Alaska Admin. Code tit. 15, § 55.217 – Carried-forward annual losses after December 31, 2017

(a) This section applies to lease expenditures incurred after December 31, 2017, to explore for, develop, or produce oil or gas deposits located outside the Cook Inlet sedimentary basin.
(b) For carried-forward annual losses for a segment under 15 AAC 55.206(c)(1) and (3), the adjusted lease expenditures that establish each carried-forward annual loss are determined using the following procedure, unless no oil or gas is produced during the calendar year from the segment:
1. (1) for any oil or gas produced during the calendar year for which the gross value at the point of production is reduced under AS 43.55.160(f) or (f) and (g), the reduction is added back to the gross value at the point of production;
2. (2) the adjusted lease expenditures incurred by the producer during the calendar year that are applicable to the segment under 15 AAC 55.215 are segregated into the following groups:
  1. (A) the adjusted lease expenditures incurred to explore for, develop, or produce oil or gas deposits located within segment leases or properties from which oil or gas is produced during the calendar year, as allocated under 15 AAC 55.215(d) if applicable;
  2. (B) the adjusted lease expenditures incurred to explore for, develop, or produce oil or gas deposits located within segment leases or properties, if any, from which no oil or gas is produced during the calendar year;
  3. (C) the adjusted lease expenditures incurred to explore for oil or gas deposits located within land in the area under 15 AAC 55.215(a)(2) other than the producer's leases or properties, as allocated under 15 AAC 55.215(e) or (g), as applicable;
3. (3) if the gross value at the point of production of the taxable oil and gas produced by the producer during the calendar year from all leases or properties in the segment is
  1. (A) less than or equal to the total adjusted lease expenditures described in (2)(A) of this subsection, a quotient Q is calculated as Q = SE / S(PE), where SE = the amount by which the total adjusted lease expenditures described in (2)(A) of this subsection exceed the gross value at the point of production of the taxable oil and gas produced by the producer during the calendar year from all leases or properties subject to (2)(A) of this subsection, and PE = the amount, if greater than zero, by which the adjusted lease expenditures incurred by the producer during the calendar year to explore for, develop, or produce oil or gas deposits located within each of those leases or properties, as allocated to the segment under 15 AAC 55.215(d) if applicable, exceeds the gross value at the point of production of taxable oil and gas produced by the producer during the calendar year from the lease or property; for each of those leases or properties for which PE is calculated, PE is multiplied by the quotient Q; the product of that multiplication is referred to as TE, and for each lease or property for which TE is calculated, a fraction is calculated as F = TE / LE, where LE is the amount of adjusted lease expenditures incurred by the producer during the calendar year to explore for, develop, or produce oil or gas deposits located within the lease or property, as allocated to the segment under 15 AAC 55.215(d) if applicable; carried-forward annual losses for the segment are, subject to 15 AAC 55.224(f) or (g) if applicable, established only by
    1. (i) for each lease or property for which F is calculated, a fraction F of the adjusted lease expenditures incurred by the producer during the calendar year to explore for, develop, or produce oil or gas deposits located within the lease or property, as allocated to the segment under 15 AAC 55.215(d) if applicable; for each lease or property this fraction F is applied uniformly to all of those adjusted lease expenditures; and
    2. (ii) the adjusted lease expenditures, if any, described in (2)(B) and (2)(C) of this subsection;
  2. (B) greater than the adjusted lease expenditures described in (2)(A) of this subsection and less than or equal to the sum of the adjusted lease expenditures described in (2)(A) and (2)(B) of this subsection, a fraction G is calculated as G = XE / AE, where XE = the amount, if any, by which the adjusted lease expenditures described in (2)(B) of this subsection exceed the remainder resulting from subtracting the adjusted lease expenditures described in (2)(A) of this subsection from the gross value at the point of production of the taxable oil and gas produced by the producer during the calendar year from all leases or properties in the segment, and AE = the total adjusted lease expenditures described in (2)(B) of this subsection; carried-forward annual losses for the segment are, subject to 15 AAC 55.224(f) or (g) if applicable, established only by
    1. (i) for each lease or property subject to (2)(B) of this subsection, a fraction G of the adjusted lease expenditures incurred by the producer during the calendar year to explore for, develop, or produce oil or gas deposits located within the lease or property; for each lease or property this fraction G is applied uniformly to all of those adjusted lease expenditures; and
    2. (ii) the adjusted lease expenditures, if any, described in (2)(C) of this subsection;
  3. (C) greater than the sum of the adjusted lease expenditures described in (2)(A) of this subsection and (2)(B) of this subsection and less than the sum of the adjusted lease expenditures described in (2)(A), (2)(B), and (2)(C) of this subsection, a fraction H is calculated as H = YE / QE, where YE = the amount, if any, by which the adjusted lease expenditures described in (2)(C) of this subsection exceed the remainder resulting from subtracting the sum of the adjusted lease expenditures described in (2)(A) and (2)(B) of this subsection from the gross value at the point of production of the taxable oil and gas produced by the producer during the calendar year from all leases or properties in the segment, and QE = the total adjusted lease expenditures described in (2)(C) of this subsection; carried-forward annual losses for the segment are, subject to 15 AAC 55.224(f) or (g) if applicable, established only by a fraction H of the adjusted lease expenditures described in (2)(C) of this subsection; this fraction H is applied uniformly to all of those lease expenditures;
  4. (D) equal to or greater than the sum of the adjusted lease expenditures described in (2)(A), (2)(B), and (2)(C) of this subsection, no carried-forward annual loss is established for the segment;
4. (4) in the case of a segment described in 15 AAC 55.206(c)(1)(E) or (F), before 2022, the amount initially calculated for each carried-forward annual loss under (3) of this subsection is multiplied by the fraction calculated under 15 AAC 55.224(g)(7); only the product of that multiplication, if greater than zero, establishes the carried-forward annual loss;
5. (5) in the case of a segment described in 15 AAC 55.206(c)(3)(B) or (D), after 2021, the amount initially calculated for each carried-forward annual loss under (3) of this subsection is multiplied by the fraction calculated under 15 AAC 55.224(g)(7); only the product of that multiplication, if greater than zero, establishes the carried-forward annual loss.
