) from the gross value at 15 the point of production of the oil produced from the leases or properties 16 during the month for which the installment payment is calculated, but 17 not less than zero; and 18 (ii) 13 percent of the gross value at the point of 19 production of the gas produced from the leases or properties during the 20 month, but not less than zero; 21 (D) for oil produced from leases or properties in the state, no 22 part of which is north of 68 degrees North latitude, other than leases or 23 properties subject to (B), [OR] (C), or (F) of this paragraph, the greater of 24 (i) zero; or 25 (ii) 35 percent multiplied by the remainder obtained by 26 subtracting 1/12 of the producer's adjusted lease expenditures for the 27 calendar year of production under AS 43.55.165 and 43.55.170 that are 28 deductible for the oil under AS 43.55.160(h)(4) from the gross value at 29 the point of production of the oil produced from the leases or properties 30 during the month for which the installment payment is calculated; 31 (E) for gas produced from each lease or property in the state

01 outside the Cook Inlet sedimentary basin, other than a lease or property 02 subject to AS 43.55.011(o) or (p) [AS 43.55.011(p)], 13 percent of the gross 03 value at the point of production of the gas produced from the lease or property 04 during the month for which the installment payment is calculated, but not less 05 than zero; 06 (F) for oil subject to AS 43.55.011(k), for each lease or 07 property, the greater of 08 (i) zero; or 09 (ii) 35 percent multiplied by the remainder obtained 10 by subtracting 1/12 of the producer's adjusted lease expenditures 11 for the calendar year of production under AS 43.55.165 and 12 43.55.170 that are deductible under AS 43.55.160 for the oil, 13 produced from the lease or property from the gross value at the 14 point of production of the oil, produced from the lease or property 15 during the month for which the installment payment is calculated; 16 (G) for gas subject to AS 43.55.011(j) or (o), for each lease 17 or property, the greater of 18 (i) zero; or 19 (ii) 13 percent of the gross value at the point of 20 production of the gas produced from the lease or property during 21 the month for which the installment payment is calculated; 22 (8) an amount calculated under (7)(C) of this subsection may not 23 exceed four percent of the gross value at the point of production of the oil and gas 24 produced from leases or properties subject to AS 43.55.011(p) during the month for 25 which the installment payment is calculated; 26 (9) for purposes of the calculation under (1)(B)(ii), (5)(B)(ii), and 27 (7)(A)(ii) of this subsection, the applicable percentage of the gross value at the point 28 of production is determined under AS 43.55.011(f)(1) or (2) but substituting the 29 phrase "month for which the installment payment is calculated" in AS 43.55.011(f)(1) 30 and (2) for the phrase "calendar year for which the tax is due"; 31 (10) an amount calculated under (7)(F) or (G) of this subsection

01 for oil or gas subject to AS 43.55.011(j), (k), or (o) may not exceed the product 02 obtained by carrying out the calculation set out in AS 43.55.011(j)(1) or (2) or 03 43.55.011(o), as applicable, for gas, or set out in AS 43.55.011(k)(1) or (2), as 04 applicable, for oil, but substituting in AS 43.55.011(j)(1)(A) or (2)(A) or 05 43.55.011(o), as applicable, the amount of taxable gas produced during the month 06 for the amount of taxable gas produced during the calendar year and substituting 07 in AS 43.55.011(k)(1)(A) or (2)(A), as applicable, the amount of taxable oil 08 produced during the month for the amount of taxable oil produced during the 09 calendar year. ["] 10 * Sec. 18. AS 43.55.023(a) is amended to read: 11 (a) A producer or explorer may take a tax credit for a qualified capital 12 expenditure as follows: 13 (1) notwithstanding that a qualified capital expenditure may be a 14 deductible lease expenditure for purposes of calculating the production tax value of oil 15 and gas under AS 43.55.160(a), unless a credit for that expenditure is taken under 16 [AS 38.05.180(i), AS 41.09.010,] AS 43.20.043 [,] or AS 43.55.025, a producer or 17 explorer that incurs a qualified capital expenditure may also elect to apply a tax credit 18 against a tax levied by AS 43.55.011(e) in the amount of 10 [20] percent of that 19 expenditure; 20 (2) a producer or explorer may take a credit for a qualified capital 21 expenditure incurred in connection with geological or geophysical exploration or in 22 connection with an exploration well only if the producer or explorer 23 (A) agrees, in writing, to the applicable provisions of 24 AS 43.55.025(f)(2); and 25 (B) submits to the Department of Natural Resources all data 26 that would be required to be submitted under AS 43.55.025(f)(2); 27 (3) a credit for a qualified capital expenditure incurred to explore for, 28 develop, or produce oil or gas deposits located 29 (A) north of 68 degrees North latitude may be taken only if the 30 expenditure is incurred before January 1, 2014; 31 (B) in the Cook Inlet sedimentary basin may be taken only

