BP Exploration settles tax dispute and agrees to pay state $18 million

Posted: Friday, August 27, 2004

ANCHORAGE - BP Exploration (Alaska) Inc. has agreed to pay the state $18 million to settle a dispute over taxes.

The money was to be deposited Thursday into the state's Constitutional Budget Reserve Fund, the fund Alaska uses to bridge gaps in the state budget. Alaska relies on oil for more than 80 percent of its general fund revenue.

Specific terms and conditions of the agreement were not released.

The settlement concerned BP's tax obligation for 2000 and 2001. BP and the state disagreed over the amount BP should pay in production taxes from North Slope oil coming from Prudhoe Bay and several smaller fields at Kuparuk, Endicott, North Star and Milne Point.

"This agreement represents a significant achievement in that it provides clarity on BP's tax obligations pertaining to new issues," said Steve Marshall, president of BP Exploration (Alaska).

The dispute was over the value the company placed on the oil at the wellhead, minus certain costs, including operations and transportation, said company spokesman Daren J. Beaudo. The oil company pays taxes based upon the wellhead costs.

"We filed in good faith what we thought that value was and the state disagreed," Beaudo said. "Whenever you are dealing with large sums of money I don't think it is unusual to have a disagreement."

The problem goes back to 2000 when BP acquired ARCO Alaska and in doing so began refining its own oil with refineries at Carson in Los Angeles and Cherry Point in Washington state, said Dan Dickinson, director of the tax division in the state Department of Revenue.

The change in the way the company was doing business also required a change in the way the production taxes were calculated, he said. Up until that time, BP Exploration (Alaska) had been selling its oil to a third party to do the refining, he said.

The settlement agreement is helpful to both the state and BP in clearing up any confusion about the company's tax obligation in the future, said Gov. Frank Murkowski.

"The Department of Revenue and Law worked with BP to craft a fair settlement that avoids protracted hearings and lawsuits that could drag on for years," he said.

The state currently is auditing BP for 2002 and 2003.

The state receives money from oil fields through production, property and income taxes, as well as royalties. The state receives about $1 billion a year in oil and gas money, Dickinson said.

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