(c) The following examples illustrate (b) of this section: Example 1. In a given calendar year before 2022, a producer has three producing leases or properties on the North Slope and no non-producing leases or properties on the North Slope. The producer also conducts seismic exploration on the North Slope in a location remote from and unrelated to any of the leases or properties. Ten barrels of taxable oil with a gross value at the point of production of $500, and qualifying for a gross value reduction of 20 percent under AS 43.55.160(f), are produced during the year from Property A. The producer incurs adjusted lease expenditures during the year of $400 to develop and produce oil from Property A. Twenty barrels of taxable oil with a gross value at the point of production of $1,000, not qualifying for a gross value reduction, and 10 BTU equivalent barrels of taxable gas used in the state with a gross value at the point of production of $610 are produced during the year from Property B. The producer incurs adjusted lease expenditures during the year of $1,800 to develop and produce oil and gas from Property B. Thirty barrels of taxable oil with a gross value at the point of production of $1,500, not qualifying for a gross value reduction, are produced during the year from Property C. The producer incurs adjusted lease expenditures during the year of $2,000 to develop and produce oil from Property C. The producer incurs adjusted lease expenditures during the year of $140 to conduct the off-lease exploration. An annual production tax value must be calculated for each of two segments in this example: (1) oil and gas, other than gas used in the state, produced from North Slope leases or properties, under 15 AAC 55.206(c)(1)(A); and (2) gas produced from Property B that is used in the state, under 15 AAC 55.206(c)(1)(E). The gross value at the point of production for the first segment is the sum of $500, less a 20 percent gross value reduction, or $400 from Property A, plus $1,000 from Property B, plus $1,500 from Property C, for a total of $2,900. Adjusted lease expenditures applicable to this segment are the sum of $400 from Property A, plus $1,200 from Property B (because under 15 AAC 55.215(d), the lease expenditures to develop and produce oil and gas from Property B are allocated between the oil and the gas used in the state proportionally to the respective BTU equivalent barrels produced, of which oil accounts for 20/30 = 2/3 of the $1,800 lease expenditures = $1,200), plus $2,000 from Property C, plus $120 from the seismic exploration (because under 15 AAC 55.215(c), those lease expenditures are allocated between the oil produced from both Properties A, B, and C, on one hand, and the gas used in the state produced from Property B, on the other hand, proportionally to the respective BTU equivalent barrels produced, of which oil accounts for 60/70 = 6/7 of the $140 lease expenditures = $120), for a total of $3,720. Since the lease expenditures exceed the gross value at the point of production, the annual production tax value for the segment is zero. Hence, the producer is required to follow the procedure set out in (b) of this section to determine the producer's carried-forward annual losses, if any, for this segment. The gross value at the point of production for the second segment is $610, for gas used in the state produced from Property B. The lease expenditures applicable to this segment are the sum of $600 from Property B (because under 15 AAC 55.215(d), one-third of the lease expenditures incurred to develop and produce oil and gas from Property B are allocated to gas used in the state produced from Property B), plus $20 from the seismic exploration (because under 15 AAC 55.215(e), 1/7 of those lease expenditures are allocated to the gas used in the state produced from Property B), for a total of $620. Since the lease expenditures exceed the gross value at the point of production, the annual production tax value for the segment is zero. Hence, the producer is required to follow the procedure set out in (b) of this section to determine the producer's carried-forward annual losses, if any, for this segment. For the first segment:
1. (1) After adding back the gross value reduction for Property A, the gross value at the point of production for Property A is $500.
2. (2) The applicable adjusted lease expenditures are grouped as follows:
  1. (A) $3,600 incurred to explore for, develop, or produce oil or gas deposits located within the producer's leases or properties from which oil or gas is produced;
  2. (B) zero incurred to explore for, develop, or produce oil or gas deposits located within the producer's leases or properties from which no oil or gas is produced;
  3. (C) $120 incurred to explore for oil or gas deposits located within North Slope land other than the producer's leases or properties.
3. (3) The gross value at the point of production of the oil and gas produced from Properties A, B, and C, $3,000, is less than the $3,600 in adjusted lease expenditures in group (2)(A), above. Therefore, carried-forward annual losses for the segment are calculated under (3)(A), as follows:
4. (1) There is no gross value reduction to add back.
5. (2) The applicable adjusted lease expenditures are grouped as follows:
  1. (A) $600 incurred to explore for, develop, or produce oil or gas deposits located within the lease or property from which gas is produced (Property B);
  2. (B) zero incurred to explore for, develop, or produce oil or gas deposits located within the producer's leases or properties from which no oil or gas is produced (this is necessarily true for a segment under 15 AAC 55.206(c)(1)(E), since by definition this kind of segment is gas produced from a single lease or property, and that single lease or property is the subject of the preceding subparagraph (2)(A));
  3. (C) $20 incurred to explore for oil or gas deposits located within North Slope land other than the producer's leases or properties.
6. (3) The gross value at the point of production of gas produced from the segment lease or property, $610, is greater than the sum of the adjusted lease expenditures described in (2 )(A) and (2)(B), $600, but is less than the sum of the adjusted lease expenditures described in (2)(A), (2)(B), and (2)(C), $620. Therefore, carried-forward annual losses for the segment are calculated under (3)(C), as follows:
7. (1) After adding back the gross value reduction for Property A, the gross value at the point of production for Property A is $500.
8. (2) The adjusted lease expenditures are grouped as follows:
  1. (A) $4,200 incurred to explore for, develop, or produce oil or gas deposits, including gas used in the state, located within the producer's leases or properties from which oil or gas is produced;
  2. (B) zero incurred to explore for, develop, or produce oil or gas deposits located within the producer's leases or properties from which no oil or gas is produced;
  3. (C) $140 incurred to explore for oil or gas deposits located within North Slope land other than the producer's leases or properties.
9. (3) The gross value at the point of production of the oil and gas, including gas used in the state, produced from Properties A, B, and C, $3,000, is less than the $4,200 in adjusted lease expenditures from producing properties in (2)(A) - (C). above. Therefore, carried-forward annual losses for the segment are calculated under (b)(3)(A) of this section, as follows:
SE = $3,600 - $3,000 = $600PE for Property B = $200PE for Property C = $500(1) Sum of PEs = $700(2) Q = $600 / $700 = 6/7(A) TE for Property B = $200 * 6/7 = $171.43(B) TE for Property C = $500 * 6/7 = $428.57(C) F for Property B = $171.43 / $1,200 = 14.286%(3) F or Property C = $428.57 / $2,000 = 21.428%
Therefore, under (b)(3)(A)(i) of this section, the producer has a carried-forward annual loss for the segment in the amount of $171.43, established by 14.286 percent of the producer's $1,200 in adjusted lease expenditures incurred to explore for, develop, or produce oil or gas deposits located within Property B and allocated to oil produced from Property B. (That is to say, 14.3 percent of each of those lease expenditures is carried-forward, rather than the producer's identifying a subset of lease expenditures with a total dollar amount of $171.43 to carry forward.) The producer has a second carried-forward annual loss for the segment in the amount of $428.57, established by 21.428 percent of the producer's $2,000 in adjusted lease expenditures incurred to explore for, develop, or produce oil or gas deposits located within Property C. In addition, as provided by (b)(3)(A)(ii) of this section, the producer has a third carried-forward annual loss for the segment in the amount of $120, established by the producer's $120 in adjusted lease expenditures incurred to explore for oil or gas deposits located in North Slope land other than the producer's leases or properties and allocated to oil and gas other than gas used in the state.
For the second segment:
YE = $10
H = $10 / $20 = 50%
Therefore, under (b)(3)(C) of this section, the producer has a carried-forward annual loss for the segment in the amount of $10, established by 50 percent of the producer's $20 in adjusted lease expenditures incurred to explore for oil or gas deposits located within North Slope land other than the producer's leases or properties and allocated to gas used in the state. (It is assumed for purposes of (b)(4) of this section that the production does not have a positive annual production tax value for the segment described in 15 AAC 55.206(c)(1)(F) for the calendar year, so that the fraction calculated under 15 AAC 55.224(f)(7) equals one.)
Example 1. . In a given calendar year after 2021, a producer has three producing leases or properties on the North Slope and no non-producing leases or properties on the North Slope. The producer also conducts seismic exploration on the North Slope in a location remote from and unrelated to any of the leases or properties.
Ten barrels of taxable oil with a gross value at the point of production of $500, and qualifying for a gross value reduction of 20 percent under AS 43.55.160(f) are produced during the year from Property A. The producer incurs adjusted lease expenditures during the year of $400 to develop and produce oil from Property A.
Twenty barrels of taxable oil with a gross value at the point of production of $1,000, not qualifying for a gross value reduction, and 10 BTU equivalent barrels of taxable gas used in the state with a gross value at the point of production of $610 are produced during the year from Property B. The producer incurs adjusted lease expenditures during the year of $1,800 to develop and produce oil and gas from Property B.
