Title 11 . Natural Resources

Chapter 83 . (No Regulations Filed)

Section 240. Direct operating costs

11 AAC 83.240. Direct operating costs

(a) The direct operating costs during a month that are incurred by or for a lessee for the NPSL are a debit to the production revenue account.

(b) After commencement of commercial production from the NPSL, the direct operating costs for that NPSL are

(1) the direct charges under 11 AAC 83.243 that are not excluded under 11 AAC 83.217, that have not been charged as a development cost under 11 AAC 83.219, and that are incurred for the operation of the wells and equipment on or in support of the NPSL which directly result in or are necessary for continued production from the NPSL;

(2) general overhead and administrative expenses in the manner and amount provided in (d) of this section;

(3) abandonment costs in the manner and amount provided in (e) of this section;

(4) the amount of liability for taxes imposed on the value of production or on sales from a NPSL that are incurred by, or on behalf of, a lessee during a month; the amount of tax liability imposed on the value of production includes Early Development Incentive Credits applied against that tax;

(5) the amount of tax paid during a month to the state (net of credits or refunds made that month for municipal ad valorem taxes on the same properties) and the total amount paid that month for municipal ad valorem taxes which are based on the value of a lessee's properties used directly in the production, gathering, treatment, or preparation for pipeline shipment of oil and gas from a NPSL that is in commercial production before those payments to the state or any municipality are made.

(c) If the NPSL is subject to an operating agreement in which at least one working-interest owner is a third party to the operator, then a non-operator may include as a direct operating cost for that NPSL the direct charges allowed in (b) of this section that are incurred by the operator in operating that NPSL if they are reimbursable to the operator by the non-operator under the terms of that operating agreement.

(d) General overhead and administrative expenses for a month may be included as a direct operating cost at the rate of nine percent of the allowable direct operating costs defined in (b)(1) of this section. If the NPSL is subject to a unit operating agreement in which at least one working-interest owner is a third party to the operator, the commissioner will, in his or her discretion, require use of the overhead rate applicable to direct operating costs specified in the unit operating agreement.

(e) Following commencement of commercial production, abandonment costs of wells and facilities on or in support of the NPSL may be included as a direct operating cost, and, if included, must be amortized on a unit-of-production basis. The initial amount amortized per Btu equivalent equals the estimated real cost (i.e., without regard to inflation) as of the commencement of commercial production for abandonment of the wells and facilities on or in support of the NPSL, divided by the number of Btu equivalents represented by the proved reserves of the NPSL as of that time. The amount amortized per Btu equivalent may be redetermined, not more often than once every two years at the commencement of the operator's fiscal year, by dividing the number of Btu equivalents represented by the proved reserves of the NPSL as of the time of redetermination into the difference between the then-estimated real cost for abandonment of the wells and facilities on or in support of the NPSL and the cumulative amortization already allowed as of that time for the NPSL. If, upon abandonment of all wells and facilities on or in support of the NPSL, the actual abandonment costs, less salvage value (if any) are less than the total amount amortized for abandonment on or in support of that NPSL, the excess amortization must be included as extraordinary production revenue under 11 AAC 83.231 for the purposes of determining a lessee's net profit share payment due the state. If, upon abandonment of all wells and facilities on or in support of the NPSL, the actual abandonment costs, less salvage value (if any), are greater than the total amount amortized for abandonment on or in support of that NPSL, the difference may be included as extraordinary production loss for the purpose of determining a lessee's net profit share payment due the state.

(f) For purposes of this section

(1) a "development cost" is the cost of

(A) the acquisition of equipment, other than a well, and the extension, alteration or expansion of that equipment, or the replacement of it, where the intended purpose of the replacement includes extension, alteration or expansion; included are all costs and related indirect costs, associated with the design, procurement, construction, transportation, installation and commissioning of such equipment; and

(B) the drilling and completion of a well and the initial installation of artificial-lift equipment and the extension, alteration or expansion of a well or the replacement of equipment in it where the intended purpose of the extension, alteration, expansion or replacement is to increase the capacity or improve the operating characteristics of the well over a level that could be realized if the equipment in the well prior to replacement were in new condition; included are all costs, both tangible and intangible, and related indirect costs associated with them including the design, procurement and transportation of the equipment in the well;

(2) A "direct operating cost" is a cost incurred for normal ongoing operating and maintenance activities that cannot be defined as a development cost.

History: Eff. 11/9/79, Register 72; am 3/27/82, Register 81; am 8/15/82, Register 83

Authority: AS 38.05.020

AS 38.05.180