15 AAC 55.191. Calculation of reasonable costs of transportation for oil or gas

(a) Reasonable costs of transportation are the ordinary and necessary costs incurred to transport the oil or gas from the point of production to the sales delivery point or, if gas has been run through a gas processing plant, from the plant to the sales delivery point.

(b) Actual costs of transportation allowable for purposes of 15 AAC 55.180(a) are

(1) if transportation of oil or gas is by a regulated carrier, the tariff that is on file with the Federal Energy Regulatory Commission or other regulatory agency having jurisdiction, and that is applicable to that transportation of the oil or gas by the carrier, from the point where that oil or gas is tendered into the facilities of the carrier to the point where it is delivered from the facilities of the carrier;

(2) if transportation of oil is by a vessel that is not owned or effectively owned, in whole or in part, by the producer of that oil

(A) for a single voyage charter, the total costs under the charter for that vessel, plus any voyage and port costs as provided in (j) of this section if those voyage and port costs are incurred for that transportation during the term of the charter, are not included in the charter fee, and are borne by the producer, plus the positioning costs, if any, borne by the producer for that vessel;

(B) for a consecutive voyage charter or a time charter, the total costs under the charter for that vessel, plus any voyage and port costs as provided in (j) of this section if those voyage and port costs are incurred for that transportation during the term of the charter, are not included in the charter fee, and are borne by the producer, plus the positioning cost, if any, borne by the producer for that vessel; the positioning cost must be amortized over the lesser of 36 months or the term of the charter in the case of a time charter, and amortized on the basis of the number of voyages in the case of a consecutive voyage charter; or

(C) for a contract of affreightment, the total costs under the contract, plus any voyage and port costs as provided in (j) of this section if those voyage and port costs are incurred for that transportation during the contract of affreightment, are not included in the charter fee, and are borne by the producer, plus any positioning costs not included in that fee that are incurred with respect to that transportation during the contract of affreightment and that are borne by the producer;

(3) if transportation of oil is by a vessel that is owned or effectively owned, in whole or in part, by the producer of that oil, the producer's actual cost for that transportation, which is the sum of

(A) voyage and port costs incurred with respect to that transportation, as provided in (j) of this section;

(B) the positioning cost, amortized over 36 months, for that vessel;

(C) depreciation of the vessel as calculated by the producer for financial accounting purposes and used for reporting income and expenses to shareholders and owners, or as provided in 15 AAC 55.195(a) , (b), (c), (f), or (h) or 15 AAC 55.196, as applicable; and

(D) an amount that, when added to the amount of depreciation allowed under (C) of this paragraph, will provide a reasonable return on the acquisition cost, as provided in 15 AAC 55.195(a) , of the vessel over its expected useful life as used for financial accounting purposes and used for reporting income and expenses to shareholders and owners, or on the adjusted shipyard cost or invested capital as provided in 15 AAC 55.195(b) , (c), (f), or (h) or 15 AAC 55.196, as applicable;

(4) in the case of transportation of gas as liquefied natural gas (LNG),

(A) if not all of the LNG transportation facilities are subject to tariff regulations of the Federal Energy Regulatory Commission or another federal agency, a state, territory, or possession of the United States, or a foreign nation, and if the producer does not own or effectively own, in whole or in part, the LNG transportation facility, the amount charged to the producer for that LNG transportation;

(B) if the producer owns or effectively owns, in whole or in part, the LNG transportation facility, the producer's actual cost for that transportation, which is the sum of

(i) the direct operating costs of the LNG transportation facility incurred with respect to the producer's gas; for an LNG tanker, direct operating costs consist of the tanker's voyage and port costs as provided in (j) of this section;

(ii) the positioning cost, amortized over 36 months, in the case of an LNG tanker;

(iii) depreciation of the LNG transportation facility as calculated by the producer for financial accounting purposes and used for reporting income and expenses to shareholders and owners, or as provided in 15 AAC 55.195(a) , (b), (c), or (d), as applicable;

(iv) an amount that, when added to the amount of depreciation allowed under (iii) of this subparagraph, will provide a reasonable return on the acquisition cost, as provided in 15 AAC 55.195(a) , (b), (c), or (d), as applicable, of the LNG transportation facility over its expected useful life as used for financial accounting purposes and used for reporting income and expenses to shareholders and owners, or on the adjusted shipyard cost as provided in 15 AAC 55.195(a) , (b), (c), or (d), as applicable;

(5) if transportation of oil or gas is by a nonregulated pipeline facility that is not owned or effectively owned, in whole or in part, by the producer of that oil or gas, the transportation fee specified in the contract plus any other costs not included in the fee with respect to that transportation that are borne by the producer;

(6) if transportation of gas is by a nonregulated pipeline facility that is owned or effectively owned, in whole or in part, by the producer of that gas, that transports residue gas from a gas processing plant, and that was first placed in service 30 or fewer years before the month of production, a presumed cost of $0.01 per Mcf of taxable residue gas;

