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NPR-A oil and gas revenues: Who gets the money? The state gets half the royalties; but federal law says the money has to be passed on to the North Slope communities most impacted by NPR-A development. The state gets the leftovers. Kay Cashman PNA Publisher
The state’s general fund is likely to receive no boost from royalty or severance taxes associated with National Petroleum Reserve-Alaska development, a state official told PNA.
Here’s the story.
Federal law mandates that the state of Alaska give its share of all royalties generated by oil and gas leasing in the National Petroleum Reserve-Alaska to the North Slope municipalities most impacted by the development of the reserve.
The money was paid out in grants requested by those communities. Until two years ago anything left over was divided as follows: one half to the Permanent Fund; one half of 1 percent to the state’s public education fund; and the balance to the state’s general fund.
The situation has changed — slightly.
Dan Dickinson, director of the tax division within the state Department of Revenue, told PNA that the federal law, challenged unsuccessfully by the state in the early 1980s, remains the same.
But a new amendment to state statute 37.05.530, effective July 8, 1999, authorizes the state to divide up the leftovers differently.
The new state distribution formula is: one quarter to the Permanent Fund, one half of one percent to the public school trust fund and the balance to the general fund where the Legislature can appropriate part to the Power Cost Equalization program, which benefits most rural, or “Bush,” communities in Alaska. Payouts to date In state fiscal year 2000, $40.3 million was collected as the state’s 50 percent share of NPR-A oil and gas royalties, Dickinson said, with $28 million paid out in grants, $3.1 million going to the Permanent Fund, .$1 million to public school trust find and $9.2 million into the Power Cost Equalization program.
FY2001 ended eight weeks ago. The state’s share was $1.7 million and all of that will go to NPR-A area community grants. Severance tax likely to be zero Dickinson said this division of funds only applies to the money the state gets from the feds that is associated with a lease between the leaseholders and federal government — rents up front, bonus bids, royalties (which start after production begins) and other lease associated payments.
NPR-A production, however, is subject to severance tax which is directly assessed by the state.
“The only production that is not taxed by us is the portion of oil and gas that the federal government takes as its own — generally between 12 and a half and 16 and two-thirds percent,” Dickinson said.
Roughly speaking, a little less than half the state’s oil and gas revenues come from lease related royalties, a little less than half come from production taxes, with the remainder from special oil and gas property and income taxes, he said.
Production, or severance, tax is “nominally 15 percent,” but once the “ELF (economic limiting factor) is applied, it might make taxes zero from the NPR-A,” Dickinson said. ELF designed for monster fields “ELF is designed to tax monster fields, such as Prudhoe Bay and Kuparuk. One hundred twenty-five thousand barrels per day is the breakeven point — as production slips away from that figure, your tax rate very rapidly falls to zero.”
The NPR-A might pay no severance tax because it is likely to be a series of little fields, he said.
“Each NPR-A field will have to go through the ELF calculation,” Dickinson said. “Unless each individual field is producing in excess of 125,000 barrels a day, they aren’t likely to pay much or any tax. … Once a field falls beneath 125,000 barrels a day, the ELF slips very rapidly.”
“Per well productivity is also a factor and we don’t have a good idea what’s up with that for potential NPR-A oil fields yet,” Dickinson said.
“Alpine currently has a high production tax rate but that will only go for several years before it begins to fall away,” he said. Currently Alpine is paying close to 15 percent tax, but by 2010 it will be under 5 percent.
Royalty rates, however, remain constant, Dickinson said, and are not generally impacted by changes in production.
“There may be some small increments to general fund take through the special oil and gas property tax and income tax related to the NPR-A, but they will be very small,” he said.
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