Losing BP: A wake-up call for tax-and-spenders? - Must Read Alaska
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Monday, October 14, 2019
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Losing BP: A wake-up call for tax-and-spenders?

The news about BP exiting Alaska came as no surprise to industry participants in the state; it had been rumored for months, with increasing buzz in recent weeks after Petroleum News advanced the news. But there was still a lot of folks on pins and needles, waiting for the big reveal.

[Read: BP sale rumors surface again, with credibility]

Having one of the world’s largest oil companies decide to leave Alaska is breathtaking. The company has openly said it was going to divest some $10 billion in business; Alaska was first to go.

That’s right, Alaska was the first to go.

If, as Sen. Bill Wielechowski and his oil tax hike initiative effort would have us believe, companies are making money hand over fist in Alaska, why would BP abandon the state?

It’s the business model, in part, according to Must Read Alaska’s knowledge experts. BP is a behemoth company that doesn’t do aging oil fields. Hilcorp does.

But Alaska has other issues: A high cost of doing business and an ever-changing tax structure from a government that just can’t decide when enough is enough in taxes. The large companies like BP need to plan 10 years out, and Alaska’s oil tax structure is so unstable they are not able to make those plans with any degree of confidence.

Lawmakers like Wielechowski insist taxes have nothing to do with it, but that Alaska just isn’t a good fit for BP anymore. He’s half right.

As a side note, the cost to the State treasury could be in the tens of millions, because unlike BP, which is a C Corporation, Hilcorp Alaska is a limited liability corporation, which does not pay a corporate income tax. Increased production could make up for the loss in corporate income tax, unless tax conditions change again, as Wielechowski would have them.

HILCORP ALASKA

Hilcorp is the kind of company that likes to drain every drop out of an aging oil field. Recently, BP conducted 3D seismic imagery of Prudhoe, getting fidelity that’s never been seen before. Hilcorp is the kind of company that will drill those pools and sidetracks and create a lot of economic activity on the Slope. Many oil industry people say this transaction is a very good thing for the Alaska economy.

Since arriving in Alaska in 2012, Hilcorp has pretty much taken over Cook Inlet gas, to the worry of some who wonder it the company will gouge the Kenai and Southcentral for the gas that runs homes and businesses.

Then Hilcorp acquired some of BP’s fields on the North Slope in 2014, shed a couple of hundred jobs, and, with five years of experience is now the dog that caught the truck. How it will adapt to the increase pressure of being one of Alaska’s “majors” is going to be part of its unfolding story.

Hilcorp Alaska paying $5.6 billion for BP’s assets in Alaska makes it one of the big players now.

NONPROFITS AND PRIVATE SECTOR WORRIES

Already, the nonprofit cartel has sent up the alarm that without BP’s philanthropic largesse, a gaping hole exists for nonprofits and Hilcorp isn’t like BP in the giving arena. BP has given to the nonprofits by the millions — $4 million last year alone.

That, too, was forecast by the leaders in the nonprofit world many years ago. In 2015, the former executive director of the Foraker Group warned that the nonprofit sector was still too reliant on the Rasmuson Foundation and major corporations.

“Appreciate the money that you’re getting from any industry, but understand that industry giving is market driven,” Dennis McMillian cautioned at the time. In Alaska, corporate philanthropy is three times the national average, while foundation funding is twice the national average.

The number of nonprofit organizations operating in Alaska has grown from 6,000 in 2007 to 7,904 in June of 2019. It’s an expanding industry that has grown 31 percent in 12 years in Alaska.

Between 2013-2018, BP has given $26 million to those nonprofits, while in 2017, it spent $855 million on Alaska vendors.

But while nonprofits have gained much from BP’s investment in them, few of them were there for the oil companies during the battle over Senate Bill 21, when tax advocates tried to jack up the taxes on production. In general, the nonprofits have been grateful recipients of the corporate funds, but not exactly besties with the oil sector.

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Suzanne Downing had careers in business and journalism before serving as the Director of Faith and Community-based Initiatives for Florida Gov. Jeb Bush and returning to Alaska to serve as speechwriter for Gov. Sean Parnell. Born on the Oregon coast, she moved to Alaska in 1969.

Latest comments

  • Great read Suzanne, you have this correct. The non-profits are like an ungrateful and spoiled child. It seems they could have supported BP during the battle of SB21. United Way used to have “mandatory” giving from the big oil companies employees, much grumbling but mandatory. “You never know what you had, until it is gone.”

    • I kept Mother Lawrence in my prayers for a long time. However, due to being gone from Anchorage for the better part of twenty years, I lost track of what she was doing. It wasn’t until I attended her funeral that I really caught up on things. What an eye opener that was. Simply put, it’s become difficult for any individual to do their Christian duty, even when specifically called by God, when you have Big Non-Profit steamrolling everything in its path. Trust me, it’s not just Mother Lawrence. Has everyone been sufficiently clued in to the real purpose of the recent civil emergency? There were lots of little guys who took it in the shorts in that deal in order to keep feeding CSS.

  • some people haven’t learned should should not cut off your nose to spite your face.

