Posted on 01/05/2008 10:02:51 PM PST by bruinbirdman
Oil hit $100 a barrel last week, but scandal and corruption still stalk the industry, reports Iain Dey
Doug Suttles, a senior executive at BP, had more than his fair share of bad news over Christmas. While most of the western world was eating turkey, the lawmakers in the area he runs for the British oil giant decided to throw their weight about.
The authorities on Suttles' turf decided to press ahead with a big rise in tax on oil companies. On Boxing Day, they upheld a decision to withdraw exploration licences awarded to BP and other large oil producers. Then last week, BP agreed to cough up £190m in back taxes.
As the world gets used to the idea of oil at $100 a barrel, every region with oil is getting a little more greedy. Suttles' tale is becoming familiar for oil executives the world over. But Suttles does not run BP's operations in outposts such as Kazakhstan or Venezuela. He is BP's head of exploration in Alaska, the Arctic state of the good old US of A.
Under a cloud of bribery and corruption scandals, Alaska is hitting back against the oil industry. Even the Republicans who now run the state are in revolt at the favourable treatment the oil industry has enjoyed from Alaska over the years. For many of the 670,000 people who live there, resentment against the industry has been growing for years, but it reached new levels of intensity after BP's oil spill at Prudhoe Bay in 2006.
Now both BP and Exxon Mobil are threatening to reduce their investment in the area. Such threats are standard practice in the oil industry. But with an oilman sitting in the White House this is not the type of issue the oil majors expect to encounter on American soil.
"After three tax increases in three years," a recent report from Wood Mackenzie, the oil industry's most respected analysts, stated, "would-be players may now question the frigidity of Alaska's investment climate, rather than that of its Arctic tundra."
Alaska is huge. Without the oil industry, it would not amount to much. Although its oil production is dwindling, roughly four dollars in every five collected by the state comes directly from royalties, taxes and fees levied on the oil industry.
Alaska charges no additional state income tax. It is also the only state in the union that does not charge a sales tax. The state's huge oil wealth has accrued a $40bn (£20.25bn) savings account that pays annual dividends to residents.
Living in the frozen north is not all bad. Nonetheless, a whiff of scandal has turned the mood sour. "Political corruption is Alaska's story of the year," said the Anchorage Daily News in its review of 2007.
Last month, the former speaker of the Alaskan state legislature was sentenced to six years in prison for his role in a corruption scandal. Pete Kott was convicted of bribery, conspiracy and extortion for his role in advocating a new oil industry tax of just 20 per cent. The court heard in Kott's case that the oil industry had been keen to secure the rate before the construction of new natural gas pipeline from Alaska's northern coast.
Kott's conviction is just part of a huge FBI investigation into Alaska's political establishment. Although the investigation covers everything from fisheries policies to the building of private prisons, the oil industry's leverage over Alaskan officials has been a persistent theme.
Veco, an Alaskan oil services company, is at the heart of the scandal. The company's former chief executive, Bill Allen, and Rick Smith, its former vice-president, have pleaded guilty to bribery and conspiracy and are awaiting sentencing. It was Veco that bribed Kott into pushing for lower oil taxes. Allen and Smith have also confessed to bribing other officials. The judge who heard Kott's case believed Veco could have been a major beneficiary from the building of the new pipeline.
Details of the case have seemed too absurd to be true. One of the politicians implicated received bribes hidden inside Easter eggs supposedly for his daughter's treasure hunt, according to court testimony. And conversations recorded by the FBI with hidden cameras have been blasted across local news channels all year.
Alaska is not amused. Its response to the corruption inquiry has been led by its new state governor, Sarah Palin, a Republican hell-bent on reform.
Palin called a special hearing of the state legislature in the autumn to discuss oil taxation. The end result was a jump in tax to 25 per cent, from the current level of 22.5 per cent - a rather different outcome than the shamed Veco executives had been pushing for.
Palin also instituted a new law governing the construction of the infamous pipeline, intended to ensure that it is built for the benefit of Alaska's oil and gas industry as a whole, not just a handful of fields. That caused particular ructions with the industry, partly because Conoco Phillips, BP and Exxon had already got a considerable way down the track with the previous governor on negotiating a deal. Conoco has subsequently submitted its own plan for a pipeline that does not meet the criteria of Palin's act - which has further ruffled Alaskan feathers.
Meanwhile, a court has upheld an earlier ruling by the state to withdraw licences held by BP, Exxon and others to develop the Point Thomson field. Located 50 miles east of Prudhoe Bay, the field is estimated to hold 300m barrels of oil and 8 trillion cubic feet of natural gas, making it one of the largest undeveloped fields in the world. It is also one of the key reasons behind the construction of the proposed pipeline, which would feed gas through Canada to the Chicago area.
The court agreed that the companies had taken too long to develop the field, having held the licences since the 1970s. The companies said in court filings that they spent more than $800m on developing the field, and are still in negotiations with the Alaskan authorities about finding a way back in to the development. Meanwhile, BP has agreed to settle its tax dispute, which had been rumbling for several years.
