Energy royalty audits and adjustments brought Alaska an additional $117 million in 2016

Audits and accounting adjustments tied to past royalty payments helped Alaska recover an extra $117 million from oil and gas companies last year, primarily because federal pipeline regulators determined that the North Slope's major producers overcharged to move royalty oil through the trans-Alaska oil pipeline.

Of the additional revenue, $90 million is tied to a decision by the Federal Energy Regulatory Commission in November 2015 that the owners of the pipeline, primarily BP, ConocoPhillips and ExxonMobil, could not charge higher shipping rates to pay for mistakes associated with a multiyear effort to modernize sections of the 800-mile pipeline.

The agency in April ordered that certain costs associated with the "Strategic Reconfiguration" project that had been factored into pipeline shipping rates between 2009 and 2016 needed to be removed, leading to the accounting change that produced additional royalty income, state officials said.

The pipeline owners have appealed FERC's decision to the U.S. Court of Appeals in Washington, D.C., raising the possibility that the state might have to return that money, plus interest, if the owners ultimately prevail.

An update on the extra income from the audits and adjustments was recently provided to Alaska lawmakers in a report from the Alaska Department of Natural Resources summarizing 2016 activities.

By law, the money goes to the state's savings accounts, with the $5.5 billion Constitutional Budget Reserve Fund receiving 70 percent and the $56 billion Alaska Permanent Fund Corp. getting nearly all the rest, officials said. The reserve fund has been used to close the state's budget gap after low oil prices in recent years gutted state revenues. The current deficit projection is $3.2 billion.

DNR's oil and gas division also reported recovering an additional $27 million tied in part to 2016 audits of past payments related to state royalties — the state's share of oil produced, varying by leases but often 12.5 percent. Other auditing also covered payments from producers that share a portion of their net profits with the state under lease deals originally created in the 1980s.


Tim Bisson, audit manager for the Division of Oil and Gas, said on Wednesday that confidentiality laws prevented him from providing specific details about the audits, including the companies involved. He said the audits covered payments made within recent years — the state allows six years for the audits to be completed.

Those audits can also be challenged by oil companies, he said. Auditors found mistakes ranging from simple reporting errors to differences in interpretation of state law, with some companies believing they had met requirements and the state having a different view of the language.

"Like any audit, you find errors in people's work," he said.

Also due to be completed soon are two oil-production tax audits that could be worth even more money to the state, though they too will likely be challenged by oil producers. The one covering 2010 should be completed this month, while the one for 2011 should be completed by May.

Audits for production-tax payments made between 2007 and 2009 found the state was owed an additional $416 million in taxes, plus another $368 million in interest, from oil producers.

Some of that money has been paid, and some of the assessments are being appealed to the state's Office of Administrative Hearings, said Ken Alper, director of the state's Tax Division.

Alex DeMarban

Alex DeMarban is a longtime Alaska journalist who covers business, the oil and gas industries and general assignments. Reach him at 907-257-4317 or