01 if the expenditure is incurred before January 1, 2018. 02 * Sec. 19. AS 43.55.023(b) is amended to read: 03 (b) Before January 1, 2014, a producer or explorer may elect to take a tax 04 credit in the amount of 25 percent of a carried-forward annual loss. For lease 05 expenditures incurred on and after January 1, 2014, and before January 1, 2016, to 06 explore for, develop, or produce oil or gas deposits located north of 68 degrees North 07 latitude, a producer or explorer may elect to take a tax credit in the amount of 45 08 percent of a carried-forward annual loss. For lease expenditures incurred on and after 09 January 1, 2016, to explore for, develop, or produce oil or gas deposits located north 10 of 68 degrees North latitude, a producer or explorer may elect to take a tax credit in 11 the amount of 35 percent of a carried-forward annual loss. For lease expenditures 12 incurred on or after January 1, 2014, and before January 1, 2017, to explore for, 13 develop, or produce oil or gas deposits located south of 68 degrees North latitude, a 14 producer or explorer may elect to take a tax credit in the amount of 25 percent of a 15 carried-forward annual loss. For lease expenditures incurred on or after January 1, 16 2017, to explore for, develop, or produce oil or gas deposits located south of 68 17 degrees North latitude, a producer or explorer may elect to take a tax credit in 18 the amount of 15 percent of a carried-forward annual loss, except that a credit 19 for lease expenditures incurred to explore for, develop, or produce oil or gas 20 deposits located in the Cook Inlet sedimentary basin may only be taken if the 21 expenditure is incurred before January 1, 2018. A credit under this subsection may 22 be applied against a tax levied by AS 43.55.011(e). For purposes of this subsection, 23 (1) a carried-forward annual loss is the amount of a producer's or 24 explorer's adjusted lease expenditures under AS 43.55.165 and 43.55.170 for a 25 previous calendar year that was not deductible in calculating production tax values for 26 that calendar year under AS 43.55.160; 27 (2) for lease expenditures incurred on or after January 1, 2017, 28 any reduction under AS 43.55.160(f) or (g) is added back to the calculation of 29 production tax values for that calendar year under AS 43.55.160 for the 30 determination of a carried-forward annual loss. 31 * Sec. 20. AS 43.55.023(l) is amended to read:

01 (l) A producer or explorer may apply for a tax credit for a well lease 02 expenditure incurred in the state south of 68 degrees North latitude after June 30, 03 2010, as follows: 04 (1) notwithstanding that a well lease expenditure incurred in the state 05 south of 68 degrees North latitude may be a deductible lease expenditure for purposes 06 of calculating the production tax value of oil and gas under AS 43.55.160(a), unless a 07 credit for that expenditure is taken under (a) of this section, [AS 38.05.180(i), 08 AS 41.09.010,] AS 43.20.043, or AS 43.55.025, a producer or explorer that incurs a 09 well lease expenditure in the state south of 68 degrees North latitude may elect to 10 apply a tax credit against a tax levied by AS 43.55.011(e) in the amount of 11 (A) 40 percent of that expenditure incurred before January 1, 12 2017; 13 (B) 20 percent of that expenditure incurred on or after 14 January 1, 2017 [; A TAX CREDIT UNDER THIS PARAGRAPH MAY BE 15 APPLIED FOR A SINGLE CALENDAR YEAR]; 16 (2) a producer or explorer may take a credit for a well lease 17 expenditure incurred in the state south of 68 degrees North latitude in connection with 18 geological or geophysical exploration or in connection with an exploration well only if 19 the producer or explorer 20 (A) agrees, in writing, to the applicable provisions of 21 AS 43.55.025(f)(2); and 22 (B) submits to the Department of Natural Resources all data 23 that would be required to be submitted under AS 43.55.025(f)(2); 24 (3) a credit for a well lease expenditure incurred to explore for, 25 develop, or produce oil or gas deposits located in the Cook Inlet sedimentary 26 basin may be taken only if the expenditure is incurred before January 1, 2018. 27 * Sec. 21. AS 43.55.024(i) is amended to read: 28 (i) A producer may apply against the producer's tax liability for the calendar 29 year under AS 43.55.011(e) a tax credit of $5 for each barrel of oil taxable under 30 AS 43.55.011(e) that receives a reduction in the gross value at the point of 31 production under [MEETS ONE OR MORE OF THE CRITERIA IN]

