US Alaska Upstream Fiscal and Regulatory Report - Budget Problems May Force Fiscal Regime Changes

The reduction in tax credits, the large long-term state budget liabilities, and the inability to repay the investment credits, may force Alaska to modify its petroleum fiscal framework just a few years after the modification introduced by MAPA in 2013. The reduction in tax credits coupled with the difficulties in legally establishing the Alaska Tax Credit Certificate Bond Corporation and its bond repurchase program may dampen investment sentiment across Alaska despite the reduction at the federal level of corporate income tax to 21%. As a result of budget problems there may be an increase in conflicts between Alaska and the oil and gas producing municipalities. Moreover, the Trump administration wants to proceed with oil and gas activities within a 1.5 million-acre coastal plain in the Arctic National Wildlife Refuge, a federal area, but this project will face a strong environmental opposition slowing investment.

“US Alaska Upstream Fiscal and Regulatory Report - Budget Problems May Force Fiscal Regime Changes”, presents the essential information relating to the terms which govern investment into United States’s upstream oil and gas sector. The report sets out in detail the contractual framework under which firms must operate in the industry, clearly defining factors affecting profitability and quantifying the state’s take from hydrocarbon production. Considering political, economic and industry specific variables, the report also analyses future trends for United States’s upstream oil and gas investment climate.

Scope

Overview of current fiscal terms governing upstream oil and gas operations in United States

Assessment of the current fiscal regime’s state take and attractiveness to investors

Charts illustrating the regime structure, and legal and institutional frameworks

Detail on legal framework and governing bodies administering the industry

Levels of upfront payments and taxation applicable to oil and gas production

Information on application of fiscal and regulatory terms to specific licenses

Outlook on future of fiscal and regulatory terms in United States

Reasons to buy

Understand the complex regulations and contractual requirements applicable to United States’s upstream oil and gas sector

Evaluate factors determining profit levels in the industry

Identify potential regulatory issues facing investors in the country’s upstream sector

