Court dismisses Alaska's tax claim against BP

Tue Dec 14, 2010 5:03pm EST

Related Topics

* Judge rules no oil tax due when no production

* BP says pleased with ruling

* State still claiming lost oil royalties

By Yereth Rosen

ANCHORAGE, Alaska, Dec 14 (Reuters) - An Alaska judge has dismissed the state's claim that BP owes several hundreds of millions of dollars in tax revenues the state claims it lost when the Prudhoe Bay oil field was partially shut down in 2006 because of a BP oil spill.

The state's claims that it deserved compensation for lost taxes are not supported or defined in law as recoverable economic damages, State Superior Court Judge Peter Michalski said in an order issued Friday but only widely noticed on Tuesday.

The ruling resolves most damage claims made by the state in its 2009 lawsuit against BP for alleged state losses from the 2006 Prudhoe Bay pipeline spills and partial field shutdown. The entire lawsuit sought about $1 billion in civil damages, state officials said at the time the action was filed.

Additionally, Michalski said, oil taxes can be collected only when there is production.

"Taxes become due upon the occurrence of a taxable event. In order to sustain a claim for lost tax damages, it is necessary for the state to allege that a taxable event occurred. Here, there has been no taxable event, and therefore (BP) cannot owe taxes," he said.

The vast majority of the alleged damages were for tax and royalty revenues the state claimed were foregone when BP temporarily shut down half of Prudhoe Bay production. Revenue losses due to Prudhoe Bay problems stretched over out for two years, the state claimed in its original complaint.

The state is also seeking payment of penalties and fines for what it claims were breaches of safety and spill-prevention laws.

Spokesmen for BP Exploration Alaska Inc -- the oil giant's unit in the state -- and for the state gave only brief comments on Tuesday in response to Michalski's decision.

"We are pleased with the ruling," BP spokesman Steve Rinehart said in an email.

"We're reviewing the decision, considering our options," Bill McAllister, spokesman for the Alaska Department of Law, said in an email.

BP attorneys have argued that the state's claims for lost tax and royalty revenues are baseless in part because production was simply deferred, and the oil in the reservoir was not lost.

Still to be resolved are the state's claims for lost oil royalties, spill fines and other damages. A 2012 trial date has been set for the case.

The state lawsuit stems from the 212,252-gallon oil spill that flowed from a corroded Prudhoe Bay transit pipeline -- the largest North Slope oil spill on record -- and a subsequent corrosion-caused spill that triggered the field closure and other pipeline problems discovered in 2006.

The federal government also sued BP in 2009, seeking millions of dollars in fines for alleged environmental and pipeline-safety violations. The federal lawsuit does not seek compensation for alleged lost oil revenues.

According to a joint motion filed by BP and the U.S. Justice Department in federal court two months ago, the company and the federal government have "diligently continued settlement discussions," but those discussions are complex and "have taken longer than the parties first anticipated."

(Editing by Bill Rigby and David Gregorio)

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