On January 16, 2013, Alaska Governor Sean Parnell introduced proposed legislation that would significantly alter Alaska’s Oil and Gas Production Tax regime. The current law, known as Alaska’s Clear and Equitable Share Act (“ACES”), was enacted in 2007 and is located in Alaska Statutes 43.55.011 et seq. This 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. In this context, the term “net profits” is essentially the gross value at the point of production, also known as wellhead value (market price less transportation costs) less upstream operating and capital costs.
The tax that is levied on net profit per Btu equivalent barrel of oil and gas is the sum of (1) a base tax rate of 25% and (2) a progressive surcharge that is calculated on a monthly basis and starts at 0.4% for every $1 by which net profit per barrel exceeds $30, up to $92.50. For net profits over $92.50, the progressive surcharge equals the sum of 25% (0.4% times $62.50) plus 0.1% per every additional $1 of profit per barrel, up to a maximum progressive surcharge of 50%. Thus, the maximum total nominal tax rate is 75%. The tax rates under ACES, particularly the progressive surcharge, have been and will continue to be hotly debated.Continue Reading Proposed Alaska Oil and Gas Production Tax Bill Would Reduce Tax Rates, Alter Credits