BP: Confidentiality breached

Alaska denies allegations, maintains state's need for data under profits tax

Posted: Thursday, November 08, 2007

BP, the operator of the Alaska's largest oil field, is balking at providing information the state says it needs to make the Petroleum Profits Tax work.

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A top BP official also accuses the state Department of Revenue of having released its confidential tax information in the past, but will not provide information that supports its allegations, which the state denies.

"On more than one occasion our confidential taxpayer information has been breached," said Bernard Hanjy, BP's production tax and royalty manager for Alaska.

As legislators debate in an ongoing special session whether to restructure oil taxes, some lawmakers are siding with the oil companies and suggesting harsher measures to protect confidentiality.

BP is the state's second largest oil producer and operates the huge Prudhoe Bay field on behalf of itself, ConocoPhillips Co. and Exxon Mobil Corp.

Department of Revenue Commissioner Pat Galvin denies knowledge of any breaches and said BP has not provided information to the department to back up its allegations despite requests to do so.

"This has been an ongoing issue," Galvin said.

The state asked BP for details on its allegations more than two months ago, but has not heard anything more from the company, he said.

BP Alaska spokesman Daren Beaudo said that was all the company could say.

"Because the information was private - and shouldn't have been released - of course I cannot give out any detail," he said.

In the previous tax system, the state only needed to predict the volume of oil production and its price to estimate how much revenue it would have coming in each year. Now, under a tax based on net profits, the state has to predict profits, and says it needs to know companies' costs to do that.

BP is one of the key companies the state needs to provide those costs, but Galvin said the state has been unable to get the data it needs from BP.

"They refused to provide it, citing concerns about confidentiality," Galvin said.

Tax bills now under review in the finance committees in the House and Senate each address that issue. The bill adopted by the House Resources Committee specifies that information be provided to the state.

The Senate version goes further, requiring companies' Alaska profit margins be made public as well. That's something some companies do already but others firmly resist.

Galvin said Gov. Sarah Palin's oil tax proposal doesn't go as far as the Senate's, but does allow the Department of Revenue to aggregate data from at least three taxpayers and release it to the public.

"Our primary disclosure language, still in place in the House and Senate, allows for disclosure of aggregated data, and we're in a good place to be able to provide at least statistical information on how the tax is working," Galvin said.

BP's Hanjy said he understood the state's need for the data and was willing to talk about how to provide it if BP's concerns about confidentiality could be addressed.

Aggregating data might not be enough, he said. In the past, others have been able to figure out his company's share of a total amount, Hanjy said.

"People have been able to tell it is BP information," he said. Alaska Tax Division Director Jon Iversen said the state's tax system was secure.

"We are very, very concerned and vigilant when it comes to confidentiality," he said.

Some legislators say they're so concerned about possible breaches of confidentiality they want tougher rules to stop disclosures.

The Legislature needs to "hold this administration's feet to the fire," said Rep. Anna Fairclough, R-Anchorage.

During weekend debate in the House Resources Committee, where BP made its allegations, committee Co-Chairman Craig Johnson, R-Anchorage, told Marcia Davis, deputy commissioner of revenue, he thought laws, not just regulations, needed to be strengthened.

"I do have a bill being drafted that you will not like," he said.

The plan, he said, was to "considerably increase the penalties," for state employees who breach confidentiality. Davis said releasing confidential taxpayer information was already a felony. A bill that would impose tougher penalties would make companies more willing to share information, Johnson said.

"It will do some things that will grant a certain amount of confidence that confidentiality will be maintained," Johnson said.

Exxon Mobil tax attorney Dan Seckers said his company was willing to provide information, but also wanted assurances it could be kept secret.

"When you have this kind of proprietary information coming out, that's definitely a concern," he said. He questioned how much more information Alaska needed, however. "We've given them everything they've asked for," he said. "They have our tax return."

Davis said that wasn't enough for the state to do its forecasting.

"The statement that was made that we can get everything we need from their returns is not correct," she said. Raw numbers don't tell the complete story of what's happening in the oil fields.

"How much is jobs, how much is drilling, how much is prices going up? We don't have that information."

• Contact Pat Forgey at 586-4816 or patrick.forgey@juneauempire.com.

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