Hostile Areas Exploration Incentive Act of 1986

Hostile Areas Exploration Incentive Act of 1986 - Amends the Internal Revenue Code to allow an income tax credit for costs incurred for exploring for oil or gas in the domestic frontier and arctic areas. Defines a "domestic frontier area" as any area on the outer continental shelf where the water depth is 600 feet or greater. Defines an "arctic area" as any area located north of the 49th parallel.

Sets the rate of such credit at 15 percent of the exploration and drilling costs incurred in such areas. Reduces such percentage for exploration and drilling in water depths between 600 and 1,199 feet. Limits the amount of such credit based on the average price of domestic crude oil. Provides for inflation adjustments to such limitation.

Allows an income tax credit for oil and gas produced in either domestic frontier or arctic areas. Sets the rate of such credit at $5 per barrel-of-oil equivalent. Reduces such rate for exploration and drilling in water depths between 600 and 1,199 feet. Limits the amount of such credit based on the average price of domestic crude oil. Provides for inflation adjustments to such limitation.

Allows a three year carryback and 15-year carryover of any unused oil and gas exploration and production income tax credits.