Section 15 AAC 55.360 - Qualified exploration expenditures(a) For purposes of the alternative oil and gas exploration tax credit under (1)AS 43.55.025(a)(1) - (4), as the provisions of that section read on June 30, 2008, qualified exploration expenditures are the reasonably required direct costs for work performed on a particular exploration well or seismic or geophysical exploration project on or after July 1, 2003 and before July 1, 2008;(2)AS 43.55.025(a)(1) - (4), in effect on July 1, 2008, qualified exploration expenditures are the reasonably required direct costs for work performed on a particular exploration well or seismic or other geophysical exploration project after June 30, 2008, and before July 1, 2016, or on a particular seismic exploration project before July 1, 2003, except that exploration expenditures for work conducted outside of the Cook Inlet sedimentary basin and south of 68 degrees North Latitude must be incurred for work performed after June 30, 2008 and before (A) January 1, 2022 for a tax credit under AS 43.55.025(a)(1), (2), or (3); or (B) January 1, 2018 for a tax credit under AS 43.55.025(a)(4); (3)AS 43.55.025(a)(6) exploration expenditures that qualify under AS 43.55.025(m) must be incurred for work performed after June 1, 2012 for a well spudded before July 1, 2017.(b) Qualified exploration expenditures for an exploration well include costs incurred for (1) surveying and preparing the exploration well drill site;(2) constructing new ice or gravel roads, from the terminus of an existing ice or gravel road used in oil or gas operations to the exploration well site, and building and maintaining docks, helipads, or landing areas necessary to the exploratory drilling activity; costs for these activities are calculated as follows: (A) for a road, dock, helipad, or landing area, the cost is the actual cost incurred;(B) if the road, dock, helipad, or landing area is used for any activity other than the exploration activity for which the credit is claimed, the cost is allocated among the different activities based on the number of hours or days, as appropriate, that it is used for each activity, divided by the total number of hours or days it is used for all activities;(3) in-state travel, temporary living quarters, and subsistence at or near the exploration well site for drilling crew and personnel engaged in onsite exploration activities;(4) drilling rig costs, including(A) transportation and preparation, including the costs of moving the drilling rig to the exploration well site, mobilization, rigging-up, de-mobilization, and rigging-down of the drilling rig on the exploration well site;(B) onsite costs for operating the drilling rig, including onsite coring and well logging; onsite drilling rig operating costs are calculated as follows: (i) if the drilling rig is under a third-party contract, the costs are calculated at the contractual operating rate;(ii) if the drilling rig is owned wholly or partly by an explorer, the costs are calculated on the basis of the net book value of the rig on the date it arrives on the exploration well site; if the exploration well drilling activities are the first use of a drilling rig after it is transported into the state, the cost of transporting the drilling rig to the state and to the area-wide dock is added to the net book value of the drilling rig;(iii) drilling rig operating costs may be claimed from the date the drilling rig arrives on the exploration well site until the earliest of the completion date, the date the drilling rig is released from the drilling operation, or the date the drilling rig moves off the exploration well site; if drilling activities are suspended for any reason for 15 consecutive calendar days, drilling rig operating costs are not allowed under this subparagraph for those 15 days or for any subsequent day until drilling activities are resumed; and(C) drilling materials, supplies, maintenance, repairs, drilling crew labor, and drilling waste handling;(5) transportation equipment used for drilling crews; the cost of transportation equipment is calculated as follows: (A) if the equipment is under a third-party contract, the cost is calculated at the hourly or daily contract rate, as appropriate, multiplied by the number of hours or days the equipment is actually used for the exploration activity for which the credit is claimed, divided by the number of hours or days the equipment was available by contract for use in the exploration activity;(B) if the equipment is owned wholly or partly by an explorer, the cost is calculated on the basis of the net book value of the equipment multiplied by the number of days or hours, as appropriate, the equipment is used in the exploration activity for which the credit is claimed, divided by the number of days or hours of estimated remaining useful life of the equipment;(C) if the equipment is used for any activity other than the exploration activity for which the credit is claimed, the cost is allocated among the different activities based on the number of hours or days, as appropriate, it is used for each activity, divided by the total number of hours or days it is used for all activities; and(6) communications expenses necessary to the exploration well.