Rig’s woes benefit city, borough

BY MICHAEL ARMSTRONG

STAFF WRITER

Although Buccaneer Oil had intended last fall to have moved the jack-up rig Endeavour-Spirit of Independence to oil and gas exploration sites in Cook Inlet, that the rig remained at the Homer Deep Water Dock as of Jan. 1 could mean a tidy tax payment to the city of Homer, Kenai Peninsula Borough and the South Peninsula Hospital Service Area. The borough collects tax payments on behalf of cities and service areas.

At 2012 mill rates based on the $68.5 million purchase price of the Endeavour, those entities could receive this amount:

• $308,250, city of Homer, 4.5 mills;

• $308,250, Kenai Peninsula Borough, 4.5 mills; and

• $157,550, South Peninsula Hospital Service Area, 2.3 mills.

The state of Alaska also will collect taxes under the state’s oil and gas exploration, production and transportation property tax laws — something it would have done anyway as long as the rig remained in state waters. The state levies a tax of 20 mills and assesses the value of oil and gas property, but payments to the borough, cities and service areas can be applied as a credit on the state’s tax bill. Applying the above scenario, the state would receive $525,950. The exact assessment is to be determined by the state and the mill rate for 2013 set by the borough and Homer. Buccaneer would have paid a maximum 20 mill tax levy even if the Endeavour had been at its state oil and gas exploration sites — just not some of it to Homer, the borough and the SPH service area.

Because the state assesses the Endeavour under its own rules, it is not assessed under the borough and city flat-tax rate for watercraft, and the borough and city have to follow the state’s assessment on the full value of the rig. 

In December, Buccaneer received an Alaska Department of Natural Resources land-use permit to put the Endeavour at the Cosmopolitan oil and gas lease site off Anchor Point. Last month, Buccaneer also separated from Archer Drilling, its subcontractor through Kenai Offshore Ventures to repair, upgrade and operate the Endeavour. Archer filed a lawsuit in Texas seeking $6 million Archer alleges Buccaneer owes it.

Spartan Drilling is taking over drilling operations on the Endeavour. While that changeover is going on, the Endeavour remains at the Homer Deep Water Dock. Jay Morakis of JMR Worldwide, Buccaneer’s public relations representative, said Spartan crews are on site reviewing work done in preparation for a U.S. Coast Guard inspection. Once the Endeavour gets Coast Guard clearance, it can move to the Cosmo site. 

“Once all the work is done, they will pick up and go,” Morakis said.

Neither Morakis or Homer Harbormaster Bryan Hawkins wanted to predict when the Endeavour would leave.

That delay means that under Kenai Peninsula Borough tax rules, since the Endeavour is in Homer as of the new year, it’s a taxable property in the city and borough.

Homer Finance Manager Regina Mauras said in discussions with the borough assessor’s office, it’s her understanding that the Endeavour pays city property taxes even if it’s not here all year.

The state assesses the value of oil property such as the Endeavour, said Jim Greeley, state petroleum property assessor for the Alaska Department of Revenue. When it publishes the oil and gas property tax rolls on March 1, it notifies municipalities of that assessment. Oil companies can appeal the assessment to the state. Greeley said he can’t determine if the Endeavour would be taxable or what its assessment would be until Buccaneer files its property report. To be taxable as oil and gas property, the rig would have to be in the state on Jan. 1 and used in the state for exploration or production of oil and gas.

“You have to walk through all the steps and the statute and supporting regulations,” Greeley said in determining if a property is taxable.

Furie Oil’s Spartan 151 jack-up rig, moored last winter in English Bay near Port Graham, was on the oil and gas property tax roll last year, Greeley said.

Borough tax assessor Tom Anderson said he anticipates that the Endeavour will be on the state oil and gas property tax roll.

“The nature of the rig is for exploration,” Anderson said. “It’s a drill rig. That means it’s state assessed.”

Once the state assessment is done, Buccaneer will get tax bills from the state and borough. Buccaneer will pay the borough its bill, and then show receipt of that payment as a deduction on the state’s bill.

Michael Armstrong can be reached at michael.armstrong@homernews.com.

 

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