Alaska Administrative Code › Title 11 - Natural Resources › Part 3 - Oil and Gas › Chapter 25 - Royalty Election Under Alaska Gasline Inducement Act › 11 AAC 25.250 - Processing contracts not at arm's length

Current through May 31, 2024
(a) If a lessee or
				its affiliate processes qualified gas in an affiliated gas processing plant,
				the processing allowance used to determine the monthly value of that lessee's
				qualified gas must be the plant affiliate's allowable actual and reasonable
				costs allocated to the royalty reporting period as provided in
				11 AAC 25.060 -
				11 AAC 25.090 and
				11 AAC 25.230 -
				11 AAC 25.260.
(b) The processing allowance for a non-arm's
				length contract or an arrangement without a contract is based upon the plant
				affiliate's actual and reasonable, directly attributable and allocable
				processing costs in the form of operating and maintenance expense, overhead,
				depreciation, and a return on undepreciated capital investment as provided in
				(d) of this section. Allowable capital costs are the original costs for
				depreciable fixed assets, including costs of delivery and installation of
				capital equipment that is an integral part of the processing plant.
(c) To compute depreciation for the purposes
				of this section, the lessee shall use straight-line depreciation based on the
				economic life of the processing plant. A change in ownership of a processing
				plant does not alter the depreciation schedule established by the original
				processor or lessee for purposes of calculating a processing allowance under
				this chapter. Notwithstanding a change in ownership, a processing plant may
				only be depreciated once. Equipment may not be depreciated below a reasonable,
				positive salvage value.
(d) Each
				February, the department will determine and publish the prevailing yield during
				the preceding January on corporate bonds whose relevant characteristics are
				comparable to those for which Moody's Investor Services, Inc., published its
				Moody's Seasoned Baa Corporate Bond Yield - All Industries for January 2010.
				The prevailing yield published by the department is the rate of return for
				purposes of calculating the return for that calendar year on undepreciated
				capital investment under (b) of this section.
(e) For new processing plants processing gas
				involved in a non-arm's length transaction, the lessee shall include in its
				initial processing allowance estimates of the allocable gas processing costs
				allowed under (b) of this section for the applicable royalty reporting period.
				Cost estimates must be based upon the most recently available operations data
				for the plant; if these data are not available, the lessee shall base cost
				estimates upon industry data for similar gas processing plants. To the extent
				that a processing allowance is based on estimates, the lessee shall file
				royalty reports revising the allowance after actual costs are known.
(f) The billing determinant to be used in
				calculating a processing allowance under this section is throughput for the
				processing plant, except that the billing determinant is contract capacity if
(1) the processing plant is constructed after
				FERC issues a certificate of public convenience and necessity for the Alaska
				mainline; and
(2) the processing
				plant solicits and accepts bids for firm processing capacity.