Bill to close Hilcorp loophole faces another key Senate committee vote
An executive of Houston billionaire Jeff Hildebrand’s company, Hilcorp, plans to give the same slide show to the Senate Finance Committee Tuesday morning at a 9 a.m. meeting that he presented a month ago to the Senate Resources Committee.
The topic is Senate Bill 92, which would reduce the proposed Dunleavy deficit of nearly $2 billion by $100 million or so, by closing the Hilcorp loophole.
Missing from the slide show is the most important fact about the bill, a measure that Hilcorp Alaska Senior Vice President Luke Saugier claims is unfair to Hilcorp.
The bill would simply apply the same corporate income tax system to Hildebrand’s company that ExxonMobil and ConocoPhillips have long paid to the state.
Hildebrand, with a net worth estimated by Forbes at $7.6 billion, is executive chairman of Hilcorp. He is also a prominent polo player who has his own team. Hildebrand’s team, Tonkawa, won the World Polo League Triple Crown of Polo last month in Florida.
The Hilcorp testimony doesn’t mention the tax-advantaged status of the company owner, whose wife, Mindy Hildebrand, has been nominated by President Trump to be ambassador to Costa Rica.
The bill would close the Hilcorp loophole that Gov. Mike Dunleavy and the Alaska Legislature failed to deal with when BP sold out to Hilcorp five years ago.
Some Republicans and nearly all of the Senate Democrats support closing the Hilcorp loophole, though it may stall because Democrat Matt Claman says his constituents don’t want higher oil taxes.
As I’ve written here before, that is not a good excuse to avoid the easiest oil tax vote in the history of oil tax votes. The situation is only going to get worse. And this is just one of many tax changes the state has to face.
Hilcorp claims the bill would not level the playing field, but it would “tilt the playing field” against Hilcorp by forcing it to pay a tax the other North Slope companies have always paid.
“To single Hilcorp out and treat us differently than the more than 55,000 other LLCs and S corps in Alaska seems deeply unfair,” Hilcorp Alaska Senior Vice President Luke Saugier protested to the Senate Resources Committee Wednesday.
“The State of Alaska under three different governors was fully aware of our structure when it approved each one of our transactions. However, now, after Hilcorp has invested billions of dollars and dramatically increased production on the Slope and in the Cook Inlet, we are being unfairly targeted,” he claimed.
It is not “deeply unfair” because the tax in question is an income tax paid only by oil companies. It is deeply dishonest of Hilcorp to claim it is being unfairly targeted.
In an earlier resources hearing, Sen. Bill Wielechowski asked if Hilcorp had modeled how much it would have to pay under the bill to close the loophole.
Saugier said the company doesn’t know and is unable to figure that out.
Asked by Wielechowski what the internal rate of return at Prudhoe Bay, Milne Point and Cook Inlet, Saugier said that is secret. He also refused to say if the return was higher or lower than 20 percent or if the bill would reduce the internal rate of return below 20 percent. He said he would not disclose that information even if he had it.
Wielechowski said he had a hard time understanding Hilcorp’s position in that Saugier said passage of the bill would force Hilcorp to scale back operations in Alaska, yet the company would not say how much the bill would cost in taxes and whether it would reduce the rate of return below 20 percent.
Wielechowski said there is state modeling that said the tax would cost about 40 cents a barrel when oil is selling for $68 a barrel.
“We have no evidence at all showing that this will impact the investment or production,” said Wielechowski.
The Dunleavy administration made a similar argument four years ago when on Aug. 5, 2021 and again on Aug. 10, 2021, Revenue Commissioner Lucinda Mahoney testified that Dunleavy would support ending the Hilcorp loophole, if the Legislature took the lead and adopted the change.
Former Gov. Frank Murkowski supports the bill, which he says is to correct a problem in state law.
“Hilcorp replaced BP when it purchased its Alaska assets in 2020. Hilcorp is an S corporation whereas the other primary producers are C corporations, and as such the latter pay corporate income taxes. This flaw must be corrected. Hilcorp should pay its fair share,” he said.
“I would encourage the legislature and the governor to address this inequity as quickly as possible,” Murkowski wrote.
Some legislators are spreading false information about the loophole and Hilcorp’s taxes. For instance, Sen. Shelley Hughes claims that Hilcorp is paying $1 billion a year in total state and local taxes. That is not true.
Hilcorp’s own presentation asserts that the company has paid $5.6 billion to the state since 2012. But that number includes more than state and local taxes.
It includes billions of payments to the state for royalty oil, which is the one-eighth share of oil production owned by the state. The money that Hilcorp transfers to the state for royalty oil does not belong to Hilcorp.
Oil and gas royalty payments in the next fiscal year—most of it from Hilcorp, ExxonMobil and ConocoPhillips—are expected to be about $888 million, while the oil and gas production tax is expected to bring in about $441 million from the major companies.
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