  • Always remember that Corporations are not Tax Payers but only Tax Collectors. Every penny a Corporation pays in taxes it then collected from we the People in the price of goods it sells to us. That is fine because that is an indirect tax and only paid voluntarily by we the consumers. A direct tax, such as property tax if not paid, will mean the theft of your property. The ownership of Property was considered sacred at the founding of our republic. The ownership of Land was originally Free and Absolute, not subject to Feudal Duties and rents according to Black’s Law Dictionary 4th Ed. and Bouviers 1856 Law Dictionary. Property Tax is a feudal rent. If you read history the King could seize your Land if you did not go off to War for him. That was a “Feudal Duty”. Now our so-called Borough Government will seize your land for non-payment of your “Feudal Rent” Property Tax. In English Law a Borough is a “Fortified Town”. New York has Boroughs, but originally they were Fortified Towns but New York was divided into counties like every other State except for Louisiana which has a parish system because it was settled by Spain. Every other State also has a Sheriff elected by We The People and takes an Oath to the Constitution and post an official bond, which if Seized for not upholding there oath, there office becomes vacant immediately. Alaska though only has State Troopers who are employees, as are all our legislators, and neither takes an official oath of office or posts an official bond for performance.Both are suppose to be officers. Big difference. Seymour Marvin Mills Jr. sui juris

    • What a great argument for nationalizing natural resources/development! The same argument could be made regarding any tax. Taxed consumers buy less goods ergo the corporation pays for it, consumers have to earn more due to taxes ergo the corporation (who employs them) pays for it. So by your logic nobody ever pays taxes.

    • Very good commentary. Much appreciated.

      • BP was a good Company and Partner with the State… the Macando Oil Spill changed everything for the company. This sale is still fall out from that event. Sorry to see them go… I worked for them for 42 years…..more changes to come….

  • Regarding the corporate philanthropy, I was making the same point at lunch today. A search on “Hilcorp sponsorship” led me to this site: http://www.hilcorp.com/social-responsibility/hilcorp-giving-program/

    It is an interesting method that relies on the employees’ interests, rather than a corporate program. It does not appear to lead to the types and quantity of donations that BP has historically done here.

    • Thanks for the link. Profoundly different and disruptive to the aid industry.

  • I’m surprised the State of AK didn’t consider buying BP’s Alaska’s assets? At $5.6B, it would have been a bargain, and great investment, given the gross amount of profit they ‘supposedly’ take in. And just imagine how much more efficiently the State of AK could have distributed those profits to Alaskans.

    • omg, no.

    • NO FRIGGN WAY

    • With what money? Alaska is almost penniless.

    • On paper, always made sense in the context of the Norway or Singapore model. Only one little problem: we suck. Next thing you know the school of Ed loses, accreditation, API is worst in class, Port of Anch has a $2bn cost overrun.

  • Buying up old fields and squeezing the last barrels out is nothing new for Hilcorp…this has been their business model since the company started over 20 years ago.
    The big question is how do they get these residual barrels out of the ground and is it environmentally safe?
    Obviously fracking will play a huge role in this process.
    Unfortunately Hilcorp does not have the same records with “safety” as BP standards.
    “soon as the company started working in Alaska in April 2012, it began to accumulate violations. By October 2015, the Alaska Oil and Gas Conservation Commission (AOGCC), the main industry regulator in the state, had documented 25 instances in which Hilcorp violated its regulations, prompting a reprimand that had little of the bureaucratic blandness typical of regulatory notices.”
    “The disregard for regulatory compliance is endemic to Hilcorp’s approach to its Alaska operations and virtually assured the occurrence of this violation,” the chair of the commission wrote to the company in November 2015. “Hilcorp’s conduct is inexcusable.”
    https://www.google.com/amp/s/insideclimatenews.org/news/09082017/hilcorp-alaska-oil-gas-offshore-drilling-arctic-expansion-environment-violations%3famp

    • Everybody has been fracking on the Slope for decades. Find another strawman. Cheers –

    • Deepwater Horizon? Hilcorp have one of those?

  • Beyond Petroleum.

    .

    Chasing the market like a junkie is no way to run a State government. The fields will dry up, the oil companies will leave their legacy apparatus and will we still have a State? Once 5he easy money is gone? Will Alaskans PAY to keep the lights on?

    .

    Alaskans will. The hangers-on will leave. As it should be.

  • $855 Million with vendors in Alaska? You mean vendors like VECO?

  • I would rather see the fields shut down and the state government shut down and become a wilderness again than to let the big oil companies draw a better profit margin here than in the unstable Mideast. Aces wasn’t perfect but it was a damn site better than this! Our government used to thrive on $40 barrel oil, now it languishes when it’s $60+. Love it or leave it. That means the state. That means its people. That means its infrastructure. That means its land and resources kit and caboodle. The oil companies are so used to whores on the slope they think that’s all we are!

    • Sourpuss go back to the hole you crawled out of. If it wasn’t for progress you would not be here. If you hate big oil sooo much then give up all you get from it.

