dan e. dickinson cpa extraction and the role of the state: alaska’s oil and gas production taxes...

Dan E.Dickinson CPA

Extraction and the Role of the State:

Alaska’s Oil and Gas Production Taxes

Dan E. Dickinson CPAArctic Energy Summit

Oct 10, 2013

Dan E.Dickinson CPA

Alaska Oil Production, 1965 - 2020

(1) Cook Inlet, Duck Island, Milne Point, Liberty, Pt Thomson, Fiord, Nanuq, Oooguruk, Nikaitchuq and NPRA.Source: Alaska Department of Revenue, Fall 2013 Revenue Sources Book.& earlier RSB, DNR 2007 Oil and Gas Report

Alaska Oil Production

19

6619

6819

7019

7219

7419

7619

7819

8019

8219

8419

8619

8819

9019

9219

9419

9619

9820

0020

0220

0420

0620

0820

1020

1220

1420

1620

1820

2020

220.0

1.0

2.0

All Other (1)

Alpine

Kup-Sat

Kuparuk

PBU-Sat

Prudhoe Bay

Mill

ions

of B

bls

a da

y

Actual Projected

Arctic Energy Summit, Akureyri, Iceland

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Dan E.Dickinson CPA

Tax Regimes in Alaska


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Dan E.Dickinson CPA

Royalty and Tax System

• Royalties – Bilateral negotiated contract between the owner of the resources and the producer (who brings money, production and marketing know how) – Authorized/Approved by the legislature– Negotiated and administered by the executive

• Taxes – Unilateral imposition of state’s police powers– Enacted by the legislature– Approved and administered by the executive– Interpreted and enforced by the courts– In Alaska

– Taxpayers ≠ Voters 10.1

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Dan E.Dickinson CPA

Jul-7

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Feb-

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20

40

60

80

100

120

140

$ pe

r bar

rel

ANS West Coast Price, July 1977 – July 2013

Source: Alaska Department of Revenue, Tax Division

Fiscal Save I: Price of Crude Oil


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Dan E.Dickinson CPA

Fiscal Save II: Changes to Production Tax

• Decade of Efforts to Fix the Decline• 2003 – 025 Exploration Credits Introduced (up to 40%)• 2006 (PPT) - Switch from Gross to Net (higher 22.5% rate,

lower base – high cost projects taxed less)• Progressivity introduced- Offsetting Credits expanded to cover losses and

investment (20%)- 2007 (ACES) - Progressivity rate augmented to .4%/$ above

$30 a barrel net (i.e. every $10/bbl increase in net value raises total tax rate by 2.5%); loss credits fixed at 25%

- 2010 (CIRA) – 40% Credits introduced to cover well work (IDCs & Well Workovers) (excluding North Slope)


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Dan E.Dickinson CPA

Fiscal Save II: Changes to Production Tax

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(Prog is defined as an additional .004 of rate/$ of PTV over 30)

Dan E.Dickinson CPA

Fiscal Results Graphic

SOURCE: SOA DOR Fall 2007, Fall 2008 & Fall 2009 Revenue Sources Book

State of Alaska General Fund RevenuesWC ANS price: $61.63 $96.51 $68.34

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

FY 2007 FY 2008 FY 2009

$mill

ions

All Other GF Sources O&G Royalties O&G Property Tax

O&G Income Tax O&G Production Tax

000 bbls a day: 750 730 702


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Dan E.Dickinson CPA

Fiscal Result Table

SOURCE: SOA DOR Fall 2007, Fall 2008 & Fall 2009 Revenue Sources Book

State of Alaska General Fund Revenues (& WC ANS price)

Thousands bbls a day: 750 730 702O&G as % of State GF Rev 88% 93% 90%

FY 2007 FY 2008 FY 2009Average ANS WC Price/bbl 61.63$ 96.51$ 68.34$ figures in $000,000:O&G Production Tax 2,292.3 6,879.0 3,112.0 O&G Income Tax 594.4 605.8 492.2 O&G Property Tax 65.6 81.5 111.2 O&G Royalties 1,613.0 2,446.1 1,465.6 O&G Subtotal 4,565.3 10,012.4 5,181.0 All Other GF Sources 675.2 780.0 650.2 Total GF 5,240.5 10,792.4 5,831.2


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Dan E.Dickinson CPA

Commonwealth North Board of Directors 10

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How Significant was FY 2008?

-

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

6,000.0

7,000.0

8,000.0

9,000.0

10,000.0

11,000.0

12,000.0

1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009

Fiscal Year

Tota

l Gen

eral

Pur

pose

Unr

estri

cted

Rev

enue

Source: Alaska DOR Fall 2008 Revenue Sources Book (2009 data point from 2009 RSB)

Over 11% of the Unrestricted Revenuecollected in the first 50 years of statehood was collected in FY 2008

Annual revenueFirst broke $100 Million in 1968

Prudhoe BayLease Sale

FY 1970

Dan E.Dickinson CPA

State of Alaska Fiscal ResultsState of Alaska General Fund In/Out

Actual Projected

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

Unrestricted GF IN

Unrestricted GF Out

Oil Portion of Unrestrictred GF IN

$mill

ions

Sources: Revenue: DOR Fall 2010 RSB, Past Spending Annual Leg Finance Fiscal Summaries, Futurespending FY 2012 OMB 10- Year plan, Scenario, three w/ 6% annual increase

