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Interest Expense

When a financier is in a loan position, he is charged interest based on the loan interest rate. The calculation is based on the amount owing on the loan from the previous OF Day.

Note that the interest rate is stated annually but calculated, on a per OF Day basis, as 1/12 of the stated rate. For example, if the stated loan interest rate is 12.00%, the rate used in the calculation for that particular rate will be 1.00%.

Interest expense is a legitimate expense applied against income to reduce taxes. If a financier is in a loan position and is operating in only one province, all the interest expense is applied to that province. If a financier is in a loan position and is operating in two or more provinces, all the interest expense is apportioned based on pre-royalty production in each province.

For example, assume $30,000 in interest expenses is realized for a particular OF Day. Production in Ghawar is 2,000 m3; production in Pembina is 1,000 m3. Therefore $20,000 of those interest expenses will be allocated in Ghawar; $10,000 in Pembina.

 
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