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# BP Prudhoe Bay Royalty Trust Message Board

• mh1337@rocketmail.com mh1337 Apr 15, 2013 3:05 AM Flag

So suprised this hasn't been posted on here but the legislature just passed a huge tax cut, dividends are going up!!!!! http://www.sfgate.com/news/article/Alaska-Legislature-passes-oil-tax-overhaul-4433543.php

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• mpheumann@hotmail.com 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.