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Oil and Gas Production Tax
2020 Annual Report


Oil and Gas Production Tax Reports





AS 43.55

Description

Alaska levies an annual tax on oil and gas produced in the state. The tax is based on the net value of oil and gas, which is the value at the point of production multiplied by the taxable volume, less all lease expenditures allowed under AS 43.55.165. Lease expenditures include certain qualified capital and operating expenditures.

House Bill 111, passed in 2017 during the second special session of the 30th Alaska Legislature, is the most recent amendment to the Oil and Gas Production tax statutes under Alaska Statute 43.55. Most provisions of HB 111 take effect on Jan. 1, 2018, with some retroactivity to July 1, 2017.

Rate

The current tax rate on oil and gas production is 35% of the production tax value, however, certain categories of oil and gas production are subject to either tax limitations or floors.

Production subject to tax limitations:

  • The levy of tax on gas production from the Cook Inlet Sedimentary Basin may not exceed the amount obtained by multiplying the average rate of tax imposed on each lease or property during the 12-month period beginning April 1, 2005, through March 31, 2006, times the taxable volumes produced during the year.

  • For Cook Inlet leases or properties that commenced gas production after March 31, 2006, the levy of tax may not exceed the amount derived by multiplying the annual gas volumes produced by 17.7 cents per thousand cubic feet (mcf).

  • The production tax levied on oil produced in the Cook Inlet Sedimentary Basin may not exceed $1.00 per barrel.

  • The production tax levied on oil or gas produced from leases or properties in the state outside the Cook Inlet Sedimentary Basin and that do not include lands north of 68 degrees north latitude may not exceed 4% of the gross value of the oil or gas at the point of production.

  • For gas produced from leases or properties north of 68 degrees north latitude that is used in-state, the levy of tax may not exceed the amount derived by multiplying the annual gas volumes produced by 17.7 cents per mcf.


Production subject to tax floor:

  • The tax levied on oil and gas produced from leases or properties that include land north of 68 degrees north latitude, other than gas used in state, may not be less than 4%, 3%, 2%, 1%, or zero of the gross value at the point of production of the oil and gas, based on the average price per barrel of Alaska North Slope crude on the U.S. West Coast during the year.

Returns

Taxpayers are required to report all values, volumes, transportation costs, expenditures and credits used to calculate their estimated monthly installment payments in the monthly report. The monthly reports are due the last day of the month following the month of activity.

Annually, on March 31, taxpayers submit an annual tax return that also “trues up” any tax liabilities or overpayments made throughout the year.

Exemptions

The tax on oil and gas is levied on all production except for state and federal royalty production. Oil and gas used on a lease or property for drilling, production, or repressuring is not taxed.

Credits

The following credits are available for use against the liability of this specific tax: Alternative Credit for Exploration, Carried-Forward Annual Loss, Education, Film Production, Qualified Capital Expenditure, Small Producer, Well Lease Expenditure, Sliding Scale, and Per Barrel tax credits. Some of these credits may also be redeemed by the State of Alaska for cash. For specific information concerning these credits, see the Oil and Gas Production Credits section below.

Disposition of Revenue

All revenue derived from the oil and gas production tax is deposited in the General Fund, except payments received as a consequence of an assessment or litigation are deposited in the Constitutional Budget Reserve Fund (CBRF).

History

1955 – The Territorial Legislature enacts an oil and gas production tax of 1% of production value.

1967 – A 1% disaster production tax is enacted to provide relief after the Fairbanks flood.

1968 – The Alaska Legislature increases oil and gas production tax from 1% to 3% of production value.

1970 – The Legislature repeals the disaster oil and gas production tax. The Legislature changes the oil production tax to a graduated tax with rates of 3% on the first 300 barrels per day per well, 5% on the next 700 barrels per day per well, 6% on the next 1,500 barrels per day per well, and 8% on production exceeding 2,500 barrels per day per well.

1972 – The Legislature establishes a minimum oil production tax based on “cents per barrel” equivalent to percent of value tax on oil with wellhead value of $2.65 per barrel.

1973 – The Legislature revises the “stair-step” rate schedule to lower production levels. The Legislature indexes the cents per barrel minimum to the wholesale price index for crude oil published by the U.S. Bureau of Labor Statistics.