Thirty barrels of taxable oil with a gross value at the point of production of $1,500, not qualifying for a gross value reduction, are produced during the year from Property C. The producer incurs adjusted lease expenditures during the year of $2,000 to develop and produce oil from Property C.
The producer incurs adjusted lease expenditures during the year of $140 to conduct the off-lease exploration.
An annual production tax value must be calculated for oil, produced from North Slope leases or properties, under 15 AAC 55.206(c)(3)(A). No production tax value is calculated for gas, including gas used in the state, since gas, including gas used in the state. is taxed at rate of 13 percent of the gross value at the point of production as provided in AS 43.55.011(e)(3)(B), and the levy of tax for gas used in the state is limited as provided in AS 43.55.011(o). Additionally, beginning January 1, 2022, lease expenditures to produce both oil and gas, including gas used in the state, are all attributable to the production tax value of oil for North Slope leases or properties as provided in AS 43.55.160(h)(l).
The gross value at the point of production for the first segment is the sum of $500, less a 20 percent gross value reduction of $100, for a gross value at the point of production of $400 from Property A, plus $1,000 from Property B, plus $1,500 from Property C, for a total of $2,900. Adjusted lease expenditures applicable to this segment are the sum of $400 from Property A, plus $1,800 from Property B, plus $2,000 from Property C ($400 Property A+ $1,800 Property B + $2,000 Property C = $4,200 from producing leases or properties), plus $140 from the seismic exploration (total adjusted lease expenditures is $4,200 from Properties A, B, and C + $140 seismic exploration= $4,340). Since the lease expenditures exceed the gross value at the point of production for the oil, the annual production tax value for the segment is zero. Hence, the producer is required to follow the procedure set out in (b) of this section to determine the producer's carried-forward annual losses, if any, for this segment.
The gross value at the point of production for gas used in the state produced from Property B is $610. As provided in AS 43.55.160(h)(l) the lease expenditures to produce gas used in the state are attributable to oil produced from the leases or properties.
For the oil segment:
SE = $4,200 - $3,000 = $1,200PE for Property B = $800PE for Property C = $500Sum of PEs = $1,300Q = $1,200 / 1,300 = 92.31 %TE for Property B = $800 * 92.31 % = $738.46TE for Property C = $500 * 92.31 % = $461.54F for Property B = $738.46 / $1,800 = 41.03 %F for Property C = $461.55 / $2,000 = 23.08%
Therefore, under (b)(3)(A)(i) of this section, the producer has a carried-forward annual loss for the segment attributable to Properties B and C in the amount of $1,200, established by 41.03 percent of the producer's $1,800 in adjusted lease expenditures incurred to explore for, develop, or produce oil or gas deposits located within Property B and allocated to oil produced from Property B. (That is to say, 41.03 percent of each of those lease expenditures is carried-forward, rather than the producer's identifying a subset of lease expenditures with a total dollar amount of $738.46 to carry forward.) The producer has a second carried-forward annual loss for the segment in the amount of $461.54, established by 23.08 percent of the producer's $2,000 in adjusted lease expenditures incurred to explore for, develop, or produce oil or gas deposits located within Property C. In addition, as provided by (b)(3)(A)(ii) of this section, the producer has a third carried-forward annual loss for the segment (that is not attributable to any of the producing leases or properties) in the amount of $140, established by the producer's $140 in adjusted lease expenditures incurred to explore for oil or gas deposits located in North Slope land other than the producer's leases or properties and attributable to oil as provided in AS 43.55.160(h)(l) for a total carried-forward annual loss for the segment in the amount of $1,340.
For the gas used in the state there is no carried-forward annual loss because as of January 1, 2022, the lease expenditures to produce gas used in the state are attributable to the production tax value of oil produced from those leases or properties as provided in AS 43.55.160(h).
Example 2. In a given calendar year, a producer has one lease or property on the North Slope, Property D, from which no oil or gas is produced. The producer incurs adjusted lease expenditures of $1,000 to explore for or develop oil and gas deposits located within the lease or property. The producer also incurs adjusted lease expenditures of $200 to conduct seismic exploration on the North Slope in a location remote from and unrelated to the lease or property.
Under 15 AAC 55.206(c)(2)(A), for a calendar year before 2022, or 15 AAC 55.206(c)(4) for a calendar year after 2021, the relevant segment is the area of the state north of 68 degrees North latitude. The production tax value for the segment is zero, but since the segment is not a segment under either 15 AAC 55.206(c)(1), for a calendar year before 2022, or 15 AAC 55.206(c)(3) for a calendar year after 2021, the producer need not use the procedure set out in (b) of this section to determine carried-forward annual losses for the segment. The producer has a carried-forward annual loss for the segment in the amount of $1,000, established by the producer's $1,000 in adjusted lease expenditures incurred to explore for or develop oil or gas deposits located within Property D. The producer also has a carried-forward annual loss for the segment in the amount of $200, established by the producer's $200 in adjusted lease expenditures incurred to explore for oil or gas deposits located within North Slope land other than the producer's leases or properties. The carried-forward annual loss of $1,000 for Property D may not be applied in determining production tax value for the segment until the calendar year in which regular production of oil or gas from the lease or property commences as provided in AS 43.55.165(n)(2). Similarly, the carried-forward annual loss of $200 for the remote seismic exploration may not be included in determining the production tax value for the segment until regular production of oil or gas has commenced from leases or properties that are reasonably related to the remote seismic exploration as provided in AS 43.55.165(n)(2) and (r).