01 AS 43.55.160(f) or (g) and that is produced during a calendar year after December 31, 02 2013. A tax credit authorized by this subsection may not reduce a producer's tax 03 liability for a calendar year under AS 43.55.011(e) below zero. 04 * Sec. 22. AS 43.55.024(j) is amended to read: 05 (j) A producer may apply against the producer's tax liability for the calendar 06 year under AS 43.55.011(e) a tax credit in the amount specified in this subsection for 07 each barrel of oil taxable under AS 43.55.011(e) that does not receive a reduction in 08 the gross value at the point of production under [MEET ANY OF THE CRITERIA 09 IN] AS 43.55.160(f) or (g) and that is produced during a calendar year after 10 December 31, 2013, from leases or properties north of 68 degrees North latitude. A tax 11 credit under this subsection may not reduce a producer's tax liability for a calendar 12 year under AS 43.55.011(e) below the amount calculated under AS 43.55.011(f). The 13 amount of the tax credit for a barrel of taxable oil subject to this subsection produced 14 during a month of the calendar year is 15 (1) $8 for each barrel of taxable oil if the average gross value at the 16 point of production for the month is less than $80 a barrel; 17 (2) $7 for each barrel of taxable oil if the average gross value at the 18 point of production for the month is greater than or equal to $80 a barrel, but less than 19 $90 a barrel; 20 (3) $6 for each barrel of taxable oil if the average gross value at the 21 point of production for the month is greater than or equal to $90 a barrel, but less than 22 $100 a barrel; 23 (4) $5 for each barrel of taxable oil if the average gross value at the 24 point of production for the month is greater than or equal to $100 a barrel, but less 25 than $110 a barrel; 26 (5) $4 for each barrel of taxable oil if the average gross value at the 27 point of production for the month is greater than or equal to $110 a barrel, but less 28 than $120 a barrel; 29 (6) $3 for each barrel of taxable oil if the average gross value at the 30 point of production for the month is greater than or equal to $120 a barrel, but less 31 than $130 a barrel;

01 (7) $2 for each barrel of taxable oil if the average gross value at the 02 point of production for the month is greater than or equal to $130 a barrel, but less 03 than $140 a barrel; 04 (8) $1 for each barrel of taxable oil if the average gross value at the 05 point of production for the month is greater than or equal to $140 a barrel, but less 06 than $150 a barrel; 07 (9) zero if the average gross value at the point of production for the 08 month is greater than or equal to $150 a barrel. 09 * Sec. 23. AS 43.55.025(m) is amended to read: 10 (m) The persons that drill the first four exploration wells in the state and 11 within the areas described in (o) of this section on state lands, private lands, or federal 12 onshore lands for the purpose of discovering oil or gas that penetrate and evaluate a 13 prospect in a basin described in (o) of this section are eligible for a credit under (a)(6) 14 of this section. A credit under this subsection may not be taken for more than two 15 exploration wells in a single area described in (o)(1) - (6) of this section. 16 Notwithstanding (b) of this section, exploration [EXPLORATION] expenditures 17 eligible for the credit in this subsection must be incurred for work performed after 18 June 1, 2012, and before January 1, 2017, except that expenditures to complete an 19 exploration well that was spudded but not completed before January 1, 2017, are 20 eligible for the credit under this subsection [JULY 1, 2016]. A person planning to 21 drill an exploration well on private land and to apply for a credit under this subsection 22 shall obtain written consent from the owner of the oil and gas interest for the full 23 public release of all well data after the expiration of the confidentiality period 24 applicable to information collected under (f) of this section. The written consent of the 25 owner of the oil and gas interest must be submitted to the commissioner of natural 26 resources before approval of the proposed exploration well. In addition to the 27 requirements in (c)(1), (c)(2)(A), and (c)(2)(C) of this section and submission of the 28 written consent of the owner of the oil and gas interest, a person planning to drill an 29 exploration well shall obtain approval from the commissioner of natural resources 30 before the well is spudded. The commissioner of natural resources shall make a 31 written determination approving or rejecting an exploration well within 60 days after

