Bill No.: HB0054                  Drafter:  MQ

 

LSO No.:  08LSO-0041              Effective Date:  7/1/2008

 

Enrolled Act No.:  HEA0019

 

Chapter No.:       28

 

Prime Sponsor:     Joint Revenue Interim Committee

 

Catch Title:       Natural gas valuation.

 

Subject:  Provides for the valuation of producer-processed natural gas for taxation purposes.

 

Summary/Major Elements:

 

·         Natural gas which is produced and processed by the same entity is difficult to value since there is technically no "arms-length" transaction whereby the producer sells the gas to another party to be processed.

 

·         Provides for the "modified netback" valuation methodology whereby a value is "imputed" to the natural gas through a complex formula.

 

·         Under the netback method, a proportionate share of the costs incurred to make the gas marketable is deducted before royalties are paid.  Under the modified netback method, the traditional netback method provides the "floor" value and further calculations are made:  the sale of the natural gas minus the total direct processing and transportation costs, any arms-length transportation fees, overhead costs, exempt royalties and return on investment.

 

·         Act applies to all natural gas production on and after January 1, 2009.

 

Comments:

 

·  Report Required – Requires the Dept. of Revenue to report to the governor and the joint revenue interim committee on the results of applying the modified netback valuation method on October 1, 2009 through 2019.