Oil companies sue over tax calculation with $160M liability
A trio of oil industry companies is suing the state Department of Revenue over a 2017 interpretation of oil tax law that they contend wrongly results in an additional $160 million-plus tax liability for them.
ExxonMobil, Hilcorp Alaska and SAE Exploration Inc. filed the lawsuit with the Anchorage District of state Superior Court June 7 alleging a March 2017 advisory bulletin written by Tax Division Director Ken Alper arbitrarily changed the state’s position on how oil production tax credits can be applied to a producer’s tax liability.
They argue further in the 19-page complaint that the bulletin is being applied as a de facto regulation, for which there was no public notice and opportunity for public comment issued, and therefore is a violation of the Alaska Administrative Procedures Act.
As a result, they want the court to void the bulletin and deem it unenforceable.
The advisory bulletin posted on the division’s website lays out that use of the sliding scale credit, which grows from nothing at very high oil prices to $8 per barrel at prices less than $80 for oil produced from the legacy North Slope fields, and prevents a company from using tax credits to take their production tax liability below the 4 percent gross minimum tax floor.
However, if a producer were to forgo the per-barrel credit or use a fixed $5 per barrel credit for “new” oil production, the new oil credit and others could reduce a production tax liability to less than the 4 percent floor, according to the bulletin.
The companies insist the bulletin reinterprets production tax laws and regulations resulting in a liability that is roughly $110 million greater in 2018 and $50 million greater for 2014-2017 — plus interest payments on the back taxes — than it should be.
They also note that Revenue’s own regulations allow taxpayers to choose the order in which credits are applied.
State regulations do not spell out what happens when a taxpayer first applies the sliding scale credit to reduce its liability to the 4 percent minimum and then applies other credits to go below the minimum tax calculation, according to the complaint.
“The 2017 advisory bulletin conflicts with this statutory and regulatory authority by prohibiting the use of the ($5 per barrel) new oil credit and other credits against the minimum tax in any tax year in which any sliding scale credits are also used,” attorneys for the companies wrote.
They argue that a 2011 advisory bulletin, issued under former Gov. Sean Parnell’s administration, stated that North Slope producers could reduce their liability below the minimum tax by using new oil or other credits.
Additionally, they assert that Alper testified in 2016 legislative hearings that the Revenue Department interpreted production tax laws to allow new oil and other credits to reduce a tax liability below the 4 percent minimum in the same year that sliding scale credits were applied.
Revenue officials referred questions to the Department of Law, which does not comment on active litigation.
The tax obligations would be borne by ExxonMobil and Hilcorp as producers; SAE Exploration is a support services company that contracts with exploring companies to collect geologic seismic data used to inform oil and gas drilling campaigns.
SAE, which holds refundable tax credits earned through its seismic shoots, planned to sell those credits to producers, which in turn could use them against their tax liability, according to the complaint.
However, because the bulletin “drastically reduces the circumstances in which a North Slope producer would purchase SAE’s other credits, the 2017 advisory bulletin has drastically reduced the value of SAE’s other credits,” the complaint states further.
Elwood Brehmer can be reached at [email protected].