01 receiving the request for approval or as soon as is practicable thereafter. Before 02 approving the exploration well, the commissioner of natural resources shall consider 03 the following: the location of the well; the proximity to a community in need of a local 04 energy source; the proximity of existing infrastructure; the experience and safety 05 record of the explorer in conducting operations in remote or roadless areas; the 06 projected cost schedule; whether seismic mapping and seismic data sufficiently 07 identify a particular trap for exploration; whether the targeted and planned depth and 08 range are designed to penetrate and fully evaluate the hydrocarbon potential of the 09 proposed prospect and reach the level below which economic hydrocarbon reservoirs 10 are likely to be found, or reach 12,000 feet or more true vertical depth; and whether 11 the exploration plan provides for a full evaluation of the wellbore below surface casing 12 to the depth of the well. Whether the exploration well for which a credit is requested 13 under this subsection is located within an area and a basin described under (o) of this 14 section shall be determined by the commissioner of natural resources and reported to 15 the commissioner. A taxpayer that obtains a credit under this subsection may not claim 16 a tax credit under AS 43.55.023 or another provision in this section for the same 17 exploration expenditure. 18 * Sec. 24. AS 43.55.028(e) is amended to read: 19 (e) The department, on the written application of a person to whom a 20 transferable tax credit certificate has been issued under AS 43.55.023(d) or former 21 AS 43.55.023(m) or to whom a production tax credit certificate has been issued under 22 AS 43.55.025(f), may use available money in the oil and gas tax credit fund to 23 purchase, in whole or in part, the certificate. The department may not purchase a 24 total of more than $70,000,000 in tax credit certificates from a person in a 25 calendar year. Before purchasing a certificate or part of a certificate, [IF] the 26 department shall find [FINDS] that 27 (1) the calendar year of the purchase is not earlier than the first 28 calendar year for which the credit shown on the certificate would otherwise be allowed 29 to be applied against a tax; 30 (2) the application is not the result of the division of a single entity 31 into multiple entities that would reasonably be expected to apply as a single entity

01 if the $70,000,000 limitation in this subsection did not exist [APPLICANT DOES 02 NOT HAVE AN OUTSTANDING LIABILITY TO THE STATE FOR UNPAID 03 DELINQUENT TAXES UNDER THIS TITLE]; 04 (3) the applicant's total tax liability under AS 43.55.011(e), after 05 application of all available tax credits, for the calendar year in which the application is 06 made is zero; 07 (4) the applicant's average daily production of oil and gas taxable 08 under AS 43.55.011(e) during the calendar year preceding the calendar year in which 09 the application is made was not more than 50,000 BTU equivalent barrels; and 10 (5) the purchase is consistent with this section and regulations adopted 11 under this section. 12 * Sec. 25. AS 43.55.028(g) is amended to read: 13 (g) The department shall [MAY] adopt regulations to carry out the purposes 14 of this section, including standards and procedures to allocate available money among 15 applications for purchases under this chapter and claims for refunds and payments 16 under AS 43.20.046, 43.20.047, or 43.20.053 when the total amount of the 17 applications for purchase and claims for refund exceed the amount of available money 18 in the fund. The regulations adopted by the department 19 (1) may not, when allocating available money in the fund under this 20 section, distinguish an application for the purchase of a credit certificate issued under 21 former AS 43.55.023(m) or a claim for a refund or payment under AS 43.20.046, 22 43.20.047, or 43.20.053; 23 (2) must grant a preference to an applicant if at least 75 percent of 24 the applicant's workforce in the state in the previous calendar year was 25 composed of resident workers; in this paragraph, "resident worker" has the 26 meaning given in AS 43.40.092(b); 27 (3) must provide for the purchase of the amount equal to the first 28 50 percent of the credit repurchase limit per person under (e) of this section at a 29 rate of 100 percent of the value of the certificate or portion of the certificate 30 requested to be purchased and the amount equal to the next 50 percent of the 31 credit repurchase limit per person under (e) of this section at a rate of 75 percent

