New regs out for oil property assessments

The Alaska Department of Revenue has proposed regulation changes affecting the oil and gas property tax out for comment until Oct. 24. The department is also taking written questions relevant to the proposed changes: questions must be received at least 10 days prior to the end of the public comment period. The questions and responses, aggregated for substantially similar questions, will be available online.

Proposed regulation changes are available online at www.tax.alaska.gov.

The proposed changes add detail to regulations on valuation of oil and gas properties, with value to be determined on replacement cost less depreciation.

Before regular production begins, “full and true value will be the actual cost incurred or accrued as of the assessment date” and after production begins replacement cost will be calculated each Jan. 1, reflecting “the full current cost of a modern replacement.”

Depreciation will be calculated Jan. 1 using one of two methods: Where production is ramping up or on plateau, depreciation will be a 1 percent deduction to the replacement cost each year; and when production is in decline, a quotient will be applied obtained by dividing calendar year production by historic calendar year peak production.

The proposed regulations further say that depreciation of the replacement cost shall not exceed 80 percent in any assessment year in which the property is in production and shall not exceed 90 percent for a production property no longer in operation but not yet dismantled and removed.

The department is not to deviate from these provisions unless there are extenuating circumstances “determined by the department in its sole discretion.” Such circumstances could “include reservoirs that immediately and significantly underperform resulting in abnormal and excessive super-adequacy of a property, and reservoirs that significantly over perform resulting in the facility constraint of a property.”

- KRISTEN NELSON