(d) The following examples illustrate (b)(3) of this section and, for calendar years before 2022, 15 AAC 55.224(f): Example 1. In a given calendar year before 2022, a producer has two producing leases or properties on the North Slope, both of which have commenced regular production (Property A and Property B). The producer also has two non-producing leases or properties on the North Slope, neither of which has commenced regular production (Property C and Property D). Oil and gas other than gas used in the state produced from the four properties make up the first segment of taxable production for the producer. The producer also has taxable production from a second segment on the North Slope for gas used in the state produced from Property A. For purposes of this example it has been assumed that if any of the properties are eligible for a gross value reduction under AS 43.55.160(f) or AS 43.55.160(f) and (g), any gross value reduction has been added back to the gross value at the point of production before determining the amount of any carried-forward annual loss under this section. Additionally, the producer has no lease expenditures or production outside of the North Slope. In Year 1, the producing leases or properties, Property A and Property B, respectively, produce 30 and 20 barrels of taxable oil with gross values at the point of production of $1,500 and $1,000, and adjusted lease expenditures of $1,800 and $1,200. Property A also produces six BTU equivalent barrels of taxable gas used in the state with a gross value at the point of production of $200. The non-producing properties, Property C and Property D incur adjusted lease expenditures of $300 and $500, respectively. In Year 2, the producing leases or properties, Property A and Property B, respectively, produce 50 and 25 barrels of taxable oil with gross values at the point of production of $2,750 and $1,375, and adjusted lease expenditures of $2,400 and $1,200. Property A also produces 10 BTU equivalent barrels of taxable gas used in the state with a gross value at the point of production of $500. The non-producing properties, Property C and Property D incur adjusted lease expenditures of $400 and $600, respectively. In Year 3, the producing leases or properties, Property A and Property B, respectively, produce 50 barrels and 30 barrels of taxable oil with gross values at the point of production of $3,000 and $1,800, and adjusted lease expenditures of $2,400 and $1,200. Property A also produces 10 BTU equivalent barrels of taxable gas used in the state with a gross value at the point of production of $500. In addition, during Year 3, Property C commences regular production and for the North Slope oil and gas, other than gas used in the state segment, produces 20 barrels of taxable oil with a gross value at the point of production of $1,200 and incurs adjusted lease expenditures of $1,300. In addition, Property C produces six BTU equivalent barrels of gas used in the state, with a gross value at the point of production of $150. Non-producing Property D incurs adjusted lease expenditures of $600. In Year 1, the producer has a loss for the first segment of $1,000. The $1,800 in adjusted lease expenditures for Property A are allocated to the first segment, North Slope oil and gas other than gas used in the state, in the amount of $1,500 ($1,800 * (30/(30 + 6))) and $300 to the second segment, gas used in the state for Property A ($1,800 * (6/(30 + 6))). Part or all of the $200 carried-forward annual loss established by lease expenditures incurred on Property B may be deducted in determining the annual production tax value for the first segment in any following year to the extent that the gross value at the point of production for the segment exceeds the adjusted lease expenditures described in AS 43.55.165(a)(1) or (2) for the segment for the calendar year subject to AS 43.55.165(m). The carried-forward annual losses of $300 established by lease expenditures incurred on Property C, and $500 established by lease expenditures incurred on Property D, may not be applied in determining the annual production tax value for the segment until the respective Property has commenced regular production. For the gas used in the state segment for Property A, the producer has a carried-forward annual loss of $100. Since there are no other North Slope properties from which gas used in the state was produced and it was previously stated that the producer does not have any other lease expenditures or production outside of the North Slope that might result in a positive annual production tax value for the segment described in 15 AAC 55.206(c)(1)(F) for the calendar year, the fraction calculated under 15 AAC 55.224(f)(7) equals one. In Year 2, the producer has a loss for the first segment, in the amount of $75. The lease expenditures establishing the loss are those incurred on the non-producing properties (Property C and Property D) as provided by (b)(3)(B) of this section. The $2,400 in adjusted lease expenditures from Property A is allocated to the North Slope oil or gas, other than gas used in the state segment, in the amount of $2,000 to Property A ($2,400 * (50/(50 + 10))) and $400 to the gas used in the state segment of Property A ($2,400 * (10/(50 + 10))). Since the amount of lease expenditures for the calendar year for the North Slope oil and gas, other than gas used in the state segment, required to exceed the gross value at the point of production includes costs from producing and non-producing properties, the adjusted lease expenditures incurred on the non-producing properties are used to establish any carried-forward annual losses based on the calculations in (b)(3)(B) of this section, where XE = $75 (amount of the loss for the North Slope oil and gas, other than gas used in the state, segment) and AE = $1,000 (the sum of the adjusted lease expenditures from leases or properties from which no oil or gas is produced), resulting in a fraction G, of .075. Applying the fraction G of .075 to the adjusted lease expenditures of $400 incurred on Property C and $600 incurred on Property D results in carried-forward annual losses in the amounts of $30 established by lease expenditures incurred on Property C and $45 established by lease expenditures incurred on Property D. Those carried-forward annual losses may not be applied to the segment until the respective property commences regular production. For the gas used in the state segment for Property A, the gross value at the point of production (GVPP) of $500 exceeds the adjusted lease expenditures of $400, so there is no carried-forward annual loss. Additionally, the $100 carried-forward annual loss for gas used in the state from Property A from Year 1 may be applied against the $100 production tax value in Year 2 to reduce production tax value to zero. Since there are no excess lease expenditures for the gas used in the state segment for Property A the calculations under 15 AAC 55.224(f) are not relevant. In Year 3, the producer has a positive production tax value for the North Slope oil and gas, other than gas used in the state segment, before deducting any available carried-forward annual losses, in the amount of $1,200. For the North Slope oil and gas, other than gas used in the state segment, there is no carried-forward annual loss created in Year 3. The adjusted lease expenditures from Property A are allocated to the North Slope oil and other gas, other than gas used in the state segment, in the amount of $2,000 to Property A ($2,400 * (50/(50 + 10))) and $400 to the gas used in the state segment for Property A (2,400 * (10/50 +10))). The adjusted lease expenditures for Property C of $1,300 are allocated to the North Slope oil and other gas, other than gas used in the state segment, in the amount of $1,000 to Property A ($1,300 * (20/20 + 6))) and $300 to the gas used in the state segment, in the amount of $1,000 to Property C ($1,300 * (6/(20 + 6))). For the North Slope oil and gas, other than gas used in the state segment, the amount of tax levied by AS 43.55.011(e) is $420 if no carried-forward annual losses from prior years are deducted (($6,000 GVPP - $4,800 adjusted lease expenditures) * 35%). Since the minimum tax for the North Slope oil and gas, other than gas used in the state segment, as determined under AS 43.55.011(f) is $240 ($6,000 gross value at the point of production * 4%), the producer may use any available carried-forward annual losses from Property B ($200), plus those from Property C ($300) from Year 1, plus an additional $14 from Property C (Year 2) to reduce the producer's production tax liability, before the application of any tax credits, to no less than the $240 minimum tax determined under AS 43.55.011(f). For the gas used in the state segment for Property A, the amount of production tax calculated under AS 43.55.011(e)(2) is $35 (($500 GVPP - $400 adjusted lease expenditures) * 35%))). However, this amount is limited under AS 43.55.011(o) to $10 (((10 BTU equivalent barrels * (6 MMBTUs/BTU Eq. Bbl./1,037,000 BTUs/Mcf)) = 58 Mcf. (58 Mcf * $.177 = $10)). For the gas used in the state segment for Property C the producer is determined to have incurred excess lease expenditures under 15 AAC 55.206(b) in the amount of $150 ($150 GVPP - adjusted lease expenditures of $300). As previously noted, the producer does not have any other lease expenditures or production outside of the North Slope that might result in a positive annual production tax value for the segment described in 15 AAC 55.206(c)(1)(F). Therefore, the amount of the carried-forward annual loss would be determined under 15 AAC 55.224(f) as follows: $150 = 15 AAC 55.224(f)(1) - Total amount of excess lease expenditures gas used in state$ 53 = 15 AAC 5.224(f)(2) - ((15 AAC 55.224(f)(1) * 35%))$ 25 = 15 AAC 5.224(f)(3) & (4) - sum of benefit of limitation under AS 43.55.011(o) & (p)$ 28 = 15 AAC 55.224(f)(5) - Difference ((15 AAC 55.224(f)(2) - 15 AAC 55.224(f)(4))$ 79 = 15 AAC 55.224(f)(6) - ((15 AAC 55.224(f)(5)/35%))0.53 = 15 AAC 55.224(f)(7) - ratio to be applied to excess lease expenditures in 15 AAC 55.224(f)(1) ((15 AAC 55.224(f)(6)/15 AAC 55.224(f)(1))) In accordance with (b)(4) of this section the 53 percent ratio in 15 AAC 55.224(f)(7) is applied to the $150 excess less expenditures from gas used in the state Property C resulting in a carried-forward annual loss of $79 for the segment. Example 2. In a given calendar year after 2021, a producer has two producing leases or properties on the North Slope, both of which have commenced regular production, Property A and Property B. The producer also has two non-producing leases or properties on the North Slope, neither of which has commenced regular production, Property C and Property D. Oil produced from the four properties make up the first segment of taxable oil production for the producer. The producer also has taxable production on the North Slope for gas used in the state produced from Property A. For purposes of this example it bas been assumed that if any of the properties are eligible for a gross value reduction under AS 43.55.160((f) or AS 43.55.160(f) and (g), any gross value reduction has been added back to the gross value at the point of production before determining the amount of any carried-forward annual loss under this section. Additionally, the producer has no lease expenditures or production outside of the North Slope. In Year 1, the producing leases or properties, Property A and Property B, respectively, produce 30 and 20 barrels of taxable oil with gross values at the point of production of $1,500 and $1,000, and adjusted lease expenditures of $1,800 and $1,200. Property A also produces six BTU equivalent barrels of taxable gas used in the state with a gross value at the point of production of $200. The non-producing properties, Property C and Property D incur adjusted lease expenditures of $300 and $500, respectively. In Year 2, the producing leases or properties, Property A and Property B, respectively, produce 50 and 25 barrels of taxable oil with gross values at the point of production of $2,750 and $1,375, and adjusted lease expenditures of $2,400 and $1,200. Property A also produces 10 BTU equivalent barrels of taxable gas used in the state with a gross value at the point of production of $500. The non-producing properties, Property C and Property D incur adjusted lease expenditures of $400 and $600, respectively. In Year 3, the producing leases or properties, Property A and Property B, respectively, produce 50 barrels and 30 barrels of taxable oil with gross values at the point of production of $3,000 and $1,800, and adjusted lease expenditures of $2,400 and $1,200. Property A also produces 10 BTU equivalent barrels of taxable gas used in the state with a gross value at the point of production of $500. In addition, during Year 3, Property C commences regular production and for the North Slope oil segment, produces 20 barrels of taxable oil with a gross value at the point of production of $1,200 and incurs adjusted lease expenditures of $1,300. In addition, Property C produces six BTU equivalent barrels of gas used in the state, with a gross value at the point of production of $150. Non-producing Property D incurs adjusted lease expenditures of $600. In Year 1 the producer has a loss for the oil segment of $1,300. Part or all of the $300 carried-forward annual loss established by lease expenditures incurred on Property A, or $200 carried-forward annual loss established by lease expenditures incurred on Property B, may be deducted in determining the annual production tax value for the oil segment in any following year to the extent that the gross value at the point of production for the segment exceeds the adjusted lease expenditures described in AS 43.55.165(a)(1) or (2) for the segment for the calendar year, subject to AS 43.55.165(m). The carried-forward annual losses of $300 established by lease expenditures incurred on Property C, and $500 established by lease expenditures incurred on Property D, may not be applied in determining the annual production tax value for the oil segment until the respective property has commenced regular production. For the gas used in the state produced from Property A, there is no carried-forward annual loss as the lease expenditures to produce gas used in the state are attributable to oil produced from the leases or properties, as provided in AS 43.55.160(h)(l). The tax for the gas used in the state is $6 as limited by AS 43.55.011(o) because that is less than the $26 calculated under AS 43.55.011(e)(3)(B). In Year 2, the producer has a loss for the oil segment, in the amount of $475. The lease expenditures establishing the loss are those incurred on the non-producing properties, Property C and Property D, as provided by (b)(3)(B) of this section. The $2,400 in adjusted lease expenditures from Property A is attributable to the North Slope oil segment. Since the amount of lease expenditures for the calendar year for the North Slope oil segment, required to exceed the gross value at the point of production includes costs from producing and non-producing properties, the adjusted lease expenditures incurred on the non-producing properties are used to establish any carried-forward annual losses based on the calculations in (b)(3)(B) of this section, where XE = $475 (amount of the loss for the North Slope oil segment) and AE = $1,000 (the sum of the adjusted lease expenditures from leases or properties from which no oil or gas is produced), resulting in a fraction G, of .475. Applying the fraction G of .475 to the adjusted lease expenditures of $400 incurred on Property C and $600 incurred on Property D results in carried-forward annual losses in the amounts of $190 established by lease expenditures incurred on Property C and $285 established by lease expenditures incurred on Property D. Those carried-forward annual losses may not be applied to the segment until the respective property commences regular production as provided in AS 43.55.165(n)(2). For the gas used in the state produced from Property A, the lease expenditures to produce gas used in the state are attributable to the oil segment, so there is no carried-forward annual loss for gas used in the state. The tax for the gas used in the state is $10 as limited by AS 43.55.011(o) because that is less than the $65 calculated under AS 43.55.011(e)(3)(B). In Year 3, the producer has a positive production tax value for the North Slope oil segment, before deducting any available carried-forward annual losses, in the amount of $500. For the North Slope oil segment, there is no carried-forward annual loss created in Year 3. The adjusted lease expenditures from Property A are attributable to the North Slope oil segment, in the amount of $2,400. The adjusted lease expenditures for Property C of $1,300 are attributable to the North Slope oil segment. For the North Slope oil segment, the amount of tax levied by AS 43.55.011(e) is $175 if no carried-forward annual losses from prior years are deducted (($6.000 GVPP - $5,500 adjusted lease expenditures) * 35%). Since the minimum tax for the North Slope oil segment, as determined under AS 43.55.011(f) is $240 ($6,000 gross value at the point of production * 4%), is greater than the tax under AS 43.55.011(e), the producer must pay the minimum tax under AS 43.55.011(f) and may not apply any carried-forward annual losses from prior years. For the gas used in the state produced from Property A, the amount of production tax calculated under AS 43.55.011(e)(3) is $65 ($500 GVPP * 13%). However, this amount is limited under AS 43.55.011(o) to $10 (10 BTU equivalent barrels * (6 MMBTUs/BTU Eq. Bbl./1,037,000 BTUs/Mcf)) = 58 Mcf. (58 Mcf * $.177 = $10). For the gas used in the state produced from Property C the amount of production tax calculated under AS 43.55.011(e)(3)(B) is $20 (150 GVPP * 13%). However, this amount is limited under AS 43.55.011(o) to $6 (6 BTU equivalent barrels* (6 MMBTUs/BTU Eq. Bbl./1,037,000 BTUs/Mcf) = 35 Mcf. (35 Mcf * $.177 = $6).
(e) A producer for which a carried-forward annual loss for a segment under 15 AAC 55.206 is established by adjusted lease expenditures incurred during a calendar year shall file, with or as part of the statement required by AS 43.55.030(a) or (e) for the calendar year, a statement on a form approved or prescribed by the department that contains, for the segment,
1. (1) the following information:
  1. (A) if applicable, the calculations specified under (b) of this section;
  2. (B) the amount of the carried-forward annual loss, if any, established for each segment lease or property; and
  3. (C) the amount of the carried-forward annual loss, if any, established for exploration described in (b)(2)(C) of this section; or
2. (2) if the producer wishes to disclaim the right to use in the future any carried-forward annual loss for the segment established for that calendar year, the producer's agreement not to deduct all or any part of any carried-forward annual loss for the segment established for that calendar year in the calculation of an annual production tax value for a future calendar year; that agreement binds any transferee of an interest in a lease or property of the producer and any person that acquires the producer.