      • If there was any logic to what you wrote I would address it. Since it was just a personal attack I’ll respond in kind by having you look in the mirror and meet me in the hereafter where we’ll discuss how life turned out for you vs. for me…

  • Hillcorp doesn’t pay corporate taxes.

  • The oil companies in Alaska operate very much like our government with regard to fiscal matters. They spend freely on philanthropy because the profits are enormous. For the oil producers donating millions to non-profits is simply the cost of doing business in Alaska. Likewise with state spending on useless social programs and capital projects. Our legislators and governors spent whatever they could because the money is abundant and they could. Let’s hope BP’s departure is a wake up call for both sides of the spending equation. It will not take long for Conocophillips to wonder why they are the only significant contributor in the oil industry. Meanwhile, the tax and spend crowd promotes its Fair Share initiative for even more taxation of the oil industry. Seems to me fair share now has a whole different meaning.

    • C-P probably know why they are the only significant contributor in the oil industry.
      .
      Maybe C-P want to be the only contributor because they know they’re dealing with the equivalent of a third-world dictatorship cemented in place, and lots of money is the only thing that’ll keep the romance alive.

  • Wake up call?
    .
    More like a snooze alarm…
    .
    Rest assured, Alaska’s Ruling Class, blasphemously regarded as tax-and-spenders, will still get their money through PFD seizure, sales tax, income tax, special corporate acquisition tax (SCAT)whatever is necessary to keep money coming in so it can redistributed to sponsors.
    .
    Question is, what will productive Alaskans do about it?

    • “What will productive Alaskans do about it?” …
      We will evaluate our options, making informative decisions based on logic – reason – common sense, AND … eventually move away from Alaska, taking our assets and wealth and experience elsewhere, resulting in a void of ‘productive’ and ‘conservative’ constituents, only to be filled by Krazy – KnutJob Californians.

    • Very well said. They will do nothing because it would take an effort to get off the couch.

    • The first thing to do is stop voting for Democrats and RINOs. Before they drive the middle class out of Alaska. Because there aren’t enough rich people up here to carry the load.

      • Could be their objective…
        .
        Driving out the middle class would make Alaska easier to rule and to keep under rule.

  • Wake up call?
    When liberals are confronted with the failure of their policies they point to those failures as proof for the need of more of the same.
    Those people will never wake up.

    • And neither do the idiots that keep voting for them.

  • BP tried to sell all their Alaska assets to Apache in 2010 after the Macondo tragedy. That deal fell through and in 2014 Hilcorp bought 16% of BP Alaska oil fields. BP has been trying exit Alaska for a long time.

    This past February when interviewed by Alaska Journal of Commerce, BP Alaska Vice President of Reservoir Development Fabian Wirnkar said, “Prudhoe has a bit more than 1 billion barrels left to produce from traditional oil-bearing formations.”

    For discussion, let’s assume “a bit more” is 1.1 billion of which BP owns 26% or 286 million barrels. Per lease royalty terms, Alaska owns 12.5% of those barrels. So, Hilcorp just paid $5.6 billion for 250 million barrels which equates to $22.40/barrel for oil still in the ground.

    Add cost for drilling, production, transportation down TAPS then shipping to refineries and BP shareholders sure looks like the clear winner in this deal. The last thing Alaska needs to be doing is messing with oil taxes.

  • It takes money, expertise, and commitment to run oil and gas fields safely and with high environmental standards. Whether you like BP or not, they are a company with very high standards and with employees who generally think about safety before anything else. Why? Because they know that if they don’t, they or their close friends can be killed. How do I know? I know because I worked on the front lines for them for over 30 years and have witnessed it first hand. If a State is going to have oil and gas development, it can’t do better then have a company like BP running the operation. The challenge now to Alaska will be to maintain similarly high standards with independents like Hillcorp. Sure, the good intentions and expertise may still be there, but if the money to do what is required is not available, it will amount to nothing. Watch for a sharply higher rate of spills, releases, and safety incidents in the coming years as funds to do what is necessary dry up, and as equipment continues to age and corrode. Old oil and gas fields are never fun…

    • Whidbey……so, what did you do for them “on the front lines?” You make it sound like you were in the infantry.

  • Respectfully disagree…
    .
    Not sure who or what in Alaskan government is has expertise or integrity to enforce similarly high standards with independents or anyone else in any other industry operating in Alaska.
    .
    Of course, productive Alaskans get the standard propaganda about unavailable money to enforce oil-industry regulations, plus everything else state government is supposed to enforce on behalf of non special-interest groups, while non-profits starve and Hilcorp exports carloads of money.
    .
    What’s all that about?
    ..
    Maybe it’s the bottom line, what’s left when Hilcorp perceives state government as simply another third-world dictatorship to be leased or purchased so the company can work in Alaska…
    .
    while state officials see Hilcorp as the single remaining multibillion-dollar non-Native corporation big enough to support state officials and and other buyers in the lifestyle to which they believe they have become entitled.

    • MORRIGAN, you may want to proof read before hitting post button. Your opinion is unsubstantiated nonsense.

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