01 of the value of the certificate or portion of the certificate requested to be 02 purchased. 03 * Sec. 26. AS 43.55.028 is amended by adding a new subsection to read: 04 (j) If an applicant or claimant has an outstanding liability to the state directly 05 related to the applicant's or claimant's oil or gas exploration, development, or 06 production and the department has not previously reduced the amount paid to that 07 applicant or claimant for a certificate or refund because of that outstanding liability, 08 the department may purchase only that portion of a certificate or pay only that portion 09 of a refund that exceeds the outstanding liability. After notifying the applicant or 10 claimant, the department may apply the amount by which the department reduced its 11 purchase of a certificate or payment for a refund because of an outstanding liability to 12 satisfy the outstanding liability. Satisfaction of an outstanding liability under this 13 subsection does not affect the applicant's ability to contest that liability. The 14 department may enter into contracts or agreements with another department to which 15 the outstanding liability is owed. In this subsection, "outstanding liability" means an 16 amount of tax, interest, penalty, fee, rental, royalty, or other charge for which the state 17 has issued a demand for payment that has not been paid when due and, if contested, 18 has not been finally resolved against the state. 19 * Sec. 27. AS 43.55.160(f) is amended to read: 20 (f) On and after January 1, 2014, in the calculation of an annual production tax 21 value of a producer under (a)(1)(A) or (h)(1) of this section, the gross value at the 22 point of production of oil or gas produced from a lease or property north of 68 degrees 23 North latitude meeting one or more of the following criteria is reduced by 20 percent: 24 (1) the oil or gas is produced from a lease or property that does not contain a lease that 25 was within a unit on January 1, 2003; (2) the oil or gas is produced from a 26 participating area established after December 31, 2011, that is within a unit formed 27 under AS 38.05.180(p) before January 1, 2003, if the participating area does not 28 contain a reservoir that had previously been in a participating area established before 29 December 31, 2011; (3) the oil or gas is produced from acreage that was added to an 30 existing participating area by the Department of Natural Resources on and after 31 January 1, 2014, and the producer demonstrates to the department that the volume of

01 oil or gas produced is from acreage added to an existing participating area. This 02 subsection does not apply to gas produced before 2022 that is used in the state or to 03 gas produced on and after January 1, 2022. For oil and gas first produced from a 04 lease or property after December 31, 2016, a reduction allowed under this 05 subsection applies from the date of commencement of regular production of oil 06 and gas from that lease or property and expires after three years, consecutive or 07 nonconsecutive, in which the average annual price per barrel for Alaska North 08 Slope crude oil for sale on the United States West Coast is more than $70 or after 09 seven years, whichever occurs first. For oil and gas first produced from a lease or 10 property before January 1, 2017, a reduction allowed under this subsection 11 expires on the earlier of January 1, 2023, or January 1 following three years, 12 consecutive or nonconsecutive, in which the average annual price per barrel for 13 Alaska North Slope crude oil for sale on the United States West Coast is more 14 than $70. The Alaska Oil and Gas Conservation Commission shall determine the 15 commencement of regular production of oil and gas for purposes of this section. 16 A reduction under this subsection may not reduce the gross value at the point of 17 production below zero. In this subsection, "participating area" means a reservoir or 18 portion of a reservoir producing or contributing to production as approved by the 19 Department of Natural Resources. 20 * Sec. 28. AS 43.55.160(g) is amended to read: 21 (g) On and after January 1, 2014, in addition to the reduction under (f) of this 22 section, in the calculation of an annual production tax value of a producer under 23 (a)(1)(A) or (h)(1) of this section, the gross value at the point of production of oil or 24 gas produced from a lease or property north of 68 degrees North latitude that does not 25 contain a lease that was within a unit on January 1, 2003, is reduced by 10 percent if 26 the oil or gas is produced from a unit made up solely of leases that have a royalty 27 share of more than 12.5 percent in amount or value of the production removed or sold 28 from the lease as determined under AS 38.05.180(f). This subsection does not apply if 29 the royalty obligation for one or more of the leases in the unit has been reduced to 12.5 30 percent or less under AS 38.05.180(j) for all or part of the calendar year for which the 31 annual production tax value is calculated. This subsection does not apply to gas