1977 – The Legislature raises the nominal gas production tax rate to 10%. The Legislature raises the nominal oil production tax rate to 12.25% and adopts the oil and gas economic limit factors.

1981 – As part of legislation that repeals the separate accounting oil and gas corporation income tax, the nominal tax rate on oil produced prior to 1981 is raised to 15%, and fields coming into production after 1981 are taxed at 12.25% for five years after which the rate increases to 15%. The oil economic limit factor is now subject to a rounding rule so that if the calculated factor is greater than or equal to 0.7 during the first 10 years of production, the factor is set to 1.0.

1989 – The Legislature changes the economic limit factor for oil production taxes to include a field-size factor in the formula, fixes the production at the economic limit (not rebuttable) at 300 barrels per well per day, and drops the rounding rule. The Legislature fixes production at the economic limit for gas production at 3,000 mcf per well per day.

2002 – The Legislature authorizes credits of up to 50% for contributions of not more than $100,000 to the Alaska Veterans’ Memorial Endowment Fund, and 75% of the next $100,000 in contributions to the endowment fund. The tax credit expires July 1, 2003.

2003 – To encourage drilling for oil and gas within the state, AS 43.55.025 provides a new tax credit for exploration costs. The minimum credit is 20% for qualified expenditures, and the maximum is 40%.

2005 – Prudhoe Bay area oil fields are aggregated for purposes of calculating the economic limit factor, effective Feb. 1, 2005.

– To expand the tax credit for exploration enacted the previous year, the deadline is extended until July 1, 2010, for qualifying work south of the Brooks Range (for instance, non-North Slope). New rules also change the 3-mile and 25-mile rules for the Cook Inlet, allowing closer distances between potential exploration targets and existing wells and production units.

– The Legislature extends and amends the requirements applicable to the credit that may be claimed for certain oil and gas exploration expenses incurred in Cook Inlet against oil and gas production taxes. This legislation also amends the credit against those taxes for certain exploration expenditures from leases or properties in the state. The legislation is signed into law July 21, 2005, with an immediate effective date.

2006 – In August 2006, legislation is passed during a special session that makes sweeping revisions to the oil and gas production tax. The Petroleum Production Tax (PPT) legislation establishes new tax rates on oil and gas production; repeals the economic limit factor; and provides numerous credits for certain qualifying expenditures and taxpayers.

2007 – The Legislature amends the PPT legislation in a special session that ends in November 2007. Like the PPT legislation enacted in 2006, the Alaska’s Clear and Equitable Share (ACES) tax is levied on the production tax value of oil and gas produced in the state. The base tax rate under ACES is 25% (it was 22.5% under PPT), and the progressive surcharge tax rate under ACES is 0.4% for every dollar the production tax value per barrel exceeds $30 (it was 0.25% on production tax values exceeding $40 per barrel under PPT). For production tax values greater than $92.50 per barrel, the progressivity rate changes to 0.1% for every additional dollar of production tax value.

2008 – The Legislature amends the Education Credit provisions to include cash contributions accepted for secondary-level vocational courses and programs by a school district in Alaska and by a state-operated vocational technical education and training school.

– The Alternative Credit for Exploration is increased from 20% to 30% for certain projects, and an Oil and Gas Tax Credit Fund is established for the cash purchases of tax credit certificates.

2010 – The Legislature amends the alternative tax credit provisions to add tax credits for drilling exploration wells using a jack-up rig in the Cook Inlet. The first three unaffiliated persons drilling wells that penetrate and evaluate prospects in the pre-Tertiary zone are entitled to credits of 100%, 90% or 80%, respectively, of the first $25 million of exploration expenditures. Other changes include a new 40% tax credit for well lease expenditures incurred south of 68 degrees north latitude, the elimination of the splitting of tax credits for lease expenditures incurred in the state south of 68 degrees north latitude after June 30, 2010, and the elimination of the future investment requirement for the purchase of transferable tax credit certificates by the state.

– The Legislature amends the Education Credit by increasing the maximum annual credit allowed from $150,000 to $5 million effective Jan. 1, 2011. In addition, the Legislature expands contributions eligible for the credit to include contributions made for construction and maintenance of facilities by state-operated vocational education schools and two- or four-year colleges. The increase in the credit from $150,000 to $5 million expires Dec. 31, 2013. The maximum credit allowed is to revert to $150,000 on Jan. 1, 2014. That date was extended in 2011 (see below).

