The bulk of the funds, almost $600 million, will be to pay for industry tax credits paid for new capital investment or exploration, according to state budget documents. The state allows a 20 percent tax credit on capital investments and additional credits for exploration spending, to the point that as much as 40 percent of the costs of an exploration well can be funded from the state budget.

"Independent companies exploring in Alaska have told us that the tax credits are very important in being able to finance their programs," said Pat Galvin, state revenue commissioner.

Gov. Sean Parnell has proposed an appropriation of $180 million for direct state reimbursement of exploration expenses, although the Department of Revenue estimated this could increase to $200 million. In addition, producing companies are expected to offset $400 million in state production tax liability by applying capital investment and exploration tax credits against the tax.

Alaska law allows oil and gas companies to either apply tax credits against the production tax or to apply for cash refunds from the state if a company, such as a new explorer, does not have production tax liability or cannot sell the tax credit to a producer.

Additionally, the state is expected to refund TransCanada Corp. and ExxonMobil Corp. $150 million for 50 percent of their expenses for preliminary engineering and preparing cost estimates for a $30 billion-plus Alaska natural gas pipeline.

TransCanada is working under a license issued by the state to be reimbursed 50 percent of expenses before an initial open season on a pipeline and 90 percent of expenses post-open season as it prepares an application to the Federal Energy Regulatory Commission.

ExxonMobil has joined TransCanada in the pre-open season work and is also eligible for the 50 percent state reimbursement for its share of costs.

BP and ConocoPhillips, working on a rival gas project through their Denali pipeline initiative, will receive no state reimbursement.

Other state funds Parnell budgeted include $6.5 million for continued engineering and development work on an in-state gas pipeline. This would be either a 24-inch spur pipeline that would branch off a large pipeline built to serve Southcentral Alaska communities, or a stand-alone 24-inch "bullet pipeline" from the North Slope to Southcentral Alaska the state could sponsor if industry delays the big pipeline to the Lower 48.

Either project would be built by private firms under the current plan, although the state is taking the lead on doing preliminary engineering and permits. The Alaska Natural Gas Development Authority, a state corporation, is working on the spur line and could also help finance, or actually build, an in-state line if the Legislation decides on that course.

Under Parnell's budget, the state would also spend about $7 million on engineering and right-of-way work on a proposed 80-mile state road across the North Slope foothills from the existing Dalton Highway. That road would provide access a small oilfield in Umiat, in the National Petroleum Reserve-Alaska, being developed by Renaissance Umiat, a Houston-based independent, as well as areas nearby being explored by Anadarko Petroleum Corp.

The total tab for the state in supporting industry activity would be $763.5 million for fiscal year 2011, the state budget year that begins July 1.

Tim Bradner can be reached at

tim.bradner@alaskajournal.com.