(f) This subsection implements AS 43.55.165(n)(1). A carried-forward annual loss established
1. (1) under (b) of this section may be deducted
  1. (A) only in calculating an annual production tax value for the same segment under 15 AAC 55.206(c)(1) or (3), as applicable, for which the carried-forward annual loss was established; or
  2. (B) in the case of a carried-forward annual loss to produce only gas from leases or properties north of 68 degrees North latitude or from leases or properties outside the Cook Inlet sedimentary basin no part of which is north of 68 degrees North latitude, from the production tax value of oil for the respective segment under 15 AAC 55.206(c)(3);
2. (2) before 2022 and for a segment described in 15 AAC 55.206(c)(2)(A)
  1. (A) may be deducted only in calculating annual production tax values for the following segments, if the lease expenditures establishing the carried-forward annual loss were incurred to explore for or develop oil or gas deposits located within a lease or property that includes land north of 68 degrees North latitude, with the carried-forward annual loss allocated between the segments proportionally to the respective amounts of gas used in the state and of oil and other gas produced by the producer from the lease or property during the calendar year regular production of oil or gas commences from the lease or property:
    1. (i) gas used in the state produced by the producer from the lease or property;
    2. (ii) oil and other gas produced by the producer from leases or properties that include land north of 68 degrees North latitude;
  2. (B) may be deducted only in calculating annual production tax values for the following segments, if the lease expenditures establishing the carried-forward annual loss were incurred to explore for or develop oil or gas deposits located within land that is not the producer's lease or property and is located north of 68 degrees North latitude, with the carried-forward annual loss allocated among the segments proportionally to the respective amounts of gas used in the state and of oil and other gas produced by the producer from the producer's leases or properties that include land north of 68 degrees North latitude during the first calendar year that regular production of oil or gas commences from any of the producer's leases or properties that include land north of 68 degrees North latitude:
    1. (i) gas used in the state produced by the producer from each lease or property that includes land north of 68 degrees North latitude;
    2. (ii) oil and other gas produced by the producer from leases or properties that include land north of 68 degrees North latitude;
3. (3) for a segment described in 15 AAC 55.206(c)(2)(B) may be deducted only in calculating an annual production tax value for oil and gas produced by the producer from leases or properties outside the Cook Inlet sedimentary basin and no part of which is north of 68 degrees North latitude lease or property.
4. (4) after 2021 and for a segment described in 15 AAC 55.206(c)(4)(A)
  1. (A) may be deducted only in calculating the annual production tax value for oil produced by the producer from leases or properties that include land north of 68 degrees North latitude;
  2. (B) may be deducted only in calculating annual production tax value of oil, if the lease expenditures establishing the carried-forward annual loss were incurred to explore for or develop oil or gas deposits located within land that is not the producer's lease or property and is located north of 68 degrees North latitude, during the first calendar year that regular production of oil or gas commences from any of the producer's leases or properties that include land north of 68 degrees North latitude;
5. (5) after 2021 and for a segment described in 15 AAC 55.206(c)(4)(B) may be deducted only in calculating an annual production tax value for oil produced by the producer from leases or properties no part of which is north of 68 degrees North latitude.
(g) The following example illustrates (f) of this section and 15 AAC 55.224(f): Example. In a given calendar year before 2022, a producer has two producing leases or properties on the North Slope, both of which have commenced regular production (Property E and Property F). The producer also has two non-producing leases or properties on the North Slope, neither of which has commenced regular production (Property G and Property H). Oil and other gas produced from the two producing properties plus the adjusted lease expenditures for all four properties make up the first segment of taxable production for the producer. The producer also has taxable production for the second segment on the North Slope for gas used in the state produced from Property E. For purposes of his example, it has been assumed that if any of the properties are eligible for a gross value reduction under AS 43.55.160(f) or AS 43.55.160(f) and (g), any gross value reduction has been added back to the gross value at the point of production before determining the amount of any carried-forward annual loss under this section. Additionally, the producer has no lease expenditures or production outside of the North Slope. In Year 1, the producing leases or properties, Property E and Property F, respectively, produce 30 and 20 barrels of taxable oil with gross values at the point of production of $1,500 and $1,000, and adjusted lease expenditures of $1,800 and $1,200. Property E also produces six BTU equivalent barrels of taxable gas used in the state with a gross value at the point of production of $200. The non-producing properties, Property G and Property H incur adjusted lease expenditures of $300 and $500, respectively. In Year 2, the producing leases or properties, Property E and Property F, respectively, produce 50 and 25 barrels of taxable oil with gross values at the point of production of $2,750 and $1,375, and adjusted lease expenditures of $2,400 and $1,200. Property E also produces 10 BTU equivalent barrels of taxable gas used in the state with a gross value at the point of production of $500. The non-producing properties, Property G and Property H incur adjusted lease expenditures of $400 and $600, respectively. In Year 3, the producing leases or properties, Property E and Property F, respectively, produce 50 barrels and 30 barrels of taxable oil with gross values at the point of production of $3,000 and $1,800, and adjusted lease expenditures of $2,400 and $1,200. Property E also produces 10 BTU equivalent barrels of taxable gas used in the state with a gross value at the point of production of $500. In addition, during Year 3, Property G commences regular production of oil and gas for the North Slope segment, producing 20 barrels of taxable oil with a gross value at the point of production of $1,200 and incurs adjusted lease expenditures of $1,300. In addition, Property G produces six BTU equivalent barrels of gas used in the state, with a gross value at the point of production of $150. Non-producing Property H incurs adjusted lease expenditures of $600. The producer wishes to deduct the carried-forward annual losses to the maximum extent possible in calculating annual production tax values for a later calendar year. In Year 1, the first segment, for which adjusted lease expenditures established the $200, $300, and $500 of carried-forward annual losses, for properties F, G, and H, respectively, is oil and gas, other than gas used in the state, produced from leases or properties that include land north of 68 degrees North latitude, under 15 AAC 55.206(c)(l)(A). Since regular production has already commenced from Property F, and subject to AS 43.55.165(n)(l), the carried-forward annual losses established by those lease expenditures may be deducted in calculating the annual production tax value for oil and gas, other than gas used in the state, produced from leases or properties that include land north of 68 degrees North latitude in any subsequent calendar year. Since regular production of oil or gas has not yet commenced from either Properties G or H, the $300 and $500 carried-forward annual losses incurred in Year 1 and established by lease expenditures incurred to explore for or develop oil or gas deposits located within Properties G and H may be deducted only after regular production of oil or gas has commenced from those leases or properties, as provided in AS 43.55.165(n)(2) and (p)(2) of this section. In addition, the amounts of any or all of the carried-forward losses are potentially subject to reduction under 43.55.165(o). The second segment, gas used in the state, for which adjusted lease expenditures established the $100 carried-forward annual loss, is gas used in the state produced from Property E, under 15 AAC 55.206(c)(1)(E). Therefore, subject to AS 43.55.165(o), this carried-forward annual loss may be deducted in calculating the annual production tax value of gas used in the state in any future period before 2022. In Year 2, there is a loss for the first segment, oil and other gas, in the amount of $75. The $2,400 in adjusted lease expenditures for Property E is allocated on a BTU equivalent basis to oil and other gas ($2,400 * (50/(50 + 10))) = $2,000. $2,000 + $1,200 Property F + $400 Property G + $600 Property H = adjusted lease expenditures for the oil and other gas segment of $4,200 subtracted for the GVPP of Properties E, $2,750 and F, $1,375 = a carried-forward annual loss of $75. This carried-forward annual loss is allocated between Properties G and H as in 15 AAC 55.217(d) as XE= $75 an AE = $1,000 for a Factor G of .075 which is applied to the loss in properties G and H as $400 * .075 = $30 and $600 * .075 = $45 for a total carried forward annual loss for the segment of $75. The carried-forward annual loss for gas used in the state from Property E is calculated as ($2,400 * (10/10(50 + 10))) = $400 allocated to the segment as adjusted lease expenditures, subtracted from the $500 gross value at the point of production to yield a positive production tax value of $100. Applying the carried-forward annual loss from Property E in Year 1 results in a production tax value of zero for gas used in the state produced from Property E in Year 2. In Year 3, there is a positive production tax value for the first segment, oil and other gas, in the amount of $1,200. The $2,400 in adjusted lease expenditures for Property E is allocated on a BTU / equivalent basis to oil and other gas ($2,400 * (50/(50+ 10)))= $2,000. $2,000 + $1,200 Property F + $1,000 Property G + $600 Property H = adjusted lease expenditures for the oil and other gas segment of $4,800 subtracted from the GVPP of Properties E, $3,000, F, $1,800 plus G, $1,200 (total $6,000) = a positive production tax value of $1,200. In accordance with AS 43.55.165(m) a carried-forward annual loss may not be used to reduce a tax below the amount calculated under AS 43.55.011(f) ($6,000 * 4% = $240). $240 / .35 (tax rate)= $686, the desired production tax value needed to equal the minimum tax under AS 43.55.011(f) $1,200 - $686 = $514. Therefore, a total carried-forward annual loss from Properties F and G (since regular production has commenced from both of those leases or properties) in the amount of $514 may be applied against the production tax value of $1,200 reducing that to $686. $686 * .35 = $240, equivalent to the amount of production calculated under AS 43.55.011(f) for the oil and other gas segment. Then, finally for the gas used in the state segment for Property E the tax under AS 43.55.011(o) ($10) is less than the tax under AS 43.55.011(e) of $35. For the gas used in the state produced from Property G, the carried-forward annual loss of $150 ($150 gross value at the point of production minus $300 in allocated adjusted lease expenditures) is limited as determined under 15 AAC 55.224(f) as follows: $150 in excess lease expenditures * tax rate 35% = $53 (15 AAC 55.224(f)(2)) Less $25 (sum of benefits as determined under 15 AAC 55.224(f)(4)) = $28 (15 AAC 55.224(f)(5) / 35% = $79 (15 AAC 55.224(f)(6)) $79 / $150 (excess lease expenditures from 15 AAC 55.224(f)(1)) = .53 (15 AAC 55.224(f)(7)) becomes the ratio applied to the carried-forward annual loss from 15 AAC 55.224(f)(l), so that: $150 * .53 = $79, the amount of the carried-forward annual loss for Property G, gas used in the state.
