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(a) The direct operating costs during a year that are incurred by or for a taxpayer for a lease or property in the state are a deduction in determining the taxpayer's taxable production income for that year.
(b) Before the commencement of commercial production from (or allocated to) a lease or property, the direct operating costs for that lease or property are (1) the costs for geological and geophysical work conducted on the lease or property after the taxpayer has acquired a working interest in the lease or property, (2) rentals and shut-in royalties paid in order to retain the lease or property, and (3) the costs for operations conducted on or near the lease or property in support of drilling and/or development operations for the lease or property but excluding the actual drilling costs and development costs themselves; however, if the lease or property is subject to an operating agreement in which at least one working-interest owner is a third party to the operator, then the direct operating costs for that lease or property are the costs (excluding drilling costs and development costs) that are incurred by the operator in operating that lease or property and which are reimbursable to the operator by the working-interest owners, under the terms of that operating agreement.
(c) After the commencement of commercial production from (or allocated to) a lease or property, the direct operating costs for that lease or property are the costs of operating the wells, facilities and equipment on or for the lease or property which directly result in or are necessary for the continued or enhanced production from (or allocated to) the lease or property and the costs of operations conducted on or near the lease or property in support of drilling and/or development operations for the lease or property but excluding the actual drilling costs and development costs themselves; however, if the lease or property is subject to an operating agreement in which at least one working-interest owner is a third party to the operator, then the direct operating costs for that lease or property are the costs (excluding drilling costs and development costs) that are incurred by the operator in operating that lease or property and which are reimbursable to the operator by the working-interest owners, under the terms of that operating agreement.
(d) No cost for the taxpayer's general overhead or administrative expense and no cost that is to be amortized or depreciated under 15 AAC 21.250 and 15 AAC 21.260, respectively, may be included in a deduction under this section.
History: Eff. 2/22/79, Register 69
Authority: AS 43.05.080
Art. IV, § 18
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Last modified 7/05/2006