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Higher-of Value Audits

To value production that is not covered by a Royalty Settlement Agreement, the royalty audit section uses "higher-of" value audits to determine on what value of the oil and gas produced the computation of the state's royalty share should be based. This is a brief summary of how most "higher-of" values are determined. There are several different lease agreement forms. Most have four measures of value. The state is entitled to using the highest of these four values as a basis for determine the royalty value. The primary valuation provisions are DL-1 Leases and New Form Leases

New Form Leases

(usually not under a Royalty Settlement Agreement) For these leases, two of the four measures of value determined in the lease agreement involve "posted prices" and can be disregarded as posted prices are not currently used in Alaska. The other two measures are:

Paragraph 36(a)(1): "the field price received by the lessee" which is the same value as paragraph 16(1) for a DL-1 lease)"
Paragraph 36(a)(2):"the volume-weighted average of the three highest field prices received by other producers in the same field or area.."

Alaska Department of Natural Resources Division of Oil & Gas

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Higher-of Value Audits

New Form Leases

Mission Statement

Division of Oil & Gas