2011 – The Legislature enacts legislation extending the date that the $5 million annual Education Credit limit expires from Jan. 1, 2014, to Jan. 1, 2021. It is then scheduled to return to $150,000. In addition, the Legislature expands contributions eligible for the credit to include contributions made after June 30, 2011, to annual intercollegiate sports tournaments, Alaska Native cultural or heritage programs for public school staff and students, and a facility in the state that qualifies as a coastal ecosystem learning center under the Coastal American Partnership.

2012 – The Legislature enacts legislation that establishes a Corporate Income Tax Credit for a liquefied natural gas storage facility to be paid out of the Oil and Gas Credit Fund. Also, it establishes a limitation on tax for oil and gas produced from leases or properties outside the Cook Inlet Sedimentary Basin that do not include land north of 68 degrees north latitude. The tax limitation is set to expire in 2022. Further, Exploration Tax Credits are established for drilling of exploration wells and seismic exploration expenditures in specific areas. These are referred to as the Middle Earth Basin Credits.

2013 – On May 21, 2013, Senate Bill 21 was signed into law. Major provisions of the law:

  • The production tax rate is amended to 35% of the annual Production Tax Value (PTV) in AS 43.55.011(e), and the progressivity index under AS 43.55.011(g) is eliminated, effective Jan. 1, 2014.

  • The law establishes AS 43.55.160(f), which defines production subject to the Gross Value Reduction (GVR). The GVR is 20% of the Gross Value at the Point of Production (GVPP) for production that qualifies.

  • The law establishes AS 43.55.160(g), which is an additional 10% reduction in GVPP for leases or properties qualifying under AS 43.55.160(f), for all leases having a greater than 12.5% royalty.

  • The law eliminates credits for qualified capital expenditures incurred after Dec. 31, 2013, for expenditures incurred on the North Slope. Credits for qualified capital expenditures incurred south of 68 degrees north latitude remain.

  • The law changes the timing of applicability of credits so that 100% of credits based on expenditures incurred north of 68 degrees north latitude after Jan. 1, 2013, are available for immediate use.

  • Carried-Forward Annual Loss Credits incurred north of 68 degrees north latitude increase to 45% of excess lease expenditures beginning Jan. 1, 2014, through Dec. 31, 2015, and decrease to 35% of excess lease expenditures beginning Jan. 1, 2016. The credit for annual losses incurred south of 68 degrees north latitude remains at 25%.

  • The law establishes new non-transferable tax credits based on oil production for lease or properties north of 68 degrees north latitude beginning Jan. 1, 2014. AS 43.55.024(i) establishes a $5 per barrel credit for oil that qualifies for the GVR under AS 43.55.160(f) and AS 43.55.024(i) adds a credit on volumes not subject to GVR ranging from $8 to $0 based on the average GVPP per barrel each month.

  • The sunset date for the Alternative Tax Credit for Oil and Gas Exploration is extended from July 1, 2016, to Jan. 1, 2022, in AS 43.55.025(b) for exploration wells drilled outside the Cook Inlet Sedimentary Basin and south of 68 degrees north latitude. The extension does not apply to the Basin Credits for exploration wells in AS 43.55.025(m) or the Basin Credits for seismic exploration in AS 43.55.025(n).

  • The sunset of the tax limitation under AS 43.55.011(p) on production from leases or properties outside the Cook Inlet Sedimentary Basin that does not include land that is north of 68 degrees north latitude is extended from 2022 to 2027.

  • The interest on delinquent tax liabilities is amended from 11% to 3 percentage points above the rate charged member banks in the 12th Federal Reserve District, and interest is no longer compounded quarterly.


2014 – The Legislature passes Senate Bill 138, which is the enabling legislation to allow the State of Alaska to participate as an equity owner in the Alaska Liquefied Natural Gas (AKLNG) project. The main objective of the AKLNG is to commercialize North Slope natural gas reserves from the Prudhoe Bay and Point Thomson fields. SB 138 establishes a framework by which the state could receive its royalty gas in kind (RIK) and production tax as gas (TAG) in lieu of receiving royalty and tax payments from the producers supplying the gas to the project.

