Taxes, charitable giving and safety among concerns raised by $5.6 billion BP-Hilcorp deal

North Slope pipeline. (Photo by Joshua Stearns/Flickr Creative Commons)

On Tuesday, BP announced it had sold its Alaska oil assets to the private, Texas-based Hilcorp as part of a $5.6 billion deal.

The long-rumored deal is one of the biggest shakeups in Alaska’s oil industry in years, but the specifics of just what it will mean for Alaska is not entirely clear.

Details about Hilcorp’s plans for BP’s workforce in Alaska are unknown as are its plans for taking over operations at Prudhoe Bay. Hilcorp has a reputation of coming into older fields and upping production, and it’s doing some exploration for new oil fields, both are prospect that has many in Alaska excited—particularly when it comes to future revenue for the state.

Still, the announcement was met with some apprehension, particularly when it comes to taxes, the exit of BP and its history charitable giving, and Hilcorp’s environmental and safety track record. Here’s a rundown on those concerns:

Corporate income taxes

While a majority of the revenue oil companies pay into Alaska’s coffers comes through royalty payments and the production tax, Alaska’s oil companies also pay a corporate income tax. The state collected $66.4 million during the 2018 fiscal year, but that figure is expected to grow to nearly $200 million during the recently completed 2019 fiscal year and onward.

Where the concern arises around the Hilcorp sale is that the corporate income tax only applies to C-corporations—companies whose profits are taxed separately from their owners—and Hilcorp is an S-corporation. The profits of S-corporations are typically taxed through personal income tax but Alaska has long since repealed its income tax.

It’s an issue that former Rep. Les Gara, D-Anchorage, pointed out on Twitter after the announcement, estimating that the move from BP to Hilcorp would likely cost the state at least $30 million in annual corporate income taxes. The precise rate each company pays to the state through the corporate income tax is confidential, but the state forecasts to bring in $210 million through the petroleum corporate income tax this fiscal year.

“I’m happy Hilcorp is going to do more exploring, but it comes at a cost,” Gara said of the lost corporate income taxes in an interview with The Midnight Sun. “It’s real money and it’s not Hilcorp’s fault they don’t have to pay, it’s the state’s laws that need to be changed. That’s why I tried to change it and why I’ve been calling on folks to act.”

While in the Legislature, Gara introduced legislation that would have extended the corporate income tax to S-corporations that make more than $250,000 in profit annually.

BP’s philanthropic giving

The news of BP’s exit from Alaska sent shockwaves through the state’s nonprofit world, leaving people and groups to wonder whether Hilcorp will step into the same kind of giving and engagement that marked BP’s 60 years in Alaska.

BP is one of the state’s largest and most prolific givers, supporting causes both through cash giving and volunteer efforts. The company’s name appears on everything from the Alaska State Fair to spring cleanup days.

“I think they touch nearly every person in the nonprofit world here in one way or another,” said Nina Kemppel, the executive director of the Alaska Community Foundation, told the Anchorage Daily News.

According to the ADN report, BP gave more than $4 million last year to Alaska causes and has financially supported more than 200 organizations throughout the state. BP also owns and operates the BP Energy Center in downtown Anchorage, a meeting space where nonprofit groups can meet for free. The BP Energy center is the only Alaska asset not included in the sale.

“It will remain here for the community, as a legacy here,” said Meg Baldino, the Director of U.S. Media Affairs for BP Alaska, told the ADN. “What that looks like will be sorted out in a couple of weeks or months.”

Groups will be looking to Hilcorp to step into that role.

According to Hilcorp, the group has donated $315,000 to Alaska charities in 2018.

The company has its own internal Hilcorp Giving Program that gives new employees $2,500 to donate to charities of their choice. The company also matches up to $2,000 for each employees’ charitable contributions annually.

According to Hilcorp, the group company has given $11.5 million through that program since its inception. More than half of that money, $5.8 million, has gone to religious groups.

Environmental and safety track record

Hilcorp began operating in Alaska in 2012 when it purchased assets in Cook Inlet and expanded on to the North Slope in 2014 when it acquired two fields from BP and bought interests in two more.

In that time, Hilcorp has been lauded for squeezing extra production out of older fields but it hasn’t been without its problems. The company was fined $160,000 in 2017 for a 2015 incident where unauthorized use of nitrogen nearly killed three workers on at Hilcorp’s Milne Point Unit. Also in early 2017, the company temporarily shut down a Cook Inlet oil platform after a pipeline leaked natural gas for weeks.

In December 2018, a Hilcorp contractor was killed at the company’s Milne Point facility after he “was struck by a drilling pipe.”

Alaska Public Media touched on this its latest report on the sale, outlining the above events and getting the following comment from Hilcorp spokesman Justin Furnace:

“While we have not been incident-free, Hilcorp has focused intently on achieving high standards of safety and environmentally responsible operations throughout our Alaskan operations,” he said. “We do this through close coordination with local, state, and federal agencies that work to enhance public safety, improve emergency preparedness and protect the environment. And just as importantly, we do this through the continual building of a company culture that upholds and rewards integrity, accountability and responsibility.”

Environmental advocates also raised concerns about the sale. Here’s what one told Alaska Public Media:

“Hilcorp’s business model is to come in to old fields and to bring out the profits. And to do that, it has to cut corners with worker safety and environmental protection,” said Bob Shavelson, advocacy director at Cook Inletkeeper and a strident Hilcorp critic. “And we’ve seen that time and time again in Cook Inlet.”

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1 Comment on "Taxes, charitable giving and safety among concerns raised by $5.6 billion BP-Hilcorp deal"

  1. BRAINS! NEED BRAINS! Use the Permanent Fund to buy up the North Slope oil and gas production and let the Norwegians run it.
    Do NOT allow the sale, period—until BP has cleanup, disassembly and remediation costs from their decades of production and profits firmly in escrow! Hilcorp reminds me of Enron, came out of nowhere and will disappear with all of the money leaving a big farking mess!
    Count on that if left unsupervised. This is “Beyond Petroleum”s get-out-of-jail-free card if allowed to be consummated without serious scrutiny.

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