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Senate hears Gleason TAPS value decision Attorneys Robin Brena, Craig Richards, talk about recent decision; Brad Keithley warns about drawing wrong conclusions from case Kristen Nelson Petroleum News
It was lawyers, lawyers, lawyers at Senate Resources Feb. 6-9 as the committee heard an extensive discussion of Judge Sharon Gleason’s recent decision on the value of the trans-Alaska oil pipeline for property tax purposes, and what significance it holds for the state.
Robin Brena of Brena, Bell & Clarkson and Craig Richards of Walker & Levesque, whose firms represented the municipalities in the case, talked about the decision and its significance as Alaska looks at its tax system.
Brad Keithley of Perkins Coie, not one of the attorneys involved in the case, presented a short response.
The men all told the committee that they were in Juneau to present their own views, not those of any clients.
The information gap Brena told legislators he was particularly concerned about the information available to them in making major tax policy decisions. He said that because of his participation in the trial, he had access to information under confidentiality agreements that he couldn’t share, but that was considerably more than that available to legislators.
He was quick to say, however, that public fears of an impending shutdown of the trans-Alaska oil pipeline are simply not based on facts.
Brena said that Judge Gleason found that based on proved reserves only the line would be able to operate through 2065-68, down to a minimum rate of 100,000 barrels per day. He said he couldn’t share much of the information the judge relied on, specifically producer reserve information and production profiles, because that information is confidential.
He called public information on these issues “highly unreliable” and said legislators should have access to the information companies use for decision making and the information they share with the investment community. Brena said the Regulatory Commission of Alaska and the Federal Energy Regulatory Commission will be making decisions on what information should be made public, and told legislators that if better information is a concern to them they should weigh in.
Information Revenue has Richards noted that Alaska statutes exempt taxpayer information from the Alaska Public Records Act, but said the Department of Revenue treats everything a taxpayer provides as sensitive, even if it’s available in the public domain.
He said, for example, that while production forecasting is done by the department for its Revenue sources book, something Judge Gleason called a budgeting function, the department treats the details of the forecast as taxpayer confidential.
Richards characterized the department as wanting to make producers comfortable, and also said there is probably a desire not to undergo what could be a laborious task of shifting out what is confidential from isn’t.
He said that in a state like Alaska it should be policy to have as much information available as possible.
Brena called the Alaska North Slope an “integrated operation” dominated by the major producers — BP, ConocoPhillips and ExxonMobil — which between them own 95 percent of the trans-Alaska oil pipeline and 96 percent of all production.
He said there are barriers to entry on the North Slope because of that ownership situation, and urged legislators not to try to fix with tax changes a situation which would be fixed by opening the market.
Brena cited Cook Inlet as an example of what can happen with changes. Cook Inlet had high market dominance by a few operators but Agrium, the owner of the former fertilizer plant at Nikiski, fought to open up infrastructure, specifically CIGGS, the Cook Inlet Gas Gathering System. Once CIGGS was subject to RCA regulation, Agrium could make deals with independents to get gas and have it shipped, he said.
Senate Resources co-Chair Joe Paskvan noted that a memo written by a former director of the Division of Oil and Gas a decade ago addressed the same issues of market concentration on the North Slope.
Brena said his message to legislators was to determine what a free market would accomplish, citing recent active development in Cook Inlet as a local example, and urged senators not to substitute tax policy for a free market.
It’s production Keithley, addressing the committee Feb. 9, said it’s important that the decision doesn’t go into production levels, either current or forecast, and said he believes that the important thing is production rate, not reserves life.
In response to Sen. Bert Stedman, R-Sitka, about concerns in the public that the pipeline would shut down soon, Keithley said he thinks that discussion is a dead end, but said he thinks there is a need to increase investment and increase production.
Substantial additional investments will be needed, Keithley said, and there needs to be an economic rationale for those investments.
Keithley noted the decision will result in an increase in tariff rates. He said some 25 percent of current TAPS rates are to recover ad valorem taxes and with the decision that will go up to about a third of TAPS rates. Those increased ad valorem tax rates benefit the North Slope Borough, the Fairbanks North Star Borough and Valdez, while hurting the state by reducing royalty and production taxes because of the lower netback, he said.
Keithley also said the “significant” additional tax on industry adds to the perception that the Alaska business climate is litigious and unpredictable.
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