01 produced before 2022 that is used in the state or to gas produced on and after 02 January 1, 2022. For oil and gas first produced from a lease or property after 03 December 31, 2016, a reduction allowed under this subsection applies from the 04 date of commencement of regular production of oil and gas from that lease or 05 property and expires after three years, consecutive or nonconsecutive, in which 06 the average annual price per barrel for Alaska North Slope crude oil for sale on 07 the United States West Coast is more than $70 or after seven years, whichever 08 occurs first. For oil and gas first produced from a lease or property before 09 January 1, 2017, a reduction allowed under this subsection expires on the earlier 10 of January 1, 2023, or January 1 following three years, consecutive or 11 nonconsecutive, in which the average annual price per barrel for Alaska North 12 Slope crude oil for sale on the United States West Coast is more than $70. The 13 Alaska Oil and Gas Conservation Commission shall determine the 14 commencement of regular production for purposes of this subsection. A reduction 15 under this subsection may not reduce the gross value at the point of production below 16 zero. 17 * Sec. 29. AS 43.55.160(h) is amended to read: 18 (h) For oil produced on and after January 1, 2022, except as provided in (b), 19 (f), and (g) of this section, for the purposes of AS 43.55.011(e)(3), the annual 20 production tax value of oil taxable under AS 43.55.011(e) produced by a producer 21 during a calendar year 22 (1) from leases or properties in the state that include land north of 68 23 degrees North latitude is the gross value at the point of production of that oil, less the 24 producer's lease expenditures under AS 43.55.165 for the calendar year incurred to 25 explore for, develop, or produce oil and gas deposits located in the state north of 68 26 degrees North latitude or located in leases or properties in the state that include land 27 north of 68 degrees North latitude, as adjusted under AS 43.55.170; 28 (2) before or during the last calendar year under AS 43.55.024(b) for 29 which the producer could take a tax credit under AS 43.55.024(a), from leases or 30 properties in the state outside the Cook Inlet sedimentary basin, no part of which is 31 north of 68 degrees North latitude, other than leases or properties subject to

01 AS 43.55.011(p), is the gross value at the point of production of that oil, less the 02 producer's lease expenditures under AS 43.55.165 for the calendar year incurred to 03 explore for, develop, or produce oil and gas deposits located in the state outside the 04 Cook Inlet sedimentary basin and south of 68 degrees North latitude, other than oil 05 and gas deposits located in a lease or property that includes land north of 68 degrees 06 North latitude or that is subject to AS 43.55.011(p) or, before January 1, 2027, from 07 which commercial production has not begun, as adjusted under AS 43.55.170; 08 (3) from leases or properties subject to AS 43.55.011(p) is the gross 09 value at the point of production of that oil, less the producer's lease expenditures under 10 AS 43.55.165 for the calendar year incurred to explore for, develop, or produce oil and 11 gas deposits located in leases or properties subject to AS 43.55.011(p) or, before 12 January 1, 2027, located in leases or properties in the state outside the Cook Inlet 13 sedimentary basin, no part of which is north of 68 degrees North latitude from which 14 commercial production has not begun, as adjusted under AS 43.55.170; 15 (4) from leases or properties in the state no part of which is north of 68 16 degrees North latitude, other than leases or properties subject to (2) or (3) of this 17 subsection, is the gross value at the point of production of that oil less the producer's 18 lease expenditures under AS 43.55.165 for the calendar year incurred to explore for, 19 develop, or produce oil and gas deposits located in the state south of 68 degrees North 20 latitude, other than oil and gas deposits located in a lease or property in the state that 21 includes land north of 68 degrees North latitude, and excluding lease expenditures that 22 are deductible under (2) or (3) of this subsection or would be deductible under (2) or 23 (3) of this subsection if not prohibited by (b) of this section, as adjusted under 24 AS 43.55.170; a separate annual production tax value shall be calculated for 25 (A) oil produced from each lease or property in the Cook 26 Inlet sedimentary basin; 27 (B) oil produced from each lease or property outside the 28 Cook Inlet sedimentary basin, no part of which is north of 68 degrees 29 North latitude, other than leases or properties subject to (3) of this 30 subsection. 31 * Sec. 30. AS 43.55.165(a) is amended to read:

