Trans-Alaska oil pipeline could last 50 more years, judge says

The Anchorage Daily NewsJanuary 5, 2012 

Oil could flow through the trans-Alaska oil pipeline much longer than state policy leaders have assumed even under very low levels of production from North Slope fields, according to evidence presented in a court case over how to value the pipeline for property tax purposes.

In a 213-page decision issued last week, Anchorage Superior Court Judge Sharon Gleason bumped up the value of the pipeline for tax years 2007, 2008 and 2009, putting it at $9.25 billion as of 2009. The ruling comes after an earlier decision by Gleason that more than doubled the value of the pipeline as determined by a state board for the 2006 tax year.

In the recent case, the judge relied in part on evidence about how much it would cost to replace the pipeline as well as how low oil volume could fall before the pipeline would cease to be functional. A nine-week trial last fall generated thousands of pages of evidence, including internal company documents not previously made public.

Much of the judge's analysis concerned whether the pipeline can operate with far less oil running through it, a major consideration in determining its value.

Oil production has been on a dramatic decline at aging North Slope fields, from a peak of about 2 million barrels a day in 1989 to about 600,000 barrels a day now. When the volume of oil in the pipeline drops, so does the temperature of the crude, which increases the likelihood of complications like water freezing in the line, wax buildup and frost heaves.

Under state law, Gleason had to consider the estimated life of proven reserves of oil "technically, economically, and legally deliverable" into the pipeline.

Gleason concluded the trans-Alaska pipeline, sometimes called TAPS, should be able to operate for at least 50 more years, despite declining production.

"Evidence at trial persuasively demonstrated that the life of TAPS based on its proven reserves and incorporating its minimum capacity throughput limitations ... is at least until 2065," she wrote.

She put the amount of the proven reserves at more than seven billion barrels at the time of the tax years at issue and found that potentially recoverable oil is more than 30 billion barrels.

The state tax division initially assesses the value of the pipeline for tax purposes. Parties that disagree with the assessment can appeal it to the State Assessment Review Board first and then take the matter to court.

The Fairbanks North Star Borough, the North Slope Borough and the city of Valdez, which all collect property taxes on the pipeline because it passes through their boundaries, went to court arguing for a higher pipeline value and therefore higher tax payments for their communities. The companies argued for lower values.

Some of the key information presented to Gleason came from studies done for BP that examined the lowest limits of the pipeline's operational ability.

If the pipeline can run with less oil in it, that extends its life and allows BP to recalculate its proven oil reserves, a key oil company asset that must be reported to the Securities and Exchange Commission. The companies must be able to get the oil to market before they can count reserve estimates as assets.

BP is one of several companies that together own the pipeline, which is run on their behalf by Alyeska Pipeline Service Co.

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