While the tension between Alaska and the oil companies over business matters mounts, the oil producers continue to create problems for themselves with their handling of environmental issues. ExxonMobil has been viewed very dimly by Alaska for continuing to contest the $2.5bn in damages it was ordered to pay the victims of the 1989 Exxon Valdez oil spill. It has been under pressure from business lobby groups to continue contesting the ruling, which set some awkward precedents on corporate liabilities.
BP's handling of the Prudhoe Bay spill in 2006 has also turned the public against the company. BP had to shut half of the field afterwards because of "severe corrosion" of its pipelines. It then attempted to claw back $11m in tax breaks to cover the costs of replacing them. BP is still under investigation over the leak, which Alaska blames on poor maintenance.
As for Governor Palin and the state, they seem to be making new friends. Sinopec, one of China's state oil companies, has emerged as one of the contenders in the bidding for the pipeline. If Sinopec lands the deal, it will be one of the most significant symbols of China's rising power in the global economy. So long as the frosty relations persist between big oil and Alaska, that may not be as unlikely as it seems.
Ping
As a resident of Alaska, what is your take on this?
BP talks big about how safety conscious and environmentally friendly they are. And that’s about all it is - big talk. All they care about is their bottom line. The rest is window dressing. Basically, BP execs are highly polished liars and thieves.
Their deal in Alaska is one of the sweetest they have in the whole world. When I worked for them their operations in Columbia cost them an extra $2.50/barrel just for security from the FARC. Last time I checked no one had blown up any of their Alaska pipelines (although they do a pretty good job of allowing them to leak crude all over the place).
The state of Alaska has every right to get a reasonable tax rate out of the oil companies because once the oil is gone the oil companies will be gone too. In spite of all of their big promises they will leave a mess in their wake.
I didn’t say that BP was a saint. Does anyone think that a Chinese state-owned company will be any better than BP?
I have an uncle who worked for Amoco and they had some engineers kinapped by FARC.
kinapped = kidnapped.
The article has it points, mostly off base. Oil *is* the lifeblood of Alaska. Taxes are *sorta* low - but the total of all taxes paid by the oil patch (State, local, FedGov) adds up to a tad over 71% - Hugo nationalized the oil in his little slice of Socialist heaven before he got to 71%.
Govt at all levels makes more money off of oil than the oil companies.
Are oil producing regions getting ‘greedy’ - I guess that is on how you define greedy. Jobs have been lost locally. Partly due to oil co cutbacks and to some extent due to lawsuits filed by Greenies against ALL resource extraction activity. Both parties are unpopular right now.
Sara, the Governor-ette - is no hard core Pubbie.
She has-
Raised taxes
Grown Govt
Made special deals/giveaways to her friends
Increased social / welfare giveaways and generally acted like a classic Dem.
As far s environmentally friendly - I have been to Russia to work oil spills. Massive, seen from space, oil spills. Alaska has a very good record in this and will likely to continue to enjoy the clean record. Check your local newspaper, spill of petro products are almost a daily even in the L48.
The huge fine levied by the courts for the Exxon Valdez was run thru the courts several times, as you would expect - any business would do that.
A point not made was at the time of the spill, the Alaska economy was a basket case, the billions poured into the State for the clean up effort may have saved what was left. I know many folks who think just that.
Bottom line - just as Las Vegas has the gaming industry, AZ has mining, Alaska has a bit of commercial fishing, the oil patch and maybe we will be allowed to expand mining activity.
As for the political corruption, ya - we got that in spades. Just like some other States - its just that our pols sell out for so much less.
Do you call 25% taxes reasonable? If you ask me it is highway robbery and this is in addition to all the other taxes the companies pay, which by the way is the highest taxed industry in the country.
If I was BP I would severely cut back on production and employees. If it was not for the oil companies Alaska would still be living in igloos and riding horses to work.
As to the Chicoms getting the deal, I would hope Washington would nix that deal for national security reasons.
Why can’t we just drill, dammit? Since when is Congress required to drill for oil?
You sound like me, talking about BP. My husband was the environmental advisor for ARCO Marine, in the eighties. He tried to convince BP and EXXON that they needed to be better prepared for a human caused spill because statistics proved that they were way over due. The BP exec (BP runs everything in Alaska) told him that they were not going to spend one more penney until the gov’t forced them to because they had already spent too much in the North Sea. Then the man put a newspaper in front of his face while my husband finished speakiing.
My husband ran a spill drill to prove his point, using a scenario that almost exactly simulated the actual Valdez spill, and still got no response from BP or EXXON.
After the spill, BP threatened to destroy my husband’s professional reputation and make sure that he never worked in the industry again if he testified against Alyeska.
It’s a scare tactic. There is no way, no way, us Alaskans would ever allow commies to have any access to our oil like that. It still sucks that a Canadien company recieved the approval. Where is a decent American company?
Ya
Folks like to rant about oil prices, but overlook the cost of the FedGov and local vigorish.....everyone is hooked on the ‘vig’.
The oil compaines could do a better job, and the big, gay (and now former) head of BP realling screwed the puppy...
Must be an old article. Sinopec's bid has already been rejected by the Palin administration.
The article at the source is dated 6 January 2008.
Your tagline caused me to look at your profile page. Thank you for your service. Can you decribe your visit to Iwo Jima?
This past week Sarah Palin announced that the contract had been awarded to a Canadian pipeline company.
Most Alaskans have had enough of BP.
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