04/25/2006 01:30 PM House FINANCE

HOUSE BILL NO. 386                                                                                                            
                                                                                                                                
     An Act making uniform throughout  the state the deadline                                                                   
     for  certain exploration  expenditures  used as  credits                                                                   
     against the production tax  on oil and gas produced from                                                                   
     a lease  or property in the  state by extending  to July                                                                   
     1, 2010,  the deadline for those expenditures  on leases                                                                   
     or properties  located north of 68 degrees,  15 minutes,                                                                   
     North latitude.                                                                                                            
                                                                                                                                
REPRESENTATIVE  VIC KOHRING, SPONSOR,  explained that  HB 386                                                                   
provides  a production  tax credit  for certain  oil and  gas                                                                   
exploration expenses  from a leasehold  or property  owned in                                                                   
the State.  It also establishes  a deadline for using credits                                                                   
from certain exploration expenditures  against production tax                                                                   
on oil and gas produced.                                                                                                        
                                                                                                                                
HB  386 would  extend the  exploration  credit incentives  to                                                                   
2010 and encourages  exploration in Alaska and  in particular                                                                   
the North  Slope.   HB 386  would make  AS 43.55.025  uniform                                                                   
throughout  the  State,  allowing  oil  producers  to  credit                                                                   
exploration expenditures  against production  tax on  oil and                                                                   
                         st                                                                                                     
gas produced after July 1, 2004.                                                                                                
                                                                                                                                
Representative  Kohring noted  that in  order to qualify  for                                                                   
the   production   tax   credit   under   existing   statute,                                                                   
exploration expenditures  must be  incurred on or  after July                                                                   
1, 2003  and before  July 1,  2007.   It has become  apparent                                                                   
that the  July 1,  2007 deadline  would arrive  too soon  for                                                                   
some smaller independent oil companies  that are now planning                                                                   
their  exploration  dollars  for   the  future.    Given  the                                                                   
timetable,  it is  likely  that exploration  expenditures  on                                                                   
those leases would  occur after July 1, 2007,  in which case,                                                                   
they could not be credited against future production taxes.                                                                     
                                                                                                                                
3:36:16 PM                                                                                                                    
                                                                                                                                
Representative  Weyhrauch   asked  if  the   legislation  was                                                                   
basically  a "hold  card"  if  the Petroleum  Production  Tax                                                                   
(PPT) was not  adopted.  Representative Kohring  said yes and                                                                   
that the PPT would  not entirely supercede HB 386.   It could                                                                   
provide  an overlap;  the  portion  not overlapped  would  be                                                                   
extending the exploration incentive  credit and allow the use                                                                   
of  property  & income  tax  payments  as credits  to  offset                                                                   
expenses.  Those  are two major provisions that  the Industry                                                                   
would like to have.                                                                                                             
                                                                                                                                
Co-Chair  Meyer indicated  the intent  to merge  HB 386  with                                                                   
PPT.                                                                                                                            
                                                                                                                                
3:37:44 PM                                                                                                                    
                                                                                                                                
Representative Kohring  said he would be amenable  to rolling                                                                   
the bill into the PPT bill; however,  requested that the bill                                                                   
be  moved out  of  the House  Finance  Committee  as soon  as                                                                   
possible in the  event that the provisions were  not adopted.                                                                   
Co-Chair  Meyer  reiterated  that   PPT  would  be  discussed                                                                   
tomorrow.                                                                                                                       
                                                                                                                                
3:38:46 PM                                                                                                                    
                                                                                                                                
MARK HANLEY, PUBLIC AFFAIRS MANAGER,  ANADARKO-ALASKA, voiced                                                                   
support for the legislation.   He realized that portions were                                                                   
included in  both the  Senate and House  sections of  the PPT                                                                   
bill.    HB  386  credits  work and  has  had  an  impact  on                                                                   
exploration in  Alaska; the tax  credits have  helped attract                                                                   
partners.   The tax credits  are valuable in  encouraging new                                                                   
prospects.                                                                                                                      
                                                                                                                                
3:40:16 PM                                                                                                                    
                                                                                                                                
BILL  VAN  DYKE, (TESTIFIED  VIA  TELECONFERENCE),  DIRECTOR,                                                                   
DIVISION  OF OIL AND  GAS, DEPARTMENT  OF NATURAL  RESOURCES,                                                                   
ANCHROAGE,  testified  in support  of  the bill,  noting  the                                                                   
program has  worked well.   The legislation  would be  a good                                                                   
investment for the State's future.                                                                                              
                                                                                                                                
3:41:29 PM                                                                                                                    
                                                                                                                                
RICHARD TREMANE,  (TESTIFIED VIA TELECONFERENCE),  DEPARTMENT                                                                   
OF REVENUE, ANCHORAGE,  pointed out the $15.7  million dollar                                                                   
issued  credits  with  an  additional  $20.6  million  credit                                                                   
dollars "in the  wings".  It is a program that  is well used.                                                                   
The referenced  section is the  extension and  allows credits                                                                   
to be used against other types of debt to the State.                                                                            
                                                                                                                                
3:43:35 PM                                                                                                                    
                                                                                                                                
PUBLIC TESTIMONY CLOSED                                                                                                       
                                                                                                                                
3:43:42 PM                                                                                                                    
                                                                                                                                
Co-Chair Chenault voiced support  for HB 386.  Representative                                                                   
Foster noted that he had signed on as a co-sponsor.                                                                             
                                                                                                                                
HB 386 was HELD in Committee for further consideration.                                                                         
                                                                                                                                
                                                                                                                                
3:44:36 PM