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Press Release

State Wins Longstanding Dispute with Oil Producers Worth $500 Million

December 16, 2016

(Anchorage, AK) – The Alaska Supreme Court’s decision today in Chevron v. State upheld production taxes paid in 2005 and 2006 by Chevron, ConocoPhillips, ExxonMobil and Forest Oil. The Court’s decision ensures that the State retains approximately $500 million in taxes and interest that the companies claimed should be refunded to them.

“This is a great result for the State,” said Attorney General Lindemuth. “Not only from a fiscal point of view, but it also recognizes the expertise of Department of Revenue in interpreting tax laws.”

The producers’ lawsuit arose out of the Department of Revenue (DOR’s) decision to group several oil fields together in determining the tax rate on the oil produced from these fields. Under the tax regime at the time, called the economic limit factor or “ELF,” the production tax rate depended on the size of the oil field. Large fields were taxed more heavily and small fields taxed more lightly under the assumption that small fields required the same costly infrastructure as large fields and thus were more expensive to produce from. But if multiple fields were “economically interdependent” and shared common production facilities, the ELF statute permitted DOR to aggregate the production from multiple fields in determining their tax rate. In 2005 DOR decided to aggregate several smaller fields with the larger Prudhoe Bay field because the fields, which used the same production facilities, were highly integrated.

The oil producers sued the State, arguing that DOR could not lawfully aggregate the fields without first undertaking a rulemaking process under the Administrative Procedure Act. The Court determined that a rulemaking was not required because DOR’s decision to aggregate the fields in determining their tax rate was “a commonsense interpretation of the statute.”

If the State had lost, it may have been required to refund an estimated $500 million in taxes and interest to the oil producers.

CONTACT: Assistant Attorney General Dario Borghesan at (907) 269-5100 or dario.borghesan@alaska.gov.

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