Senate Bill 21, which was recently signed into law, significantly alters Alaska’s Oil and Gas Production Tax regime. Although discussions regarding this law have largely been focused on North Slope activity, other areas of the state are also affected.
To understand the relevance of the amendments, it is useful to have a basic understanding of the major components of the production tax regime. The tax is levied on the net profits of oil and gas production from leases or properties in the state, except for the federal and state royalty share and oil and gas used in drilling or production operations. At a high level, the calculation starts with destination value, generally the higher of the sales price or a calculated prevailing value of the oil. The costs of pipeline and marine transportation are subtracted from the destination value to obtain the gross value at the point of production (GVPP). Upstream operating and capital costs (termed lease expenditures) are subtracted from the gross value at the point of production to reach net profit per Btu equivalent barrel of oil and gas, known as production tax value.