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Vol. 19, No. 22 Week of June 01, 2014
Providing coverage of Alaska and northern Canada's oil and gas industry

TAPS worth $10.2B

Yet another opinion rendered in contentious question of Alaska pipeline value

Wesley Loy

For Petroleum News

The ball keeps bouncing on the value of the trans-Alaska pipeline system.

The latest opinion comes from the State Assessment Review Board, which puts the TAPS value at just over $10.2 billion.

That’s far more than the owners believe their system is worth, and also way above the assessment done by the Alaska Department of Revenue’s Tax Division.

The TAPS value has gyrated wildly since 2006 (see chart) as lawyers and experts for the owners, the state and municipalities through which the 800-mile pipeline passes have battled over the question of how much the iconic Alaska asset is worth.

The question is important for property tax purposes. The higher the assessed value, the greater the tax collections. The owners, of course, prefer a lower assessed value, while the municipalities favor the highest value.

Squishy calculation

The gyrations suggest that valuing the pipeline is hardly an exact science. In fact, the process has looked highly subjective with billions of dollars added or subtracted from year to year.

The State Assessment Review Board, or SARB, is a panel appointed by the governor to help determine TAPS value.

The SARB sits between the Tax Division, which assesses the value of the pipeline system each year, and the courts, where SARB determinations may be appealed.

Such appeals have happened regularly in recent years. Seemingly no one is happy with TAPS assessments.

The SARB convened from May 12 through May 16 to hear appeals of the Tax Division’s 2014 assessment.

The division put TAPS value as of Jan. 1 at about $5.75 billion.

The owners argued the system was worth no more than $2.7 billion, while the municipalities said it was worth at least $13.76 billion.

The SARB, in a 20-page decision dated May 23, settled on about $10.2 billion.

In 2013, the board put the value at $11.87 billion.

The parties have 30 days to appeal the SARB decision to state Superior Court. And the odds are they will.

Reserves estimates are key

TAPS is an indispensible asset. It is the only means of moving crude oil from the rich North Slope oil fields south to the Valdez tanker port. From there, the oil is shipped predominantly to West Coast refineries.

The principal owners of TAPS are BP, ConocoPhillips and ExxonMobil. Chevron also owns a small share.

Property taxes on TAPS and other petroleum properties provide an important revenue stream for Alaska, though not as large as oil and gas production taxes and royalties.

Since 2006, TAPS valuations by the Tax Division, the SARB and the courts have ranged from $3.6 billion to the nearly $12 billion in 2013.

The parties have debated different ways to value the pipeline, and lately have focused on what it would cost to replace it.

This necessarily leads to the complex question of how much oil is left to be produced on the North Slope.

The state, the owners and the municipalities have significantly differing views on the remaining reserves.

The SARB, in its May 23 decision, said it favored the higher reserves estimates from Dudley Platt, an expert for the municipalities. Platt formerly was a consultant for the state.

‘Righting itself’

The SARB decision said Platt has estimated that 5.8 billion barrels of proven reserves remain on the North Slope.

That ought to be enough to keep the pipeline operating for decades to come, the board concluded.

The SARB, at the end of its decision, noted that the various parties, along with the Superior Court and the board itself, have at times indicated that the “system appears broken,” as evidenced by year after year of litigation over the TAPS assessments.

“Based on this year’s hearing, however, the system appears to be righting itself,” said the decision signed by the SARB chairman, James I. Mosley.

One positive sign, the board said, was that the owners and the municipalities both prepared quality studies that resulted in “converging estimates” of the direct costs for replacing TAPS.

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