(c) Qualified exploration expenditures for seismic and geophysical exploration include costs incurred for(1) seismic exploration activities, initial processing of data derived from seismic exploration activities, and downhole geophysical surveys associated with well logging;(2) in-state travel, temporary living quarters, and subsistence at or near the exploration site for seismic crew and other personnel engaged in the exploration activities;(3) the seismic exploration crew; seismic exploration crew costs are calculated as follows: (A) if the crew is provided under a third-party contract, at the rate provided in the contract;(B) if the crew is provided by an explorer, as actual payments to the crew for time expended on the seismic activity;(4) goods, services, and materials; costs for goods, services, and materials are calculated as follows: (A) if goods, services, and materials are provided under a third-party contract, the costs are calculated at the contract rate;(B) if goods, services, and materials are provided in whole or in part by an explorer, the costs are the actual costs incurred;(C) if a good, service, or material is used for any activity other than the exploration activity for which the credit is claimed, the cost is allocated among the different activities based on the number of hours or days, as appropriate, it is used for each activity, divided by the total number of hours or days it is used for all activities; and(5) seismic and geophysical equipment, off-site computers, and other modeling equipment used in the initial seismic data processing; the cost of that equipment, including maintenance and repairs, is calculated as follows: (A) if the equipment is under a third-party contract, the cost is calculated at the hourly or daily contract rate multiplied by the number of hours or days, as appropriate, that the equipment is actually used for the exploration activity for which the credit is claimed, divided by the number of hours or days the equipment was available by contract for use in the exploration activity;(B) if the equipment is owned wholly or partly by an explorer, the cost is calculated on the basis of the net book value of the equipment multiplied by the number of days or hours, as appropriate, the equipment is used in the exploration activity for which the credit is claimed, divided by the number of days or hours of estimated remaining useful life of the equipment;(C) if the equipment is used for any activity other than the exploration activity for which the credit is claimed, the cost is allocated among the different activities based on the number of hours or days, as appropriate, it is used for each activity, divided by the total number of hours or days it is used for all activities.(d) Qualified exploration expenditures for work performed after June 30, 2003 and before July 1, 2008, do not include costs that are disallowed under AS 43.55.025(b)(3) or (4), as the provisions of those paragraphs read on June 30, 2008. Qualified exploration expenditures for work performed after June 30, 2008, do not include costs that are disallowed under AS 43.55.025(b)(3) or (4), in effect on July 1, 2008. Qualified exploration expenditures for seismic exploration work performed before July 1, 2003, do not include costs that are disallowed under AS 43.55.025(b)(3), in effect on July 1, 2008. For purposes of this subsection and (1)AS 43.55.025(b)(3), as the provisions of that paragraph read on June 30, 2008, "testing, stimulation, or completion costs" means costs incurred on the exploration site after discovery of oil or gas potential at the site, including costs incurred to prepare an exploration well for, or convert it to production, to prepare or monitor an exploration well for status as a producer or potential producer, or to conduct flow tests; in this paragraph, "discovery of oil or gas potential" means drilling an exploration well into a formation capable of producing previously undiscovered oil or gas reserves;(2)AS 43.55.025(b)(3), as the provisions of that paragraph read on June 30, 2008, and as those provisions are in effect on July 1, 2008, (A) "administration, supervision, engineering, or lease operating costs" means overhead costs incurred for activities that (i) do not occur on the exploration site; and(ii) are not directly related to drilling an exploration well or conducting seismic exploration, including geophysical surveys other than seismic surveys;(B) "geological or management costs" means costs incurred before drilling begins to determine or select possible exploration targets; "geological or management costs" includes airborne gravity and magnetic surveys;(C) "community relations or environmental costs" includes costs incurred for environmental compliance programs required as a result of an environmental incident, spill, or disaster;(D) "indirect or financing costs" includes (i) bottom hole and dry hole contributions, and reimbursements and fees assessed for late participation; and(ii) seismic or geophysical data purchased from another person.(e) In this section, (1) "labor costs" means the actual costs of labor, including the amount of customary or required benefits;(2) "net book value" means, under generally accepted accounting principles, the dollar amount the owner of an asset records in its financial statement as the historical cost of the asset, excluding capitalized interest and net of accumulated depreciation or amortization.(f) Qualified exploration expenditures for work performed on an exploration well after June 30, 2008, in the case of(1) testing or stimulation costs, are limited to costs incurred to conduct activities necessary to appraise the well for its oil or gas production potential; those costs must be incurred before the well is suspended or abandoned;(2) completion costs, (A) are limited to costs incurred to equip and condition the well for the purpose of conducting activities described in (1) of this subsection;(B) do not include expenditures to abandon or suspend a well; this subparagraph does not affect the treatment as qualified exploration expenditures of expenses required for abandonment of a dry hole within 18 months after the date the well was spudded as provided in AS 43.55.025(b)(3)(D).Eff. 5/3/2007, Register 182; am 12/25/2009, Register 192; am 3/1/2017, Register 221, April 2017; am 1/1/2018,Register 224, January 2018The subject matter of 15 AAC 55.360 was formerly located at 15 AAC 55.230. The history note for 15 AAC 55.360 does not reflect the history of the earlier section.
Authority:AS 43.05.080
AS 43.55.025
AS 43.55.110