Hilcorp threatens to cut Alaska investment if state closes the $100 million Hilcorp loophole or takes other steps to raise taxes
Texas billionaire Jeff Hildebrand, who has a net worth of $9 billion or $10 billion, wants the Hilcorp loophole in Alaska tax law to remain in place, a provision that costs the state about $100 million a year.
If the state closes the loophole, Hildebrand’s “privately owned family business” claims it will cut Alaska spending and spend money in other states.
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 all so-called “C” corporations.
Going back to 2012, when Hilcorp first arrived in Alaska, the state never updated its tax laws to apply the oil income tax to “S” corporations. The state’s annual loss became far greater in 2020 when Hilcorp bought BP’s Alaska operations and became the major operator in the state.
BP had always paid the tax, along with ConocoPhillips, ExxonMobil and others.
Hildebrand’s company is the largest privately owned oil and gas company in the United States and nearly 60 percent of its operations are now in Alaska. It operates in nine other states.
Luke Saugier, vice president for Hilcorp Alaska, said if the state enacts one of two tax bills, SB 114 and SB 122, or the individual pieces of those bills, which include the income tax provision, “Hilcorp would be forced to scale back in Alaska, especially in the Cook Inlet where the investment and operating enviroment is most challenged.”
“And because Hilcorp is the operator at Prudhoe Bay, even a narrowly targeted tax on Hilcorp would impact overall investment in Alaska’s largest oil field,” said Saugier, who said he has lived in Alaska “seven of the last 10 years.” He testified to the Senate Finance Committee Friday.
Hilcorp uses the same LLC structure every place it operates. The boom in oil prices has helped push Hildebrand to No. 56 on the Forbes list of the 400 richest people in the U.S. He is ranked as the richest man in Houston.
“We are structured as an LLC for a variety of reasons. But most importantly it is because we are a privately owned family business. Hilcorp does not have hundreds or thousands of shareholders like a large multinational public corporation. We are a smaller, nimbler company and we have fewer resources,” said Saugier.
Because it is not public and keeps its inner workings secret, Hilcorp is “less susceptible to pressure from those targeting Alaska.” Hilcorp is increasing Alaska investments as other big companies pull back and Hilcorp is backing the Iditarod.
“While many sponsors decided to no longer support the Iditarod, Hilcorp stepped up and became one of the title sponsors to ensure the raced survived,” he said. “At a time when Hilcorp is being asked to shoulder more of the burden as it relates to Cook Inlet natural gas production and investment, Senate Bill 114 and Senate Bill 122 target Cook Inlet natural gas producers, including Hilcorp. The proposed bills would negatively impact Cook Inlet producers at a time when new and more investment is needed to bring natural gas to the market.”
“Small and nimble LLCs and S corps are the future of Cook Inlet investment,” he said. Subjecting those companies to the corporate income tax “will drive this much needed investment elsewhere,” Saugier claimed.
“There has been discussion about how Senate Bill 114 and Senate Bill 122 would level the playing field. This bill would not level the playing field. In fact, it would tilt the field against the small independent companies that state has been trying for decades to incentivize to come to Alaska.”
Even the Dunleavy administration recognized two years ago that the loophole should be closed.
“A significant majority of Alaska businesses are S corporations and to single Hilcorp out, as Senate Bill 114 and Senate Bill 122 do, will treat us differently than the more than 55,000 other S corporations in Alaska,” Saugier said.
The tax in question applies only to petroleum companies, not to the 55,000 other S corporations in Alaska. Questioned by Sen. Donny Olson, Saugier said he did not know how many of the more than 55,000 corporations are in the oil business.
Saugier echoed the claims of an Alaska Oil & Gas Association consultant that applying the petroleum income tax to Hilcorp would be breaking a deal tacitly approved by former officials.
The billionaire’s family is not getting a fair deal, according to Hilcorp.
“The state of Alaska, under three different governors, was fully aware of our structure when it approved each one of our transactions. However, now, after Hilcorp has invested billions of dollars and dramatically increased production on the Slope and in the Cook Inlet, we’re being unfairly targeted.”
“Policymakers should focus on ensuring a fair playing field and work to attract a variety of companies both large and small,” he said, adding that it is unfair when the “state threatens to change the rules after we’ve invested billions of dollars.”
He talked at length about investments in Alaska, but never once mentioned how much profit the company makes in Alaska or exactly why a tax paid by ConocoPhillips and ExxonMobil should not be paid by Hilcorp, other than citing the past failure of elected officials to address the loophole.
It was obvious in 2019 when Hilcorp announced plans to buy BP’s operations in Alaska that the state had to fix its income tax on oil companies to keep the playing field level in Alaska. It still is.
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