Federal tax cut boosts BP’s Alaska bottom line by $500M

  • BP reported results for Alaska on March 29 that were boosted by $500 million thanks to the accounting difference on deferred taxes after the corporate tax rate was cut from 35 percent to 21 percent this past December. (Photo/File/AJOC)

BP netted $830 million from its North Slope operations in 2017 but the company’s Alaska leaders contend the net income figure shrinks to $118 million when all of the work it does in the state is factored in against a backdrop of $543 million in taxes and royalties paid to the State of Alaska.

Most of the $830 million in upstream Alaska profits reported March 29 — on the back of $3.2 billion in operating revenue — is due to a roughly $500 million federal corporate tax accounting benefit stemming from the tax reform Congress passed in December.

A major component of the tax overhaul was a cut of the federal corporate tax rate from 35 percent to 21 percent, which many companies have been able to apply to deferred tax obligations.

BP Alaska held a deferred tax liability of nearly $1.3 billion in 2016; that liability fell to $838 million in 2017, according to the report.

Companywide, BP made $3.4 billion in 2017.

BP Alaska Controller David Knapp said the $543 million is the state’s “total government take” including royalty oil, property, income and production taxes.

The company similarly paid $464 million to the state in 2016 when it lost $358 million in Alaska overall, with operating expenses combined with low prices more than erasing the $85 million North Slope upstream profit, according to BP Alaska President Janet Weiss.

“On the financial front, I am very proud of the progress that BP Alaska, and indeed the entire Alaska industry, has made in adapting to the lower for longer oil price environment,” she said.

BP operates the large, iconic Prudhoe Bay oil field and has interests in the producing Milne Point, Kuparuk River and Point Thomson units on the North Slope as well.

The North Slope profits are outlined in BP’s 2017 annual report, which is the only financial document the London-based company is required to break out its upstream Alaska business segment on what’s called the “20-F” form.

The midstream costs of transportation through the Trans-Alaska Pipeline System and marine tankers are not required to be reported separately, nor was BP required to report its net income $118 million for the Alaska segment of its business, but Knapp said the company’s Alaska leaders provided the in-state tax and royalty figure of $543 million because of a commitment to transparency.

BP’s annual report lists an $18 million tax benefit for Alaska under the Production and Similar Taxes line item, but Knapp said that is due to noncash provision adjustments and changes to internal estimates because of future tax liabilities.

BP owns 48.4 percent of the Trans-Alaska Pipeline System, the largest single share of the oil transport network. The company also has four oil tankers dedicated to its Alaska operations.

However, those costs of getting the oil to market are deductible from the state’s production tax even when it is calculated as a 4 percent gross tax at lower prices — as has been the case for several years.

In 2017 North Slope operators deducted an average of $9.70 per barrel in oil transportation costs from the wellhead value of the oil before calculating the production tax.

According to the state Revenue Department, the collective average “break even” price for producing a barrel of North Slope oil dropped from $43 per barrel in 2015 shortly after prices fell from the $100 per barrel-plus plateau to about $27 per barrel in 2017. The primary driver behind the cost per barrel decline is a significant reduction in capital expenditures by operators that have drastically cut back on non-essential spending.

Lower production costs then translate into growing profitability.

The improved yearly financials are also due to stronger oil prices, which averaged $54 per barrel in 2017 compared to $43 per barrel in 2016. The company also had no production decline for three years at Prudhoe Bay with a daily average of about 280,000 barrels.

“We also had a positive cash flow for the year at about $619 million following two straight years of losses,” Weiss said in a release accompanying the annual report.

BP is also spending money to support the state-owned Alaska Gasline Development Corp. in developing the $43 billion Alaska LNG Project, according to Weiss, though company officials declined to disclose how much BP has spent on Alaska LNG since the state took over the project in January 2017. A cooperative agreement with AGDC for the company’s assistance in 2017 has been extended through June 30 of this year.

Elwood Brehmer can be reached at [email protected].

04/04/2018 - 11:13am