The State Assessment Review Board says the trans-Alaska pipeline is worth $9.6 billion for property tax purposes, $7 billion more than the value suggested by BP, ConocoPhillips and Exxon Mobil, the pipeline's major owners.
The five-member review board met during the third week of May in Anchorage to consider appeals from the oil companies and the municipal governments of Valdez, the North Slope and Fairbanks about the pipeline's value. They offered conflicting estimates based on mathematical models about proven reserves, construction costs and other factors.
The oil companies said the proposed state assessment of $7.7 billion -- about $2 billion higher than the last calculation from the administration of former Gov. Sean Parnell -- was far too high, while the local governments said it was about $7 billion too low. The state offers a new assessment every year, which has routinely been challenged by the same parties for being either too high or too low. Challenges go through an administrative process that includes the review board and can then move to the courts.
A year ago the SARB put the value of the pipeline at $10.2 billion. The current decision reflects a decline of about 5 percent. Department of Revenue Commissioner Randy Hoffbeck said he had been notified of the $9.6 billion decision Saturday and the board released its detailed report Monday.
One major change since the Parnell administration is the prediction that the economic "end of life" for the pipeline has been extended to 2068, instead of 2047. The companies objected to that prediction: "In view of the falling prices of crude oil, it is incomprehensible for there to be a longer reserve life today than there was in 2009," they said.
One of the key elements in this exercise is whether the pipeline will be economically viable if production declines from the current level of about a half-million barrels a day to 300,000 barrels a day. If the pipeline is not operable below that level without major change, as the oil companies say, the current tax assessment and tax bill would be lower than the amounts proposed by the state or the assessment review board.
The latest "adjusted expected investment case" forecast, a conservative view of future oil production published by the state, predicts that North Slope production will drop to 300,000 barrels by 2025.
In Anchorage last week, Adam Sieminski, the head of the federal Energy Information Association, said he was concerned that if oil flow drops below 300,000 barrels a day, a pipeline shutdown could occur.
The oil companies contend that 300,000 is the "minimum mechanical throughput" of the pipeline and going below that level could require the expenditure of billions of dollars, "if it could be accomplished at all," they told the review board. Alyeska released a study in 2011, citing numerous concerns about operating below 350,000 barrels per day.
But the state government, local governments and Alaska courts have long challenged the 300,000 and 350,000 figures and cited documents that show the companies have been planning for flows even lower than that, expecting decades of continued operation.
BP, for example, told the Securities and Exchange Commission in 2005 that the pipeline could operate at 135,000 barrels a day, citing a 308-page study of pipeline capacity, former Anchorage Superior Court Judge Sharon Gleason said in a 2011 decision. In 2010, a low-flow study by BP said that by adding heat at 19 points along the way to Valdez, the pipeline could operate at 70,000 barrels a day. The existence of that study came to light during a court trial over the pipeline value.
In a landmark ruling in 2011, Gleason, now a federal judge, concluded that the best research showed the pipeline would remain in operation even if the flow dropped to 100,000 barrels a day or lower and its long-term value lies in $350 billion worth of reserves. The Alaska Supreme Court upheld that decision in 2014, confirming a pipeline value of about $10 billion for 2006, a year in which the oil companies said it was worth less than $1 billion.
The municipal governments contend that "common sense and expert testimony" demonstrate that no economical pipeline in the world has ever been shut down for mechanical reasons at 100,000 barrels a day, 50,000 barrels a day, or lower. If there is a low-flow limit applied, they said, it should be 30,000 barrels per day.
The SARB said that the companies did not say that it was impossible operate at 100,000 barrels a day, but that they did not know what steps would be needed to deal with the reduction.