Severance tax change cuts North Slope asset values

In his 2005 state-of-the-state address in January, Alaska Gov. Frank H. Murkowski announced with little warning some unexpected news. As of February 2005, the state includes Prudhoe Bay’s satellites in its severance tax calculation. Wood Mackenzie estimates that this aggregation generates an additional net tax liability of $88 million in 2005 for Prudhoe Bay’s owners. As a result of the change, the present value of the assets at a 10% discount rate (PV10) drops by $528 million. The impact would be even more severe if severance taxes were not deductible against state and federal income taxes.Aurora, Borealis, Midnight Sun, Orion, Polaris, and Point McIntyre oil fields are now i...

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