(h) For purposes of AS 43.55.165(r) and this section,
1. (1) a lease expenditure incurred by a producer to conduct
  1. (A) exploration for oil or gas deposits within land that later becomes part or all of a lease or property of the producer is reasonably related to that lease or property, beginning in the calendar year the land becomes part or all of that lease or property;
  2. (B) geological or geophysical exploration, other than a stratigraphic test well under (5) of this subsection, within 25 miles of land that later becomes part or all of a lease or property of the producer, is reasonably related to that lease or property, beginning in the calendar year the land becomes part or all of that lease or property; for purposes of this sub-paragraph, geological or geophysical exploration is conducted within 25 miles of land that later becomes part or all of a lease or property of the producer if
    1. (i) the location of the energy source used in active geophysical exploration is no more than 25 miles from the point within the lease or property that is nearest to that location;
    2. (ii) the location of the sensor used in passive geophysical exploration is no more than 25 miles from the point within the lease or property that is nearest to that location; for an aerial survey, the location of the aerial sensor is the surface location overflown at the time the sensor is in use for geophysical exploration;
    3. (iii) the location where rock or other geologic material is sampled or examined in place in geological exploration is no more than 25 miles from the point within the lease or property that is nearest to that location.
2. (2) a lease expenditure incurred by a producer to explore a specific potential hydrocarbon accumulation, or to explore by delineating a specific reservoir, is reasonably related to a participating area of the producer established for a reservoir that is discovered or delineated, respectively, by the producer's exploration of that potential hydrocarbon accumulation or reservoir; the first calendar year the lease expenditure is reasonably related to the participating area is the calendar year the participating area is established, except for lease expenditures subject to (3) of this subsection;
3. (3) a lease expenditure incurred by a producer to explore by further delineating a reservoir for which a participating area was previously established is reasonably related to the participating area as of the calendar year during which the lease expenditure is incurred;
4. (4) unless (2) or (3) of this subsection applies, a lease expenditure incurred by a producer to explore a specific potential hydrocarbon accumulation outside a unit or within a unit described in 15 AAC 55.815(2), or to explore by delineating a specific reservoir outside a unit or within a unit described in 15 AAC 55.815(2), is reasonably related to a lease or property of the producer that contains all or part of a reservoir that is discovered or delineated, respectively, by the producer's exploration of that potential hydrocarbon accumulation or reservoir; the first calendar year the lease expenditure is reasonably related to the lease or property is the later of the calendar year during which (A) the lease expenditure is incurred, or (B) the lease or property is first shown to contain all or part of the reservoir;
5. (5) a lease expenditure incurred by a producer to explore for oil or gas deposits by means of a stratigraphic test well is reasonably related to a lease or property acquired by the producer, beginning in the calendar year the lease or property is acquired, if the producer relies on information gained from the well in evaluating that lease or property for acquisition; this paragraph does not apply to a well less than 600 feet deep and for whose drilling the Alaska Oil and Gas Conservation Commission does not require a blowout preventer.
(i) The following example illustrates (h)(1)(B) of this section: A producer conducts a seismic survey, a type of active geophysical exploration, on the North Slope. The energy source is provided by a vehicle-mounted plate vibration generator (vibroseis). Vibrations for the purpose of the survey are generated at 1,000 locations over the course of the survey. The producer subsequently acquires an oil and gas lease that is within 25 miles of 345 of those locations, as measured from the nearest point in the lease. The other 655 locations are more than 25 miles from the lease. The lease expenditures incurred to conduct the seismic survey at the 345 locations within 25 miles of the lease are reasonably related to the lease. The amount of lease expenditures that are reasonably related to the lease may be calculated as 34.5 percent of the total lease expenditures incurred to conduct the seismic survey.
(j) The following example illustrates (h)(2) of this section: A unit composed of state oil and gas leases has been formed to encompass a specific potential hydrocarbon accumulation. A producer drills three wells to explore the potential hydrocarbon accumulation. The first well is a dry hole. The second well discovers a reservoir in the potential hydrocarbon accumulation. The third well penetrates the same reservoir. A participating area in which the producer owns an interest is established for the reservoir by the department of natural resources. The lease expenditures incurred to drill all three wells are reasonably related to the participating area, because all the wells were drilled to explore the potential hydrocarbon accumulation in question.
(k) This subsection implements AS 43.55.165(m). In the calculation of an annual production tax value for a producer's segment described in 15 AAC 55.206(c)(1)(A), carried-forward annual losses may be deducted only to the extent that 35 percent of the resulting annual production tax value is equal to or greater than the amount calculated for the producer for the calendar year under AS 43.55.011(f).
(l) The following example illustrates (k) of this section: A producer produces oil from North Slope leases or properties for which the amount of tax calculated under AS 43.55.011(e)(2) for the calendar year is $150 after the deduction of adjusted lease expenditures under AS 43.55.165(a)(1) and (2). The minimum tax for the oil as determined under AS 43.55.011(f) for the calendar year is $100. Regardless of the amount of carried-forward annual losses under AS 43.55.165(a)(3) that the producer has available, carried-forward annual losses under AS 43.55.165(a)(3) may not be used to reduce the amount of tax calculated under AS 43.55.011(e) to less than $100. The producer deducts carried-forward annual losses under AS 43.55.165(a)(3) from a prior year to reduce the producer's tax liability to an amount equal to the amount of tax determined under AS 43.55.011(f) ($100). The producer has available $75 of credits earned in the current year under AS 43.55.024(i) and a tax credit under AS 43.55.023(b), as the provisions of that subsection read before January 1, 2018, for oil and gas produced before January 1, 2018, in the amount of $50. The entire amount of the tax credit under AS 43.55.024(i) of $75 may be applied to reduce the producer's tax liability to $25, and $25 dollars of the tax credit under AS 43.55.023(b) may be applied to further reduce the producer's tax liability down to zero. The remaining $25 of the tax credit under AS 43.55.023(b) may not he used to apply for a refund, but may be carried-forward to be used in a future period.
