Alaska Administrative Code
Title 11 - Natural Resources
Part 3 - Oil and Gas
Chapter 25 - Royalty Election Under Alaska Gasline Inducement Act
11 AAC 25.240 - Processing contracts at arm's length

(a) If a lessee or its affiliate processes qualified gas under an arm's length contract, the processing allowance used to determine the monthly value of that lessee's qualified gas must be the actual and reasonable costs incurred and paid by the lessee or its affiliate for processing, less any costs not allowed under 11 AAC 25.060 - 11 AAC 25.090 or 11 AAC 25.230 - 11 AAC 25.260. The lessee shall demonstrate that a contract is arm's length.

(b) If the commissioner determines that the consideration set out in an arm's length contract exceeds the consideration actually transferred either directly or indirectly from the lessee or its affiliate to the processor for the processing, the commissioner may require that the processing allowance be reduced or redetermined under 11 AAC 25.250.

(c) If the commissioner determines that the consideration paid under an arm's length processing contract exceeds the reasonable value of the processing because of misconduct by the contracting parties, or because the lessee has by other means breached a duty to the state to market the production for the mutual benefit of the lessee and the state, the commissioner may require that the processing allowance be reduced or redetermined under 11 AAC 25.250.

(d) An allowance may not be taken for the cost of processing a component for which a royalty share is not reserved to the state.