Utilize considered insight on future trends to inform decision-making

Table of Contents

1. Table of Contents

1. Table of Contents 1

1.1. List of Tables 3

1.2. List of Figures 3

2. Regime Overview 4 ...

1. Table of Contents

1. Table of Contents 1

1.1. List of Tables 3

1.2. List of Figures 3

2. Regime Overview 4

3. State Take Assessment 6

4. Key Fiscal Terms 7

4.1. Cash Bonus Bid (Lease) 7

4.2. Rental Fees 8

4.3. Royalty 9

4.3.1. Royalty Modifications 10

4.3.2. Unconventional Gas Royalty Modification 10

4.3.3. Uneconomic Field Royalty Modification 10

4.3.4. Cook Inlet Royalty Modifications 10

4.3.5. Cook Inlet Specific Field Production Threshold Royalty Modification 10

4.4. Net Profit Sharing Lease 11

4.5. More Alaska Production Act Production Tax (2014 Onward) 12

4.5.1. Taxation Caps 13

4.5.2. Taxation of Non-Governmental Royalties 13

4.5.3. Determination of Gross Value at the Point of Production (GVPP) 13

4.5.4. Gross Value Reduction for Production North of 68N Latitude 14

4.5.5. MAPA Production Tax in Relation to Other Taxes 14

4.6. Historical Production Taxes 14

4.6.1. Alaska’s Clear and Equitable Share (ACES) Production Tax (July 2007–December 31, 2013) 14

4.6.2. Petroleum Profits Tax (2006–2007) 15

4.6.3. Economic Limit Factor (ELF) Production Tax I and II (1977–2006) 15

4.7. Property Tax (Municipalities) 15

4.8. Corporate Income Tax 16

4.8.1. State Corporate Income Tax 16

4.8.2. State Corporate Income Tax Deductions and Depreciation 16

4.8.3. Federal Corporate Income Tax 17

4.8.4. Federal Corporate Income Tax Deductions and Depreciation 17

4.8.5. Withholding Tax 19

4.9. Branch Profits Tax 19

4.10. State Tax Credits 20

4.10.1. Per-Barrel Tax Credit 20

4.10.2. Alternative Credit for Exploration 21

4.10.3. Qualified Capital Expenditure Credit & Well Lease Expenditure Credit 22

4.10.4. Cook Inlet Jack-Up Rig Credit (Expired on June 30, 2016) 23

4.10.5. Frontier Basin Credit (Expired in June 2016) 23

4.10.6. Exploration Incentive Credit (Expired on December 31, 2016) 23

4.10.7. Carried-Forward Annual Loss Credit (Expired on December 31, 2017) 23

4.10.8. Small Producers Credit 24

4.10.9. New Area Development Credit (Unusable Because No Licensee Was in the Position to Claim It) 24

4.10.10. Gas Exploration and Development Tax Credit (Expired on January 1, 2016) 24

4.10.11. Internal Revenue Code Credits Adopted by Reference 24

4.10.12. LNG Storage Facility Tax Credit 25

4.10.13. Oil and Gas Industry Service Expenditure Credit 25

4.10.14. Education Credit (Until December 31, 2024) 25

4.10.15. Transitional Investment Expenditure Credit (Expired December 31, 2013) 25

5. Regulation and Licensing 26

5.1. Legal Framework 26

5.1.1. Governing Laws 26

5.1.2. Contract Type 27

5.1.3. Title to Hydrocarbons 27

5.2. Institutional Framework 28

5.2.1. Licensing Authority 28

5.2.2. Regulatory Agency 28

5.3. Licensing Process 29

5.3.1. Lease Licensing Process (State Lands) 29

5.3.2. Exploratory License Process (State Lands) 29

5.3.3. Federal Lease Sales in the National Petroleum Reserve in Alaska (NPR-A) 30

5.4. License Terms 30

5.4.1. Duration 30

5.4.2. Area 30

5.4.3. Obligations for Exploration Licenses 31

5.4.4. Obligation for Leases 31

6. Outlook 32

7. Appendix 34

7.1. References 34

7.2. Contact Us 37

7.3. Disclaimer 37

List of Tables

1.1. List of Tables

Table 1: Regime Overview 4

Table 2: Alaska, Average and Minimum Bonus Bids (US$) Per Acre by Area, 2012–2019 ...

1.1. List of Tables

Table 1: Regime Overview 4

Table 2: Alaska, Average and Minimum Bonus Bids (US$) Per Acre by Area, 2012–2019 7

Table 3: Alaska, Annual Rental Fees 9

Table 4: Alaska, Royalty Rate (%), Cook Inlet Specific Field Production Threshold Royalty Modification 11

Table 5: Alaska, NPS Rates (%), Selected Leases, Lease Sale 30, Beaufort Sea, 1979 12

Table 6: Alaska, Fixed NPS Rates (%), Lease Sale Rounds 12

Table 7: Alaska, Minimum Production Tax, Leases/Properties North or Partially North of 68 Degrees North Latitude 13

Table 8: Alaska, State Corporate Income Tax Rates 16

Table 9: United States, Historical Marginal Federal Corporate Income Tax Rates to 2017 (%) 17

Table 10: US – Alaska, 7-Year & 5-Year GDS Depreciation Rates (Half-Year Convention) (%) 18

Table 11: United States, Depreciation of assets 18

Table 12: United States, Bonus Depreciation Rates 19

Table 13: Alaska, Per-Taxable-Barrel Credit 21

Table 14: Alaska, Alternative Credit for Exploration 22

Table 15: References 34

List of Figures

1.2. List of Figures

Figure 1: Regime Flow Chart 5

Figure 2: Alaska, Indicative NPV10/boe, IRR and State Take Comparison, Regional 6

Figure ...

1.2. List of Figures

Figure 1: Regime Flow Chart 5

Figure 2: Alaska, Indicative NPV10/boe, IRR and State Take Comparison, Regional 6

Figure 3: Legal Framework 26

Figure 4: Institutional Framework 28

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