Big Oil Loses Fight Over Value of Alaska Pipeline

     (CN) – The Alaska Supreme Court rejected a challenge by BP, ConocoPhillips, ExxonMobil, and several towns to a nearly $9 billion valuation of the Trans-Alaska Pipeline System.
     Stretching 800 miles from the North Slope oil reserves to a shipping terminal in Valdez, Alaska, the Trans-Alaska Pipeline System was built from 1974 to 1977 for about $8 billion.
     There were no official challenges to the valuation of TAPS until 2001, and the Department of Revenue primarily relied on tariff income to assess the system’s value which was ultimately decided in a negotiated settlement with the pipeline’s owners.
     The owners – which refer to themselves as “taxpayers” – include BP Pipelines (Alaska), ConocoPhillips Transportation Alaska, ExxonMobil Pipeline, Koch Alaska Pipeline, and Unocal Pipeline, a subsidiary of Chevron.
     For the 2001 tax year, the owners and the municipalities – North Slope Borough, the Fairbanks North Star Borough, and the city of Valdez – appealed the department’s valuation of $2.75 billion to the State Assessment Review Board, which then adjusted it to just over $3 billion.
     The valuation remained somewhat stagnant for the next four years, but after the owners and municipalities appealed for the 2006 tax year, the board adjusted the value to $4.3 billion.
     On appeal, the superior court found that the department and board correctly used a replacement cost new-less depreciation method to value TAPS for the 2006 tax year.
     After a new trial, in October 2010, the court valued TAPS at nearly $10 billion.
     The owners and municipalities then appealed the board’s adjusted valuations for the 2007-2009 tax years: $4.6 billion, $6.2 billion, and $9 billion, respectively.
     The municipalities valued TAPS at about $14 billion each year, based on a cost approach, while the owners valued it at little more than $1 billion, relying on the tariff-income approach.
     As in the 2006 case, the superior court found that TAPS was a limited-market, special-purpose property, and favored the replacement cost new-less-depreciation method.
     The court found that the municipalities’ ProPlus replacement-cost study, which replicated the existing pipeline diameter and capacity, was more accurate than the owners’ Stantec study of a much smaller pipeline diameter to account for the then-low volume of flowing oil.
     The court valued TAPS at $8.9 billion in 2007, $9.6 billion in 2008, and $9.2 billion in 2009.
     All of the parties appealed, but the Alaska Supreme Court affirmed the lower court’s decision Friday, as it had affirmed the ruling on the 2006 tax year valuation in February 2014.
     “There is no authority supporting the owners’ position that the value of TAPS for tax-assessment purposes must be based only on the tariff income it generates,” Chief Justice Craig Stowers wrote for the five-judge panel. “And the superior court’s decision to value TAPS based on its actual use – transporting oil and gas from the Alaska North Slope for affiliated producers – is well supported.”
     The lower court did not err by failing to reduce the value of TAPS due to legal restrictions on its use, the ruling stated.
     “We again agree with the superior court that ‘if the income shortfall method was applied based on tariff income, the [replacement cost new-less depreciation] valuation would no longer reflect the ‘full and true’ economic value of TAPS as a critical component of the integrated [Alaska North Slope] production and transportation system,'” Stowers wrote. (Brackets in original.)
     “And we again express our skepticism with the income shortfall method of valuation. But, as in the 2006 case, the record simply does not reflect that the regulation adversely affects the value of the pipeline. The facts have not changed,” Stowers added.
     Jessica Dillon, an attorney for North Slope, called the ruling a “very good outcome” for the borough.
     “The trial court judge did a tremendous job of presiding over a nine-week trial and making decisions in this complex matter,” Dillon said in an email. “The trial court decision included almost 600 findings of fact and conclusions of law. The borough is also pleased with the Alaska Supreme Court’s decision to affirm the trial court’s reliance on the production forecasts prepared by Dudley Platt, a North Slope Borough employee. The trial court found Mr. Platt to be one of the pre-eminent forecasters in the state.”
     Cori Mills, assistant attorney general for Alaska, said the state is “pleased” with the ruling.
     The other parties have not yet returned requests for comment.

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