ALASKA STATE LEGISLATURE
Senator Hollis French
Press Release
For Immediate Release: January 5th, 2012
BP Withholds Oil Pipeline Evidence; Credibility in Oil Tax Debate Questioned
ANCHORAGE- Two Anchorage legislators today pointed to findings in the recent court decision issued by Superior Court Judge Sharon Gleason that BP has withheld evidence in that case as undermining that company’s credibility in the ongoing debate over oil taxes. The judge’s ruling was issued December 30, 2011, in a case related to the value of the Trans-Alaska Pipeline System(TAPS). The 213-page document settled a dispute over the 2007-2009 property taxes that TAPS must pay to municipalities whose property the pipeline crosses. In setting the value of the pipeline for property tax purposes, the judge had to calculate the life of the pipeline in order to correctly arrive at the right figure for depreciation. That ‘end of life’ calculation in turn requires a ‘minimum throughput determination’ – an estimation of the lowest level of throughput that can be transported through the pipeline.
It came to light during the court case that BP has conducted its own studies of the question. In 2004, BP Pipelines (Alaska) Inc., a wholly owned subsidiary of and controlled by BP, Inc., “retained JTG Technology Consortium to conduct a study to revisit the minimum throughput limit on TAPS,” [p. 137] according to the judge’s decision. The study was completed in 2005 and concluded that the low flow limit of TAPS was 135,000 barrels per day. But “BP Pipelines failed to provide the 2005 JTG Study in discovery,” the judge found, referring to events in the case she presided over that set the 2006 property tax for TAPS. [p. 139]. By not turning over the study, BP likely lowered its property tax bill. BP controls the largest percentage of TAPS, 46.9%, and pays its share of taxes accordingly. Had it turned over the study, the judge said that she “may well have” come to a different conclusion in the 2006 case.
“This is called ‘hiding-the-ball,’” said Senator Hollis French, D-Anchorage. “It is hard enough to figure out what the right policy is when you have all the information. When one side is hiding information, it just compounds the problem.”
The judge noted that BP argued in her courtroom that the pipeline would have to shut down at 300,000 barrels per day. She also noted that BP used different numbers when it communicated with the Securities and Exchange Commission. The rationale is rooted in economics. “The effect of a lower throughput capacity increases the total amount of proven reserves expected to be transported through TAPS,” the judge ruled. [p. 135-36]
“BP got caught in a vise. On the one hand – in state court — it wanted to argue that the pipeline would shut down at 300,000 barrels per day, because the higher the number, the lower their property taxes. But on the other hand — to the SEC — BP used a much lower number, 135,000 bpd, because the lower the number, the bigger their reserves on the Slope become, and the more valuable their stock is,” said Senator French.
"Last year we were misled that jobs were down when they're at a record high, and that exploration was down when it's the highest it's been in 20 years. Now we know British Petroleum misled a court, trying to scare people that the pipeline could shut down soon while withholding their files showing it will run until 2065. All this raises serious credibility problems as BP calls for the Governor’s $8 billion oil tax giveaway," Representative Les Gara, D-Anchorage, said.
In several other particulars, the judge noted that the pipeline owners – principally BP, ConocoPhillips, and ExxonMobil — were making inconsistent points, depending on the venue. For example, the property tax case required the parties to submit evidence on what it would cost to replace the existing pipeline and associated infrastructure. Several competing estimates were prepared and each side tried to point out flaws in the other side’s numbers. The municipalities’ estimate for replacing the Valdez terminal included two tanker loading berths and one standby berth. In the court case the pipeline owners said the third berth was not necessary. But to the Regulatory Commission of Alaska, in a 2008 filing, they said the third berth was “currently and frequently used.”
The judge also found that the appraiser employed by the pipeline owners was not credible, and she found that the 2011 Low Flow Impact Study conducted by Alyeska was not aimed at the specific question before the court, which was setting a minimum throughput value. [p. 144]
To read Judge Gleason's December 30, 2011 ruling, click here.
For more information, please contact Senator French’s office at 907-269-0234 or 907-465-6595.
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