(7) if transportation of gas is by a nonregulated pipeline facility that is owned or effectively owned, in whole or in part, by the producer of that gas, that transports NGLs from a gas processing plant, that includes a facility that blends NGLs with oil, and that was first placed in service 30 or fewer years before the month of production, a presumed cost of $.15 per barrel of taxable NGLs; or

(8) if transportation of oil or gas is by a nonregulated pipeline facility, other than one described in (6) or (7) of this subsection, that is owned or effectively owned, in whole or in part, by the producer of that oil or gas, or if a producer of gas transported by a facility described in (6) or (7) of this subsection elects not to use the presumed cost under that paragraph, the sum of the following, allocated to that oil or gas in the proportion that the volume of that oil or gas bears to the total volume of fluids transported by the pipeline:

(A) a cost of capital allowance that includes depreciation and a return on investment, as provided in 15 AAC 55.195(d) ;

(B) the reasonable operating and maintenance costs for the pipeline facility, which are determined by multiplying the projected actual annual amount of direct operating and maintenance costs for the pipeline facility by 112 percent; for purposes of this subparagraph, direct operating and maintenance costs are only those costs necessary to physically operate and maintain the pipeline facility;

(d) Repealed 1/1/2000.

(e) Repealed 1/1/2000.

(f) Repealed 1/1/2000.

(g) Repealed 1/1/2000.

(h) Reasonable cost of transportation under 15 AAC 55.180(b) is fair market value. Fair market value of transportation is determined

(1) for shipments of oil, on the basis of third-party charters (that is, time charters in which the producer does not own or effectively own the vessel in whole or in part) of one year or more which are reported to the department for like vessels, plus regulated transportation costs under (b)(1) of this section; two vessels will be considered like vessels if the difference between them in tonnage is less than 10,000 dead-weight tons and if they are both

(A) Jones Act vessels (46 U.S.C. App. 808 and 883);

(B) Construction-Differential Subsidy ("CDS") vessels (46 U.S.C. App. 1151 - 1161);

(D) CDS and ODS vessels; or

(E) vessels that do not meet the qualifications of (A) - (D) of this paragraph; or

(2) for shipments of gas as LNG, on the basis of third party charters or leases (that is, time charters or leases in which the producer does not own or effectively own, in whole or in part, the LNG transportation facility in question) of three years or more that are reported to the department for like LNG transportation facilities, plus regulated transportation costs under (b)(1) of this section.

(i) If a producer sells its oil or gas to a third party in what would otherwise be a bona fide, arm's-length sale but at the time of the sale the producer expects to repurchase that oil or gas at a subsequent time and place, then that sale to the third party and the repurchase from the third party, when it occurs, must be disregarded and the oil or gas subject to that sale must be regarded as if it had remained the producer's own oil or gas throughout the time between that sale and repurchase. In determining the value at the point of production in such a case, the reasonable cost of transportation between the point of sale for that sale and the point of repurchase must be determined as if the producer were the shipper. This subsection does not apply if the producer's expected repurchase does not in fact occur.

(j) For purposes of this section, allowable voyage and port costs for a vessel do not include losses, damages, or expenses incurred in connection with an oil discharge except as provided in this subsection, and do not include taxes or fees on the receipt of oil or LNG at a marine terminal from a vessel. Allowable voyage and port costs for a vessel or LNG tanker are costs actually incurred for the following purposes:

(1) fuel for the vessel or LNG tanker while in port and at sea not to exceed the actual cost if purchased from a third party, or if the fuel is not purchased from a third party, the spot market price of comparable fuel as reported in Platt's Oilgram Price Report at the time of the fuel purchase for the market nearest the point of refueling, plus related allowable fuel taxes and handling charges;

(2) stores and provisions for the vessel or LNG tanker and its captain and crew

(3) wages and benefits of the vessel's or LNG tanker's captain and crew;

(4) routine maintenance;

(5) drydocking costs, expensed in the year paid;

(6) port and dock fees;

(7) repealed 1/1/2002;

(8) demurrage;

(9) tug and pilotage fees;

(10) marine agents' fees in port;

(11) lightering;

(12) transshipment charges;

(13) customs fees and duties;

(14) taxes incurred due to the ownership and operation of the vessel or LNG tanker, except for income taxes and other taxes (including certain franchise taxes) measured by income;

(15) regular and customary gratuities that are also legal;

(16) insurance premiums actually paid to third-party insurers;

(17) minor cargo losses or measuring differentials not to exceed .0025 of the oil transported, determined on an annual basis for each vessel;

(18) loading and unloading inspection fees;

(19) Panama Canal transit fees;

(20) a reasonable management fee for operating vessels or LNG tankers; this fee is set at six percent of the allowable costs set out in (1) - (3) of this subsection; this set fee covers all general and administrative costs related to vessel operations, including all costs for accounting services, clerical services, administrative services, secretarial services, data processing services, legal services, corporate and operations management, overhead pass-throughs, facility costs and depreciation, corporate planning, risk management, environmental planning and risk evaluation, public affairs, governmental affairs, political affairs, dues and subscriptions other than dues allowable under (22) of this subsection, long-range scheduling, and long-range planning; additional deductions will not be allowed for these costs;

