Love-Hate Relationships: Big Oil and Alaska

Trans-Alaska Pipeline, Black Rapids Canyon

Trans-Alaska Pipeline, Black Rapids Canyon

It’s hard for Outsiders to understand Alaska’s relationship with Big Oil. It’s the kind of love-hate relationship that sends married couples to counseling. But there don’t seem to be counseling services for troubled relationships between ginormus, multi-national corporations and resource-centric states. So, instead, you have the same battles, like dysfunctional spouses, year after year.

Which takes us to the assessed value of the Trans-Alaska Pipeline.

For more than a decade, the three stakeholders in the dispute over the pipeline’s value have, each year, engaged in the same wrestling match, over the value of the Lube Tube and the methodology for calculating the value. Big Oil thinks the 37 year old pipeline is nearly worthless. The municipalities, who get a big share of the property tax cut, thinks the value should be the replacement cost, a huge number. The State of Alaska leans the way the current governor directs. Governor Sean “Captain Zero” Parnell largely agreed with Big Oil. Governor Walker – the former mayor of Valdez, a pipeline corridor community – sides with the municipalities.

A little over a year ago, the Alaska Supreme Court affirmed then-Superior Court Judge Sharon Gleason’s valuation at $9.98 billion. Remember, Big Oil wanted an assessed value of $850 million. The municipalities wanted it to be $11.57 billion. The Alaska Supreme Court found it to be $9.98 billion. More than ten times what Big Oil wanted.

You might think that settled it, that with an approved methodology and a base value, the fight would be over. You’d be wrong. This month, the SARB, State Assessment Review Board, found the pipeline’s assessed value was $9.6 billion. Big Oil wanted $2.6 billion. The pipeline corridor municipalities said the SARB result was $7 billion too low. It’s a near certainty Big Oil will appeal the SARB decision again. And if Big Oil somehow didn’t, the pipeline corridor municipalities certainly would. The same battle, year after year.

The property tax levied on the assessed vale is one leg of the four-legged stool that is oil tax revenue propping up the Alaska economy. The other three legs are the severance tax, the state income tax and Alaska’s royalty share. Captain Zero and the last Legislature cut most of the severance leg of the stool off with SB 21. The income tax is mostly lost to credits. Captain Zero also tried to pack the SARB with oil industry buddies, but he was less successful there. Alaska’s royalty share is declining as production moves off of state owned land. The Shell Oil play in the Chukchi, for example, is federal land and won’t earn the state any royalty interests at all.

So the importance of the property tax and the assessed value is magnified. As state revenue sharing with municipalities shrinks, the importance of pipeline corridor municipalities is also magnified. Alyeska has strong leverage. Stringing out property tax payments in fights over valuation doesn’t hurt Big Oil at all. The 2006 taxes weren’t settled until 2014.

Big Oil wants Alaska to think we need it more than Big Oil needs Alaska. The industry may even be right. But it makes for a . . . difficult . . . relationship.