01 (a) For [EXCEPT AS PROVIDED IN (j) AND (k) OF THIS SECTION, 02 FOR] purposes of this chapter, a producer's lease expenditures for a calendar year are 03 (1) costs, other than items listed in (e) of this section, that are 04 (A) incurred by the producer during the calendar year after 05 March 31, 2006, to explore for, develop, or produce oil or gas deposits located 06 within the producer's leases or properties in the state or, in the case of land in 07 which the producer does not own an operating right, operating interest, or 08 working interest, to explore for oil or gas deposits within other land in the 09 state; and 10 (B) allowed by the department by regulation, based on the 11 department's determination that the costs satisfy the following three 12 requirements: 13 (i) the costs must be incurred upstream of the point of 14 production of oil and gas; 15 (ii) the costs must be ordinary and necessary costs of 16 exploring for, developing, or producing, as applicable, oil or gas 17 deposits; and 18 (iii) the costs must be direct costs of exploring for, 19 developing, or producing, as applicable, oil or gas deposits; and 20 (2) a reasonable allowance for that calendar year, as determined under 21 regulations adopted by the department, for overhead expenses that are directly related 22 to exploring for, developing, or producing, as applicable, the oil or gas deposits. 23 * Sec. 31. AS 43.55.895(b) is amended to read: 24 (b) A municipal entity subject to taxation because of this section 25 (1) is eligible for [ALL] tax credits proportionate to its production 26 taxable under AS 43.55.011(e); and 27 (2) shall allocate its lease expenditures in proportion to its 28 production taxable under AS 43.55.011(e) [UNDER THIS CHAPTER TO THE 29 SAME EXTENT AS ANY OTHER PRODUCER]. 30 * Sec. 32. AS 43.55.900 is amended by adding a new paragraph to read: 31 (26) "regular production" has the meaning given in AS 31.05.170.

01 * Sec. 33. AS 43.70 is amended by adding new sections to read: 02 Sec. 43.70.025. Bond or cash deposit required for an oil or gas business. (a) 03 At the time of applying for a license under this chapter, an applicant engaged in the 04 business of oil or gas exploration, development, or production shall file a surety bond 05 in the amount of $250,000 running to the state, conditioned upon the applicant's 06 promise to pay all 07 (1) taxes and contributions due the state and political subdivisions; and 08 (2) persons furnishing labor or material or renting or supplying 09 equipment to the applicant. 10 (b) In lieu of the surety bond required under this section, the applicant may 11 file with the commissioner a cash deposit or other negotiable security acceptable to the 12 commissioner in the amount of $250,000. 13 (c) The bond required by this section remains in effect until cancelled by 14 action of the surety, the principal, or if the commissioner finds that the business is 15 producing oil or gas in commercial quantities, by the commissioner. 16 Sec. 43.70.028. Claims against an oil or gas business. (a) A person having a 17 claim against a person required to file a surety bond under AS 43.70.025 because of 18 the failure to pay a liability described in AS 43.70.025(a) may bring suit upon the 19 bond. A copy of the complaint shall be served by registered or certified mail on the 20 commissioner at the time suit is filed, and the commissioner shall maintain a record, 21 available for public inspection, of all suits commenced. This service on the 22 commissioner shall constitute service on the surety, and the commissioner shall 23 transmit the complaint or a copy of it to the surety within 72 hours after it is received. 24 The surety on the bond is not liable in an aggregate amount in excess of that named in 25 the bond, but if claims pending at any one time exceed the amount of the bond, the 26 claims shall be satisfied from the bond in the following order: 27 (1) material, equipment, and supplies delivered in the state; 28 (2) labor, including employee benefits; 29 (3) taxes and other amounts due to the city and borough, in that order; 30 (4) repair of public facilities; 31 (5) taxes and other amounts due to the state.

