TAPS value: $8.7 billion

State board settles on figure far above what owners say Alaska pipeline is worth; big difference in estimated end-life of line

Wesley Loy

For Petroleum News

A state panel that hears oil and gas property tax appeals has set the 2011 assessed value of the trans-Alaska pipeline system at $8.67 billion.

That’s an upward adjustment of about 9 percent from the $7.93 billion value the Alaska Department of Revenue reached.

The State Assessment Review Board issued its determination on May 31 after considering appeals from the TAPS owners as well as three municipalities through which the 800-mile oil pipeline passes.

The TAPS owners argued the pipeline’s value was no more than $1.25 billion, while the municipalities — the North Slope Borough, the Fairbanks North Star Borough and the city of Valdez — argued a value of at least $11 billion.

The board’s decision may be appealed to the Alaska Superior Court.

Major revenue source

The board convened May 16-20 to hear and deliberate on the appeals of the Department of Revenue’s 2011 assessment of TAPS.

The TAPS owners are BP, ConocoPhillips, ExxonMobil, Koch Industries and Chevron. BP holds the biggest stake at nearly 47 percent.

Petroleum property taxes are a major source of revenue for the state as well as the municipalities, and a higher assessed pipeline value means greater tax collections for these governments.

For the TAPS owners, the objective is to limit property taxes, and so they tend to downplay the value of the pipeline, which has been in operation since 1977 and today carries far less oil than it once did.

Despite the declining throughput, the assessed value of TAPS has climbed from the $3 billion that held from 2001 through 2004 as a result of negotiated agreements between the owners, the Department of Revenue and the municipalities.

In May 2010, Superior Court Judge Sharon Gleason of Anchorage issued a ruling that TAPS was worth $9.98 billion for the 2006 tax year. The owners and municipalities had gone to court to appeal the State Assessment Review Board’s determination of $4.31 billion.

The Gleason decision is now on appeal to the Alaska Supreme Court. Assessments for tax years subsequent to 2006 also have been appealed to the courts.

For 2010, the board set an assessed value of $9.64 billion for TAPS.

Pipeline’s life expectancy

The adjustment has to do with estimating the economic end-life of TAPS. This involves consideration of two components, the first being projected future throughput from North Slope oil fields.

“The second component of the end-life calculation is an estimate of the minimum daily throughput that can be maintained by the TAPS,” the board decision document said. “This is the determination of what the daily throughput will be when mechanical problems from low flow rates, such as waxing and icing, make it impossible to continue to operate the TAPS as it is currently configured.”

In 2010, the pipeline owners argued the minimum mechanical throughput was 300,000 barrels a day. The municipalities argued TAPS could operate at 100,000 barrels per day.

The Department of Revenue settled on 150,000 barrels per day, and removed gas liquids production from the undeveloped Point Thomson field from its throughput projection. This resulted in an estimated economic end-life of 2040 for TAPS.

The assessment review board, however, estimated an end-life of 2045, which is more in line with Judge Gleason’s finding of 2047 based on the extensive evidence presented during a trial in her court on the disputed 2006 assessment.

This was a victory for the municipalities, whose consultant, Dudley Platt, prepared four production forecasts all estimating pipeline throughput at 200,000 barrels per day in 2045, the board decision said. Platt formerly did production forecasts for the Department of Revenue.