Tax consequence of BP-Hilcorp
The sale of BP’s Alaska assets to Hilcorp Energy will cost the state treasury because Hilcorp, as a Subchapter S corporation, does not pay a state corporate income tax unlike BP, which is a normal corporation. Instead, Hilcorp’s state income tax liability passes to its shareholders. But because Alaska has no personal income tax no payments will be made. How much this could amount to is uncertain and may never be known to the public (and state legislators) because tax information is confidential and held by the Department of Revenue. A rough calculation is approximately $30 million, which is derived by dividing total state corporate income tax by BP’s share of oil production. But this is only a crude guideline because multistate corporations like BP are allowed to use a formula to adjust the Alaska income liability using factors of employment, property and sales in other states. Since BP operates in several states, as do all of Alaska’s oil producers, the final tax amount is adjusted, but by how much is unknown. The issue is certain to enter into a looming debate in the Legislature next spring over state oil production taxes.

Could BP owe state money?
There is a possibility, however, that BP may wind up owing the state more money for production taxes, however. This is because of the way the sale and the money Hilcorp will pay BP may affect the company’s calculation of net income as a basis for payment of the production tax. The technical term is “adjustment to lease expenditures” which in the case of an asset sale is a reduction in lease expense, which means a higher net and more tax owed. However, this depends on how the deal is structured. If BP is selling an entire subsidiary, this wouldn’t occur. But if it’s an asset sale, it could trigger. Legislators will be asking the Department of Revenue about this.

Slope production down 14,000 b/d
Alaska North Slope production is running 14,000 barrels per day below last year for 2019 year-to-date, according to data from the Alaska Department of Revenue. Warmer winter temperatures affect the efficiency of oil processing plants and were a factor as well as facilities being off-line for maintenance, a state official said. ANS production has averaged 487,537 barrels per day from January through August compared with 501,587 barrels per day for the same period of 2018. Production from the large Prudhoe Bay field dropped to 189,515 barrels per day in August from 256,388 barrels per day in July, according to the revenue data. Field operator BP said major plant maintenance work was underway in August. The work is focused on piping replacements, facility maintenance and other improvement projects, BP said.

State officials said maintenance affected output across several fields. At the Nikaitchuq field operated by Eni Oil and Gas maintenance work on a subsea production pipeline required shut-in of production wells over a two-month period. However, a long-term trend of rising winter temperatures on the North Slope is also a factor, and the 2018-2019 winter was significantly warmer. Winter warming across the Arctic is an effect of climate change, University of Alaska scientists say. Shorter periods of winter cold causes production plants to lose efficiency and process less oil and also impedes companies building winter ice and snow roads to drill exploration wells and serve remote fields.

There were two new producing projects on the slope in the first half of 2019, ConocoPhillips’ GMT-1 in the National Petroleum Reserve-Alaska and Hilcorp Energy’s Moose Pad in the Milne Point field, but the new production is not yet enough to offset the declines in other fields.