American Oil and Gas Reporter - August 2017 - 37

Alaska Overhauls Tax Credit System
ANCHORAGE, AK.-A bill that the
Alaska Oil & Gas Association asserts
will cause oil and gas companies to
rethink their investment strategies in the
state has been sent to Governor Bill
Walker. AOGA predicts the bill will lead
to less money for projects and fewer employed Alaskans.
On July 15, the Alaska Legislature
approved HB 111, introduced by the
House Resources Committee. According
to the state legislative website, under the
bill, Alaska will stop offering transferrable
or cashable tax credits for North Slope
oil and natural gas projects. Instead, companies will be expected to carry forward
their losses until they owe a tax liability
to the state, at which time the credits can
be used to offset oil or gas production
taxes. The bill also expands a company's
ability to use or transfer credit certificates
to offset tax liabilities.
"HB 111 increases taxes on the industry
just one year after the last tax increase
became law," says Kara Moriaty, AOGA's
president and chief executive officer. "If
this bill is signed into law, the oil industry,
which remains, by far, the largest contributor to the state's unrestricted revenues,
will be giving even more."
According to media reports, HB 111
does not end all oil or gas tax credits.
Capital expenditure and exploration credits
used in Alaska's "Middle Earth" region-
everything outside Cook Inlet and the
North Slope-continue until they expire.
Tax credits also continue for owners of oil
refineries and natural gas storage facilities.
Alaska Tax Division Director Ken
Alper says the only change is that companies earning certificates for those credits
will not get cash for them. The Middle
Earth capital expenditure applies to production taxes, while the region's small
exploration credit is applicable to corporate
income taxes, he points out.
The state legislative website says HB
111 makes multiple changes to Alaska's
oil and natural gas production tax and
tax credit statutes. Legislators have added
credits to the statute since 2003, with
state repurchase beginning in 2007.
Through the end of fiscal year 2016, it
estimates companies have received $8.0
billion in tax credits, including $4.5 billion
used against tax liabilities and $3.5 billion
in credits repurchased by the state.
The new legislation builds on 2016's
HB 247. The state legislative website
says those changes, combined with the
sunset of most exploration credits that
occurred in 2016, reduces the state's es-

timates of future credit demand although
the volume of tax credit certificates
eligible for state purchases continues to
grow. The website estimates that if annual
appropriations continue according to statutory formula, its forecast indicates $1.6
billion in purchasable credits outstanding
in 2026. It adds that if several discoveries
announced on the North Slope are developed, the state will be liable for billions
in additional credit liabilities payable far
in advance of those projects yielding any
additional taxes or royalty revenues.
Tax Changes
HB 111 repeals the state's Oil and
Gas Tax Credit Fund as of Jan. 1, 2022,
or sooner if Alaska pays off outstanding
credit certificates, media reports describe.
The bill eliminates the carried forward
annual loss credit, which now is 35 percent
for the North Slope and 15 percent in
Middle Earth, the bill's language states.
The change becomes effective Jan. 1, 2018,
and will eliminate or reduce the credit's
future liabilities. Under the bill, in lieu of
operating loss credits, a company may
carry forward 100 percent of lease expenditures incurred outside the Cook Inlet
sedimentary basin and not deducted against
production taxes in the year incurred.
Outstanding carry forwards reduce in
value by 1/10 of the initial amount, beginning with the eighth year after earned
for carry forwards generated from producing areas, or the tenth year for nonproducing areas, the bill says. Only operating loss credits for expenditures incurred before July 1, 2017, are eligible
for state repurchases. For operating loss
credits earned during calendar year 2017,
only the lesser of the credit for expenses
incurred prior to July 1, 2017, or 50
percent of the annual credit, may be repurchased by the state; the bill says the
remainder may be carried forward or

transferred.
Effective Jan. 1, 2018, the bill eliminates operating loss credits and replaces
them with a carry-forward lease expenditure provision for Middle Earth. Exploration credits earned after July 1, 2017,
may be applied against a company's corporate tax liability or transferred, but,
the bill notes, seismic work does not
qualify for exploration credits effective
Jan. 1, 2018. The bill retains capital expenditure and well lease expenditure credits that can be carried forward or transferred.
AOGA contends HB 111:
* Negatively impacts the economics
of all companies exploring and operating
on the North Slope, but especially hits
smaller and new companies;
* Challenges the prospects of largescale new discoveries on the North Slope,
such as Smith Bay, from moving forward;
* Risks additional Alaska oil and gas
jobs, property tax revenues and royalty
payments;
* Does nothing to ensure continued,
increased throughput through the Trans
Alaska Pipeline;
* Further damages Alaska's reputation
in the investment community as an unstable and risky place to invest; and
* Fails to address the cash credits
that were earned in good faith by small
and new oil companies, and which still
need to be reimbursed for work already
completed.
"Enough is enough," Moriarty says.
"If this bill is signed into law, the oil industry, which remains, by far, the largest
contributor to the state's unrestricted revenues, will be giving even more. If
Alaskans want to see exciting new oil
fields developed and new oil flowing
through the pipeline, then fiscal stability
must be established in Alaska."
r

Shallow East Texas Well Flows At 1.954 MMcf/d

CALGARY-The Raptor B No. 1 appraisal well drilled by Tanager Energy
Inc. and Paleo Oil Company in Polk
County, Tx., tested 1.954 million cubic
feet a day on a 20⁄64-inch choke at a
stabilized flowing pressure of 940 psi,
Tanager reports.
The company says it calculated an
absolute open flow rate of 13.898 MMcf/d
for the well drilled to a total measured
depth of 3,100 feet in the East Texas
Yegua formation. The well was completed
between 2,616 and 2,630 feet, and was

flow tested over four days, Tanager adds.
"The results of the Raptor B No. 1
are very encouraging, and are in line
with our expectations, confirming the
high quality reservoir characteristics of
the Yegua Sandstone and significant deliverability potential from such shallow
wells," remarks Tom M. Crain Jr., Tanager's interim chairman and chief executive officer.
Tanager and Paleo Oil each own a 50
percent working interest in the Raptor B
No. 1.
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AUGUST 2017 37

American Oil and Gas Reporter - August 2017

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