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Kulluk poses some ticklish tax questions

Kyle Hopkins

When the Royal Dutch Shell drilling rig Kulluk left Unalaska on Dec. 21, the company believed it might avoid millions in state taxes by removing the rig from Alaska before the first of the year, a Shell spokesman told the local newspaper.

Whether tax considerations drove the decision for the rig to leave port when it did -- only to run aground on Dec. 31 in a fierce Gulf of Alaska storm after breaking free from its tow -- has been a subject of speculation and questions this week.

But a state petroleum property assessor, James Greeley, said it's not clear that Shell will owe taxes on the oil rig -- whether it was in port, at sea or stranded off Kodiak. The state hasn't decided if the tax on oil and gas exploration property, which is regularly applied to pipelines and other infrastructure, should apply to the mobile oil rig that drilled a partial well last summer in Arctic waters.

"This is the first time that something like (that rig has) been in Alaska," Greeley said, so there's no taxing precedent in recent memory. The rig splits time between federal and Alaska waters, he said.

Shell spokesman Curtis Smith said Friday that the prospect of paying state tax on the Kulluk "did not influence the timing" of the rig's departure, which contradicts what he told Jim Paulin, a Dutch Harbor Fisherman reporter, in an email on Dec. 27. In the email, the Shell spokesman wrote that "the current tax structure related to vessels of the type influenced the timing of our departure."

Smith said Friday he originally chose his words badly.

"Taxes were a consideration, but they were not among the main drivers for our decision to begin moving the Kulluk. Operational decisions are ultimately governed by safety," he wrote in an email. "Furthermore, the maintenance program that was outlined for the Kulluk after a post-season inspection was not realistically achievable in Dutch Harbor."

Alaska law provides for an annual 2 percent tax on the value of property used in oil and gas exploration, production and pipeline transportation. The "lien date" for assessing the value of covered properties -- the day the state makes a snapshot of all such property in Alaska -- is Jan. 1, about 10 days after the Kulluk left Dutch Harbor.

The Revenue Department has not determined whether the vessel is a taxable property, Greeley said, and such decisions are generally made after property tax statements are due Jan. 15.

"It may or may not be. And if it isn't, it may or may not be taxable" by the local government, he said.

Shell has not said what it thinks the rig is worth, but it has said it invested $292 million in upgrades to the Kulluk, which it purchased in 2005. Two percent of $292 million is $5.8 million.

Unalaska City Manager Chris Hladick said the city has not considered trying to levy local property taxes on the Kulluk. "This issue's never really been brought up because we've never seen oil field vessels before," he said.

Rumors that Shell might have to pay state taxes on the rig circulated in Dutch Harbor throughout December, city officials said.

Hladick said he first heard that Shell might be on the hook for state oil and gas exploration property taxes while attending an Alaska Municipal League meeting in Anchorage. Hladick then talked about that possibility with a city councilman, David Gregory. Gregory was overheard talking about it by the reporter, Paulin.

Paulin said he asked Smith, the Shell spokesman, about the tax in a Dec. 27 email.

"We are now planning to sail both vessels to the west coast for seasonal maintenance and inspections," Smith replied. "Having said that, it's fair to say the current tax structure related to vessels of this type influenced the timing of our departure."

On Friday, Smith said the tax consideration did not prompt the company to choose one departure date over another, and that delaying the departure would still have meant a winter passage to Seattle.

More questions surfaced after the Kulluk became grounded off Sitkalidak Island on New Year's Eve. The next day, a Daily News reporter asked Sean Churchfield, Shell's Alaska operations official, if the decision to move the Kulluk was related to a tax or harbor fee coming due in Dutch Harbor.

"No, the reason we boated down there was actually to get the off-season repairs done," Churchfield said. "Once we had the rig ready for tow, prepared and inspected, was when we moved down to give us the maximum time to ready for the 2013 season," he said.

Preliminary oil and gas property tax assessments are published March 1, with tax bills following by June, according to Greeley, the tax assessor.

 

Twitter updates: twitter.com/adn_kylehopkins. Call Kyle Hopkins at 257-4334 or email him at khopkins@adn.com.

 

 


By KYLE HOPKINS
khopkins@adn.com