May 12, 2003 --- Vol. 9, No. 50May 2003

New exploration tax incentive proposed

There are only three exploration wells planned in Alaska for next year, Alaska Gov. Frank Murkowski said today, and that doesn't bode well for the administration's commitment to increase resource development.

"We're told that there are three exploration wells planned for next year, and one that is kind of a test well, it's not exploration in the true sense of the world," the governor said.

Alaska's exploration costs are the highest of any oil province in the world, he said, and announced a four-year exploration incentive to try to encourage more exploration.

The incentive will be introduced as an amendment by Sen. Tom Wagoner, R-Kenai, to Senate Bill 185, a bill which offers royalty reductions in Cook Inlet to keep existing facilities operating as production declines.

The amendment provides a tax credit against the state's severance tax of up to 40 percent. It is not applicable to development drilling. Wells more than three miles from existing facilities would be eligible for a 20 percent credit. Wells 25 miles or more from existing facilities would be eligible for the 40 percent credit.

The Department of Revenue has been evaluating incentives, the governor said, and had Pedro van Meurs in last week to discuss what the state could do. This incentive was the answer. It has a sunset of four years and covers work done between July 1, 2003, and June 30, 2007, and the credit applies to severance taxes on oil and gas produced after July 1, 2004.

The governor said the proposed incentive could be carried forward if not used and could be sold to other companies paying severance taxes.

"We think that this tax credit could more or less prime the pump," the governor said, " to introduce more activity here."

Wagoner said the goal of the incentive is to "increase the development and exploration in the state of Alaska." Alaska is "still a revenues-driven economy," he said: "right now we have no other place to go for revenues."

There are very few drilling rigs active in Alaska now, he said.

"I think this incentive gives the oil companies enough incentive to start exploration here in Alaska again," Wagoner said.

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