(m) Subject to the following conditions and limitations, a producer to which an interest in a lease or property is transferred may apply the fraction specified in (1) of this subsection of an unused carried-forward annual loss established by lease expenditures that were previously incurred by the transferor of the interest to the same extent as if the lease expenditures had been incurred by the transferee of the interest, if the lease expenditures either were incurred to explore for, develop, or produce oil or gas deposits located within the lease or property or if the lease expenditures are reasonably related to the lease or property under (h) of this section, and if the transferor of the interest in the lease or property provides the transferee at the time of the transfer of the interest with the transferor's written agreement that the allowed fraction of the carried-forward annual loss will not be applied by the transferor of the interest and will be available for application only by the transferee:
1. (1) the fraction allowed for purposes of this subscction equals the fraction of the transferor's interest in the lease or property transferred to the transferee of the interest;
2. (2) the transferor of the interest in the lease or property shall provide the transferee of the interest with a description and documentation of the lease expenditures establishing the carried-forward annual loss with sufficient specificity to distinguish them from other lease expenditures incurred by the transferor;
3. (3) the transferor of the interest in the lease or property shall file, with or as part of the statement required by AS 43.55.030(a) or (e) for the calendar year during which the interest in the lease or property was transferred,
  1. (A) a statement on a form approved or prescribed by the department that identifies the lease or property, the interest transferred, and the transferee, and describes the lease expenditures, with reference to the carried-forward annual loss established by the lease expenditures as reported in the statement required under (e) of this section; and
  2. (B) a copy of the transferor's written agreement that the allowed fraction of the carried-forward annual loss will not be applied by the transferor of the interest and will be available for application only by the transferee;
4. (4) a claimed lease expenditure and a claimed carried-forward annual loss under this subsection are subject to adjustment or dis allowance on audit to the same extent as if no transfer of an interest in the lease or property had occurred;
5. (5) if the transferor of the interest in the lease or property does not agree in writing at the time of the transfer of the interest that the allowed fraction of the carried-forward annual loss will not be applied by the transferor of the interest and will be available for application only by the transferee, the full amount of the carried-forward annual loss remains available for use by the transferor of the interest to the extent provided by AS 43.55 and this chapter;
6. (6) except as provided in this subsection and (n) of this section, a carried-forward annual loss may not be transferred.
(n) If the transferee of an interest in a lease or property under (m) of this section or under this section having the right to apply a fraction of a carried-forward annual loss subject to (m) of this section transfers all or part of the interest to a subsequent transferee, and if the transferor of the interest in the lease or property provides the subsequent transferee at the time of the transfer of the interest with the transferor's written agreement that the fraction allowed under this subsection of the carried-forward annual loss will not he applied by the transferor of the interest and will be available for application only by the subsequent transferee, the subsequent transferee may apply the fraction allowed under this subsection of the unused carried-forward annual loss to the extent allowed under, and subject to the provisions of, (m) of this section, except as provided as follows:
1. (1) if the interest in a lease or property transferred under this subsection is less than the entire interest owned by the transferor under this subsection, the fraction of the unused carried-forward annual loss that the subsequent transferee under this subsection may apply is equal to the fraction of the interest in the lease or property transferred multiplied times the fraction of the carried-forward annual loss that the transferor under this subsection had the right to apply before the transfer;
2. (2) the description and documentation of lease expenditures referred to in (m)(2) of this section and required to be provided by the transferor under this subsection to the subsequent transferee under this subsection may be a copy of the description and documentation that the transferor under (m) of this section provided under (m)(2) of this section to the transferee under (m) of this section;
3. (3) the statement referred to in (m)(3)(A) of this section and required to be filed by the transferor under this subsection need not include a reference to the statement required under (e) of this section to be filed by the transferor under (m) of this section.
(o) The limitation provided under AS 43.55.165(n), that a carried-forward annual loss may only be applied beginning in the calendar year in which regular production of oil or gas from the lease or property where the lease expenditure resulting in the carried-forward annual loss was incurred commences, is satisfied if the first calendar year for which part or all of the carried-forward annual loss is deducted in calculating an annual production tax value is not earlier than the calendar year during which that regular production commences. If the lease expenditure was incurred on more than one lease or property, the calendar year during which regular production of oil or gas commences may be determined with reference to any one of those leases or properties for purposes of this subsection. Upon receiving a written request from a producer, the department will request the Alaska Oil and Gas Conservation Commission to determine whether, and if so when, regular production of oil or gas has commenced from a lease or property.
(p) As used in
1. (1) AS 43.55.165(s)(1) "loss" means an amount of adjusted lease expenditures described in AS 43.55.165(a)(1) and (2) incurred during a calendar year after 2017 that would otherwise be deductible by the producer in calculating an annual production tax value for that calendar year under AS 43.55.160(a)(1) or (h) but whose deduction would cause the annual production tax value to be less than zero, subject to the requirements in AS 43.55.160(e) to add back a reduction under AS 43.55.160(f) or (g) and to account for the adjusted lease expenditures if the producer's tax liability is limited by AS 43.55.011(o) or (p);
2. (2) AS 43.55.165(n)(2), (o), and (r), and this section, the lease or property "on" which a lease expenditure is incurred or "where" a lease expenditure is incurred means
  1. (A) in the case of a lease expenditure incurred to explore for, develop, or produce oil or gas deposits located within a lease or property of the producer, the lease or property within which is located the oil or gas deposits to explore for, develop, or produce which the lease expenditure is incurred;
  2. (B) a lease or property, if any, to which the lease expenditure is determined to be reasonably related under (h)(1) - (5) of this section;
  3. (C) a lease or property that incorporates the lease or property described in (A) or (B) of this paragraph, such as a participating area that when established encompasses an oil and gas lease subject to (A) or (B) of this paragraph and other oil and gas leases; the first calendar year the lease expenditure is considered to be on a lease or property described in this subparagraph is the calendar year during which the lease or property incorporates the lease or property described in (A) or (B) of this paragraph;
3. (3) this section;
  1. (A) "carried-forward annual loss" has the meaning given in AS 43.55.165(s)(1);
  2. (B) "participating area" means a participating area described in 15 AAC 55.815(1);
  3. (C) "potential hydrocarbon accumulation" has the meaning given in 11 AAC 83.395;
  4. (D) "producer" includes "explorer" with regard to lease expenditures incurred to explore for oil or gas deposits located in land in which the explorer does not own an operating right, operating interest, or working interest in a mineral interest in oil or gas;
  5. (E) "reservoir" has the meaning given in 11 AAC 83.395.
(q) In accordance with AS 43.55.011(e) and 43.55.160(h), lease expenditures incurred after December 31, 2021 for both oil and gas are included in the calculation of the carried-forward annual loss for oil, and a carried-forward annual loss calculation may not be made for gas except as provided in (f) of this section.

(Eff. 12/6/2018, Register 228; am 9/20/2020, Register 235; am 1/1/2022, Register 240)

Authority: AS 43.05.080, AS 43.55.160