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Vol. 18, No. 10 Week of March 10, 2013
Providing coverage of Alaska and northern Canada's oil and gas industry

TAPS value: $7.2 billion

Latest assessment of Alaska oil pipeline worth could stir more legal conflict

Wesley Loy

For Petroleum News

The state’s petroleum property assessor has put a preliminary value of $7.2 billion on Alaska’s most essential industry asset, the trans-Alaska pipeline system.

The state annually assesses the value of TAPS for property tax purposes.

This latest assessment could lead to further legal proceedings among parties who have been battling over the pipeline’s value since 2006.

The oil companies that own the pipeline believe it is grossly overvalued, while municipalities that share in TAPS property tax revenue with the state have argued for higher valuations.

In coming months, the Alaska Supreme Court is expected to render a ruling that could put a stop to perennial appeals of TAPS assessments.

The appeal process

James Greeley, state petroleum property assessor in the Alaska Department of Revenue, was out of the office the week of March 3 and could not be reached for comment.

But knowledgeable persons said he had issued a preliminary TAPS assessment of $7.2 billion for 2013.

The valuation may be appealed to the assessor, who is expected to specify a final number by March 30.

From there, taxpayers and affected local governments can appeal to the State Assessment Review Board, or SARB, a five-person panel appointed by the governor to hear oil and gas property tax appeals.

Beyond that, appeals can be filed in state court.

Such court appeals have been routine ever since the 2006 assessment.

The intense litigation has involved the state, the TAPS owners and municipalities including the city of Valdez, the Fairbanks North Star Borough and the North Slope Borough.

Four companies now own stakes in TAPS: BP, ConocoPhillips, ExxonMobil and Chevron.

The pipeline moves crude oil 800 miles from Prudhoe Bay south to a terminal at Valdez, where it is loaded onto tankers for delivery to West Coast refineries. An Anchorage-based consortium, Alyeska Pipeline Service Co., operates TAPS on behalf of the owners.

Big value swings

The pipeline’s value, as set by state officials, the SARB and the courts, has fluctuated widely over the years.

Valuations have ranged from $6.1 billion in 1977, the year the pipeline began operations, to under $3 billion in 2000, jumping hugely to almost $10 billion in 2006.

A former state Superior Court judge, Sharon Gleason, set the 2006 value after a lengthy trial in the fall of 2009. The Department of Revenue had adopted a new valuation approach known as “replacement cost new less depreciation.” The TAPS owners argued against that approach, saying the system should be valued based on its tariff income. In recent years, the companies have asserted TAPS is worth $1.5 billion or less.

Gleason held that TAPS was built to monetize the vast North Slope oil reserves, not to realize tariff income. And the pipeline is the only way to get the oil to market.

Gleason’s 2006 valuation was appealed to the Alaska Supreme Court, which heard arguments in December. A decision is anticipated “sometime within the year,” according to a recent state Department of Law briefing provided to legislators.

After another long trial, Gleason also set a TAPS value of roughly $9 billion for the years 2007, 2008 and 2009. That decision likewise has reached the state Supreme Court on appeal.

For 2012, the Department of Revenue set a TAPS valuation of $8.25 billion. Appeal of this valuation has been stayed pending resolution of the 2006 case in the Supreme Court, the Law Department briefing said.

Big money obviously is involved in the litigation over the TAPS value. Gleason’s ruling on the 2006 tax year alone resulted in about $112 million in additional property tax revenue for the state and municipalities, the briefing said.

But it’s not a clear-cut windfall.

Increasing the assessed value of TAPS yields higher property taxes, but it also results in higher TAPS tariffs “because property taxes are an allowable pipeline expense in ratemaking methodology,” the Law Department briefing said. This means the state’s greater property tax collections “will be offset to some degree by the higher tariff’s effect on production tax and royalty revenues.”

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