Measurements at the Surface Heat Budget of the Arctic Ocean Experiment (SHEBA) Atmospheric Surface Flux Group (ASFG) tower site from October 1997 to October 1998 are used to describe the annual cycle of the near-surface environment and the surface energy budget (SEB). Comparisons with historical data and climatological estimates suggest that the SHEBA site was 3–8°C warmer in March and April. The unique SHEBA profile measurements showed that the mean near-surface environment is strongly stable during 6 winter months, and near neutral or weakly stable during the other months. However, one-hour data show that neutral stratification does occur 25% of the time during the winter. The monthly mean flux profiles suggest that turbulent processes cool the near-surface atmosphere during the winter and warm it during the summer, though the sign of the sensible heat flux is negative during both the winter and July. The SHEBA SEB calculation is unique in its nearly exclusive use of observed rather than derived values. The magnitude of the best estimate of the annual net observed surface energy surplus at SHEBA (8.2 W m−2) was consistent with the observed surface ice and snowmelt and was in reasonable agreement with most previous estimates of the net annual SEB over the Arctic pack ice. However, the partitioning of the various components of the SEB differed in the SHEBA data. The SHEBA site had unusually large incoming longwave radiation in the fall and spring, giving an annual mean that was larger by 10.4–19.3 W m−2. The site also had substantially less incoming solar radiation during most months than in previous estimates, producing a difference in the annual mean of 5.0–9.5 W m−2 when compared to these estimates. The observed magnitudes of the sensible (−2.2 W m−2) and latent (1.1 W m−2) heat fluxes at SHEBA were smaller than previous climatological estimates, as were the conductive flux estimates (2.4–5.0 W m−2) at this site. Estimates of the measurement errors suggest that they are not likely to alter the conclusions concerning the SEB terms presented here but will prevent us from conclusively determining the reasons for the net thinning of the ice observed during SHEBA.