EX-4.6



 




Exhibit 4.6





	 	 	 
	

	 	






Michael J. Utsler

BPXA Senior Vice President

Greater Prudhoe Bay




BP Exploration (Alaska) Inc.

900 E. Benson Boulevard

Anchorage, Alaska 99508




VIA OVERNIGHT MAIL &

AS A SCANNED ATTACHMENT TO E-MAIL




December 21, 2007




Ms. Ming J. Ryan, Vice President

The Bank of New York

101 Barclay Street

New York, NY 10286




    Re: BP Prudhoe Bay Royalty Trust




Dear Ms. Ryan:



The purpose of this letter is to follow up on our e-mail to Richard Bourgerie last week advising
that the
Alaska legislature during its special session this past October and November passed “SCS CSHB
2001(FIN) am S” (the “Act”) which amends Alaska’s oil and gas properties production tax under AS
43.55 (the “Tax”), and to discuss with The Bank of New York (“Bank”) how those amendments should
be reflected in payments to the overriding royalty interest (“ORRI”) held by the Prudhoe Bay
Royalty
Trust (the “Trust”). On December 19, 2007 Governor Sarah Palin signed the Act. The law becomes
effective the day after Governor Palin signed the Act, or December 20,2007. The State of Alaska
website to access the Act is:



http://www.legis.state.ak.us/PDF/25/Bills/HB200 IZ.PDF.



While the Act is very complex and some of the final elements are unknown at this time, we believe
the
Act’s amendments do not change the fundamental character of the Tax in the sense that it continues
to be based on the spot price of Alaskan crude oil on the U.S. West Coast, minus transportation
costs from the North Slope to the West Coast, and minus further the direct, ordinary and necessary
costs of exploring for, developing, and producing oil and gas deposits in Alaska, including those
to which the Trust’s ORRI pertains. Consequently, we believe the agreement (the “Agreement”) set
out in our letter of October 11, 2006 to the Bank, to which the Bank executed its concurrence on
October 13, 2006, can and should remain the basic agreement for calculating the amount of Tax
properly attributable to the
Trust’s ORRI, with only limited modifications to reflect specific amendments in this new Act.



 









 





Ms. Ming J. Ryan, Vice President

The Bank of New York

December 21, 2007

Page 2




Based on the Act, there is one immediate modification to be made to the Agreement. It is possible
that
an additional modification may need to be made once the Department of Revenue issues regulations
under the Act sometime next year, as discussed below. First, the Agreement should be amended to
reflect the changes under the Act to the basic and “progressivity” rates for the Tax. Section 15 of
the
Act (p. 11 line 24 — p. 12 line 2) changes the basic rate from 22.5% to 25%, while Section 17 of
the Act
(p. 12 line 26 — p. 13 line 10) changes the calculation of the “progressivity” rate. The change in
base
rate to 25% would be reflected by simply changing the 22.5% figure in
Consensus Principle l.c) on
page
2 of the Agreement to 25 percent. The changes to the calculation of the “progressivity” rate would
involve replacing Consensus Principle l.b) on page 2 of the Agreement to reflect Section 17 of the
Act.
We believe the following accurately reflects Section 17 of the Act and propose it to replace
Consensus
Principle l.b):




	 	b)	 	The tax rate for the “progressivity” portion of the
New Tax under section 011(g), as
amended, in chapter 55 of Title 43 of the Alaska Statutes2 equals






	 	(i)	 	zero if the simple average of the daily taxable values per barrel under “a)”
above for a calendar month is not greater than $30 per barrel;
	 
	 	(ii)	 	0.4 percentage points times the amount by which the simple average of the
taxable values per barrel under “a)” above for a calendar month exceeds $30
per barrel, if that average is greater than $30 per barrel and not greater than
$92.50 per barrel; and
	 
	 	(iii)	 	the sum of 25 percentage points plus 0.1 percentage points times the amount by
which the simple average of the taxable values per barrel under “a)” above for a
calendar month exceeds $92.50, if that average is greater than $92.50 per
barrel, provided that the sum under this subparagraph may not exceed 50
percentage points.






	 	 	 	The $30 figure in (i) — (iii) of this paragraph is not subject to adjustment over time.





Footnote
number 2 would not change from what it currently is under the Agreement. We propose the
Bank, as Trustee, agree to modify and replace Consensus Principle l.b) as set forth in the October
11,
2006 letter, with the above language. Should the Bank wish to discuss this further, we would be
happy
to do so and can arrange a conference call to accomplish that.



