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