Note: Reporting change forGeneral Fund Spending in

FY 2010


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Dan E.Dickinson CPA

Conoco Phillips Net Income,

2,255

Conoco Phillips Net Income,

2,315

All other Costs, 2,010

All other Costs, 2,126 All other Costs,

2,140

Income Taxes, 1,248

Income Taxes, 1,317

Income Taxes, 716

Taxes other than Income Taxes,

3,432

Conoco Phillips Net Income, 1,540


1,135


1,663

-1,0002,0003,0004,0005,0006,0007,0008,0009,000

10,000

2007 2008 2009

$ m

illio

nsConocoPhillips (Alaska) Financial Results

ConocoPhillips Revenues (and uses) for Alaska Segment• Caution – Calendar Year, GAAP based, include CI gas (product price are US total)

Source: CP 10K filings for each year, pages 40, 41, 148, 149, 150

DV: $57.40/bbl $89.38/bbl $63.87/bb

Total Revenues: $7,716 $9,190 $ 5,521


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Dan E.Dickinson CPA

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0%

20%

40%

60%

80%

100%

120%

140%

Alaska United States Worldwide

Increase in Capital Spending forExploration & Development

2006-2012(Oil price [$/bbl]: 2006 = $62; 2012 = $113)

Source: Roger Marks, Presentation to Ninth Oil and Gas Congress Sept 17, 2013

Capital is Mobile

Dan E.Dickinson CPA

Changes from SB 21 Passed 2013

• (1) Severe Reduction (“End”) of Progressivity- Maximum tax rate drops from 75% to 35%.

• (2) Incentives -- Gross Revenue Reduction & Credits for “New Oil”

• (3) Many Changes to Structure of Credits• (4) Interest on underpayments significantly reduced• (5) All qualifying credit certificates can be cashed in upon

receipt• (6) Changes to Income Tax Credits


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Dan E.Dickinson CPA

Changes From SB 21 – New Oil

• Benefits for “New Oil”• (1) AS 43.55.160(f) – Tax is calculated

after Reducing Gross Value by 20% of Gross Value.

• (2) AS 43.55.160(g) - A further 10% reduction in the Gross Value if royalties> 12.5%

• (3) AS 43.55.024(i) – Additional credit of $5 a barrel for any new production


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Dan E.Dickinson CPA

Commonwealth North Board of Directors 16

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Production Tax Math

(Prog is defined as an additional .004 of rate/$ of PTV over 30)

Dan E.Dickinson CPA

Changes from SB 21 – New Oil

• AS 43.55.160(f) criteria for new oil:…(1) the oil or gas is produced from a lease or property that does not contain a lease that was within a unit on January 1, 2003; (2) the oil or gas is produced from a participating area established after December 31, 2011, that is within a unit formed under AS 38.05.180(p) before January 1, 2003, if the participating area does not contain a reservoir that had previously been in a participating area established before December 31, 2011;(3) the oil or gas is produced from acreage that was added to an existing participating area by the Department of Natural Resources on and after January 1, 2014, and the producer demonstrates to the department that the volume of oil or gas produced is from acreage added to an existing participating area.


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Dan E.Dickinson CPA

Changes from SB 21 – New Oil

• AS 43.55.160(f) – translation• (1) Oil from New Units (that don’t contain certain

bits of old units)• (2) Oil from New Participating Areas within Old

Units (that don’t contain certain reservoirs)• (3) Oil from New Acreage added to Old

Participating Areas – so long as you can ID to within 1/10 of one percent which is old oil and which is new oil. { .1% from proposed 15 AAC 55.213 (a)}


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Dan E.Dickinson CPA

August 2014 Ballot

• Two Narratives• Moral Argument, with feisty Alaskans standing up to

Rapacious Oil Companies– Or

• Empirical Argument, with Big Government over-reach once again strangling the golden goose – investment.

• From field of Psychology – In choosing between poor outcomes, people prefer the known to the unknown, in choosing between good outcomes, people are more willing to take risks. Will the election “debate” reflect this?

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Dan E.Dickinson CPA

Alaska Oil Production, 1965 - 2020

(1) Cook Inlet, Duck Island, Milne Point, Liberty, Pt Thomson, Fiord, Nanuq, Oooguruk, Nikaitchuq and NPRA.Source: Alaska Department of Revenue, Fall 2013 Revenue Sources Book.& earlier RSB, DNR 2007 Oil and Gas Report

Attaining Governor’s 2011 goal of 1 mm bbls/day by 2020

Actual Projected

19

6619

6819

7019

7219

7419

7619

7819

8019

8219

8419

8619

8819

9019

9219

9419

9619

9820

0020

0220

0420

0620

0820

1020

1220

1420

1620

1820

2020

220.0

1.0

2.0

GOV(2011)

All Other (1)

Alpine

Kup-Sat

Kuparuk

PBU-Sat

Prudhoe Bay

Mill

ions

of B

bls

a da

y


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Dan E.Dickinson CPA

Changes from SB 21 - Credits

• “Most Generous Incentives in the World” – – Tim Bradner, Economist

• In 2014 and 2015 Certain North Slope Frontier Exploration will qualify for 85% refundable Tax credit –

• Combination of 40% Exploration credit• 45% Loss Carry Forward Credit• Cook Inlet Credits – Up to 65% for Exploration Wells• 20% Qualified Capital Expenditures• 40% Well Lease Expenditures• 25% loss Carry Forward


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Dan E.Dickinson CPA

Thank You

Dan E. Dickinson CPAAnchorage, AK

[email protected] 301 5615

http://www.dedcpa.com/


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mailto:[email protected]

http://www.dedcpa.com/

dan e. dickinson cpa extraction and the role of the state: alaska’s oil and gas production taxes...

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