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BP Prudhoe Bay Royalty Trust Message Board

  • mh1337 Apr 15, 2013 3:05 AM Flag

    Alaska cut oil taxes!

    So suprised this hasn't been posted on here but the legislature just passed a huge tax cut, dividends are going up!!!!!

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    • mpheumann Apr 20, 2013 2:55 AM Flag

      So, here is the math on the taxes, which take effect starting in Q1 2014.

      Before, the tax rate would be 25% + .4% per dollar over $30 per bbl of production tax value. In this case I'll use production tax value as WTI less chargeable costs.

      If we assume $90 WTI, $30 chargeable costs then we have $60 production tax value. That would put taxes at 37% (25% + 30*.4%). Royalty per BBL would then be $60*(1-0.37) = $37.80

      Under the new tax system we have the same profits based tax so tax will again be based on WTI less chargeable costs. The difference is now we have a 35% base tax rate and a sliding scale $/BBL royalty based on production tax value. At $80 production tax value or less we get $8/bbl off our taxes. Every additional $10 of production tax value reduces our credit by $1.00 until the credit goes to nothing and we are just left with the 35% tax rate.

      If we use the same assumptions of $90 WTI, $30 chargeable costs then we have the same $60 production tax value. The new royalty per barrel would then be $60*(1-0.35) + $8 (our tax credit in this case) = $47.00

      Comparing our new royalty we see an increase of $9.20/BBL or 24% in this example, which is pretty close to current conditions. If you value this trust based on expected future dividends, I think the value just went up and the market has not figured this one out yet. I've already got the exposure I want to this but if I didn't I would definitely still be buying.

      Sentiment: Strong Buy

    • The Bears here and yahoo failed to post the story...Sure showed up im the yahoo COP Headlines...
      Anyone doing the math? I would but my eyesight isn't working well...I can barely read or post. the muro can
      t keep the coenea cleared long enough now for much else.Or I'd do the math.

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