Contrary to oil industry claims, closing the $100 million Hilcorp loophole is not 'reneging' on a deal
The most absurd claim by the Alaska Oil & Gas Association about SB 114 is that closing the $100 million Hilcorp loophole would be reneging on a deal that Alaskans made with Hilcorp after it purchased BP assets in Alaska.
Alaska Oil & Gas Association consultant Rich Ruggiero made that assertion Monday to the Senate Finance Committee.
“Many agencies in this state knew of their tax filing status” when Hilcorp bought out BP, Ruggiero said, and did nothing about it.
“Now you’re just two years later, you may not feel this is reneging on a deal. You may feel this is leveling the playing field. But as an Outsider looking in, the state just reneged on a deal. They had their chance two years ago and they said nothing. They approved a deal with that included.”
Nonsense.
At times like this the motto of Houston billionaire Jeff Hildebrand, the owner of Hilcorp, is one that Alaskans should focus on: “Control your own destiny or someone else will.”
This is about Alaskans controlling the state’s destiny.
The need to change Alaska law so that Hilcorp pays the same corporate income tax as the other oil giants in Alaska was obvious years before the deal with BP was announced.
State law requires oil and gas companies to pay a petroleum income tax, but it was written at a time when all major companies were so-called “C” corporations. Hilcorp is an “S” corporation and the state law has not been updated since its BP purchase.
That the Dunleavy administration failed to propose legislation and the Legislature failed to muster the political might to approve measures in 2020, 2021 or 2022 to fix the loophole does not mean that Alaskans promised Hilcorp to keep the company free of an income tax long paid by Exxon, ConocoPhillips and others.
Hildebrand, who is worth $9.1 billion, according to Bloomberg, or $10.2 billion, according to Forbes, and everyone at his company knew that state leaders might wake up some day and require Hilcorp to pay the petroleum income tax.
Hildebrand didn’t build the largest privately owned oil and gas company in the United States by being naive. Former Gov. Steve Cowper wrote me years ago that he has talked to many oil and gas leaders who have worked with Hildebrand in Texas. “I think he is the smartest guy in the industry,” Cowper said.
Smartest guy or not, Hildebrand knows that elected officials have the right to set policies that make sense for Alaskans.
In testifying for the oil and gas industry this week, Ruggiero said that the Hilcorp loophole is not a loophole at all and nothing should be done about it.
“I always cringe when I hear that word,” the AOGA consultant said.
“All Hilcorp or anybody else, even myself with my businesses, I don’t take advantage of loopholes. I take advantage of the code the way it is written. I pay the taxes based on the code the way it’s written.”
He compared state oil tax law to a mechanical watch, a complicated machine with lots of moving and interconnected pieces.
“Now, a loophole, that’s usually when the policymakers made a mistake or they didn’t cover something that now, like I said, in this integrated machine, it wasn’t clear that that was there before but it’s clear it’s there now because now you’re looking at the numbers after you altered the machine and the whole watchworks.”
He claimed that extending the tax to Hilcorp would tilt the system against Hilcorp because its Alaska operations are a larger part of its total business than the Alaska operations of Exxon and ConocoPhillips are of their businesses.
He said no one is harmed by Hilcorp not paying the tax, as he asserts that under the often-mentioned Jay Hammond idea of how to deal with oil profits, the state already has its one-third, the alleged “fair share.”
(Hammond said on occasion that he thought the state, the feds and the industry should each get one-third of the profits of Alaska oil.)
“If it’s the Hammond thing you’re already at your fair share so you’re not being harmed by them not paying that tax. But also when you level it understand that you’re you’re not leveling it, you’re actually tilting it against Hilcorp,” the AOGA consultant said.
“For Hilcorp this is a major aspect of their operation, so the apportionment’s gonna hit them much harder. So is that leveling the playing field or is that tilting it against them? And as they’re the only North Sea (North Slope) operator that’s also a major Cook Inlet operator and you’re in need of gas in Cook Inlet because you’re facing shortages here and gonna have to import. I think I would be encouraging and finding a way to look at all the goals that the state has. One of those to me would be how do I get more gas coming out of Cook Inlet so I don’t have to all of a sudden find myself an LNG importer in moving forward.”
Kara Moriarty, the president of AOGA, said that raising taxes would lead to higher costs for natural gas in Southcentral.
”The Cook Inlet natural gas is by far the lowest cost and most reliable form of energy available to Southcentral Alaskans. So Senate Bill 114, without any uncertainly, will result in higher energy costs for the majority of Alaskans living in Southcentral,” she said.
It’s premature to draw that conclusion about what might happen if the $100 million Hilcorp loophole is closed.
The state spent a fortune on Cook Inlet subsidies for oil and gas companies over the past 15 years and never demanded anything in return. This was a chronic failure by the executive branch and Legislature.
The Dunleavy administration, wasting endless energy on the dividend and culture wars, continues to fail to provide the leadership needed on energy matters. Instead, the governor produces empty pledges and task forces, such as one that he hopes will show him how to cut electric rates to 10 cents a kilowatt hour by 2030.
With Hilcorp’s tax-privileged status, we also have to wonder why the company has not done more to deal with the pending Cook Inlet natural gas shortage.
The case for closing the loophole was made succinctly by Anchorage attorney Robin Brena, who testified after the industry representatives.
“If this Legislature is not able to even modernize our corporate structure as we evolve our fields for different corporations, then it will have failed Alaskans and it will have failed to maximize its fiduciary duties to Alaskans,” said Brena. “All major corporations should be subject to paying corpoate income tax. Hilcorp shouldn’t be an exception.”
A public hearing on SB 114 is set for Thursday at 1:30 p.m. The bill would close the Hilcorp loophole, reduce oil company credits to $5 a barrel and tie those credits to capital expenditures.
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