The determination to receive the gas molecules in lieu of cash is subject to a best-interest finding. The intent is that the state will receive an amount of gas that is commensurate with its equity ownership in AKLNG infrastructure. AKLNG infrastructure includes a gas treatment plant (GTP) located on the North Slope, an 800-mile natural gas pipeline and a natural gas liquefaction facility located in Nikiski. As an equity owner, and a recipient of the RIK and TAG, the State of Alaska will bear the burden of marketing and monetizing its portion of the gas.

The legislation includes several changes to the oil and gas production tax statutes, which take effect on and after Jan. 1, 2022. A summary of the significant changes are:

  • The production tax for gas produced on and after Jan. 1, 2022, is equal to 13% of the GVPP of the taxable gas.

  • The production tax on oil produced on and after Jan. 1, 2022, is 35% of the annual production tax value of the taxable oil. The production tax value of the oil taxable under AS 43.55.011(e)(3) includes the producer’s lease expenditures under AS 43.55.165 for the calendar year incurred to explore for, develop, or produce oil and gas deposits in the state that includes land north of 68 degrees north latitude as adjusted under AS 43.55.170.

  • The minimum tax will only be applicable to oil produced on and after Jan. 1, 2022, from leases or properties that include land north of 68 degrees north latitude.

  • For gas produced on and after Jan. 1, 2022, a producer may make an election to pay the production tax as gas (TAG) for gas produced from oil and gas leases modified under AS 38.05.180(hh) in lieu of the tax otherwise levied for the gas by AS 43.55.011(e).


2016 – House Bill 247 passes in the 29th Legislature’s fourth special session, and becomes effective Jan. 1, 2017. Major provisions of HB 247:

  • After Dec. 31, 2016, interest on delinquent production tax is 7% plus the federal rate, compounded quarterly; after three years, the delinquent tax does not bear interest.

  • The Alaska Department of Revenue will publish a report of the tax credit certificates purchased each year, including the aggregate amount purchased from each person the prior year. The report will be issued annually by April 30.

  • The Cook Inlet gas and Gas Used In State tax ceilings are extended indefinitely.

  • There is a $1 per barrel tax on Cook Inlet oil.

  • The Cook Inlet credits for Qualified Capital Expenditures, Carried-Forward Annual Loss, and Well Lease Expenditures sunset Dec. 31, 2017.

  • The credit for exploration wells drilled in the Frontier Basin sunsets in 2017.

  • The amount of cash purchases of credit certificates is limited, and the law provides for the relinquishment of credit over certain amounts.

  • Cash purchases of credit certificates are prioritized based on local-hire provisions, and, again, the law provides for the relinquishment of credit over certain amounts.

  • A cash repurchase may be withheld if the taxpayer has other obligation(s) to the State of Alaska for its oil and gas business.

  • The number of years that the GVR may be claimed is limited.


2017 – The Legislature passes HB 111, which makes the following amendments and changes to the Oil and Gas Production tax statutes under AS 43.55:

  • Amends the interest rate charged on delinquent taxes levied under AS 43.55. Delinquent oil and gas production taxes on and after Jan. 1, 2018, bear interest at a rate of 5.25 percentage points above the annual rate charged member banks by the 12th Federal Reserve District as of the first day of the quarter, compounded quarterly as of the last day of that quarter.

  • Enables the use of a purchased credit certificate under AS 43.55.023, regardless of when earned, to satisfy a tax, interest, penalty, fee or other charge levied under AS 43.5.011(e) for a prior year that has not been subject to an administrative proceeding or litigation.

  • Establishes July 1, 2017, as the cutoff for earning cashable transferable tax credit certificates.

  • Exploration production tax credits earned under AS 43.55.025 for expenditures incurred for work performed on or after July 1, 2016, can be applied against corporate income tax levied by AS 43.20.

  • A production tax credit certificate that is transferred, sold or conveyed under AS 43.55.025 may not be applied against the tax levied by AS 43.20.