01 (b) If a judgment is entered against a cash deposit, the commissioner, upon 02 receipt of a certified copy of a final judgment, shall pay the judgment from the amount 03 of the deposit in accordance with the priorities set out in (a) of this section. 04 (c) An action described in (a) of this section may not be commenced on the 05 bond more than three years after the cancellation of the bond. 06 * Sec. 34. AS 38.05.180(i); AS 41.09.010, 41.09.020, 41.09.030, 41.09.090; 07 AS 43.20.053(j)(4); and AS 43.55.011(m) are repealed January 1, 2017. 08 * Sec. 35. AS 43.55.165(j) and 43.55.165(k) are repealed January 1, 2018. 09 * Sec. 36. The uncodified law of the State of Alaska is amended by adding a new section to 10 read: 11 APPLICABILITY. (a) AS 43.20.046(e), as amended by sec. 10 of this Act, 12 AS 43.20.047(e), as amended by sec. 11 of this Act, AS 43.20.053(e), as amended by sec. 13 13 of this Act, AS 43.55.028(e), as amended by sec. 24 of this Act, and AS 43.55.028(j), as 14 amended by sec. 26 of this Act, and regulations related to a tax credit certificate purchase 15 preference for applicants with a workforce of resident workers and tax credit purchase rates, 16 adopted under AS 43.55.028(g), as amended by sec. 25 of this act, apply to a purchase applied 17 for on or after the effective date of secs. 10, 11, 13, and 24 - 26 of this Act. 18 (b) AS 43.55.011(k), as amended by sec. 15 of this Act, applies to oil produced after 19 the effective date of sec. 15 of this Act. 20 * Sec. 37. The uncodified law of the State of Alaska is amended by adding a new section to 21 read: 22 TRANSITION: LEASE EXPENDITURES FOR A CALENDAR YEAR AFTER 23 2006 AND BEFORE 2010. Notwithstanding AS 43.55.165(a), as amended by sec. 30 of this 24 Act, and the repeal of AS 43.55.165(j) and (k) by sec. 35 of this Act, AS 43.55.165(j) and (k) 25 apply to a producer's total lease expenditures for a calendar year after 2006 and before 2010 26 under AS 43.55.165, as that section read on the day before the repeal of AS 43.55.165(j) and 27 (k) by sec. 35 of this Act. 28 * Sec. 38. The uncodified law of the State of Alaska is amended by adding a new section to 29 read: 30 TRANSITION: REGULATIONS. The Department of Revenue, the Department of 31 Natural Resources, the Department of Commerce, Community, and Economic Development,

01 and the Alaska Oil and Gas Conservation Commission may adopt regulations necessary to 02 implement the changes made by this Act. The regulations take effect under AS 44.62 03 (Administrative Procedure Act), but not before the effective date of the law implemented by 04 the regulation. The Department of Revenue shall adopt regulations governing the use of tax 05 credits under AS 43.55 for a calendar year for which the applicable tax credit provisions of 06 AS 43.55 differ as between parts of the year as a result of this Act. 07 * Sec. 39. The uncodified law of the State of Alaska is amended by adding a new section to 08 read: 09 TRANSITION: RETROACTIVITY OF REGULATIONS. Notwithstanding any 10 contrary provision of AS 44.62.240, 11 (1) if the Department of Revenue expressly designates in a regulation that the 12 regulation applies retroactively, a regulation adopted by the Department of Revenue to 13 implement, interpret, make specific, or otherwise carry out this Act may apply retroactively to 14 the effective date of the law implemented by the regulation; 15 (2) if the Department of Natural Resources expressly designates in the 16 regulation that the regulation applies retroactively, a regulation adopted by the Department of 17 Natural Resources to implement, interpret, make specific, or otherwise carry out the statutory 18 amendments in this Act affecting the administration of oil and gas leases issued under 19 AS 38.05.180(f)(3)(B), (D), or (E), to the extent the regulation relates to the treatment of oil 20 and gas production taxes in determining net profits under those leases, may apply 21 retroactively to the effective date of the law implemented by the regulation. 22 * Sec. 40. Sections 23, 38, and 39 of this Act take effect immediately under 23 AS 01.10.070(c). 24 * Sec. 41. Sections 30, 35, and 37 of this Act take effect January 1, 2018. 25 * Sec. 42. Except as provided in secs. 40 and 41 of this Act, this Act takes effect January 1, 26 2017.