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Decreasing production means lower industry tax assessments

Posted: Friday, June 04, 2004

Taxes on Cook Inlet oil and gas facilities provide much-needed revenue to state and municipal governments, but each has specific purview over different parts of that infrastructure.

The state taxes production, exploration and pipeline facilities and provides a portion of that revenue to the borough. Its jurisdiction ends where pipelines meet on-shore refineries. This year, state assessments on oil-patch facilities were cut for two reasons, said Randall Hoffbeck, a state petroleum property assessor.

First, Forest Oil's Cook Inlet oil exploration effort has proved less successful than anticipated. Since production began in January, the company is delivering only a tenth of the 20,000 barrels a day it had expected, which has affected the market value of its property, Hoffbeck said.

The other reason is simply that "the Cook Inlet oil regime is old," he said. Reserves are being depleted and values are coming down.

"Nothing is reversing that trend at this time," he said.

Recent exploration and development of inlet natural gas reserves require far less in terms of capital investment, and therefore, property values are smaller. Gas development can't replace what's being lost in the oil field, Hoffbeck said.

"Gas finds have put it on a glide path rather than a crash path," he said.

As for the infrastructure taxed by the borough, the fundamental dynamics are the same. When resources are less available, property values fall, because those values are largely determined by answering one simple question. What would someone pay for the infrastructure assets?

To figure that out, the borough has historically turned to experts. For instance, since 2002, an Anchorage firm, D.A. Platt & Associates, has helped assess on-shore facilities, including the ConocoPhillips plant, the Agrium fertilizer-ammonia plant, the Tesoro refinery and Tesoro's products pipeline to Anchorage. The borough itself assesses BP's gas-to-liquids plant. Generally speaking, the pertinent information gets plugged into a formula designed to generate an assessed value. But it is not as simple as determining the value of a house in a subdivision based on surrounding property values.

"I don't want to say it's subjective," Holt said, "because you have to look at a lot of varying factors costs of building, obsolescence and the like."



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