Alaska's Senate passes Cook Inlet exploration tax credit proposal

A proposed Alaska state severance tax credit would provide credit of up to 40% for the cost of certain new exploration wells in Cook Inlet, and if implemented, it would pertain to wells begun from July 1, 2004, to July 1, 2007.

May 19, 2003

2 min read

By OGJ editors

HOUSTON, May 19 -- A proposed Alaska state severance tax credit would provide credit of up to 40% for the cost of certain new exploration wells in Cook Inlet, and if implemented, it would pertain to wells begun from July 1, 2004, to July 1, 2007.

The Alaska Senate last week passed Senate Bill 195, sponsored by Rep. Sen. Tom Wagoner, R-Kenai/Soldotna. Gov. Frank Murkowski supports the measure, which now goes before the House of Representatives for its consideration.

Murkowski said the proposed tax credit would make exploration costs in Alaska more competitive with exploration costs elsewhere in the world (OGJ, Dec. 9, 2002, p. 18).

"In Azerbaijan, the cost of exploration is 5¢ on the dollar, because the government credits back 95¢. Here in Alaska, the only incentive we currently offer is the 35% federal tax credit. We have no comparable state incentive. So, at 65¢, we are among the highest cost, and least attractive, of all the oil provinces," Murkowski said.

The industry plans three or four exploration wells in Alaska this year, Murkowski noted. Meanwhile, industry drilled 2,524 exploration wells in Alberta last year.

The proposed severance tax credit would provide a credit of 20% of the cost of wells drilled more than 3 miles from an existing well, and an additional 20% for wells drilled more than 25 miles from production facilities.

The credit could carry forward if not used by the company. Credit could be sold by a company that does not pay severance tax to one that does.

"By partnering with exploration companies, the 40% tax credit will place Alaska about midway on the list of effective rates for exploration in other parts of the world," Murkowski said.