NetNews Usenet Archive 1992 #20/NN_1992_20.iso/spool/misc/activism/progress/6533

Text File | 1992-09-14 | 5.3 KB | 97 lines

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From: "The Tree-Ring Circus"  <[e-mail]>
Subject:  AK PIPELINE OWNERS REAPING BIG PROFIT FROM SECRET FUND
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Date: Mon, 14 Sep 1992 22:15:00 GMT
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        The following article was printed the Anchorage Daily News,
Saturday, September 5:

PIPELINE OWNERS REAPING BIG PROFIT FROM SECRET FUND
        By Richard A. Fineberg

TALKEETNA, ALASKA - Alaska's North Slope oil producers are sitting
on a big secret.  While their officials adroitly publicize staff
layoffs and warn that too much regulation will make Alaska's golden
goose stop cackling, a little-noticed accounting gimmick in the
Trans-Alaska Pipeline System (TAPS) shipping charge is pouring
hundreds of millions of dollars of hidden profits into the pockets of
the TAPS owners each year.
        That hidden income is growing.  But its dimensions are buried
in obscure legal terms and undecipherable corporate accounts.
        The industry's secret fund is called DR&R.  The initials stand
for dismantling, removal and restoration of the TAPS pipeline and
corridor.  DR&R is designed  for the day when North Slope oil stops
flowing at some point in the early part of the 21st century.  Nobody
is sure just when that will be or just what the TAPS owners will
have to do, but they are obligated to clean up the pipeline corridor
before they leave, or at least make gestures in that direction.
        The money for that job is collected in the TAPS shipping tariff
in an obscure provision of the 1985 settlement agreement between
the state of Alaska and the TAPS owners.  Under the terms of the
settlement, the pipeline owners - principally ARCO, British
Petroleum and Exxon, the major North Slope producers - were to
collect just enough money to carry out whatever was required in the
way of DR&R.  It was not supposed to be a money-making item.
        That's not the way it's working.  I just completed a study of
DR&R, and this is what I discovered.  IF DR&R actually takes place as
planned, the tax settlement collection schedule for DR&R will leave
the producers with a liberal  sum of money calculated as sufficient
to do the job, plus an estimated excess of $11.7 billion to $22.1
billion.  The pipeline may not shut down at that time and fine print
in the DR&R clause says the industry may have to do less than
estimated.  In either event, their hidden profits will be even larger.
        The huge profit from DR&R funds collected under the TAPS
agreement is entirely separate from - over and above - the profits
normally reported for North Slope operations.  It is not recognized
in tallies of Alaska production or transportation.  Although
reporting of DR&R income is buried in the complicated accounts of
the North Slope producers, the money generated by this generous
provision of the TAPS settlement agreement is real.  It flows
directly into company coffers of North Slope producing companies.
The hidden income from DR&R is one reason the return to investors
in North Slope companies typically outpaces those of other oil
companies.
        To put the enormous profit from DR&R in perspective: If  the
North Slope oil barons formed a corporation named DR&R solely to
keep the books on DR&R funds, the DR&R Corp.'s estimated after-tax
profits for 1992 would place it in the top-50 profit-makers among
the Fortune 500 for 1991.  The estimated $22 billion surplus from
DR&R collections during the life of the pipeline is enough money to
fund the entire state of Alaska education budget for approximately
30 years.
        The generous provisions of the TAPS settlement did not
require that DR&R collections be placed in an escrow account beyond
corporate reach.  The profit from TAPS DR&R collections therefore
constitutes a potential of funds for projects that could be used, if
necessary to fulfill the industry's promise of environmentally sound
development - projects such as hard-piping of the tanker-loading
facility to contain potentially hazardous emissions, making tractor-
tug vessels available to handle tanker control emergencies,
improvements of the ballast water treatment plant and double-
hulling of tankers required by the Oil Pollution Act of 1990.
        State officials responsible for resource management have
never reckoned the size of the DR&R windfall.  They act as if it
doesn't exist.
        One day the oil barons will unfurl their golden parachute.  As
Alaskans struggle to deal with dwindling revenue from its North
Slope oil leases, the North Slope lease-holders, cushioned by their
secret fund, will drift softly down to earth and walk away with
bulging wallets.  In light of this little-discussed but immense
source of hidden profits from the TAPS tariff, it is difficult to take
seriously the repeated claims of Alyeska officials that proposed
environmental protection measures might cause an early shutdown
of the TAPS line.

        Richard Fineberg of Talkeetna is a free-lance writer and
consultant who reports frequently on North Slope oil developments.