    However, a production tax credit or portion of a production tax credit or production tax certificate or portion of a production tax certificate allowed under AS 43.55.025 may be applied to satisfy a tax, interest, penalty, fee or other charge levied by AS 43.55.011(e) for a prior year that has not been subject to an administrative proceeding or litigation, or to satisfy a tax in a later calendar year.

  • The Oil and Gas Tax Credit Fund established under AS 43.55.028 may not be used to purchase a tax credit certificate for a credit earned under AS 43.55 for activity occurring on or after July 1, 2017.

  • Any adjusted lease expenditures under AS 43.55.165 and AS 43.55.170 incurred to explore for, develop or produce oil or gas from a lease or property outside the Cook Inlet Sedimentary Basin that would otherwise be deductible by a producer in a calendar year but whose deduction would cause an annual production tax value to be less than zero may be used to establish a carried-forward annual loss.

  • The producer’s lease expenditure for the year may include the carried-forward annual loss from a prior year.

    During a calendar year that the taxpayer is subject to the minimum tax, the maximum amount of a carried-forward annual loss that the taxpayer may include in lease expenditures is the amount that will result in a production tax value, which, when multiplied by the statutory tax rate (35%), would equal the minimum tax.

  • Carried-forward annual losses decrease by one-tenth of the value of the preceding year each year beginning Jan. 1 of the 11th year after the lease expenditure is carried forward if the lease or property did not commence regular production of oil or gas before or during the year the lease expenditure was incurred.

  • Carried-forward annual losses decrease by one-tenth of the value of the preceding year each year beginning Jan. 1 of the eighth year after the lease expenditure is carried forward if the lease or property commenced regular production of oil or gas before or during the year the lease expenditure was incurred.

2018 – The Legislature passes HB 331, creating the Alaska Tax Credit Certificate Bond Corporation. The purpose of the corporation is to finance the purchase of transferable tax credit certificates issued under AS 43.55.023, production tax credit certificates issued under AS 43.55.025, and refunds and payments claimed under AS 43.20.046, 43.20.047 or 43.20.053. The corporation may issue up to $1 billion in subject-to-appropriation bonds. The proceeds from bonds issued would be disbursed, subject to appropriation, from the corporation to the Department of Revenue for the purchases. The corporation may not issue bonds unless it finds that the discount rate that the Department of Revenue would apply to the purchases would exceed the true interest cost on the bonds by at least 1.5%. This bill was later repealed by the Alaska Supreme Court in a decision issued on September 4, 2020.

Additionally, the Legislature passes HB 233, which amends the Oil and Gas Producer Education Credit in AS 43.55.019 (in conjunction with corresponding amendments to parallel Education Credits provided in other titles and chapters). The credit amount is reduced from 100% to 75% of donations of between $100,000 and $300,000 starting Jan. 1, 2019, and is further reduced to 50% of all contributions on Jan. 1, 2021. Additionally, the total Education Credit that any taxpayer may claim for all parallel Education Credits in a year is reduced to $1 million from $5 million. HB 233 also extends the credit to in-kind donations of equipment in addition to cash donations.



Click here for data with additional years.

  Collections Summary

Fiscal Year

 2018 2017
   Total Tax

 $805,577,4631

 $490,837,9941

   General Fund

 749,899,415 140,878,805

   CBR Fund

55,678,048 349,959,189

   Conservation Surcharges

 8,656,363 8,048,264
1Includes the oil and gas production tax and the oil conservation surcharges.


  Filing Information

Fiscal Year

 2018 2017

   Number of Returns

 107 135

   Number of Taxpayers

 60 64




Oil and Gas Production Tax Credits


Alternative Credit for Exploration – AS 43.55.025(a)(1)-(4) – Taxpayers who incur qualified exploration expenditures are eligible for this credit against oil and gas production tax. Credits earned for certain work performed on or after July 1, 2016, may be taken against corporate income tax.

The credit is 30% or 40%, depending on the qualifications of the exploration project. Taxpayers must obtain pre-approval from the Alaska Department of Natural Resources and submit certain data as part of the application process for exploration well projects. Credit applications under AS 43.55.025 are audited prior to issuance of the credit certificates. Certificates must be eventually issued, but the credit may also be applied to tax prior to the issuance of a certificate. The credit is transferable and eligible for state repurchase.