As mentioned above, an additional modification of the Agreement mayor may not be necessary,
depending on regulations to be adopted by the Alaska Department of Revenue to interpret and apply
the
amendments to AS 43.55.150 under Section 54 (p. 39 line 19 — p. 40 line 27) of the Act, and to AS
43.55.165(a) under Section 58 (p. 44 line 12 — p. 45 line 3) of the Act. The amendments to section
150
of the Tax allow DOR to limit deductible transportation costs for
transportation by a regulated
pipeline
to something less than the tariff actually paid, while the amendments to section 165(a) of the Tax
allow
DOR to exclude by regulation certain categories of otherwise deductible lease expenditures, or a
fixed
percentage of them, from being deductible in determining the taxable value under the Tax. Depending
on what those new regulations specifically provide, it may become necessary to modify Consensus
Principle l.a) of the Agreement so that something less than the full amount of Chargeable Costs
under
Section 4.4 of the Conveyance is to be deducted in determining the “taxable value per barrel” under
that
Consensus Principle. Because of the uncertainty of what the new regulations may provide on this
aspect
of the Tax, we want the Bank to be aware of this issue and the potential for further modification
of the
Agreement.



 









 





Ms. Ming J. Ryan, Vice President

The Bank of New York

December 21, 2007

Page 3




We shall keep the Bank informed about the status of those regulations as the Department of Revenue
develops them and initiates the formal procedure to adopt them. At this time, however, there is
nothing
to justify a modification to Consensus Principle 1.a), and we will continue to operate under the
current
language of that principle,



Under the Act the changes described above to the basic and “progressivity” rates will be
retroactive to
July 1, 2007 once the Act becomes law. This puts us in a situation similar to the one we were in
last
year when Governor Murkowski signed the law in August but the changes in Tax under that legislation
were retroactive to April 1, 2006. We believe the same considerations that led at that time to the
prospective application of the rate changes for purposes of the
amount of Tax chargeable against the
Trust’s ORRI apply equally well now. Accordingly, the changes in the basic and “progressivity”
rates
of the Tax apply for Trust purposes to its ORRI production on and after December 20, 2007.



We are signing and mailing to you two counterpart originals of this letter. If the proposed
modification
to Consensus Principle 1.b), appearing on p 2 of this letter is acceptable to the Bank, please have
a duly
authorized officer of the Bank execute the “AGREEMENT AND APPROVAL” appearing below on
behalf of the Bank in each counterpart, and then kindly send one fully executed counterpart
original
back to me for BPXA’s records. The other will be for the Bank’s records. As an interim confirmation
pending my receipt of the original counterpart, I would ask you to email a scanned copy of it to
Greg Youngmun, BPXA Senior Attorney.



While the modification to Consensus Principle l.b) addresses the changes to the basic and
progressivity
rate raised by the new Act, it is recognized there may be issues outside the matters contained in
this
letter affecting the Trust Unit holders’ and BPXA’s interests. This letter and the modification to
Consensus Principle l.b) is not intended to waive any other rights, obligations or remedies
available to
the Bank, as Trustee or BPXA under law or the BP Prudhoe Bay Trust. Further, in the event of future
amendments or changes to Alaska’s oil and gas production tax laws, or should the understanding of
and
agreement to the consensus principles on p. 2 be invalidated by operation of law or by a court of
competent jurisdiction, BPXA and the Bank, as Trustee, expressly agree to reserve all rights,
powers and remedies, they may have available to them under law or the BP Prudhoe Bay Royalty Trust.



Very truly yours,




BP EXPLORATION (ALASKA) INC.




/s/ Michael J. Utsler




Michael J. Utsler

BPXA Senior Vice President

Greater Prudhoe Bay




 









 





Ms. Ming J. Ryan, Vice President

The Bank of New York

December 21, 2007

Page 4




AGREEMENT AND APPROVAL I, the undersigned, certify that I am an officer of The Bank of New York (“Bank”) duly authorized to execute this AGREEMENT AND APPROVAL, and in such
capacity, I hereby acknowledge the accuracy of Consensus Principle l.b), as set forth on page 2 of
the foregoing letter, and do agree to and approve that that principle on behalf of the Bank, as
Trustee of the BP Prudhoe Bay Royalty Trust.



	 	 	 	 	 
	 	 	THE BANK OF NEW YORK, TRUSTEE OF THE BP

PRUDHOE BAY ROYALTY TRUST
	 
	 	 	 	 
	 

	 	By	 	/s/ Ming J. Ryan
	 

	 	 	 	 
	 

	 	Name	 	Ming J. Ryan
	 

	 	 	 	 
	 

	 	Title	 	Vice President
	 

	 	 	 	 
	 

	 	Date	 	January 11, 2008