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Trans-Alaska pipeline value upheld State Supreme Court affirms lower court ruling that system was worth $8.9 billion to $9.6 billion in tax years 2007 to 2009 WESLEY LOY For Petroleum News
The Alaska Supreme Court has handed the owners of the trans-Alaska oil pipeline another major defeat regarding the system’s value for property tax purposes.
The high court, in a 30-page opinion released Aug. 28, affirmed a state Superior Court decision “in all respects.”
The lower court had determined the value of the pipeline system, or TAPS, was $8.9 billion in tax year 2007, $9.6 billion in 2008, and $9.2 billion in 2009.
Those values far exceed what the oil company owners of TAPS argued the asset was worth - little more than $1 billion.
The Supreme Court ruling means the pipeline owners will pay more than they would prefer in property tax, which is shared between the state and municipal governments.
The ruling also could bring an end to the long-running legal conflict over the taxable value of one of the nation’s most important physical assets.
Essential tool The 800-mile pipeline is the only practical means of moving Alaska North Slope crude oil south to market.
The high court opinion noted the pipeline was constructed between 1974 and 1977 at a cost of approximately $8 billion.
The owners include BP, ConocoPhillips, ExxonMobil, Koch and Unocal.
Although North Slope production declines mean the pipeline carries far less oil on a daily basis than it once did, it remains an indispensable tool to produce the considerable oil that remains on the Slope.
Thus, the pipeline has great value. But just how to assess that value has been the subject of intense legal wrangling.
All involved in setting the value - including the Alaska Department of Revenue, the State Assessment Review Board and the courts - plainly have struggled with the task, with estimates of pipeline value bouncing around like a tennis ball.
The Supreme Court in February 2014 issued a decision affirming a pipeline valuation of just under $10 billion for the 2006 tax year.
This latest ruling, covering three more tax years, further clarifies the matter.
Complex calculation The essential conflict revolves around just how to assess the pipeline’s worth.
Before 2001, there were no administrative or court challenges involving the value of TAPS, the Supreme Court opinion said.
The Department of Revenue had previously used a valuation method based on the pipeline’s tariff income. This is the approach the owners favor.
Beginning with the 2005 tax year, the department began using a different method that considered pipeline replacement cost less depreciation.
That precipitated the protracted legal struggle.
In general, the municipalities have sought the highest levels of assessed value, arguing for about $14 billion for each of the years 2007 through 2009. The owners favored about $1 billion, with the Department of Revenue and the State Assessment Review Board somewhere in the middle.
Calculating the pipeline value is highly complex, involving considerations of how much oil remains to be produced on the North Slope, what sort of deductions should be taken and how long the pipeline could feasibly operate should oil flow drop much lower.
The lower court reviewed “enormous amounts of evidence” on oil field production forecasts, the Supreme Court said.
“While there appears to be legitimate debate regarding the methods used by each of the expert forecasters, no party has presented evidence sufficient to show that the superior court clearly erred in choosing the production forecast it relied on to predict TAPS’s end of life,” the Supreme Court opinion said.
The lower court determined that replacement cost less depreciation was the most accurate method for valuing the pipeline, and the Supreme Court affirmed.
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