The credit is set to expire for Middle Earth Wells on Dec. 31, 2021. It expired for Middle Earth Seismic on Dec. 31, 2017, and the North Slope and Cook Inlet areas on June 30, 2016. This credit has been available since 2003 – pre-dating the oil and gas tax law revisions of 2006 and 2007. The scope of this credit is more specific than that provided for under AS 43.55.023.




Carried-Forward Annual Loss – AS 43.55.023(b) – Taxpayers who incurred lease expenditures that were not deductible in calculating production tax values generated a "loss carry forward" and they may have applied for a tax credit. The credit, which was transferable and applicable to oil and gas production tax, expired Dec. 31, 2017.

For the North Slope, the credit rate was 35% in 2016-2017, and 45% in 2014-2015. For Cook Inlet, and Middle Earth (all areas other than Cook Inlet and the North Slope), it was 15% in 2017, and 25% in 2014-2016.

Only half of the 2017 loss was eligible for purchase under AS 43.55.028.




Education – AS 43.20.014, 43.75.018, 43.77.045, 43.55.019, 43.56.018 and 43.65.018 – The Education Credit is a nontransferable and nonrefundable credit applicable to the corporate income tax, fisheries business tax, fishery resource landing tax, oil and gas production tax, oil and gas property tax, and mining license tax.

Taxpayers can claim a credit for contributions to Alaska universities and accredited nonprofit Alaska two- or four-year colleges for facilities, direct instruction, research and educational support purposes.

The tax credit can also be taken for donations to a school district or state-operated vocational technical education and training school for vocational education courses, programs and facilities. Donations for Alaska Native cultural or heritage programs for public school staff and students, and a facility in the state that qualifies as a coastal ecosystem learning center under the Coastal American Partnership also qualify. Contributions to the Alaska Higher Education Investment Fund established in 2012 qualify as well.

The credit was set to end Dec. 31, 2018, but the Alaska Legislature in 2018 made changes to the law, and extended the credit to Dec. 31, 2024.

Before Jan. 1, 2019, the credit is only for cash contributions. As of Jan. 1, 2019, the credit will be for contributions of cash or equipment.

Before the year 2019, the credit allows the deduction of 50% of a business’s annual contributions up to $100,000, 100% of the next $200,000 in donations, and then 50% of donations above $300,000. A business, for example, is able to have $250,000 deducted from its taxes by paying $300,000 in donations. A business is allowed to claim up to $5 million in Education Credits per year across all eligible tax types.

As of Jan. 1, 2019, the deduction amounts and cap will be reduced. The credit, including the contribution categories eligible for the credit, will remain the same as before 2019, with two exceptions. First, the contributions between $100,000 and $300,000 will allow a deduction of 75% of the contribution, not 100% as in prior years. Second, a business will be allowed to claim up to $1 million in education credits per year across eligible tax types, not up to $5 million as in prior years.

On Jan. 1, 2021, the credit will be further reduced to 50% of all contributions. A business will still be allowed to claim up to $1 million in education credits per year across eligible tax types.

Qualifying Education Tax Credits include contributions by taxpayers to a public or private nonprofit elementary or secondary school in the state, a nonprofit regional training center recognized by the Alaska Department of Labor and Workforce Development, or an apprenticeship program in the state that is registered with the U.S. Department of Labor under 29 U.S.C. 50-50b for direct instruction, research and educational support purposes.

In addition, tax credits for certain taxpayers are available for contributions accepted for a facility by a public or private nonprofit elementary or secondary school in the state, for a scholarship awarded by a nonprofit organization to a dual-credit student for certain educational expenses, for a residential school in the state approved by the Alaska Department of Education and Early Development, or certain qualified childhood early learning and development programs.

Tax credits are also available for contributions by certain taxpayers for science, technology, engineering and math (STEM) programs by a nonprofit agency or school district for school staff and for students in grades kindergarten through 12 in the state and for the operation of a nonprofit organization dedicated to providing educational opportunities that foster public service leadership for future generations of residents of the state.





