Alaska Tax Incentives / Credits
In November 2007, the Alaska Legislature passed House Bill 2001, known as Alaska’s Clear and Equitable Share (ACES). ACES was designed to develop and promote drilling activities in many of Alaska’s untapped locations. The program essentially de-risks the process of drilling offshore in Alaska, by providing companies with generous tax incentives to develop existing resources in the area to ease the increasingly high energy demand curves.
KOV’s rig is able to drill in 95% of the Cook Inlet allowing us to provide service for any drilling program and our unique structure is designed to help companies maximize ACES and drilling rebates allowing all of your exploration dollars to be eligible for up to a 65% rebate.
The three main areas for tax incentives are exploration activities, loss carry forward and capital credits. One of the most exciting incentives falls in the exploration activities area and is the Cook Inlet Jack-Up Rig credit. Since a jack-up rig hasn’t been in the Cook Inlet since the mid 90s, the State of Alaska is hoping to make that happen very soon by offering extremely attractive incentives. Up to a $25 million credit (100% of costs) will be awarded to the first company to drill an offshore well in the Inlet, up to a $22.5 million credit (90% of costs) for the second company and up to a $20 million credit (80% of costs) for the third company, all utilizing the same rig.
These credits are only available for the first three wells drilled with a jack-up rig to the Pre-Tertiary region. Only one credit can be awarded to each company and rig mobilization costs are included. If hydrocarbons are successfully found, 50% of the tax credit must be paid back from the producer to the State of Alaska over a period of 10 years, but no repayment is necessary if a dry hole is drilled.
An exploration tax credit of 40% is given for expenditures incurred south of the North Slope. A loss carry forward incentive is a credit of 25% against a previous year’s direct lease expenditures, which includes almost all spending “for the benefit of a lease”, can apply on March 31st of the year following the expenditure, and half of the credit is available immediately with the other half available in the next calendar year. Capital credits are 20% of qualified capital expenditures (most exploration, development and seismic spending), can apply quarterly, and half of the credit is available immediately with the other half available in the next calendar year.
One of the best things about the program is you can qualify for more than one credit. For example, an exploration credit of 40% and a loss carry forward of 25% can be taken for a total of up to 65% back from the State. Credits can be sold to the State or transferred to other producers at a negotiated price. After applying for credit, it takes up to 120 days to issue the credit and then another 30 days to convert the credit into cash. All drilling costs, including the cost of rig mobilization, can be recovered through Alaska state tax credits over two years, are fully fungible and transferable. These incentives apply irrespective of the success of any well or development program.
Tax Incentive Resources