Lawmakers fear state will pay

Oil tax bill could allow BP to recover 80 percent of costs

Posted: Tuesday, August 08, 2006

A planned shutdown of Prudhoe Bay pipelines for repairs had lawmakers on Monday asking if the state will be picking up the tab through tax credits.

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Officials from pipeline operator BP Exploration Alaska expect about $100 million in repairs and maintenance due to corrosion of pipeline walls in the trans-Alaska oil pipeline, they said.

BP could recover as much as 80 percent of its costs for pipeline repairs through a portion of an oil-tax reform bill that passed the Alaska House on Sunday, said Pedro Van Meurs, the administration's leading consultant on oil and gas issues.

Under the proposed restructuring of oil tax rates, the state stands to earn $2.7 billion each year above the current system at today's oil prices, according to an analysis by legislative consultants Econ One Research. The plan to tax producers' profits would replace the current system based on production volumes.


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The legislation also would allow producers to lower their taxes by writing off expenses for investments in new infrastructure and exploration. Rebuilding portions of the pipeline could be considered new infrastructure, allowing BP to qualify for the tax credits. The newest version of the legislation sets the oil-tax rate at 25 percent, but depending on the amount of investments, it can be lowered to 20 percent.

Lawmakers have until Thursday night to approve the bill before the second special session expires. This is the Legislature's third attempt at passing the bill.

Some disagree on whether the needed pipeline repairs would qualify for the tax credit.

Robynn Wilson, tax director for the Alaska Department of Revenue, said some of BP's expenses for pipeline repairs would qualify for tax credits.

Rep. Ralph Samuels, R-Anchorage, one of the bill's authors, disagrees.

"It's my understanding this would be considered as repairs and operating expenses, so they would not get a tax credit," he said.

Lawmakers have spent the majority of the last six months debating the new plan and focusing on the tax rate and its credits.

Sen. Kim Elton, D-Juneau, said the pipeline closure could divide the Legislature into two camps: one saying the state should not pay for such disasters and the other crying for lower taxes on the industry to cope with the aging pipeline. Elton sits on the Senate Special Committee on Natural Gas Development, through which the bill must pass before reaching the Senate floor.

Democrats have been vocal about avoiding paying for disasters such as an oil spill. Before Saturday's vote, Rep. Beth Kerttula, D-Juneau, offered an amendment to the bill that would not allow producers to get credits for the costs of cleaning up oil spills. The amendment failed 14-26.

"I think the oil companies will take the message that if they ever do anything wrong, they will be rewarded," said Rep. Les Gara, D-Anchorage.

House Majority Leader John Coghill, R-North Pole, said he wasn't sure how the new bill would divide the cost of the oil spill cleanup and pipeline maintenance between the state and BP.

"That's a good question," he said. "I don't know the answer to that yet."

• Andrew Petty can be reached at

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