Film Production Credit – AS 43.98.030, AS 21.09.210, AS 21.66.110, AS 43.20, AS 43.55, AS 43.56, AS 43.65, AS 43.75 and AS 43.77 – The Film Production Tax Credit under the Department of Revenue was effective July 1, 2013, and the Alaska Legislature repealed it July 1, 2015. The department stopped accepting new projects on the date it was repealed. It was a transferable credit for expenditures on eligible film production activities in Alaska. The film credits have six-year expiration dates to be used against Alaska tax liabilities; therefore, the department could see credits being taken until 2023 since credits were still being awarded in 2016.




Frontier Basin Credit – AS 43.55.025(a)(6) and (7) – The Frontier Basin Credit provides a tax credit for exploration wells and seismic projects within six specific areas designated in AS 43.55.025(o), also called the “Frontier Basins.”

The credit for exploration wells expired on July 1, 2016, and expenses incurred prior to that time were eligible for the credit so long as the exploration well was spudded by June 30, 2017; the credit for seismic exploration projects expired June 30, 2016.

The first two exploration wells drilled inside each of the six frontier basins were eligible for an 80% credit for up to $25 million of qualified expenditures. For seismic projects, the first project performed inside each of the six frontier basins was eligible to receive a 75% credit for up to $7.5 million of qualified expenditures.

The credit became effective Jan. 1, 2013, and was amended in 2016. Many requirements had to be met with the Alaska Department of Natural Resources to qualify for the credit, including pre-qualifications. The credit itself was allowed to be applied against a producer’s tax liability in the year in which it was incurred and also before the certificate was issued. The credit certificate was allowed to be transferred, applied to tax liability, or cashed out with the state under AS 43.55.028 by the original applicant.




Per Barrel Credit – AS 43.55.024(i) and (j) – The Per Barrel Credit is a production tax credit for each barrel of oil production on the North Slope. It cannot be transferred or carried forward, and is not eligible for cash repurchase. The credit does not expire.

For “new areas” that qualify for a GVR, under AS 43.55.024(i), the credit is $5 per taxable barrel. Those areas are defined in AS 43.55.160(f) and (g). The $5 per barrel credit may not reduce the producer’s liability for that production below zero.

For areas that do not qualify for a GVR, under AS 43.55.024(j), the credit ranges from $0 to $8 per taxable barrel based on the average GVPP per barrel produced in the tax year. The credit operates on a sliding scale ranging from $0 per barrel when the GVPP is more than $150 per barrel, to $8 per barrel when the GVPP is less than $80 per barrel. The sliding scale credit cannot be used to reduce tax liability to below the minimum tax under AS 43.55.011 (f).




Qualified Capital Expenditure Credit and Well Lease Expenditure Credit – AS 43.55.023(a) and 43.55.023(l) – These are transferable credits for qualified oil and gas capital expenditures in the state outside the North Slope. Credits that were earned for expenses incurred prior to July 1, 2017, were eligible for repurchase by the State of Alaska. The credits can be taken in lieu of Exploration Credits under AS 43.55.025, but are in addition to any net-operating loss credits under AS 43.55.23(b).

Before Jan. 1, 2017, companies could have qualified for a credit of 20% of eligible capital expenditures, or 40% of qualified well lease expenditures. As of Jan. 1, 2017, the Qualified Capital Expenditure Credit was reduced from 20% to 10% and the Well Lease Expenditure Credit was reduced from 40% to 20%.

On Jan. 1, 2018, both credits were repealed for Cook Inlet. There is no expiration date for Middle Earth (all areas not included in Cook Inlet or the North Slope).




Small Producer – AS 43.55.024(c) – The Small-Producer Credit is a nontransferable credit for oil and gas produced by small producers, defined as having average taxable oil and gas production of less than 100,000 Btu-equivalent barrels per day.

For producers that had commercial production prior to April 1, 2006, the credit expired on Dec. 31, 2016. For producers that did not have commercial production prior to April 1, 2006, the credit is available until the ninth calendar year following the start of commercial production if the production started before May 1, 2016.

If the taxpayer produces less than 50,000 Btu-equivalent barrels per day, the taxpayer may take up to a $12 million credit per year.

For production between 50,000 and 100,000 Btu-equivalent barrels per day, the credit is prorated. The credit is zero for producers with 100,000 or more Btu-equivalent barrels per day.

The credit may not be carried forward or transferred. The credit may only be used against tax liability, and only if the producer has a positive tax liability before the application of credits.


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