Conoco Phillips cancels refinery upgrade in Kuparuk oil field

Spokeswoman says project didn't make sense under new law

Posted: Wednesday, November 28, 2007

ANCHORAGE - Alaska's top oil producer canceled plans to upgrade a North Slope refinery, citing changes made under the state's new oil tax.

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Conoco Phillips had planned on upgrading the refinery in the Kuparuk oil field to make ultra low-sulfur diesel. The fuel will be required for use in the oil patch by the end of the decade.

The oil company and its partners had wanted the state to allow tax breaks for the $300 million project under the state tax overhaul lawmakers adopted last year.

But in a special session that ended Nov. 16, lawmakers passed Gov. Sarah Palin's new tax plan, touted as a plan to get the state its "fair share" of the oil value. That plan hiked oil taxes further and specifically forbade tax breaks for projects such as Conoco's refinery upgrade.

Conoco spokeswoman Natalie Knox Lowman said Monday the project was canceled because under the new tax rules it no longer made sense.

The company instead plans to haul the cleaner-burning diesel to the Slope by truck, she said.

Oil company executives had warned that a second hike in oil taxes in two years might result in lower investment in Alaska's oil fields, despite record crude prices approaching $100 a barrel.

Revenue Commissioner Pat Galvin said Monday he doubts the canceled refinery upgrade presages a raft of canceled oil field projects.

Conoco never was in line for tax breaks on the refinery, anyway, he said.

What the company wanted, he said, was for the state to subsidize a manufacturing plant to make a product that's already available from other refiners in the state.

The administration and many lawmakers felt such a subsidy for Conoco and its partners wouldn't be fair, Galvin said. And state officials didn't believe the company was eligible for tax breaks even under the previous tax law, he said.

In public speaking engagements prior to and during the special session, Conoco Alaska president Jim Bowles held out the refinery project as a possible casualty of the oil tax.

He complained the state had refused to say how the refinery upgrade would be treated for tax purposes until after the investment was made.

"Who is gaming who when you have a system that works like that?" Bowles said in one talk.

Galvin said Monday he agrees that taxpayers should be able to get a better read on their tax liability, and the new tax law authorizes the Revenue Department to give nonbinding advisory opinions.

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