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December 14, 2010 --- Vol. 16, No. 117December 2010

Alaska judge blows hole in state’s claims against BP for 2006 spills

An Alaska judge has dealt the state a partial defeat in its effort to collect major civil damages from BP Exploration (Alaska) Inc. for the 2006 oil pipeline spills on the North Slope.

In a three-page ruling issued Dec. 10, Superior Court Judge Peter Michalski of Anchorage granted BPXA’s motion to throw out the state’s claims for back taxes on oil production shortfalls. The state, in its lawsuit against BPXA, had alleged an estimated 35 million barrels of crude oil and natural gas liquids production was lost from 2006 through 2008 due to production shut-ins resulting from the spills and subsequent repairs of corroded pipelines.

The state was aiming to collect $1 billion or more in taxes, royalties and fines with the lawsuit, which argues BPXA was negligent in its pipeline upkeep.

But the Michalski ruling, which pertains only to the state’s tax claims, appears to preclude a damages recovery anywhere near $1 billion.

Michalski’s ruling said in part: “Taxes become due upon the occurrence of a taxable event. In order to sustain a claim for lost tax damages, it is necessary for the State to allege that a taxable event occurred. Here, there has been no taxable event, and therefore BPXA cannot owe taxes.”

The taxable event the judge apparently is referring to is the actual production of oil.

BPXA’s lawyers had asked the court to strike the tax claims, calling them unconstitutional. In court papers, the company argued “the legislature has imposed no obligation to pay taxes on oil that was not produced or income that was not earned.”

Steve Rinehart, a BPXA spokesman, told Petroleum News on Dec. 13: “We are pleased with the ruling.” He offered no further comment.

Officials in the state Department of Law had no immediate comment.

The state sued BPXA on March 31, 2009. The case is scheduled for trial in March 2012.

See more in the Dec. 19 edition of Petroleum News, available online to subscribers on Friday, Dec. 17 by 11 a.m.

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