11 AAC 25.100 - Destination and destination value

(a) The destination value for qualified gas is the fair market value at destination as determined under this section.

(b) For purposes of this chapter, the destination for a lessee's unprocessed gas, residue gas, gas plant products, or LNG is the point at which the gas exits a pipeline, without then entering an interconnecting pipeline, processing plant, liquefaction facility, LNG tanker, or regasification facility, except that

(1) the destination for qualified gas that enters a first destination market must be within that first destination market and may not be downstream of that first destination market; if qualified gas enters an interconnecting pipeline for transportation downstream of a first destination market, its destination for purposes of this chapter is the point of interconnection;

(2) qualified gas that has been processed to extract residue gas or a fractionated gas plant product is at its destination; and

(3) the destination for qualified gas may not be downstream of the point of an arm's length sale of the qualified gas.

(c) The commissioner will designate first destination markets. In designating first destination markets, the commissioner will consider whether

(1) North Slope gas is physically transported, bought, sold, processed, or, in the case of LNG, regasified in the market;

(2) on average each day, more than 100,000 MMBtus of residue gas are sold in arm's length transactions in the market;

(3) a reliable and widely available industry trade publication publishes a reliable price each month for residue gas in the market, and the published price is based on at least 10 unrelated arm's length sales in that market for the month;

(4) another first destination market is upstream of the market being evaluated for designation under this section as a first destination market; and

(5) any other relevant factor is material to the designation of a first destination market.

(d) The commissioner will designate at least one first destination market to apply to royalty reporting periods beginning after the commencement of commercial operation of the project. Notice of the first destination markets designated by the commissioner will be posted on the department's website. The commissioner may designate other first destination markets by posting notice of the designation on the department's website no later than 15 days before the first day of a royalty reporting period affected by the designation.

(e) If the destination for qualified gas is a first destination market designated by the commissioner, the destination value is the published price for that destination from a source designated by the commissioner, except that

(1) for residue gas and the methane component of unprocessed gas, if the published price designated by the commissioner is less than 95 percent of the value calculated under 11 AAC 25.110 for that royalty reporting period, the destination value for that royalty reporting period is the value calculated under 11 AAC 25.110; and

(2) for any gas plant product or any component other than methane in unprocessed gas, if a published price is not available for that first destination market or if the published price is not a reliable price for that gas plant product or component in that market, the commissioner may designate and require the use of a published price from a different market, as adjusted for location differences under 11 AAC 25.130.

(f) The commissioner may add to, replace, or remove entries on the list of designated published prices by posting a revised list of published prices on the department's website at least 15 days before the first day of a royalty reporting period affected by the revised list if the commissioner determines that

(1) a new market has developed for North Slope gas or any component of or right to North Slope gas, a new gas pipeline is built that transports North Slope gas, or a change in the first destination markets has occurred;

(2) a designated published price is not reliable;

(3) a designated published price is published in a publication that is not reliable;

(4) a new publication is started, an existing publication adds a new price, or a previously unreliable publication becomes reliable;

(5) a person subject to this chapter or the affiliate of that person attempts to influence the publication of prices used under this chapter in a manner adverse to the interests of the state; or

(6) other factors relevant to the designation of first destination markets under (c) of this section or to the reliability of published prices support the addition, replacement, or removal of entries on the list of designated published prices.

(g) If the destination for qualified gas has not been designated by the commissioner as a first destination market, destination value for the qualified gas is the published price designated by the commissioner in the nearest first destination market, with an adjustment for location differences under 11 AAC 25.130 and an adjustment for quality to the extent allowed under 11 AAC 25.140, except that if the destination and first destination market are not physically connected by pipeline, the destination value will be determined under 11 AAC 25.120.

(h) If the commissioner adds to, revises, or removes adjustments for location differences under 11 AAC 25.130, the commissioner will post a change in location differentials on the department's website at least 15 days before the first day of a royalty reporting period affected by the change.

(i) To be arm's length for a royalty reporting period, a contract or agreement must be considered arm's length

(1) when the contract was executed or the agreement was made; and

(2) during the entire time of the royalty reporting period.

(j) If a published price from a source designated by the commissioner under this section is not available for a royalty reporting period, the destination value is

(1) for residue gas, as determined by the commissioner based on all other available published prices designated for use under 11 AAC 25.110, with a location differential, if any, determined by the commissioner; and

(2) for unprocessed gas, gas plant products, and LNG, destination value as determined under 11 AAC 25.120.

(k) For purposes of this chapter, the commissioner will determine whether a price or publication is reliable. In determining whether a price is reliable, the commissioner will consider whether the price is indicative of market transactions in the relevant market and whether the price relies on a volume-weighted average of reported transactions. In determining that a publication is reliable, the commissioner may consider

(1) whether buyers and sellers regularly and customarily use the publication;

(2) whether the publication is regularly and customarily referenced in purchase or sales contracts;

(3) whether the publication uses adequate survey techniques, including the gathering of information from a substantial number of sales;

(4) whether the publication publishes the range of reported prices it uses to calculate its index price;

(5) whether the publication is independent from lessees and their affiliates; and

(6) other factors relevant to whether a publication publishes prices that are accurate and representative for gas purchases and sales.

Notes

11 AAC 25.100

Eff. 5/29/2010, Register 194

Authority:AS 38.05.020

AS 38.05.180

AS 43.90.310