88E tax credit sale may have included additional consideration

Steve Sutherlin

Petroleum News

The $18.7 million sale of Alaska oil and gas production tax credits by 88 Energy Ltd reported in the June 27 edition of Petroleum News likely included additional consideration above its cashable tax credits with a face value of $19.1 million.

“The overall impact of this transaction is not considered material to 88 Energy as the Tax Credits applied to be cashed out and approved by the Alaskan Government totaled US$19.1 million (compared to the proceeds received from sale of tax credits of US$18.7 million),” 88 Energy said in a June 21 release.

88 Energy said it had entered into an agreement for the sale of “all the Alaskan Oil and Gas Tax Credits currently held by Accumulate Energy Alaska, Inc., a 100% owned subsidiary of 88 Energy.”

The two statements, taken together, indicate that the additional consideration included non-cashable tax credits above the $19.1 million mentioned in the release.

In 2017, the Alaska Legislature ended the cashable tax credit program - the Carried-Forward Annual Loss Credit - in two steps. First, the program was ended as of Dec. 31, 2017, after which no further credit certificates could be earned. Second, the state said it would only cash out the portion of the certificate that was earned in the first half of 2017.

Accumulate was active throughout 2017, spudding the Icewine No. 2 well in the second quarter, with production testing and other work continuing past year end.

Prior to drilling, 88 Energy said it estimated a cost of $17.7 million for the well, which has a well site in the Franklin Bluffs region that allows the company to access the drilling location year-round.

Accumulate had tax credits from previous years, having received payment of $99,060 in 2016 for a portion of its outstanding credits, according to state records.

If acquired, tax credits from the latter half of 2017 cannot be cashed out, but they can be used by the acquiring company to lower its tax bill.

The State of Alaska does release a yearly report of the sum total of tax credit certificates for which repurchase has been requested, along with a list of the amount repurchased per company, but it does not break out the value of certificates held by each company due to tax confidentiality considerations, a state source said.

- STEVE SUTHERLIN