BP pullout could affect state revenue

 Trans-Alaska Pipeline System (KTUU)
Trans-Alaska Pipeline System (KTUU) (KTUU)
Published: Aug. 28, 2019 at 7:02 PM AKDT
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Same oil field, different tax structure.

When Hilcorp starts operating Prudhoe Bay, the State of Alaska could miss out on tens of millions of dollars of revenue as the company will not pay the corporate net income tax. Oil industry representatives say increasing production could bridge that fiscal gap.

Hilcorp, a privately owned company, is an S Corporation, meaning it is exempt from paying the tax. Prior to 1980 when the Alaska Individual Income Tax was in place, private business owners paid their company’s taxes at the individual rate as pass-through income.

When the individual income tax was eliminated, taxing pass-through income was also eliminated. Former Democratic Rep. Les Gara introduced legislation in 2017 that would have closed that so-called loophole for high profit companies.

As a publicly traded company, BP Alaska is classified as a C-Corporation, meaning it pays the corporate net income tax annually. How much it pays is confidential information that the Department of Revenue will not disclose publicly.

Meg Baldino, a spokesperson for BP Alaska, would also not disclose how much the company paid under the corporate net income tax but she did say that overall, “BP Alaska paid $804 million in taxes and royalties to the State of Alaska in 2018.”

According to Gara’s best estimate, the company is likely paying between $25-$60 million per year to the state under the corporate net income tax.

“You shouldn’t be exempted from it just based on the form of your corporation, like Hilcorp gets exempted, when it’s going to own the same fields that BP owned. It makes no sense,” he said, before describing that the loss in revenue would likely impact state services.

The company net income tax is one of four taxes and royalties paid to the State of Alaska by oil companies. It is also the smallest tax levied on them compared to royalties, property taxes, and production taxes.

Alaska Oil and Gas Association President and CEO Kara Moriarty suggests private oil companies may have been exempted from the tax to entice new investment. “And that happened, we got new investment to Alaska,” she said.

She also says that the focus for the State of Alaska should be increasing production as the bulk of its oil revenue comes from production taxes and royalties. “The more you’re producing, the more you’re going to have for the state in the long-term.”

Hilcorp aims to do just that at Prudhoe Bay.

“At Hilcorp we are first in class at injecting new life into existing fields. This is why we purchased these assets,” read a prepared statement from Hilcorp spokesperson Justin Furnace. “We will be working to evaluate new opportunities at Prudhoe, but this process will take many months. Our current focus is transition of the current assets to Hilcorp ownership and operation and the employees and contractors that may be affected by the change.”

Furnace did not answer emailed questions as to whether the current tax exemption enticed the company to buy BP Alaska’s assets.

Sen. Bill Wielechowski, D-Anchorage, a long-time proponent of increasing Alaska’s oil taxes, says the Legislature should examine how the corporate net income tax is implemented. Both Gara and Wielechowski are part of an unrelated ballot initiative that seeks to increase taxes on major oil companies.

Industry analyst Larry Persily believes lawmakers will seek to hear from Hilcorp representatives directly and hold hearings on the corporate net income tax. But he's not sure it will change anything.

“Whether there’s the votes to change it, I wouldn’t bet on it,” he said.

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