Stranded Shell drill vessel won’t face state tax

KODIAK, Alaska — A stranded Royal Dutch Shell PLC drilling barge will not be subject to an Alaska state property tax obligation, according to revenue officials.

Jim Greeley, the Alaska Department of Revenue oil and gas tax assessor, said that state policy for more than three decades has been to not tax drilling equipment that operates outside state waters. That includes the Kulluk, which drilled in the Beaufort Sea last year beyond the state’s 3-mile jurisdiction.

“Because this vessel is dedicated for those activities outside of the state in federal (continental shelf) waters, it falls outside (the law),” Greeley told the Kodiak Daily Mirror.

The property tax issue came up as drilling critics questioned why Shell moved the barge in late December, when the Gulf of Alaska is notoriously rough. They suggested, and Shell denied, that the company was attempting to dodge the 2 percent property tax, which could have exceeded several million dollars.

Shell has said consistently that the Kulluk was being towed to the Pacific Northwest for maintenance and upgrades.

The vessel left Dutch Harbor in the Aleutian Islands and ran into trouble in heavy seas when tow lines failed. The Kulluk ran aground Dec. 31 off remote Sitkalidak Island. Salvors refloated the barge Jan. 6 and moved it to shelter in a Kodiak Island bay, where responders continue to plan for its next move.

The Kulluk spent weeks in Dutch Harbor but is affected by a legal opinion issued by former Attorney General Avrum Gross in 1977, the year oil first flowed through the trans-Alaska pipeline. Gross addressed the question of whether the state could tax property used to drill for oil more than three miles offshore. Oil companies objected to taxes on support vessels, and Gross decided the policy also applied to drill ships in federal waters.

“It is our opinion that property used or committed by contract for use solely in OCS (outer continental shelf) exploration and development in federal waters off Alaska cannot be taxed,” he wrote.

State oil and gas attorney Martin Schultz said the policy covers the Kulluk.

“It’s a pretty straightforward interpretation as it applies to the Shell Kulluk,” Schultz said. “That particular definition has not changed since this attorney general’s opinion was issued.”

The Kulluk is a 266-foot diameter barge with a 160-foot derrick in its center. It was designed for extended drilling in Arctic waters and has an ice-reinforced, funnel-shape hull. The conical shape is designed to deflect moving ice downward and break it into small pieces.