(21) other costs directly associated with the operation or maintenance of the vessel or LNG tanker, including costs for port services and operations, cargo scheduling and planning, fleet staffing, fleet scheduling, fleet staff training, fleet safety, engineering for repair, engineering for maintenance, engineering for drydocking, quality assurance for vessel operations, communication systems, navigation systems, United States Coast Guard certifications, and utility services; these costs include costs for personnel performing the functions listed and the first level of supervision of these personnel;

(22) costs incurred in transportation of oil to comply with 33 U.S.C. 2701 - 2761 (Oil Pollution Act of 1990), AS 46.04, and applicable laws of this or any other state or political subdivision requiring equipment and personnel to be in place for spill prevention and response to spills from vessels; those costs must have not been incorporated into a pipeline tariff, but must have been incurred as an actual cost in the transportation of oil produced in the state; and

(23) costs of containing and cleaning up cargo lost in a discharge, unless the discharge is a catastrophic oil discharge under AS 46.04.900 .

(k) For purposes of this section, a producer "effectively owns" a vessel, LNG transportation facility, or nonregulated pipeline facility if the vessel, LNG transportation facility, or nonregulated pipeline facility

(1) is owned by another person comprising part of a consolidated business in which the producer is also a part;

(2) is the subject of a lease that qualifies as a capital lease under generally accepted accounting principles, in which the producer or another person comprising part of a consolidated business in which the producer is also a part, is the lessee;

(3) was built to the account of the producer, or of another person comprising part of a consolidated business in which the producer is also a part, was sold and was chartered or leased back by the producer, or by another person comprising part of a consolidated business in which the producer is also a part, all in a simultaneous transaction, and is on a term charter or lease for a period of 15 years or longer to the producer, or to another person comprising part of a consolidated business in which the producer is also a part; or

(4) in the case of a vessel for which a cost of capital allowance is allowed under 15 AAC 55.196, is treated as owned by the producer, or by another person comprising part of a consolidated business in which the producer is also a part, in a federal income tax return filed by or on behalf of the producer, or by or on behalf of another person comprising part of a consolidated business in which the producer is also a part.

( l ) For purposes of this section, the "positioning cost" for a vessel or LNG tanker includes the costs borne by the producer for placing that vessel or LNG tanker into position before the vessel's or LNG tanker's first voyage in service for that producer.

(m) The third-party nature of an agreement between a producer and a third-party carrier regarding transportation costs is not affected during the term of that agreement by a subsequent consolidation of that producer and carrier into a consolidated business, if, at the time they entered into that agreement, neither the producer nor the carrier exercised directly or indirectly any control over the business affairs of the other.

(n) The producer's actual marine transportation cost, as otherwise determined under this section, for a producer that transports oil produced in the state on behalf of a non-affiliated party through a charter, contract of affreightment, sublease, or other arrangement, in addition to the producer's own oil produced in the state, includes the cost of transporting that non-affiliated party's oil produced in the state and is reduced by the revenue received for providing that transportation. For purposes of this subsection,

(1) "affiliated party" means a company effectively controlled by the producer or by the same company that effectively controls the producer; a company "effectively controls" another company if it directly or indirectly owns 20 percent or more of the outstanding stock or other ownership interests;

(2) "non-affiliated party" means a producer of oil produced in the state that is not an affiliated party.

(o) A producer shall report any reimbursed costs to the department. Reimbursed costs are not allowable as actual costs of transportation under this section.

(p) Only costs incurred in the transportation of oil or gas produced from a lease or property in the state are allowable costs. Costs incurred in connection with the transportation of any other oil or gas are not allowable costs.

(q) For purposes of this section, "expected useful life" means the period of time used to calculate depreciation under (b)(3)(C) or (b)(4)(B)(iii) of this section.

(r) Repealed 1/1/2002.

(s) Repealed 1/1/2000.

(t) In this section, "oil" includes commingled oil and NGLs.

(u) For oil or gas produced during calendar year 2002 that is transported by a vessel placed in service on or after January 1, 1995, the actual costs of transportation under (b) of this section do not include depreciation, return on acquisition cost, or lease or charter payments for a vessel or LNG tanker that has not, during any period of 60 consecutive days or longer, retroactive to the first day of the period, transported oil or gas produced in the state. However, if the vessel is placed in dry dock before the end of the 60-day period, the actual costs of transportation under (b) of this section do not include depreciation, return on investment, or lease or charter payments for the vessel if it has not, during any period of more than 120 consecutive days, transported oil or gas produced in the state, with the disallowance of the costs of transportation starting with the 121st day.

(v) Other costs incurred to transport oil or gas from the flange of the vessel to the sales delivery point are allowable for purposes of 15 AAC 55.180(a) if the other costs are actual costs of transportation.

History: Eff. 1/1/95, Register 132; am 1/1/2000, Register 152; am 1/1/2002, Register 160; am 1/1/2003, Register 164

Authority: AS 43.05.080

Editor's note: Platt's Oilgram Price Report is published by McGraw-Hill, Inc., 1221 Avenue of the Americas, New York, New York 10020.

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